-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JSQZrbK4xlLRntQ1p024lgxR/7jJ02wsKsLANeesGfBGV3yiJYBy9AGzzGQS0ioA flxnAV9yf1p8MGW0pEPCxw== 0000909654-02-000604.txt : 20020930 0000909654-02-000604.hdr.sgml : 20020930 20020930150954 ACCESSION NUMBER: 0000909654-02-000604 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020925 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20020930 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST CAPITAL INC CENTRAL INDEX KEY: 0001070296 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 352056949 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-25023 FILM NUMBER: 02776402 BUSINESS ADDRESS: STREET 1: 220 FEDERAL DRIVE N W CITY: CORYDON STATE: IN ZIP: 47112 BUSINESS PHONE: 8127382198 MAIL ADDRESS: STREET 1: 220 FEDERAL DRIVE N W CITY: CORYDON STATE: IN ZIP: 47112 8-K 1 firstcapital8-k.txt 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): September 25, 2002 ------------------ FIRST CAPITAL, INC. ------------------- (Exact name of registrant as specified in its charter) Indiana 0-25023 35-2056949 ------- ------------- -------------- (State or other Jurisdiction of (Commission (IRS Employer incorporation or organization) File Number) Identification No.) 220 Federal Drive N.W., Corydon, Indiana 47112 - ---------------------------------------- --------- (Address of principal executive offices) (Zip Code) (812) 738-2198 -------------- (Registrant's telephone number, including area code) Not Applicable -------------- (Former name or former address, if changed since last report.) 2 ITEM 5. OTHER EVENTS. ------------ On September 25, 2002, First Capital, Inc. ("First Capital"), the parent company of First Harrison Bank, and Hometown Bancshares, Inc. ("Hometown Bancshares"), the parent company of Hometown National Bank, entered into an Agreement and Plan of Merger (the "Merger Agreement") pursuant to which Hometown Bancshares will merge with and into First Capital. Concurrently with the merger, Hometown National Bank will merge with and into First Harrison Bank. Under the terms of the agreement, Hometown Bancshares shareholders may elect to receive either shares of First Capital common stock or $46.50 in cash in exchange for their shares of Hometown Bancshares common stock. The elections of Hometown Bancshares' shareholders will be subject to the requirement that 50% of Hometown Bancshares' shares be exchanged for cash and 50% be exchanged for First Capital common stock. The number of shares of First Capital common stock into which each share of Hometown Bancshares will be exchanged will be based on the price of First Capital common stock over a measurement period prior to the closing, as follows: IF THE AVERAGE CLOSING PRICE OF FIRST CAPITAL COMMON STOCK DURING THE MEASUREMENT PERIOD IS: THEN HOMETOWN STOCKHOLDERS WILL RECEIVE: o $14.44 or less o a number of shares of First Capital common stock equal to $39.52 divided by the average closing price. o between $14.44 and $19.55 o 2.735 shares of First Capital common stock. o $19.55 or more o a number of shares of First Capital common stock equal to $53.47 divided by the average closing price. The transaction is expected to close in the first quarter of 2003. It is subject to certain conditions, including the approval of the shareholders of Hometown Bancshares and the receipt of regulatory approval. Each of the directors of Hometown Bancshares have agreed to vote their shares in favor of the merger. First Capital's management team and board of directors will remain intact following the merger. First Capital will maintain an advisory board consisting of all of the non-employee 2 3 directors of Hometown Bancshares for a period of at least two years to assist in the operations of the former Hometown branches. The foregoing summary of the Merger Agreement is not complete and is qualified in its entirety by reference to the complete text of such document, which is filed as Exhibit 2.1 to this Form 8-K and which is incorporated herein by reference in its entirety. A press release announcing the transaction was issued on September 26, 2002, a copy of which is filed as Exhibit 99.1 to this Form 8-K and which is incorporated herein by reference in its entirety. ITEM 7. FINANCIAL STATEMENTS AND OTHER EXHIBITS. --------------------------------------- Exhibit 2.1 Agreement and Plan of Merger dated September 25, 2002 by and between First Capital, Inc. and Hometown Bancshares, Inc. Exhibit 99.1 Press release dated September 26, 2002. 3 4 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. FIRST CAPITAL, INC. Dated: September 26, 2002 By: /s/ William W. Harrod -------------------------------------- William W. Harrod President and Chief Executive Officer 4 EX-2.1 3 firstcapitalex2-1.txt 1 EXHIBIT 2.1 ================================================================================ AGREEMENT AND PLAN OF MERGER DATED AS OF SEPTEMBER 25, 2002 BY AND BETWEEN FIRST CAPITAL, INC. AND HOMETOWN BANCSHARES, INC. ================================================================================ 2 TABLE OF CONTENTS Page No. Introductory Statement.......................................................1 ARTICLE I - DEFINITIONS......................................................1 ARTICLE II - THE MERGER......................................................8 2.1 The Merger......................................................8 2.2 Closing.........................................................8 2.3 Effective Time..................................................8 2.4 Effects of the Merger...........................................8 2.5 Effect on Outstanding Shares of Hometown Common Stock...........8 2.6 Election and Proration Procedures...............................9 2.7 Exchange Procedures............................................12 2.8 Effect on Outstanding Shares of First Capital Common Stock.....14 2.9 Directors of Surviving Corporation after Effective Time........14 2.10 Articles of Incorporation and Bylaws...........................15 2.11 [RESERVED].....................................................15 2.12 Dissenters' Rights.............................................15 2.13 Bank Merger....................................................15 2.14 Alternative Structure..........................................15 ARTICLE III - REPRESENTATIONS AND WARRANTIES................................16 3.1 Disclosure Letters.............................................16 3.2 Representations and Warranties of Hometown.....................16 3.3 Representations and Warranties of First Capital................30 ARTICLE IV - CONDUCT PENDING THE MERGER.....................................38 4.1 Forbearances by Hometown.......................................38 4.2 Forbearances by First Capital..................................41 ARTICLE V - COVENANTS.......................................................42 5.1 Acquisition Proposals..........................................42 5.2 Certain Policies and Actions of Hometown.......................43 5.3 Access and Information.........................................43 5.4 Applications; Consents.........................................44 5.5 Antitakeover Provisions........................................45 5.6 Additional Agreements..........................................45 5.7 Publicity......................................................45 5.8 Stockholder Meeting............................................45 5.9 Registration of First Capital Common Stock.....................46 5.10 Affiliate Letters..............................................47 5.11 Notification of Certain Matters................................47 i 3 5.12 Employee Benefits Matters......................................47 5.13 Indemnification................................................48 5.14 Advisory Board.................................................49 ARTICLE VI - CONDITIONS TO CONSUMMATION.....................................50 6.1 Conditions to Each Party's Obligations.........................50 6.2 Conditions to the Obligations of First Capital.................51 6.3 Conditions to the Obligations of Hometown......................52 ARTICLE VII - TERMINATION...................................................52 7.1 Termination....................................................52 7.2 Termination Fee................................................53 7.3 Effect of Termination..........................................54 ARTICLE VIII - CERTAIN OTHER MATTERS........................................54 8.1 Interpretation.................................................54 8.2 Survival.......................................................54 8.3 Waiver; Amendment..............................................55 8.4 Counterparts...................................................55 8.5 Governing Law..................................................55 8.6 Expenses.......................................................55 8.7 Notices........................................................55 8.8 Entire Agreement; etc..........................................56 8.9 Successors and Assigns; Assignment.............................56 EXHIBITS Exhibit A Form of Voting Agreement Exhibit B Plan of Bank Merger Exhibit C Form of Affiliate Letter ii 4 AGREEMENT AND PLAN OF MERGER This is an AGREEMENT AND PLAN OF MERGER, dated as of the 25th day of September, 2002 ("AGREEMENT"), by and between First Capital, Inc., an Indiana corporation ("FIRST CAPITAL"), and Hometown Bancshares, Inc., an Indiana corporation ("HOMETOWN"). INTRODUCTORY STATEMENT The Board of Directors of each of First Capital and Hometown (i) has determined that this Agreement and the business combination and related transactions contemplated hereby are advisable and in the best interests of First Capital or Hometown, as the case may be, and in the best long-term interests of the stockholders of First Capital or Hometown, as the case may be, and (ii) has determined that this Agreement and the transactions contemplated hereby are consistent with, and in furtherance of, its respective business strategies. The parties hereto intend that the Merger as defined herein shall qualify as a reorganization under the provisions of Section 368(a) of the IRC for federal income tax purposes. First Capital and Hometown each desire to make certain representations, warranties and agreements in connection with the business combination and related transactions provided for herein and to prescribe various conditions to such transactions. As a condition and inducement to First Capital's willingness to enter into this Agreement, each of the members of the Board of Directors of Hometown has entered into an agreement dated as of the date hereof in the form of Exhibit A --------- pursuant to which he (or she) will vote his (or her) shares of Hometown Common Stock in favor of this Agreement and the transactions contemplated hereby. In consideration of their mutual promises and obligations hereunder, the parties hereto adopt and make this Agreement and prescribe the terms and conditions hereof and the manner and basis of carrying it into effect, which shall be as follows: ARTICLE I DEFINITIONS For purposes of this Agreement: "ACQUISITION PROPOSAL" means with respect to a party any proposal or offer with respect to any of the following (other than the transactions contemplated hereunder): (i) any merger, consolidation, share exchange, business combination, or other similar transaction involving such party or any of its Subsidiaries; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition of 25% or more of such party's consolidated assets outside of the regular course of 1 5 business in a single transaction or series of related transactions; (iii) any tender offer or exchange offer for 25% or more of the outstanding shares of such party's capital stock or the filing of a registration statement under the Securities Act in connection therewith; or (iv) any public announcement of a proposal, plan or intention to do any of the foregoing or any agreement to engage in an any of the foregoing. "AGREEMENT" means this Agreement, as amended, modified or amended and restated from time to time in accordance with its terms. "ARTICLES OF MERGER" shall have the meaning given to that term in SECTION 2.3. "BANK MERGER" shall have the meaning given to that term in SECTION 2.13. "BHC ACT" means the Bank Holding Company Act of 1956, as amended. "CASH CONSIDERATION" shall have the meaning given to that term in SECTION 2.5(A). "CASH ELECTION" shall have the meaning given to that term in SECTION 2.6(B). "CASH ELECTION SHARES" shall have the meaning given to that term in SECTION 2.6(B). "CASH PRORATION FACTOR" shall have the meaning given to that term in SECTION 2.6(E)(II)(B). "CERTIFICATE" shall have the meaning given to that term in SECTION 2.6(C). "CLOSING" shall have the meaning given to that term in SECTION 2.2. "CLOSING DATE" shall have the meaning given to that term in SECTION 2.2. "CONTINUING EMPLOYEE" shall have the meaning given to that term in SECTION 5.12(A). "CRA" means the Community Reinvestment Act. "DISCLOSURE LETTER" shall have the meaning given to that term in SECTION 3.1. "DISSENTERS' SHARES" shall have the meaning given to that term in SECTION 2.12. "EFFECTIVE TIME" shall have the meaning given to that term in SECTION 2.3. "ELECTION DEADLINE" shall have the meaning given to that term in SECTION 2.6(C). "ELECTION FORM" shall have the meaning given to that term in SECTION 2.6(A). 2 6 "ELECTION MODIFICATION PERIOD" shall have the meaning given to that term in SECTION 2.6(C). "ENVIRONMENTAL LAW" means any federal, state or local law, statute, ordinance, rule, regulation, code, license, permit, authorization, approval, consent, order, directive, executive or administrative order, judgment, decree, injunction, or agreement with any Governmental Entity relating to (i) the protection, preservation or restoration of the environment (which includes, without limitation, air, water vapor, surface water, groundwater, drinking water supply, soil, surface land, subsurface land, plant and animal life or any other natural resource), or to human health or safety as it relates to Hazardous Materials, or (ii) the exposure to, or the use, storage, recycling, treatment, generation, transportation, processing, handling, labeling, production, release or disposal of, Hazardous Materials, in each case as amended and as now in effect. The term Environmental Law includes, without limitation, the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization Act of 1986, the Federal Water Pollution Control Act of 1972, the Federal Clean Air Act, the Federal Clean Water Act, the Federal Resource Conservation and Recovery Act of 1976, the Federal Solid Waste Disposal and the Federal Toxic Substances Control Act, the Federal Insecticide, Fungicide and Rodenticide Act, the Federal Occupational Safety and Health Act of 1970 as it relates to Hazardous Materials, the Federal Hazardous Substances Transportation Act, the Emergency Planning and Community Right-To-Know Act, the Safe Drinking Water Act, the Endangered Species Act, the National Environmental Policy Act, the Rivers and Harbors Appropriation Act or any so-called "Superfund" or "Superlien" law, each as amended and as now in effect. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "EXCHANGE AGENT" shall have the meaning given to that term in SECTION 2.6(C). "EXCHANGE RATIO" shall have the meaning given to that term in SECTION 2.5(A). "EXCLUDED SHARES" shall consist of (i) Dissenters' Shares and (ii) shares held directly or indirectly by First Capital (other than shares held in a fiduciary capacity or in satisfaction of a debt previously contracted). "FDIA" means the Federal Deposit Insurance Act, as amended. "FDIC" means the Federal Deposit Insurance Corporation. "FEDERAL RESERVE BOARD" means the Board of Governors of the Federal Reserve System. "FIRST CAPITAL" shall have the meaning given to that term in the preamble. 3 7 "FIRST CAPITAL COMMON STOCK" means the common stock, par value $.01 per share, of First Capital. "FIRST CAPITAL PRICE" means the average of the closing sales prices of First Capital Common Stock, as reported on The Nasdaq Stock Market, during the Measurement Period; provided, however, that in the event First Capital Common Stock does not trade on one or more of the trading days in the Measurement Period, any such date shall be disregarded in computing the average closing sales price and the average shall be based upon the closing sales price and number of days on which First Capital Common Stock actually traded during the Measurement Period. "FIRST CAPITAL REGULATORY FILINGS" shall have the meaning given to that term in SECTION 3.3(G)(II). "FIRST CAPITAL'S REPORTS" shall have the meaning given to that term in SECTION 3.3(G)(I). "FIRST HARRISON BANK" shall have the meaning given to that term in SECTION 2.13. "GAAP" means generally accepted accounting principles. "GOVERNMENT REGULATOR" means any federal or state governmental authority charged with the supervision or regulation of depository institutions or depository institution holding companies or engaged in the insurance of bank deposits. "GOVERNMENTAL ENTITY" means any court, administrative agency or commission or other governmental authority or instrumentality. "HAZARDOUS MATERIAL" means any substance (whether solid, liquid or gas) which is or could be detrimental to human health or safety or to the environment, currently or hereafter listed, defined, designated or classified as hazardous, toxic, radioactive or dangerous, or otherwise regulated, under any Environmental Law, whether by type or by quantity, including any substance containing any such substance as a component. Hazardous Material includes, without limitation, any toxic waste, pollutant, contaminant, hazardous substance, toxic substance, hazardous waste, special waste, industrial substance, oil or petroleum, or any derivative or by-product thereof, radon, radioactive material, asbestos, asbestos-containing material, urea formaldehyde foam insulation, lead and polychlorinated biphenyl. "HOLA" means the Home Owners' Loan Act, as amended. "HOMETOWN" shall have the meaning given to that term in the preamble. "HOMETOWN COMMON STOCK" means the common stock, no par value per share, of Hometown. 4 8 "HOMETOWN EMPLOYEE PLANS" shall have the meaning given to that term in SECTION 3.2(R)(I). "HOMETOWN NATIONAL BANK" shall have the meaning given to that term in SECTION 2.13. "HOMETOWN QUALIFIED PLAN" shall have the meaning given to that term in SECTION 3.2(R)(IV). "HOMETOWN REGULATORY FILINGS" shall have the meaning given to that term in SECTION 3.2(G). "IBCL" means the Indiana Business Corporation Law. "INDEMNIFIED PARTY" shall have the meaning given to that term in SECTION 5.13(A). "IRC" means the Internal Revenue Code of 1986, as amended. "IRS" means the Internal Revenue Service. "KNOWLEDGE" means, with respect to a party hereto, actual knowledge of the members of the Board of Directors of that party or any officer of that party with the title ranking not less than senior vice president. "LETTER OF TRANSMITTAL" shall have the meaning given to that term in SECTION 2.7(A). "LIEN" means any charge, mortgage, pledge, security interest, claim, lien or encumbrance. "LOAN" means a loan, lease, advance, credit enhancement, guarantee or other extension of credit. "LOAN PROPERTY" means any property in which the applicable party (or a subsidiary of it) holds a security interest and, where required by the context, includes the owner or operator of such property, but only with respect to such property. "MAILING DATE" shall have the meaning given to that term in SECTION 2.6(A). "MATERIAL ADVERSE EFFECT" means an effect which is material and adverse to the business, financial condition or results of operations of Hometown or First Capital, as the context may dictate, and its Subsidiaries taken as a whole; PROVIDED, HOWEVER, that any such effect resulting from any (i) changes in laws, rules or regulations or generally accepted accounting principles or regulatory accounting requirements or interpretations thereof that apply to both First Capital and Hometown, or to financial and/or depository institutions generally, (ii) changes in 5 9 economic conditions affecting financial institutions generally, including but not limited to, changes in the general level of market interest rates, (iii) actions and omissions of First Capital or Hometown taken with the prior written consent of the other in contemplation of the transactions contemplated hereby and (iv) direct effects of compliance with this Agreement on the operating performance of the parties, including expenses incurred by the parties in consummating the transactions contemplated by this Agreement, shall not be considered in determining if a Material Adverse Effect has occurred. "MAXIMUM INSURANCE AMOUNT" shall have the meaning given to that term in SECTION 5.13(C). "MEASUREMENT PERIOD" means the twenty consecutive trading days ending on the third business day prior to the Closing Date. "MERGER" shall have the meaning given to that term in SECTION 2.1. "MERGER CONSIDERATION" shall have the meaning given to that term in SECTION 2.5(A). "MIXED ELECTION" shall have the meaning given to that term in SECTION 2.6(B). "NASD" means the National Association of Securities Dealers, Inc. "NON-ELECTION" shall have the meaning given to that term in SECTION 2.6(B). "NON-ELECTION PRORATION FACTOR" shall have the meaning given to that term in SECTION 2.6(E)(II)(A). "NON-ELECTION SHARES" shall have the meaning given to that term in SECTION 2.6(B). "OTS" means the Office of Thrift Supervision. "PARTICIPATION FACILITY" means any facility in which the applicable party (or a Subsidiary of it) participates in the management (including all property held as trustee or in any other fiduciary capacity) and, where required by the context, includes the owner or operator of such property, but only with respect to such property. "PERSON" means an individual, corporation, limited liability company, partnership, association, trust, unincorporated organization or other entity. "PROXY STATEMENT-PROSPECTUS" shall have the meaning given to that term in SECTION 5.9(A). "REGISTRATION STATEMENT" shall have the meaning given to that term in SECTION 5.9(A). 6 10 "REPRESENTATIVE" shall have the meaning given to that term in SECTION 2.6(B). "SEC" means the United States Securities and Exchange Commission. "SECURITIES ACT" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "SHORTFALL NUMBER" shall have the meaning given to that term in SECTION 2.6(E)(II). "STOCK CONSIDERATION" shall have the meaning given to that term in SECTION 2.5(A). "STOCK CONVERSION NUMBER" shall have the meaning given to that term in SECTION 2.6(D). "STOCK ELECTION" shall have the meaning given to that term in SECTION 2.6(B). "STOCK ELECTION NUMBER" shall have the meaning given to that term in SECTION 2.6(B). "STOCK ELECTION SHARES" shall have the meaning given to that term in SECTION 2.6(B). "STOCK PRORATION FACTOR" shall have the meaning given to that term in SECTION 2.6(D). "STOCKHOLDER MEETING" shall have the meaning given to that term in SECTION 5.8. "SUBSIDIARY" means a corporation, partnership, joint venture or other entity in which Hometown or First Capital, as the case may be, has, directly or indirectly, an equity interest representing 50% or more of any class of the capital stock thereof or other equity interests therein. "SUPERIOR PROPOSAL" means an unsolicited, bona fide written offer made by a third party to consummate an Acquisition Proposal that (i) Hometown's Board of Directors determines in good faith, after consulting with its outside legal counsel and its financial advisor, would, if consummated, result in a transaction that is more favorable to the stockholders of Hometown than the transactions contemplated hereby, including any adjustments to the terms and conditions of such transactions proposed by First Capital in response to such Acquisition Proposal, and taking into account all legal, financial, regulatory and other aspects of the Acquisition Proposal and the entity making the Acquisition Proposal, (ii) is not conditioned on obtaining financing, and (iii) is for 100% of the outstanding shares of Hometown Common Stock. "SURVIVING CORPORATION" shall have the meaning given to that term in SECTION 2.1. "TAXES" means all income, franchise, gross receipts, real and personal property, real property transfer and gains, wage and employment taxes. 7 11 ARTICLE II THE MERGER 2.1 THE MERGER. Upon the terms and subject to the conditions set forth in this Agreement, Hometown will merge with and into First Capital ("MERGER") at the Effective Time. At the Effective Time, the separate corporate existence of Hometown shall cease. First Capital shall be the surviving corporation (hereinafter sometimes referred to in such capacity as the "SURVIVING CORPORATION") in the Merger and shall continue to be governed by the IBCL and its name and separate corporate existence, with all of its rights, privileges, immunities, powers and franchises, shall continue unaffected by the Merger. 2.2 CLOSING. The closing of the Merger (the "CLOSING") will take place in the offices of Muldoon Murphy & Faucette LLP, 5101 Wisconsin Avenue, Washington, DC at 10:00 a.m. on the date designated by First Capital within thirty days following satisfaction or waiver of the conditions to Closing set forth in Article VI (other than those conditions that by their nature are to be satisfied at the Closing), or such later date as the parties may otherwise agree (the "CLOSING DATE"). 2.3 EFFECTIVE TIME. In connection with the Closing, First Capital shall duly execute and deliver articles of merger (the "ARTICLES OF MERGER") to the Indiana Secretary of State for filing pursuant to the IBCL. The parties will make all other filings or recordings required under the IBCL. The Merger shall become effective at such time as the Articles of Merger are duly filed with the Indiana Secretary of State or at such later date or time as First Capital and Hometown agree and specify in the Articles of Merger (the date and time the Merger becomes effective being the "EFFECTIVE TIME"). 2.4 EFFECTS OF THE MERGER. The Merger will have the effects set forth in the IBCL. Without limiting the generality of the foregoing, and subject thereto, from and after the Effective Time, First Capital shall possess all of the properties, rights, privileges, powers and franchises of Hometown and be subject to all of the debts, liabilities and obligations of Hometown. 2.5 EFFECT ON OUTSTANDING SHARES OF HOMETOWN COMMON STOCK. (a) Subject to the provisions of SECTION 2.6 hereof, by virtue of the Merger, automatically and without any action on the part of the holder thereof, each share of Hometown Common Stock issued and outstanding at the Effective Time, other than Excluded Shares, shall become and be converted into, at the election of the holder as provided in and subject to the limitations set forth in this Agreement, either (i) the right to receive $46.50 in cash without interest (the "CASH CONSIDERATION") or (ii) the number of shares of First Capital Common Stock equal to the Exchange Ratio (as defined below)(the "STOCK CONSIDERATION"). The Cash Consideration and the Stock Consideration are sometimes referred to herein collectively as the "MERGER CONSIDERATION." The "EXCHANGE RATIO" shall be equal (rounded to the nearest one- thousandth) to (A) the result obtained by dividing $39.52 by the First Capital Price if the First 8 12 Capital Price is less than $14.45, (B) 2.735 if the First Capital Price is (i) $14.45 or more and (ii) less than $19.55 or (C) the result obtained by dividing $53.47 by the First Capital Price if the First Capital Price is $19.55 or more. (b) Notwithstanding any other provision of this Agreement, no fraction of a share of First Capital Common Stock and no certificates or scrip therefor will be issued in the Merger; instead, First Capital shall pay to each holder of Hometown Common Stock who would otherwise be entitled to a fraction of a share of First Capital Common Stock an amount in cash, rounded to the nearest cent, determined by multiplying such fraction by the First Capital Price. (c) If, between the date of this Agreement and the Effective Time, the outstanding shares of First Capital Common Stock shall have been changed into a different number of shares or into a different class by reason of any stock dividend, subdivision, reclassification, recapitalization, split, combination or exchange of shares, the Exchange Ratio shall be adjusted appropriately to provide the holders of Hometown Common Stock the same economic effect as contemplated by this Agreement prior to such event. (d) As of the Effective Time, each Excluded Share, other than Dissenters' Shares, shall be canceled and retired and shall cease to exist, and no exchange or payment shall be made with respect thereto. All shares of First Capital Common Stock that are held by Hometown, if any, other than shares held in a fiduciary capacity or in satisfaction of a debt previously contracted, shall be canceled and shall constitute authorized but unissued shares. In addition, no Dissenters' Shares shall be converted into shares of First Capital Common Stock pursuant to this SECTION 2.5 but instead shall be treated in accordance with the provisions set forth in SECTION 2.12 of this Agreement. 2.6 ELECTION AND PRORATION PROCEDURES. (a) An election form in such form as Hometown and First Capital shall mutually agree (an "ELECTION FORM") shall be mailed on the Mailing Date (as defined below) to each holder of record of shares of Hometown Common Stock as of a record date which shall be the same date as the record date for eligibility to vote on the Merger. The "MAILING DATE" shall be the date on which proxy materials relating to the Merger are mailed to holders of shares of Hometown Common Stock. First Capital shall make available Election Forms as may be reasonably requested by all persons who become holders of Hometown Common Stock after the record date for eligibility to vote on the Merger and prior to the Election Deadline (as defined herein), and Hometown shall provide to the Exchange Agent all information reasonably necessary for it to perform its obligations as specified herein. (b) Each Election Form shall entitle the holder of shares of Hometown Common Stock (or the beneficial owner through appropriate and customary documentation and instructions) to (i) elect to receive the Cash Consideration for all of such holder's shares (a "CASH ELECTION"), (ii) elect to receive the Stock Consideration for all of such holder's shares (a 9 13 "STOCK ELECTION"), (iii) elect to receive the Stock Consideration with respect to some of such holder's shares and the Cash Consideration with respect to such holder's remaining shares (a "MIXED ELECTION") or (iv) make no election or to indicate that such holder has no preference as to the receipt of the Cash Consideration or the Stock Consideration (a "NON-ELECTION"). Holders of record of shares of Hometown Common Stock who hold such shares as nominees, trustees or in other representative capacities (a "REPRESENTATIVE") may submit multiple Election Forms, provided that such Representative certifies that each such Election Form covers all the shares of Hometown Common Stock held by that Representative for a particular beneficial owner. Shares of Hometown Common Stock as to which a Cash Election has been made (including pursuant to a Mixed Election) are referred to herein as "CASH ELECTION SHARES." Shares of Hometown Common Stock as to which a Stock Election has been made (including pursuant to a Mixed Election) are referred to herein as "STOCK ELECTION SHARES." Shares of Hometown Common Stock as to which no election has been made are referred to as "NON-ELECTION SHARES." For purposes of this Section, Excluded Shares shall be deemed Cash Election Shares. The aggregate number of shares of Hometown Common Stock with respect to which a Stock Election has been made is referred to herein as the "STOCK ELECTION NUMBER." (c) To be effective, a properly completed Election Form must be received by a bank or trust company designated by First Capital and reasonably satisfactory to Hometown (the "EXCHANGE AGENT") on or before 5:00 p.m., New York City time, on the third business day immediately preceding Hometown's Stockholder Meeting (or such other time and date as Hometown and First Capital may mutually agree) (the "ELECTION DEADLINE"). An election shall have been properly made only if the Exchange Agent shall have actually received a properly completed Election Form by the Election Deadline. An Election Form shall be deemed properly completed only if accompanied by one or more certificates theretofore representing Hometown Common Stock ("CERTIFICATES") (or customary affidavits and, if required by First Capital pursuant to SECTION 2.7(I), indemnification regarding the loss or destruction of such Certificates or the guaranteed delivery of such Certificates) representing all shares of Hometown Common Stock covered by such Election Form, together with duly executed transmittal materials included with the Election Form. Any Hometown stockholder may at any time prior to the Election Deadline change his or her election by written notice received by the Exchange Agent prior to the Election Deadline accompanied by a properly completed and signed revised Election Form. Any Hometown stockholder may, at any time prior to the Election Deadline, revoke his or her election by written notice received by the Exchange Agent prior to the Election Deadline or by withdrawal prior to the Election Deadline of his or her Certificates, or of the guarantee of delivery of such Certificates, previously deposited with the Exchange Agent. Notwithstanding the previous two sentences, if the Effective Time shall not occur within 15 days following the Election Deadline, then during the period commencing on the 16th day following the Election Deadline and ending on 5:00 p.m., New York City time, on the third business day prior to the Closing Date (the "ELECTION MODIFICATION PERIOD"), any Hometown stockholder may change or revoke his or her election in the manner specified in the previous two sentences. All elections shall be revoked automatically if the Exchange Agent is notified in writing by First Capital and Hometown that this Agreement has been terminated. If a stockholder either (i) does not submit a 10 14 properly completed Election Form by the Election Deadline, (ii) revokes (as opposed to changes) his or her Election Form prior to the Election Deadline and does not submit a new properly executed Election Form prior to the Election Deadline or (iii) revokes his or her Election Form during the Election Modification Period, the shares of Hometown Common Stock held by such stockholder shall be designated Non-Election Shares. First Capital shall cause the Certificates representing Hometown Common Stock described in (ii) or (iii) in the immediately preceding sentence to be promptly returned without charge to the person submitting the Election Form upon written request to that effect from the person who submitted the Election Form. Subject to the terms of this Agreement and of the Election Form, the Exchange Agent shall have reasonable discretion to determine whether any election, revocation or change has been properly or timely made and to disregard immaterial defects in any Election Form, and any good faith decisions of the Exchange Agent regarding such matters shall be binding and conclusive. (d) Notwithstanding any other provision contained in this Agreement, 50% of the total number of shares of Hometown Common Stock outstanding at the Effective Time (the "STOCK CONVERSION NUMBER") shall be converted into the Stock Consideration and the remaining outstanding shares of Hometown Common Stock (excluding shares of Hometown Common Stock to be canceled as provided in SECTION 2.5(D) and Dissenters' Shares) shall be converted into the Cash Consideration. (e) Within three business days after the later to occur of the Election Deadline or the Effective Time, First Capital shall cause the Exchange Agent to effect the allocation among holders of Hometown Common Stock of rights to receive the Cash Consideration and the Stock Consideration as follows: (i) If the Stock Election Number exceeds the Stock Conversion Number, then all Cash Election Shares and all Non-Election Shares shall be converted into the right to receive the Cash Consideration, and each holder of Stock Election Shares will be entitled to receive (A) the number of shares of First Capital Common Stock equal to the product obtained by multiplying (1) the number of Stock Election Shares held by such holder by (2) the Exchange Ratio by (3) a fraction the numerator of which is the Stock Conversion Number and the denominator of which is the Stock Election Number (the "STOCK PRORATION FACTOR") and (B) cash in an amount equal to the product obtained by multiplying (1) the number of Stock Election Shares held by such holder by (2) the Cash Consideration by (3) one minus the Stock Proration Factor; (ii) If the Stock Election Number is less than the Stock Conversion Number (the amount by which the Stock Conversion Number exceeds the Stock Election Number being referred to herein as the "SHORTFALL NUMBER"), then all Stock Election Shares shall be converted into the right to receive the Stock Consideration and the Non-Election Shares and Cash Election Shares shall be treated in the following manner: 11 15 (A) if the Shortfall Number is less than or equal to the number of Non-Election Shares, then all Cash Election Shares shall be converted into the right to receive the Cash Consideration and each holder of Non-Election Shares shall receive (1) the number of shares of First Capital Common Stock equal to the product obtained by multiplying (x) the number of Non-Election Shares held by such holder by (y) the Exchange Ratio by (z) a fraction the numerator of which is the Shortfall Number and the denominator of which is the total number of Non-Election Shares (the "NON-ELECTION PRORATION FACTOR") and (B) cash in an amount equal to the product obtained by multiplying (x) the number of Non-Election Shares held by such holder by (y) the Cash Consideration by (z) one minus the Non-Election Proration Factor; or (B) if the Shortfall Number exceeds the number of Non- Election Shares, then all Non-Election Shares shall be converted into the right to receive the Stock Consideration, and each holder of Cash Election Shares shall receive (1) the number of shares of First Capital Common Stock equal to the product obtained by multiplying (x) the number of Cash Election Shares held by such holder by (y) the Exchange Ratio by (z) a fraction the numerator of which is the amount by which the Shortfall Number exceeds the number of Non-Election Shares and the denominator of which is the total number of Cash Election Shares (the "CASH PRORATION FACTOR") and (B) cash in an amount equal to the product obtained by multiplying (x) the number of Cash Election Shares held by such holder by (y) the Cash Consideration by (z) one minus the Cash Proration Factor. 2.7 EXCHANGE PROCEDURES. (a) Appropriate transmittal materials ("LETTER OF TRANSMITTAL") in a form satisfactory to First Capital and Hometown shall be mailed as soon as practicable after the Effective Time to each holder of record of Hometown Common Stock as of the Effective Time who did not previously submit a completed Election Form in accordance with SECTION 2.6(C). A Letter of Transmittal will be deemed properly completed only if accompanied by certificates representing all shares of Hometown Common Stock to be converted thereby. Delivery of a properly completed Election Form in accordance with SECTION 2.6(C) which is not subsequently revoked shall satisfy the requirement for delivery of a Letter of Transmittal pursuant to this SECTION 2.7. (b) At and after the Effective Time, each Certificate (except as specifically set forth in SECTION 2.5) shall represent only the right to receive the Merger Consideration. (c) Prior to the Effective Time, First Capital shall (i) reserve for issuance with its transfer agent and registrar a sufficient number of shares of First Capital Common Stock to provide for payment of the aggregate Stock Consideration and (ii) deposit, or cause to be deposited, with the Exchange Agent, for the benefit of the holders of shares of Hometown Common Stock, for exchange in accordance with this SECTION 2.7, an amount of cash sufficient to pay the aggregate Cash Consideration. 12 16 (d) The Letter of Transmittal shall (i) specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent, (ii) be in a form and contain any other provisions as First Capital may reasonably determine and (iii) include instructions for use in effecting the surrender of the Certificates in exchange for the Merger Consideration. Upon the proper surrender of the Certificates to the Exchange Agent, together with a properly completed and duly executed Letter of Transmittal, the holder of such Certificates shall be entitled to receive in exchange therefor a certificate representing that number of whole shares of First Capital Common Stock that such holder has the right to receive pursuant to SECTION 2.5, if any, and a check in the amount equal to the cash that such holder has the right to receive pursuant to SECTION 2.5, if any (including any cash in lieu of fractional shares, if any, that such holder has the right to receive pursuant to SECTION 2.5, and any dividends or other distributions to which such holder is entitled pursuant to SECTION 2.5). Certificates so surrendered shall forthwith be canceled. As soon as practicable following the Effective Time and the receipt of the properly completed Letter of Transmittal and any necessary accompanying documentation, the Exchange Agent shall distribute First Capital Common Stock and cash as provided herein. The Exchange Agent shall not be entitled to vote or exercise any rights of ownership with respect to the shares of First Capital Common Stock held by it from time to time hereunder, except that it shall receive and hold all dividends or other distributions paid or distributed with respect to such shares for the account of the persons entitled thereto. If there is a transfer of ownership of any shares of Hometown Common Stock not registered in the transfer records of Hometown, the Merger Consideration shall be issued to the transferee thereof if the Certificates representing such Hometown Common Stock are presented to the Exchange Agent, accompanied by all documents required, in the reasonable judgment of First Capital and the Exchange Agent, to evidence and effect such transfer and to evidence that any applicable stock transfer taxes have been paid. (e) No dividends or other distributions declared or made after the Effective Time with respect to First Capital Common Stock issued pursuant to this Agreement shall be remitted to any person entitled to receive shares of First Capital Common Stock hereunder until such person surrenders his or her Certificates in accordance with this SECTION 2.7. Upon the surrender of such person's Certificates, such person shall be entitled to receive any dividends or other distributions, without interest thereon, which subsequent to the Effective Time had become payable but not paid with respect to shares of First Capital Common Stock represented by such person's Certificates. (f) The stock transfer books of Hometown shall be closed immediately upon the Effective Time and from and after the Effective Time there shall be no transfers on the stock transfer records of Hometown of any shares of Hometown Common Stock. If, after the Effective Time, Certificates are presented to First Capital, they shall be canceled and exchanged for the Merger Consideration deliverable in respect thereof pursuant to this Agreement in accordance with the procedures set forth in this SECTION 2.7. 13 17 (g) Any portion of the aggregate amount of cash to be paid pursuant to SECTION 2.5, any dividends or other distributions to be paid pursuant to this SECTION 2.7 or any proceeds from any investments thereof that remains unclaimed by the stockholders of Hometown for six months after the Effective Time shall be repaid by the Exchange Agent to First Capital upon the written request of First Capital. After such request is made, any stockholders of Hometown who have not theretofore complied with this SECTION 2.7 shall look only to First Capital for the Merger Consideration deliverable in respect of each share of Hometown Common Stock such stockholder holds, as determined pursuant to SECTION 2.5 of this Agreement, without any interest thereon. If any Merger Consideration is not claimed by the person(s) entitled thereto prior to the date on which such payments would otherwise escheat to or become the property of any governmental unit or agency, the unclaimed items shall, to the extent permitted by any abandoned property, escheat or other applicable laws, become the property of First Capital. Notwithstanding the foregoing, neither the Exchange Agent nor any party to this Agreement (or any affiliate thereof) shall be liable to any former holder of Hometown Common Stock for any amount delivered to a public official pursuant to applicable abandoned property, escheat or similar laws. (h) First Capital and the Exchange Agent shall be entitled to rely upon Hometown's stock transfer books to establish the identity of those persons entitled to receive the Merger Consideration, which books shall be conclusive with respect thereto. In the event of a dispute with respect to ownership of stock represented by any Certificate, First Capital and the Exchange Agent shall be entitled to deposit any Merger Consideration represented thereby in escrow with an independent third party and thereafter be relieved with respect to any claims thereto. (i) If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Certificate to be lost, stolen or destroyed and, if required by the Exchange Agent or First Capital, the posting by such person of a bond in such amount as the Exchange Agent may direct as indemnity against any claim that may be made against it with respect to such Certificate, the Exchange Agent will issue in exchange for such lost, stolen or destroyed Certificate the Merger Consideration deliverable in respect thereof pursuant to SECTION 2.5. 2.8 EFFECT ON OUTSTANDING SHARES OF FIRST CAPITAL COMMON STOCK. At and after the Effective Time, each share of First Capital Common Stock issued and outstanding immediately prior to the Effective Time shall remain an issued and outstanding share of common stock of the Surviving Corporation and shall not be affected by the Merger. 2.9 DIRECTORS OF SURVIVING CORPORATION AFTER EFFECTIVE TIME. Immediately after the Effective Time, until their respective successors are duly elected or appointed and qualified, the directors of the Surviving Corporation shall consist of the directors of First Capital serving immediately prior to the Effective Time. 14 18 2.10 ARTICLES OF INCORPORATION AND BYLAWS. The articles of incorporation of First Capital, as in effect immediately prior to the Effective Time, shall be the articles of incorporation of the Surviving Corporation until thereafter amended in accordance with applicable law. The bylaws of First Capital, as in effect immediately prior to the Effective Time, shall be the bylaws of the Surviving Corporation until thereafter amended in accordance with applicable law. 2.11 [RESERVED] 2.12 DISSENTERS' RIGHTS. Notwithstanding any other provision of this Agreement to the contrary, shares of Hometown Common Stock that are outstanding immediately prior to the Effective Time and which are held by stockholders who shall have not voted in favor of the Merger or consented thereto in writing and who properly shall have delivered written notice to Hometown before the vote is taken of the stockholders' intent to demand payment for such shares in accordance with the IBCL (collectively, the "DISSENTERS' SHARES") shall not be converted into or represent the right to receive the Merger Consideration. Such stockholders instead shall be entitled to receive payment of the fair value of such shares held by them in accordance with the provisions of the IBCL, except that all Dissenters' Shares held by stockholders who shall have failed to perfect or who effectively shall have withdrawn or otherwise lost their rights to appraisal of such shares under the IBCL shall thereupon be deemed to have been converted into and to have become exchangeable, as of the Effective Time, for the right to receive, without any interest thereon, the Merger Consideration upon surrender in the manner provided in SECTION 2.7 of the Hometown Certificate(s) that, immediately prior to the Effective Time, evidenced such shares. Hometown shall give First Capital (i) prompt notice of any written demands for payment for any shares of Hometown Common Stock, attempted withdrawals of such demands and any other instruments served pursuant to the IBCL and received by Hometown relating to stockholders' dissenters' rights, and (ii) the opportunity to participate in all negotiations and proceedings with respect to demands under the IBCL consistent with the obligations of Hometown thereunder. Hometown shall not, except with the prior written consent of First Capital, (x) make any payment with respect to such demand, (y) offer to settle or settle any demand for payment or (z) waive any failure to timely deliver a written demand for payment or timely take any other action to perfect dissenters' rights in accordance with the IBCL. 2.13 BANK MERGER. Concurrently with or as soon as practicable after the execution and delivery of this Agreement, First Harrison Bank ("FIRST HARRISON BANK"), a wholly owned subsidiary of First Capital, and Hometown National Bank ("HOMETOWN NATIONAL BANK"), a wholly owned subsidiary of Hometown, shall enter into the Plan of Bank Merger, in the form attached hereto as Exhibit B, pursuant --------- to which Hometown National Bank will merge with and into First Harrison Bank (the "BANK MERGER"). The parties intend that the Bank Merger will become effective simultaneously with or immediately following the Effective Time. 2.14 ALTERNATIVE STRUCTURE. Notwithstanding anything to the contrary contained in this Agreement, prior to the Effective Time, First Capital may specify that the structure of the 15 19 transactions contemplated by this Agreement be revised and the parties shall enter into such alternative transactions as First Capital may reasonably determine to effect the purposes of this Agreement; PROVIDED, HOWEVER, that such revised structure shall not (i) alter or change the amount or kind of the Merger Consideration, (ii) change the intended federal income tax consequences of the transactions contemplated by this Agreement or (iii) materially impede or delay the receipt of any regulatory approval referred to in, or the consummation of the transactions contemplated by, this Agreement. In the event that First Capital elects to make such a revision, the parties agree to execute appropriate documents to reflect the revised structure. ARTICLE III REPRESENTATIONS AND WARRANTIES 3.1 DISCLOSURE LETTERS. Prior to the execution and delivery of this Agreement, First Capital and Hometown have each delivered to the other a letter (each, its "DISCLOSURE LETTER") setting forth, among other things, facts, circumstances and events the disclosure of which is required or appropriate in relation to any or all of their respective representations and warranties (and making specific reference to the Section of this Agreement to which they relate). The mere inclusion of a fact, circumstance or event in a Disclosure Letter shall not be deemed an admission by a party that such item represents a material exception or that such item is reasonably likely to result in a Material Adverse Effect. Any matter disclosed pursuant to one section of a party's Disclosure Letter shall be deemed disclosed for all purposes of such party's Disclosure Letter. 3.2 REPRESENTATIONS AND WARRANTIES OF HOMETOWN. Hometown represents and warrants to First Capital that, except as disclosed in Hometown's Disclosure Letter: (a) ORGANIZATION AND QUALIFICATION. Hometown is a corporation duly organized, validly existing and in good standing under the laws of the State of Indiana and is registered as a bank holding company under the BHC Act. Hometown has all requisite corporate power and authority to own, lease and operate its properties and to conduct the business currently being conducted by it. Hometown is duly qualified or licensed as a foreign corporation to transact business and is in good standing in each jurisdiction in which the character of the properties owned or leased by it or the nature of the business conducted by it makes such qualification or licensing necessary, except where the failure to be so qualified or licensed and in good standing would not have a Material Adverse Affect on Hometown. (b) SUBSIDIARIES. (i) Hometown's Disclosure Letter sets forth with respect to each of Hometown's Subsidiaries its name, its jurisdiction of incorporation, Hometown's percentage ownership, the number of shares of stock owned or controlled by Hometown and the name and number of shares held by any other person who owns any stock of the Subsidiary. Hometown owns of record and beneficially all the capital stock of each of its Subsidiaries free and clear of any Liens. There are no contracts, commitments, agreements or understandings relating to 16 20 Hometown's right to vote or dispose of any equity securities of its Subsidiaries. Hometown's ownership interest in each of its Subsidiaries is in compliance with all applicable laws, rules and regulations relating to equity investments by bank holding companies or national banking associations. (ii) Each of Hometown's Subsidiaries is a corporation duly organized and validly existing under the laws of its jurisdiction of incorporation, has all requisite corporate power and authority to own, lease and operate its properties and to conduct the business currently being conducted by it and is duly qualified or licensed as a foreign corporation to transact business and is in good standing in each jurisdiction in which the character of the properties owned or leased by it or the nature of the business conducted by it makes such qualification or licensing necessary, except where the failure to be so qualified or licensed and in good standing would not have a Material Adverse Affect on such Subsidiary. (iii) The outstanding shares of capital stock of each Subsidiary have been validly authorized and are validly issued, fully paid and nonassessable. No shares of capital stock of any Subsidiary of Hometown are or may be required to be issued by virtue of any options, warrants or other rights, no securities exist that are convertible into or exchangeable for shares of such capital stock or any other debt or equity security of any Subsidiary, and there are no contracts, commitments, agreements or understandings of any kind for the issuance of additional shares of capital stock or other debt or equity security of any Subsidiary or options, warrants or other rights with respect to such securities. (iv) No Subsidiary of Hometown other than Hometown National Bank is an "insured depository institution" as defined in the FDIA and the applicable regulations thereunder. The deposits of Hometown National Bank are insured by the FDIC through the Bank Insurance Fund to the fullest extent permitted by law. Hometown National Bank is a member in good standing of the Federal Home Loan Bank of Indianapolis. (c) CAPITAL STRUCTURE. (i) The authorized capital stock of Hometown consists of: (A) 900,000 shares of Hometown Common Stock; and (B) 25,000 shares of preferred stock, no par value per share. (ii) As of the date of this Agreement: (A) 229,550 shares of Hometown Common Stock are issued and outstanding, all of which are validly issued, fully paid and nonassessable and were issued in full compliance with all applicable laws and not in violation of any preemptive rights; 17 21 (B) no shares of Hometown preferred stock are issued and outstanding; (iii) No bonds, debentures, notes or other indebtedness having the right to vote on any matters on which stockholders of Hometown may vote are issued or outstanding. (iv) Except as set forth in this SECTION 3.2(C), as of the date of this Agreement, (A) no shares of capital stock or other voting securities of Hometown are issued, reserved for issuance or outstanding and (B) neither Hometown nor any of its Subsidiaries has or is bound by any outstanding subscriptions, options, warrants, calls, rights, convertible securities, commitments or agreements of any character obligating Hometown or any of its Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or sold, any additional shares of capital stock of Hometown or obligating Hometown or any of its Subsidiaries to grant, extend or enter into any such option, warrant, call, right, convertible security, commitment or agreement. As of the date hereof, there are no outstanding contractual obligations of Hometown or any of its Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital stock of Hometown or any of its Subsidiaries. (d) AUTHORITY. Hometown has all requisite corporate power and authority to enter into this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate actions on the part of Hometown's Board of Directors, and no other corporate proceedings on the part of Hometown are necessary to authorize this Agreement or to consummate the transactions contemplated by this Agreement other than the approval and adoption of this Agreement by the affirmative vote of the holders of a majority of the outstanding shares of Hometown Common Stock. This Agreement has been duly and validly executed and delivered by Hometown and constitutes a valid and binding obligation of Hometown, enforceable against Hometown in accordance with its terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors' rights and remedies generally and to general principles of equity, whether applied in a court of law or a court of equity. (e) NO VIOLATIONS. The execution, delivery and performance of this Agreement by Hometown do not, and the consummation of the transactions contemplated by this Agreement (including the Bank Merger) by Hometown and Hometown National Bank will not, (i) assuming all required governmental approvals have been obtained and the applicable waiting periods have expired, violate any law, rule or regulation or any judgment, decree, order, governmental permit or license to which Hometown or any of its Subsidiaries (or any of their respective properties) is subject, (ii) violate the articles of incorporation or bylaws of Hometown or the similar organizational documents of any of its Subsidiaries or (iii) constitute a breach or violation of, or a default under (or an event which, with due notice or lapse of time or both, would constitute a default under), or result in the termination of, accelerate the performance required by, or result in the creation of any Lien upon any of the properties or assets of 18 22 Hometown or any of its Subsidiaries under, any of the terms, conditions or provisions of any note, bond, indenture, deed of trust, loan agreement or other agreement, instrument or obligation to which Hometown or any of its Subsidiaries is a party, or to which any of their respective properties or assets may be subject except, in the case of (iii), for any such breaches, violations or defaults that would not, individually or in the aggregate, have a Material Adverse Effect on Hometown. (f) CONSENTS AND APPROVALS. No consents or approvals of, or filings or registrations with, any Governmental Entity or any third party are required to be made or obtained in connection with the execution and delivery by Hometown of this Agreement or the consummation by Hometown of the Merger and the other transactions contemplated by this Agreement, including the Bank Merger, except for (i) filings of applications and notices with, receipt of approvals or nonobjections from, and expiration of the related waiting period required by, federal and state banking authorities, (ii) filing of the Registration Statement with the SEC and declaration by the SEC of the Registration Statement's effectiveness under the Securities Act, (iii) the registration or qualification of the shares of First Capital Common Stock to be issued in exchange for shares of Hometown Common Stock under state securities or "blue sky" laws and (iv) the listing of the shares of First Capital Common Stock to be issued in exchange for shares of Hometown Common Stock on the Nasdaq Stock Market. As of the date hereof, Hometown knows of no reason pertaining to Hometown why any of the approvals referred to in this SECTION 3.2(F) should not be obtained without the imposition of any material condition or restriction described in SECTION 6.1(B). (g) REGULATORY FILINGS. Hometown and each Subsidiary of Hometown has filed with the SEC and any Government Regulator all reports, schedules, registrations, and statements that it has been required to file since December 31, 1998 (collectively, "HOMETOWN REGULATORY FILINGS"). As of their respective dates, each of the Hometown Regulatory Filings complied in all material respects with all of the laws, rules and regulations of the SEC or the Government Regulator with which they were filed. None of the Hometown Regulatory Filings contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading. (h) FINANCIAL STATEMENTS. Hometown has previously made available to First Capital copies of the consolidated balance sheets of Hometown and its Subsidiaries as of December 31, 2001 and 2000 and related consolidated statements of income, cash flows and changes in stockholders' equity for each of the years in the two-year period ended December 31, 2001, together with the notes thereto, accompanied by the audit report of Hometown's independent public auditors. Such financial statements were prepared from the books and records of Hometown and its Subsidiaries, fairly present the consolidated financial position of Hometown and its Subsidiaries in each case at and as of the dates indicated and the consolidated results of operations, retained earnings and cash flows of Hometown and its Subsidiaries for the periods indicated, and, except as otherwise set forth in the notes thereto, were prepared in 19 23 accordance with GAAP consistently applied throughout the periods covered thereby. The books and records of Hometown and its Subsidiaries have been, and are being, maintained in all respects in accordance with GAAP and any other legal and accounting requirements and reflect only actual transactions. (i) UNDISCLOSED LIABILITIES. Neither Hometown nor any of its Subsidiaries has incurred any debt, liability or obligation of any nature whatsoever (whether accrued, contingent, absolute or otherwise and whether due or to become due) other than liabilities reflected on or reserved against in the consolidated balance sheet of Hometown as of December 31, 2001, except for (i) liabilities incurred since December 31, 2001 in the ordinary course of business consistent with past practice that, either alone or when combined with all similar liabilities, have not had, and would not reasonably be expected to have, a Material Adverse Effect on Hometown and (ii) liabilities incurred for legal, accounting, financial advising fees and out-of-pocket expenses in connection with the transactions contemplated by this Agreement. (j) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in Hometown's Disclosure Letter, since December 31, 2001, (i) Hometown and its Subsidiaries have conducted their respective businesses only in the ordinary and usual course of such businesses consistent with their past practices, (ii) there has not been any event or occurrence that has had, or is reasonably expected to have, a Material Adverse Effect on Hometown, (iii) there has been no increase in the salary, compensation, pension or other benefits payable or to become payable by Hometown or any of its Subsidiaries to any of their respective directors, officers or employees, other than in conformity with the policies and practices of such entity in the usual and ordinary course of its business, (iv) neither Hometown nor any of its Subsidiaries has paid or made any accrual or arrangement for payment of bonuses or special compensation of any kind or any severance or termination pay to any of their directors, officers or employees and (v) there has been no change in any accounting principles, practices or methods of Hometown or any of its Subsidiaries other than as required by GAAP. (k) LITIGATION. There are no suits, actions or legal, administrative or arbitration proceedings pending or, to the knowledge of Hometown, threatened against or affecting Hometown or any of its Subsidiaries or any property or asset of Hometown or any of its Subsidiaries that (i) individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect on Hometown or (ii) challenge the validity or propriety of the transactions contemplated by this Agreement. To the knowledge of Hometown, there are no investigations, reviews or inquiries by any court or Governmental Entity pending or threatened against Hometown or any of its Subsidiaries. There are no judgments, decrees, injunctions, orders or rulings of any Governmental Entity or arbitrator outstanding against Hometown or any of its Subsidiaries that, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect on Hometown. (l) ABSENCE OF REGULATORY ACTIONS. Since December 31, 1997, neither Hometown nor any of its Subsidiaries has been a party to any cease and desist order, written 20 24 agreement or memorandum of understanding with, or any commitment letter or similar undertaking to, or has been subject to any action, proceeding, order or directive by any Government Regulator, or has adopted any board resolutions at the request of any Government Regulator, or has been advised by any Government Regulator that it is contemplating issuing or requesting (or is considering the appropriateness of issuing or requesting) any such action, proceeding, order, directive, written agreement, memorandum of understanding, commitment letter, board resolutions or similar undertaking. There are no unresolved violations, criticisms or exceptions by any Government Regulator with respect to any report or statement relating to any examinations of Hometown or its Subsidiaries. (m) COMPLIANCE WITH LAWS. Hometown and each of its Subsidiaries conducts its business in compliance with all statutes, laws, regulations, ordinances, rules, judgements, orders or decrees applicable to it or the employees conducting such business. Hometown and each of its Subsidiaries has all permits, licenses, certificates of authority, orders and approvals of, and has made all filings, applications and registrations with, all Governmental Entities that are required in order to permit it to carry on its business as it is presently conducted; all such permits, licenses, certificates of authority, orders and approvals are in full force and effect, and no suspension or cancellation of any of them is threatened. Neither Hometown nor any of its Subsidiaries has been given notice or been charged with any violation of, any law, ordinance, regulation, order, writ, rule, decree or condition to approval of any Governmental Entity which, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect on Hometown. (n) TAXES. All federal, state, local and foreign tax returns required to be filed by or on behalf of Hometown or any of its Subsidiaries have been timely filed or requests for extensions have been timely filed and any such extension shall have been granted and not have expired, and all such filed returns are complete and accurate in all material respects. All taxes shown on such returns, all taxes required to be shown on returns for which extensions have been granted and all other taxes required to be paid by Hometown or any of its Subsidiaries have been paid in full or adequate provision has been made for any such taxes on Hometown's balance sheet (in accordance with GAAP). There is no audit examination, deficiency assessment, tax investigation or refund litigation with respect to any taxes of Hometown or any of its Subsidiaries, and no claim has been made in writing by any authority in a jurisdiction where Hometown or any of its Subsidiaries do not file tax returns that Hometown or any such Subsidiary is subject to taxation in that jurisdiction. All taxes, interest, additions and penalties due with respect to completed and settled examinations or concluded litigation relating to Hometown or any of its Subsidiaries have been paid in full or adequate provision has been made for any such taxes on Hometown's balance sheet (in accordance with GAAP). Hometown and its Subsidiaries have not executed an extension or waiver of any statute of limitations on the assessment or collection of any tax due that is currently in effect. Hometown and each of its Subsidiaries has withheld and paid all taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder or other third party, and Hometown and each of its Subsidiaries has timely complied 21 25 with all applicable information reporting requirements under Part III, Subchapter A of Chapter 61 of the IRC and similar applicable state and local information reporting requirements. Neither Hometown nor any of its Subsidiaries is a party to any agreement, contract, arrangement or plan that has resulted or would result, individually or in the aggregate, in connection with this Agreement in the payment of any "excess parachute payments" within the meaning of Section 280G of the IRC and neither Hometown nor any of its Subsidiaries has made any payments and is not a party to any agreement, and does not maintain any plan, program or arrangement, that could require it to make any payments (including any deemed payment of compensation upon the issuance of any Hometown Common Stock), that would not be fully deductible by reason of Section 162(m) of the IRC. (o) AGREEMENTS. (i) Hometown's Disclosure Letter lists any contract, arrangement, commitment or understanding (whether written or oral) to which Hometown or any of its Subsidiaries is a party or is bound: (A) with any executive officer or other key employee of Hometown or any of its Subsidiaries the benefits of which are contingent, or the terms of which are materially altered, upon the occurrence of a transaction involving Hometown or any of its Subsidiaries of the nature contemplated by this Agreement; (B) with respect to the employment of any directors, officers, employees or consultants; (C) any of the benefits of which will be increased, or the vesting or payment of the benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement, or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement (including any stock option plan, phantom stock or stock appreciation rights plan, restricted stock plan or stock purchase plan); (D) containing covenants that limit the ability of Hometown or any of its Subsidiaries to compete in any line of business or with any person, or that involve any restriction on the geographic area in which, or method by which, Hometown (including any successor thereof) or any of its Subsidiaries may carry on its business (other than as may be required by law or any regulatory agency); (E) pursuant to which Hometown or any of its Subsidiaries may become obligated to invest in or contribute capital to any entity; (F) not fully disclosed in Hometown Regulatory Filings that relates to borrowings of money (or guarantees thereof) by Hometown or any of its Subsidiaries in 22 26 excess of $50,000, other than purchases of Federal Funds or repurchase agreements fully secured by U.S. government agency securities; (G) which is a lease or license with respect to any property, real or personal, whether as landlord, tenant, licensor or licensee, involving a liability or obligation as obligor in excess of $25,000 on an annual basis; (H) the termination of which would require payment by Hometown or any of its Subsidiaries in excess of $25,000; or (I) which would constitute a material contract (as defined in Item 601(b)(10) of Regulation S-K promulgated by the SEC); (ii) Neither Hometown nor any of its Subsidiaries is in default under (and no event has occurred which, with due notice or lapse of time or both, would constitute a default under) or is in violation of any provision of any note, bond, indenture, mortgage, deed of trust, loan agreement, lease or other agreement to which it is a party or by which it is bound or to which any of its respective properties or assets is subject and, to the knowledge of Hometown, no other party to any such agreement (excluding any loan or extension of credit or security agreements relating thereto made by Hometown or any of its Subsidiaries) is in default in any respect thereunder, except for such defaults or violations that would not, individually or in the aggregate, have a Material Adverse Effect on Hometown. (p) INTELLECTUAL PROPERTY. Hometown and each of its Subsidiaries owns or possesses valid and binding licenses and other rights to use without payment all patents, copyrights, trade secrets, trade names, service marks and trademarks material to its businesses, and neither Hometown nor any of its Subsidiaries has received any notice of conflict with respect thereto that asserts the right of others. Each of Hometown and its Subsidiaries has performed all the obligations required to be performed by it and are not in default under any contact, agreement, arrangement or commitment relating to any of the foregoing, except for such non- performance or defaults that would not, individually or in the aggregate, have a Material Adverse Effect on Hometown. (q) LABOR MATTERS. Hometown and its Subsidiaries are in material compliance with all applicable laws respecting employment, retention of independent contractors, employment practices, terms and conditions of employment, and wages and hours. Neither Hometown nor any of its Subsidiaries is or has ever been a party to, or is or has ever been bound by, any collective bargaining agreement, contract or other agreement or understanding with a labor union or labor organization with respect to its employees, nor is Hometown or any of its Subsidiaries the subject of any proceeding asserting that it has committed an unfair labor practice or seeking to compel it or any such Subsidiary to bargain with any labor organization as to wages and conditions of employment nor has any such proceeding been threatened, nor is there any 23 27 strike, other labor dispute or organizational effort involving Hometown or any of its Subsidiaries pending or, to the knowledge of Hometown, threatened. (r) EMPLOYEE BENEFIT PLANS. (i) Hometown's Disclosure Letter contains a complete and accurate list of all pension, retirement, stock option, stock purchase, stock ownership, savings, stock appreciation right, profit sharing, deferred compensation, consulting, bonus, group insurance, severance and other benefit plans, contracts, agreements and arrangements, including, but not limited to, "employee benefit plans," as defined in Section 3(3) of ERISA, incentive and welfare policies, contracts, plans and arrangements and all trust agreements related thereto with respect to any present or former directors, officers or other employees of Hometown or any of its Subsidiaries (hereinafter referred to collectively as the "HOMETOWN EMPLOYEE PLANS"). Hometown has previously delivered or made available to First Capital true and complete copies of each agreement, plan and other documents referenced in Hometown's Disclosure Letter or has provided a written description of any Hometown Employee Plan for which no document is available. There has been no announcement or commitment by Hometown or any of its Subsidiaries to create an additional Hometown Employee Plan, or to amend any Hometown Employee Plan, except for amendments required by applicable law which do not materially increase the cost of such Hometown Employee Plan. (ii) There is no pending or, to the knowledge of Hometown, threatened litigation, administrative action or proceeding relating to any Hometown Employee Plan. All of the Hometown Employee Plans comply in all material respects with all applicable requirements of ERISA, the IRC and other applicable laws. There has occurred no "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the IRC) with respect to the Hometown Employee Plans which is likely to result in the imposition of any penalties or taxes upon Hometown or any of its Subsidiaries under Section 502(i) of ERISA or Section 4975 of the IRC. (iii) No Hometown Employee Plan currently or formerly maintained by Hometown is or was subject to Title IV of ERISA. Neither Hometown nor any of its Subsidiaries has contributed to any "multiemployer plan," as defined in Section 3(37) of ERISA, on or after September 26, 1980. (iv) Each Hometown Employee Plan that is an "employee pension benefit plan" (as defined in Section 3(2) of ERISA) and which is intended to be qualified under Section 401(a) of the IRC (a "HOMETOWN QUALIFIED PLAN") has received a favorable determination letter from the IRS, and Hometown and its Subsidiaries are not aware of any circumstances likely to result in revocation of any such favorable determination letter. No Hometown Qualified Plan is an "employee stock ownership plan" (as defined in Section 4975(e)(7) of the IRC). 24 28 (v) Neither Hometown nor any of its Subsidiaries has any obligations for post-retirement or post-employment benefits under any Hometown Employee Plan that cannot be amended or terminated upon 60 days' notice or less without incurring any liability thereunder, except for coverage required by Part 6 of Title I of ERISA or Section 4980B of the IRC, or similar state laws, the cost of which is borne by the insured individuals. (s) PROPERTIES. (i) A description of each parcel of real property owned by Hometown or a Subsidiary of Hometown is set forth in Hometown's Disclosure Letter. Hometown and each of its Subsidiaries has good and marketable title to all real property owned by it (including any property acquired in a judicial foreclosure proceeding or by way of a deed in lieu of foreclosure or similar transfer), in each case free and clear of any Liens except (i) liens for taxes not yet due and payable and (ii) such easements, restrictions and encumbrances, if any, as are not material in character, amount or extent, and do not materially detract from the value, or materially interfere with the present use of the properties subject thereto or affected thereby. All real property and fixtures of Hometown and each of its Subsidiaries are in a good state of maintenance and repair (normal wear and tear excepted), conform with all applicable ordinances, regulations and zoning laws and are considered by Hometown to be adequate for the current business of Hometown and its Subsidiaries. To the knowledge of Hometown, none of the buildings, structures or other improvements located on its real property encroaches upon or over any adjoining parcel or real estate or any easement or right-of-way. (ii) Hometown and each of its Subsidiaries has good and marketable title to all tangible personal property owned by it, free and clear of all Liens except such encumbrances, if any, as are not material in character, amount or extent, and do not materially detract from the value, or materially interfere with the present use of the properties subject thereto or affected thereby. With respect to personal property used in the business of Hometown and its Subsidiaries that is leased rather than owned, neither Hometown nor any of its Subsidiaries is in default in any material respect under the terms of any such lease. (iii) A description of all real property leased by Hometown or a Subsidiary of Hometown is set forth in Hometown's Disclosure Letter. Each lease pursuant to which Hometown or any of its Subsidiaries as lessee, leases real or personal property, is valid and in full force and effect and neither Hometown nor any of its Subsidiaries, nor, to Hometown's knowledge, any other party to any such lease, is in default or in violation of any material provisions of any such lease. (t) FAIRNESS OPINION. Hometown has received the opinion of David A. Noyes & Company to the effect that, as of the date hereof, the Merger Consideration is fair, from a financial point of view, to Hometown's stockholders. 25 29 (u) FEES. Other than financial advisory services performed for Hometown by David A. Noyes & Company pursuant to an agreement dated June 30, 2002, a true and complete copy of which has been previously delivered to First Capital, neither Hometown nor any of its Subsidiaries, nor any of their respective officers, directors, employees or agents, has employed any broker or finder or incurred any liability for any financial advisory fees, brokerage fees, commissions or finder's fees, and no broker or finder has acted directly or indirectly for Hometown or any of its Subsidiaries in connection with this Agreement or the transactions contemplated hereby. (v) ENVIRONMENTAL MATTERS. (i) Each of Hometown and its Subsidiaries and, to the knowledge of Hometown, the Participation Facilities and the Loan Properties are, and have been, in substantial compliance with all Environmental Laws. (ii) There is no suit, claim, action, demand, executive or administrative order, directive, investigation or proceeding pending or, to the knowledge of Hometown, threatened, before any court, governmental agency or board or other forum against Hometown or any of its Subsidiaries or any Participation Facility (A) for alleged noncompliance (including by any predecessor) with, or liability under, any Environmental Law or (B) relating to the presence of or release into the environment of any Hazardous Material, whether or not occurring at or on a site owned, leased or operated by Hometown or any of its Subsidiaries or any Participation Facility. (iii) To the knowledge of Hometown, there is no suit, claim, action, demand, executive or administrative order, directive, investigation or proceeding pending or threatened before any court, governmental agency or board or other forum relating to or against any Loan Property (or Hometown or any of its Subsidiaries in respect of such Loan Property) (A) relating to alleged noncompliance (including by any predecessor) with, or liability under, any Environmental Law or (B) relating to the presence of or release into the environment of any Hazardous Material, whether or not occurring at a Loan Property. (iv) Neither Hometown nor any of its Subsidiaries has received any notice, demand letter, executive or administrative order, directive or request for information from any Governmental Entity or any third party indicating that it may be in violation of, or liable under, any Environmental Law. (v) There are no underground storage tanks at any properties owned or operated by Hometown or any of its Subsidiaries or, to the knowledge of Hometown, at any Participation Facility and no underground storage tanks have been closed or removed from any properties owned or operated by Hometown or any of its Subsidiaries or, to the knowledge of Hometown, any Participation Facility. 26 30 (vi) During the period of (A) Hometown's or its Subsidiary's ownership or operation of any of their respective current properties or (B) Hometown's or its Subsidiary's participation in the management of any Participation Facility, there has been no release of Hazardous Materials in, on, under or affecting such properties. To the knowledge of Hometown, prior to the period of (A) Hometown's or its Subsidiary's ownership or operation of any of their respective current properties or (B) Hometown's or its Subsidiary's participation in the management of any Participation Facility, there was no contamination by or release of Hazardous Material in, on, under or affecting such properties. (w) LOAN PORTFOLIO; ALLOWANCE FOR LOAN LOSSES. (i) With respect to each Loan owned by Hometown or its Subsidiaries in whole or in part: (A) The note and the related security documents are each legal, valid and binding obligations of the maker or obligor thereof, enforceable against such maker or obligor in accordance with their terms subject to bankruptcy, insolvency, fraudulent convenyance and other laws of general applicability relating to or affecting creditors' rights and to general equity principles; (B) neither Hometown nor any of its Subsidiaries, nor any prior holder of a Loan, has modified the note or any of the related security documents in any material respect or satisfied, canceled or subordinated the note or any of the related security documents except as otherwise disclosed by documents in the applicable Loan file; (C) Hometown or a Subsidiary of Hometown is the sole holder of legal and beneficial title to each Loan (or Hometown's or its Subsidiary's applicable participation interest, as applicable), except as otherwise referenced on the books and records of Hometown or a Subsidiary of Hometown; (D) the original note and the related security documents are included in the Loan files, and copies of any documents in the Loan files are true and correct copies of the documents they purport to be and have not been suspended, amended, modified, canceled or otherwise changed except as otherwise disclosed by documents in the applicable Loan file; and (E) with respect to a Loan held in the form of a participation, the participation documentation is legal, valid, binding and enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent conveyance and other laws of general applicability relating to or affecting creditors' rights and to general equity principles. (ii) Neither the terms of any Loan, any of the documentation for any Loan, the manner in which any Loans have been administered and serviced, nor Hometown's 27 31 practices of approving or rejecting Loan applications, violate in any material respect any federal, state, or local law, rule or regulation applicable thereto, including, without limitation, the Truth In Lending Act, Regulations O and Z of the Federal Reserve Board, the CRA, the Equal Credit Opportunity Act, and any state laws, rules and regulations relating to consumer protection, installment sales and usury. (iii) The allowance for loan losses reflected in Hometown's audited balance sheet at December 31, 2001 was, and the allowance for loan losses shown on the balance sheets in the Hometown Regulatory Filings for periods ending after December 31, 2001, in the opinion of management, was or will be adequate, as of the dates thereof, under GAAP. Hometown has no knowledge of any fact which is likely to require a future material increase in the provision for loan losses or a material decrease in the allowance for loan losses under GAAP. (x) DEPOSITS. The deposit accounts of Hometown National Bank are insured by the FDIC to the maximum extent permitted by law. None of the deposits of Hometown or any of its Subsidiaries is a "brokered" deposit. (y) ANTI-TAKEOVER PROVISIONS INAPPLICABLE. Hometown and its Subsidiaries have taken all actions required to exempt First Capital, the Agreement, the Plan of Bank Merger, the Merger and the Bank Merger from any provisions of an antitakeover nature contained in their organizational documents, and the provisions of any "anti-takeover," "fair price," "moratorium," "control share acquisition" or similar laws or regulations contained in the IBCL. (z) MATERIAL INTERESTS OF CERTAIN PERSONS. No officer or director of Hometown, or any "associate" (as such term is defined in Rule 12b-2 under the Exchange Act) of any such officer or director, has any material interest in any material contract or property (real or personal), tangible or intangible, used in or pertaining to the business of Hometown or any of its Subsidiaries other than banking relationships in the ordinary course of business. (aa) INSURANCE. In the opinion of management, Hometown and its Subsidiaries are presently insured for amounts deemed reasonable by management against such risks as companies of a similar size engaged in a similar business would, in accordance with good business practice, customarily be insured. All of the insurance policies and bonds maintained by Hometown and its Subsidiaries are in full force and effect, Hometown and its Subsidiaries are not in default thereunder and all material claims thereunder have been filed in due and timely fashion. (bb) INVESTMENT SECURITIES; DERIVATIVES. (i) Except for restrictions that exist for securities that are classified as "held to maturity," none of the investment securities held by Hometown or any of its Subsidiaries is subject to any restriction (contractual or statutory) that would materially impair the ability of the entity holding such investment freely to dispose of such investment at any time. 28 32 (ii) Neither Hometown nor any of its Subsidiaries is a party to or has agreed to enter into an exchange-traded or over-the-counter equity, interest rate, foreign exchange or other swap, forward, future, option, cap, floor or collar or any other contract that is a derivative contract (including various combinations thereof) or owns securities that (A) are referred to generically as "structured notes," "high risk mortgage derivatives," "capped floating rate notes" or "capped floating rate mortgage derivatives" or (B) are likely to have changes in value as a result of interest or exchange rate changes that significantly exceed normal changes in value attributable to interest or exchange rate changes. (cc) INDEMNIFICATION. Except as provided in the articles of incorporation or bylaws of Hometown and the similar organizational documents of its Subsidiaries, neither Hometown nor any of its Subsidiaries is a party to any agreement that provides for the indemnification of any of its present or former directors, officers or employees, or other persons who serve or served as a director, officer or employee of another corporation, partnership or other enterprise at the request of Hometown and, to the knowledge of Hometown, there are no claims for which any such person would be entitled to indemnification under the articles of incorporation or bylaws of Hometown or the similar organizational documents of any of its Subsidiaries, under any applicable law or regulation or under any indemnification agreement. (dd) CORPORATE DOCUMENTS. Hometown's Disclosure Letter contains a complete and correct copy of the articles of incorporation, bylaws and similar organizational documents of Hometown and each of Hometown's Subsidiaries, as in effect as of the date of this Agreement. Neither Hometown nor any of Hometown's Subsidiaries is in violation of its articles of incorporation, bylaws or similar organizational documents. The minute books of Hometown and each of Hometown's Subsidiaries constitute a complete and correct record of all actions taken by their respective boards of directors (and each committee thereof) and their stockholders. (ee) HOMETOWN INFORMATION. The information regarding Hometown and its Subsidiaries to be supplied by Hometown for inclusion in the Registration Statement, any filings or approvals under applicable state securities laws, or any filing pursuant to Rule 165 or Rule 425 under the Securities Act will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. (ff) COMMUNITY REINVESTMENT ACT COMPLIANCE. Hometown National Bank is in material compliance with the applicable provisions of the CRA and the regulations promulgated thereunder, and Hometown National Bank currently has a CRA rating of satisfactory or better. To the knowledge of Hometown, there is no fact or circumstance or set of facts or circumstances that would cause Hometown National Bank to fail to comply with such provisions or cause the CRA rating of Hometown National Bank to fall below satisfactory. 29 33 (gg) TAX TREATMENT OF THE MERGER. Hometown has no knowledge of any fact or circumstance relating to it that would prevent the transactions contemplated by this Agreement from qualifying as a reorganization under Section 368 of the IRC. 3.3 REPRESENTATIONS AND WARRANTIES OF FIRST CAPITAL. First Capital represents and warrants to Hometown that, except as set forth in First Capital's Disclosure Letter: (a) ORGANIZATION AND QUALIFICATION. First Capital is a corporation duly organized, validly existing and in good standing under the laws of the State of Indiana and is registered with the OTS as a savings and loan holding company. First Capital has all requisite corporate power and authority to own, lease and operate its properties and to conduct the business currently being conducted by it. First Capital is duly qualified or licensed as a foreign corporation to transact business and is in good standing in each jurisdiction in which the character of the properties owned or leased by it or the nature of the business conducted by it makes such qualification or licensing necessary, except where the failure to be so qualified or licensed and in good standing would not have a Material Adverse Affect on First Capital. (b) SUBSIDIARIES. (i) First Capital owns of record and beneficially all the capital stock of each of its Subsidiaries free and clear of any Liens. There are no contracts, commitments, agreements or understandings relating to First Capital's right to vote or dispose of any equity securities of its Subsidiaries. First Capital's ownership interest in each of its Subsidiaries is in compliance with all applicable laws, rules and regulations relating to equity investments by savings and loan holding companies or federally chartered savings associations. (ii) Each of First Capital's Subsidiaries is a corporation duly organized and validly existing under the laws of its jurisdiction of incorporation, has all requisite corporate power and authority to own, lease and operate its properties and to conduct the business currently being conducted by it and is duly qualified or licensed as a foreign corporation to transact business and is in good standing in each jurisdiction in which the character of the properties owned or leased by it or the nature of the business conducted by it makes such qualification or licensing necessary, except where the failure to be so qualified or licensed and in good standing would not have a Material Adverse Affect on First Capital. (iii) The outstanding shares of capital stock of each Subsidiary have been validly authorized and are validly issued, fully paid and nonassessable. No shares of capital stock of any Subsidiary of First Capital are or may be required to be issued by virtue of any options, warrants or other rights, no securities exist that are convertible into or exchangeable for shares of such capital stock or any other debt or equity security of any Subsidiary, and there are no contracts, commitments, agreements or understandings of any kind for the issuance of additional shares of capital stock or other debt or equity security of any Subsidiary or options, warrants or other rights with respect to such securities. 30 34 (iv) No Subsidiary of First Capital other than First Harrison Bank is an "insured depository institution" as defined in the FDIA and the applicable regulations thereunder. First Harrison Bank is a qualified thrift lender pursuant to Section 10(m) of the HOLA and its deposits are insured by the FDIC through the Savings Association Insurance Fund to the fullest extent permitted by law. First Harrison Bank is a member in good standing of the Federal Home Loan Bank of Indianapolis. (c) CAPITAL STRUCTURE. (i) The authorized capital stock of First Capital consists of: (A) 5,000,000 shares of First Capital Common Stock; and (B) 1,000,000 shares of preferred stock, par value $.01 per share. (ii) As of the date of this Agreement: (A) 2,542,128 shares of First Capital Common Stock are issued and outstanding, all of which are validly issued, fully paid and nonassessable and were issued in full compliance with all applicable laws and not in violation of any preemptive rights; (B) no shares of First Capital preferred stock are issued and outstanding; and (C) 74,828 shares of First Capital Common Stock are reserved for issuance pursuant to outstanding grants or awards under First Capital's stock-based benefit plans. (iii) No bonds, debentures, notes or other indebtedness having the right to vote on any matters on which stockholders of First Capital may vote are issued or outstanding. (iv) Except as set forth in this SECTION 3.3(C), as of the date of this Agreement, (A) no shares of capital stock or other voting securities of First Capital are issued, reserved for issuance or outstanding and (B) neither First Capital nor any of its Subsidiaries has or is bound by any outstanding subscriptions, options, warrants, calls, rights, convertible securities, commitments or agreements of any character obligating First Capital or any of its Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or sold, any additional shares of capital stock of First Capital or obligating First Capital or any of its Subsidiaries to grant, extend or enter into any such option, warrant, call, right, convertible security, commitment or agreement. As of the date hereof, there are no outstanding contractual obligations of First Capital or any of its Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital stock of First Capital or any of its Subsidiaries. 31 35 (v) The shares of First Capital Common Stock to be issued in exchange for shares of Hometown Common Stock upon consummation of the Merger in accordance with this Agreement have been duly authorized and when issued in accordance with the terms of this Agreement, will be validly issued, fully paid and nonassessable and subject to no preemptive rights. (d) AUTHORITY. First Capital has all requisite corporate power and authority to enter into this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate actions on the part of First Capital's Board of Directors, and no other corporate proceedings on the part of First Capital are necessary to authorize this Agreement or to consummate the transactions contemplated by this Agreement. This Agreement has been duly and validly executed and delivered by First Capital and constitutes a valid and binding obligation of First Capital, enforceable against First Capital in accordance with its terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors' rights and remedies generally and to general principles of equity, whether applied in a court of law or a court of equity. (e) NO VIOLATIONS. The execution, delivery and performance of this Agreement by First Capital do not, and the consummation of the transactions contemplated by this Agreement (including the Bank Merger) by First Capital and First Harrison Bank will not, (i) assuming all required governmental approvals have been obtained and the applicable waiting periods have expired, violate any law, rule or regulation or any judgment, decree, order, governmental permit or license to which First Capital or any of its Subsidiaries (or any of their respective properties) is subject, (ii) violate the articles of incorporation or bylaws of First Capital or the similar organizational documents of any of its Subsidiaries or (iii) constitute a breach or violation of, or a default under (or an event which, with due notice or lapse of time or both, would constitute a default under), or result in the termination of, accelerate the performance required by, or result in the creation of any Lien upon any of the properties or assets of First Capital or any of its Subsidiaries under, any of the terms, conditions or provisions of any note, bond, indenture, deed of trust, loan agreement or other agreement, instrument or obligation to which First Capital or any of its Subsidiaries is a party, or to which any of their respective properties or assets may be subject except, in the case of (iii), for any such breaches, violations or defaults that would not, individually or in the aggregate, have a Material Adverse Effect on First Capital. (f) CONSENTS AND APPROVALS. No consents or approvals of, or filings or registrations with, any Governmental Entity or any third party are required to be made or obtained in connection with the execution and delivery by First Capital of this Agreement or the consummation by First Capital of the Merger and the other transactions contemplated by this Agreement, including the Bank Merger, except for (i) filings of applications and notices with, receipt of approvals or nonobjections from, and expiration of the related waiting period required 32 36 by, federal and state banking authorities, (ii) filing of the Registration Statement with the SEC and declaration by the SEC of the Registration Statement's effectiveness under the Securities Act, (iii) the registration or qualification of the shares of First Capital Common Stock to be issued in exchange for shares of First Capital Common Stock under state securities or "blue sky" laws and (iv) the listing of the shares of First Capital Common Stock to be issued in exchange for shares of First Capital Common Stock on the Nasdaq Stock Market. As of the date hereof, First Capital knows of no reason pertaining to First Capital why any of the approvals referred to in this SECTION 3.3(F) should not be obtained without the imposition of any material condition or restriction described in SECTION 6.1(B). (g) SECURITIES AND REGULATORY FILINGS. (i) First Capital has filed with the SEC all reports, schedules, registration statements, definitive proxy statements and other documents that it has been required to file under the Securities Act or the Exchange Act since December 31, 1998 (collectively, "FIRST CAPITAL'S REPORTS"). None of First Capital's Reports contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading. As of their respective dates, all of First Capital's Reports complied in all material respects with the applicable requirements of the Securities Act or the Exchange Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder. Each of the financial statements (including, in each case, any notes thereto) of First Capital included in First Capital's Reports complied as to form, as of their respective dates of filing with the SEC, in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto. (ii) First Capital and each Subsidiary of First Capital has filed with any Government Regulator all reports, schedules, registrations, and statements that it has been required to file since December 31, 1998 (collectively, "FIRST CAPITAL REGULATORY FILINGS"). As of their respective dates, each of the First Capital Regulatory Filings complied in all material respects with all of the laws, rules and regulations of the Government Regulator with which they were filed. None of the First Capital Regulatory Filings contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading. (h) FINANCIAL STATEMENTS. First Capital has previously made available to Hometown copies of (i) the consolidated balance sheets of First Capital and its Subsidiaries as of December 31, 2001 and 2000 and related consolidated statements of income, cash flows and changes in stockholders' equity for each of the years in the two-year period ended December 31, 2001, together with the notes thereto, accompanied by the audit report of First Capital's independent public auditors, as reported in First Capital's Annual Report on Form 10-KSB for the year ended December 31, 2001 filed with the SEC and (ii) the unaudited consolidated balance 33 37 sheet of First Capital and its Subsidiaries as of June 30, 2002 and the related consolidated statements of income and cash flows for the six months ended June 30, 2002 and 2001, as reported in First Capital's Quarterly Report on Form 10-QSB for the period ended June 30, 2002 filed with the SEC. Such financial statements were prepared from the books and records of First Capital and its Subsidiaries, fairly present the consolidated financial position of First Capital and its Subsidiaries in each case at and as of the dates indicated and the consolidated results of operations and cash flows of First Capital and its Subsidiaries for the periods indicated, and, except as otherwise set forth in the notes thereto, were prepared in accordance with GAAP consistently applied throughout the periods covered thereby; PROVIDED, HOWEVER, that the unaudited financial statements for interim periods are subject to normal year-end adjustments (which will not be material individually or in the aggregate) and lack a statement of changes in stockholders' equity and footnotes to the extent permitted under applicable regulations. The books and records of First Capital and its Subsidiaries have been, and are being, maintained in all respects in accordance with GAAP and any other legal and accounting requirements and reflect only actual transactions. (i) UNDISCLOSED LIABILITIES. Neither First Capital nor any of its Subsidiaries has incurred any debt, liability or obligation of any nature whatsoever (whether accrued, contingent, absolute or otherwise and whether due or to become due) other than liabilities reflected on or reserved against in the consolidated balance sheet of First Capital as of June 30, 2002 as included in First Capital's Quarterly Report on Form 10-QSB for the period ended June 30, 2002, except for (i) liabilities incurred since June 30, 2002 in the ordinary course of business consistent with past practice that, either alone or when combined with all similar liabilities, have not had, and would not reasonably be expected to have, a Material Adverse Effect on First Capital and (ii) liabilities incurred for legal, accounting, financial advising fees and out-of-pocket expenses in connection with the transactions contemplated by this Agreement. (j) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in First Capital's Reports filed with the SEC prior to the date of this Agreement, since June 30, 2002, (i) First Capital and its Subsidiaries have conducted their respective businesses only in the ordinary and usual course of such businesses consistent with their past practices and (ii) there has not been any event or occurrence that has had, or is reasonably expected to have, a Material Adverse Effect on First Capital. (k) LITIGATION. There are no suits, actions or legal, administrative or arbitration proceedings pending or, to the knowledge of First Capital, threatened against or affecting First Capital or any of its Subsidiaries or any property or asset of First Capital or any of its Subsidiaries that (i) individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect on First Capital or (ii) challenge the validity or propriety of the transactions contemplated by this Agreement. There are no judgments, decrees, injunctions, orders or rulings of any Governmental Entity or arbitrator outstanding against First Capital or any of its Subsidiaries that, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect on First Capital. 34 38 (l) ABSENCE OF REGULATORY ACTIONS. Since December 31, 1997, neither First Capital nor any of its Subsidiaries has been a party to any cease and desist order, written agreement or memorandum of understanding with, or any commitment letter or similar undertaking to, or has been subject to any action, proceeding, order or directive by any Government Regulator, or has adopted any board resolutions at the request of any Government Regulator, or has been advised by any Government Regulator that it is contemplating issuing or requesting (or is considering the appropriateness of issuing or requesting) any such action, proceeding, order, directive, written agreement, memorandum of understanding, commitment letter, board resolutions or similar undertaking. There are no unresolved violations, criticisms or exceptions by any Government Regulator with respect to any report or statement relating to any examinations of First Capital or its Subsidiaries. (m) COMPLIANCE WITH LAWS. First Capital and each of its Subsidiaries conducts its business in compliance with all statutes, laws, regulations, ordinances, rules, judgements, orders or decrees applicable to it or the employees conducting such business. First Capital and each of its Subsidiaries has all permits, licenses, certificates of authority, orders and approvals of, and has made all filings, applications and registrations with, all Governmental Entities that are required in order to permit it to carry on its business as it is presently conducted; all such permits, licenses, certificates of authority, orders and approvals are in full force and effect, and no suspension or cancellation of any of them is threatened. Neither First Capital nor any of its Subsidiaries has been given notice or been charged with any violation of, any law, ordinance, regulation, order, writ, rule, decree or condition to approval of any Governmental Entity which, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect on First Capital. (n) TAXES. All federal, state, local and foreign tax returns required to be filed by or on behalf of First Capital or any of its Subsidiaries have been timely filed or requests for extensions have been timely filed and any such extension shall have been granted and not have expired, and all such filed returns are complete and accurate in all material respects. All taxes shown on such returns, all taxes required to be shown on returns for which extensions have been granted and all other taxes required to be paid by First Capital or any of its Subsidiaries have been paid in full or adequate provision has been made for any such taxes on First Capital's balance sheet (in accordance with GAAP). There is no audit examination, deficiency assessment, tax investigation or refund litigation with respect to any taxes of First Capital or any of its Subsidiaries, and no claim has been made in writing by any authority in a jurisdiction where First Capital or any of its Subsidiaries do not file tax returns that First Capital or any such Subsidiary is subject to taxation in that jurisdiction. All taxes, interest, additions and penalties due with respect to completed and settled examinations or concluded litigation relating to First Capital or any of its Subsidiaries have been paid in full or adequate provision has been made for any such taxes on First Capital's balance sheet (in accordance with GAAP). First Capital and its Subsidiaries have not executed an extension or waiver of any statute of limitations on the assessment or collection of any tax due that is currently in effect. First Capital and each of its Subsidiaries has withheld and paid all taxes required to have been withheld and paid in 35 39 connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder or other third party, and First Capital and each of its Subsidiaries has timely complied with all applicable information reporting requirements under Part III, Subchapter A of Chapter 61 of the IRC and similar applicable state and local information reporting requirements. (o) AGREEMENTS. (i) First Capital and its Subsidiaries are not bound by any material contract (as defined in Item 601(b)(10) of Regulation S-K promulgated by the SEC), to be performed after the date hereof that has not been filed with First Capital's Reports. (ii) Neither First Capital nor any of its Subsidiaries is in default under (and no event has occurred which, with due notice or lapse of time or both, would constitute a default under) or is in violation of any provision of any note, bond, indenture, mortgage, deed of trust, loan agreement, lease or other agreement to which it is a party or by which it is bound or to which any of its respective properties or assets is subject and, to the knowledge of First Capital, no other party to any such agreement (excluding any loan or extension of credit made by First Capital or any of its Subsidiaries) is in default in any respect thereunder, except for such defaults or violations that would not, individually or in the aggregate, have a Material Adverse Effect on First Capital. (p) FIRST CAPITAL INFORMATION. The information regarding First Capital and its Subsidiaries to be supplied by First Capital for inclusion in the Registration Statement, any filings or approvals under applicable state securities laws, or any filing pursuant to Rule 165 or Rule 425 under the Securities Act or Rule 14a-12 under the Exchange Act will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Proxy Statement-Prospectus (except for such portions thereof that relate only to Hometown or any of its Subsidiaries) will comply as to form in all material respects with the provisions of the Exchange Act and the rules and regulations thereunder. The Registration Statement will comply as to form in all material respects with the provisions of the Securities Act and the rules and regulations thereunder. (q) ENVIRONMENTAL MATTERS. (i) Each of First Capital and its Subsidiaries and, to the knowledge of First Capital, the Participation Facilities and the Loan Properties are, and have been, in substantial compliance with all Environmental Laws. (ii) There is no suit, claim, action, demand, executive or administrative order, directive, investigation or proceeding pending or, to the knowledge of First Capital, threatened, before any court, governmental agency or board or other forum against First Capital or any of its Subsidiaries or any Participation Facility (A) for alleged noncompliance (including 36 40 by any predecessor) with, or liability under, any Environmental Law or (B) relating to the presence of or release into the environment of any Hazardous Material, whether or not occurring at or on a site owned, leased or operated by First Capital or any of its Subsidiaries or any Participation Facility. (iii) To the knowledge of First Capital, there is no suit, claim, action, demand, executive or administrative order, directive, investigation or proceeding pending or threatened before any court, governmental agency or board or other forum relating to or against any Loan Property (or First Capital or any of its Subsidiaries in respect of such Loan Property) (A) relating to alleged noncompliance (including by any predecessor) with, or liability under, any Environmental Law or (B) relating to the presence of or release into the environment of any Hazardous Material, whether or not occurring at a Loan Property. (iv) Neither First Capital nor any of its Subsidiaries has received any notice, demand letter, executive or administrative order, directive or request for information from any Governmental Entity or any third party indicating that it may be in violation of, or liable under, any Environmental Law. (v) There are no underground storage tanks at any properties owned or operated by First Capital or any of its Subsidiaries or, to the knowledge of First Capital, at any Participation Facility and no underground storage tanks have been closed or removed from any properties owned or operated by First Capital or any of its Subsidiaries or, to the knowledge of First Capital, any Participation Facility. (vi) During the period of (A) First Capital's or its Subsidiary's ownership or operation of any of their respective current properties or (B) First Capital's or its Subsidiary's participation in the management of any Participation Facility, there has been no release of Hazardous Materials in, on, under or affecting such properties. To the knowledge of First Capital, prior to the period of (A) First Capital's or its Subsidiary's ownership or operation of any of their respective current properties or (B) First Capital's or its Subsidiary's participation in the management of any Participation Facility, there was no contamination by or release of Hazardous Material in, on, under or affecting such properties. (r) COMMUNITY REINVESTMENT ACT COMPLIANCE. First Harrison Bank is in material compliance with the applicable provisions of the CRA and the regulations promulgated thereunder, and First Harrison Bank currently has a CRA rating of satisfactory or better. To the knowledge of First Capital, there is no fact or circumstance or set of facts or circumstances that would cause First Harrison Bank to fail to comply with such provisions or cause the CRA rating of First Harrison Bank to fall below satisfactory. (s) TAX TREATMENT OF THE MERGER. First Capital has no knowledge of any fact or circumstance relating to it that would prevent the transactions contemplated by this Agreement from qualifying as a reorganization under Section 368 of the IRC. 37 41 (t) AVAILABILITY OF FUNDS. First Capital has and will have available to it at the Effective Time, sources of capital sufficient to pay the aggregate Cash Consideration and to pay any other amounts payable pursuant to this Agreement and to effect the transactions contemplated hereby. ARTICLE IV CONDUCT PENDING THE MERGER 4.1 FORBEARANCES BY HOMETOWN. Except as expressly contemplated or permitted by this Agreement, and except to the extent required by law or regulation or any Governmental Entity, during the period from the date of this Agreement to the Effective Time, Hometown shall not, nor shall Hometown permit any of its Subsidiaries to, without the prior written consent of First Capital, which consent shall not be unreasonably withheld: (a) conduct its business other than in the regular, ordinary and usual course consistent with past practice; fail to maintain and preserve intact its business organization, properties, leases, employees and advantageous business relationships and retain the services of its officers and key employees; or take any action that would adversely affect or delay its ability to perform its obligations under this Agreement or to consummate the transactions contemplated hereby; (b) (i) incur, modify, extend or renegotiate any indebtedness for borrowed money, or assume, guarantee, endorse or otherwise as an accommodation become responsible for the obligations of any other individual, corporation or other entity, other than the creation of deposit liabilities, purchases of Federal Funds, borrowings from the Federal Home Loan Bank or the Federal Reserve Bank of St. Louis that mature within one year, entry into repurchase agreements fully secured by U.S. government agency securities, bankers acceptances, treasury tax and loan accounts established in the ordinary course of business, and sales of certificates of deposit that mature within five years; (ii) purchase any brokered certificates of deposit; or (iii) prepay any indebtedness or other similar arrangements so as to cause Hometown to incur any prepayment penalty thereunder; (c) (i) adjust, split, combine or reclassify any capital stock; (ii) make, declare or pay any dividend, or make any other distribution on its capital stock; (iii) grant any individual, corporation or other entity any right to acquire any shares of its capital stock; or 38 42 (iv) issue any additional shares of capital stock or any securities or obligations convertible or exercisable for any shares of its capital stock; (d) sell, transfer, mortgage, encumber or otherwise dispose of any of its material properties or assets to any individual, corporation or other entity other than a Subsidiary, or cancel, release or assign any indebtedness to any such person or any claims held by any such person, except in the ordinary course of business consistent with past practice or pursuant to contracts or agreements in force at the date of this Agreement; (e) except pursuant to contracts or agreements in force at the date of or permitted by this Agreement, make any equity investment, either by purchase of stock or securities, contributions to capital, property transfers (other than foreclosures in connection with satisfaction of loans in the ordinary course of Hometown National Bank's business), or purchase outside the ordinary course of business of any property or assets of any other individual, corporation or other entity; (f) enter into, renew, amend or terminate any contract or agreement, or make any change in any of its leases or contracts, other than with respect to those involving aggregate payments of less than, or the provision of goods or services with a market value of less than, $20,000 per annum and other than contracts or agreements covered by SECTION 4.1(G); (g) make, renegotiate, renew, increase, extend, modify or purchase any loan, lease (credit equivalent), advance, credit enhancement or other extension of credit, or make any commitment in respect of any of the foregoing, except (i) in conformity with existing lending practices in amounts not to exceed an aggregate of $350,000, or $500,000 if such loan is approved at a meeting of the Board of Directors of Hometown National Bank, with respect to any individual borrower or (ii) loans or advances as to which Hometown has a binding obligation to make such loans or advances as of the date hereof; (h) except for loans or extensions of credit made on terms generally available to the public, make or increase any loan or other extension of credit, or commit to make or increase any such loan or extension of credit, to any director or executive officer of Hometown or Hometown National Bank, or any entity controlled, directly or indirectly, by any of the foregoing; (i) (i) increase in any manner the compensation or fringe benefits of any of its employees or directors other than in the ordinary course of business consistent with past practice and pursuant to policies currently in effect, or pay any bonus, pension, retirement allowance or contribution not required by any existing plan or agreement to any such employees or directors; (ii) become a party to, amend or commit itself to any pension, retirement, profit-sharing or welfare benefit plan or agreement or employment agreement with or for the benefit of any employee or director; 39 43 (iii) voluntarily accelerate the vesting of, or the lapsing of restrictions with respect to, any stock options or other stock-based compensation; or (iv) elect to any senior executive office any person who is not a member of its senior executive officer team as of the date of this Agreement or elect to its Board of Directors any person who is not a member of its Board of Directors as of the date of this Agreement, or hire any employee with annual compensation in excess of $50,000; (j) settle any claim, action or proceeding involving payment by it of money damages in excess of $25,000 or impose any material restriction on its operations or the operations of any of its Subsidiaries; (k) amend its articles of incorporation or bylaws, or similar governing documents; (l) restructure or materially change its investment securities portfolio or its interest rate risk position, through purchases, sales or otherwise, or the manner in which the portfolio is classified or reported; (m) make any investment in any debt security, including mortgage-backed and mortgage-related securities, other than U.S. government and U.S. government agency securities with final maturities not greater than one year; (n) make any capital expenditures other than pursuant to binding commitments existing on the date hereof and other than expenditures necessary to maintain existing assets in good repair or to make payment of necessary taxes or other obligations due and owing; (o) establish or commit to the establishment of any new branch or other office facilities or file any application to relocate or terminate the operation of any banking office; (p) take any action that is intended or expected to result in any of its representations and warranties set forth in this Agreement being or becoming untrue in any material respect at any time prior to the Effective Time such that the conditions specified in SECTION 6.2(A) cannot be satisfied, or in any of the conditions to the Merger set forth in Article VI not being satisfied or in a violation of any provision of this Agreement; (q) implement or adopt any change in its accounting principles, practices or methods, other than as may be required by GAAP or regulatory guidelines; (r) knowingly take any action that would prevent or impede the Merger from qualifying as a reorganization within the meaning of Section 368 of the IRC; or 40 44 (s) agree to take, make any commitment to take, or adopt any resolutions of its board of directors in support of, any of the actions prohibited by this SECTION 4.1. Any request by Hometown or response thereto by First Capital shall be made in accordance with the notice provisions of SECTION 8.7 and shall note that it is a request pursuant to this SECTION 4.1. First Capital shall be deemed to consent and agree to any request hereunder to the extent it does not respond thereto within five business days. 4.2 FORBEARANCES BY FIRST CAPITAL. Except as expressly contemplated or permitted by this Agreement, and except to the extent required by law or regulation or any Governmental Entity, during the period from the date of this Agreement to the Effective Time, First Capital shall not, nor shall First Capital permit any of its Subsidiaries to, without the prior written consent of Hometown, which shall not unreasonably be withheld: (a) take any action that would adversely affect or delay its ability to perform its obligations under this Agreement or to consummate the transactions contemplated hereby; (b) take any action that is intended to or expected to result in any of its representations and warranties set forth in this Agreement being or becoming untrue in any material respect at any time prior to the Effective Time such that the conditions specified in SECTION 6.3(A) cannot be satisfied, or in any of the conditions to the Merger set forth in Article VI not being satisfied or in a violation of any provision of this Agreement; (c) knowingly take any action that would prevent or impede the Merger from qualifying as a reorganization withing the meaning of Section 368 of the IRC; (d) amend its articles of incorporation or bylaws in a manner that would materially and adversely effect the benefits of the Merger to the stockholders of Hometown; (e) enter into any agreement with respect to an Acquisition Proposal with a third party that (i) reasonably could be expected to result in the Merger not being consummated or (ii) that would be consummated prior to the Closing Date and would effect a change in the kind of Merger Consideration to be received by stockholders of Hometown; or (f) agree to take, make any commitment to take, or adopt any resolutions of its Board of Directors in support of, any of the actions prohibited by this SECTION 4.2. 41 45 ARTICLE V COVENANTS 5.1 ACQUISITION PROPOSALS. (a) Except as permitted by this Agreement, neither Hometown, its Subsidiaries nor the officers and directors of Hometown or any of its Subsidiaries shall, and Hometown shall use all reasonable efforts to cause its employees and agents, including any investment banker, financial advisor, attorney, accountant or other representative retained by Hometown or any of its Subsidiaries, not to, directly or indirectly, (i) solicit, initiate or encourage (including by way of furnishing non-public information), or take any other action to facilitate, any inquiries, discussions or the making of any proposal that constitutes or could reasonably be expected to lead to an Acquisition Proposal, (ii) participate in any discussions or negotiations, or otherwise communicate in any way with any person (other than First Capital), regarding an Acquisition Proposal or (iii) enter into or consummate any agreement requiring it to abandon, terminate or fail to consummate the transactions contemplated hereby. Notwithstanding the foregoing, Hometown may, in response to an Acquisition Proposal that reasonably is expected to result in a Superior Proposal that has not been withdrawn and that did not otherwise result from a breach of this SECTION 5.1, (x) furnish non-public information with respect to Hometown to the person who made such Acquisition Proposal pursuant to a confidentiality agreement on terms no more favorable to such person than the confidentiality agreement between First Capital and Hometown dated August 7, 2002 and (y) participate in discussions or negotiations with such person regarding such Acquisition Proposal, if and so long as Hometown's Board of Directors determines in good faith, after consultation with and based upon the advice of its outside legal counsel, that such action is required in order for the Board of Directors to comply with its fiduciary duties under applicable law. (b) Hometown will notify First Capital immediately orally (within one day) and in writing (within three days) of any Acquisition Proposal, any request for non-public information that could reasonably be expected to lead to an Acquisition Proposal, or any inquiry with respect to or that could reasonably be expected to lead to an Acquisition Proposal, including, in each case, the identity of the person making such Acquisition Proposal, request or inquiry and the terms and conditions thereof. Hometown will keep First Capital informed of any developments with respect to any such Acquisition Proposal, request or inquiry immediately upon the occurrence thereof. (c) Hometown will immediately cease and cause to be terminated any existing activities, discussions or negotiations with any parties conducted heretofore that relate to any Acquisition Proposal. Hometown will take the necessary steps to inform the appropriate individuals or entities referred to in the first sentence of SECTION 5.1(A) of the obligations undertaken in this SECTION 5.1. Hometown will promptly request each person (other than First Capital) that has executed a confidentiality agreement prior to the date hereof in connection with its consideration of a business combination with Hometown or any of its Subsidiaries to return or 42 46 destroy all confidential information previously furnished to such person by or on behalf of Hometown or any of its Subsidiaries. Hometown shall not release any third party from, or waive any provisions of, any confidentiality agreements or standstill agreement to which it or any of its Subsidiaries is a party. 5.2 CERTAIN POLICIES AND ACTIONS OF HOMETOWN. At the request of First Capital, Hometown shall cause Hometown National Bank to modify and change its loan, litigation and real estate valuation policies and practices (including loan classifications and levels of reserves) and investment and asset/liability management policies and practices so as to be consistent with those of First Harrison Bank; PROVIDED, HOWEVER, that Hometown shall not be required to take such action prior to the date on which the conditions set forth in SECTIONS 6.1(A), 6.1(B) and 6.1(E) have been satisfied, and until after receipt of written confirmation from First Capital that it is not aware of any fact or circumstance that would prevent completion of the Merger, and PROVIDED FURTHER, that such policies and procedures are not prohibited by GAAP or any applicable laws and regulations. Hometown's representations, warranties and covenants contained in this Agreement shall not be deemed to be untrue or breached in any respect for any purpose as a consequence of any modifications or changes undertaken solely on account of this SECTION 5.2. 5.3 ACCESS AND INFORMATION. (a) Upon reasonable notice, Hometown shall (and shall cause Hometown's Subsidiaries to) afford First Capital and its representatives (including, without limitation, directors, officers and employees of First Capital and its affiliates and counsel, accountants and other professionals retained by First Capital) such reasonable access during normal business hours throughout the period prior to the Effective Time to the books, records (including, without limitation, tax returns and work papers of independent auditors), contracts, properties, personnel and to such other information relating to Hometown and Hometown's Subsidiaries as First Capital may reasonably request. Upon reasonable notice, First Capital shall (and shall cause First Capital's Subsidiaries to) afford Hometown and its representatives (including, without limitation, directors, officers and employees of Hometown and its affiliates and counsel, accountants and other professionals retained by Hometown) such reasonable access during normal business hours throughout the period prior to the Effective Time to the executive officers of First Capital and to such information regarding First Capital and its Subsidiaries as Hometown may reasonably request. No investigation by any party pursuant to this SECTION 5.3 shall affect or be deemed to modify any representation or warranty made by the other party in this Agreement. (b) From the date hereof until the Effective Time, Hometown shall, and shall cause Hometown's Subsidiaries to, promptly provide First Capital with (i) a copy of each report, schedule, registration statement and other document filed or received by it pursuant to the requirements of the Securities Act or the Exchange Act, (ii) a copy of each report filed with federal or state banking regulators, (iii) a copy of each periodic report to its senior management and all materials relating to its business or operations furnished to its Board of Directors, (iv) a copy of each press release made available to the public and (v) all other information concerning 43 47 its business, properties and personnel as First Capital may reasonably request. Notwithstanding the foregoing, neither Hometown nor its Subsidiaries shall be required to provide access to or to disclose information where such access or disclosure would violate the rights of such entity's customers, jeopardize the attorney-client privilege of the entity in possession or control of such information, or contravene any law, rule, regulation, order, judgment, decree or binding agreement entered into prior to the date of this Agreement. The parties hereto will make appropriate substitute disclosure arrangements under circumstances in which the restrictions of the previous sentence apply. (c) Each of First Capital and Hometown agrees that it will not, and will cause its representatives not to, use any information obtained pursuant to this SECTION 5.3 for any purpose unrelated to the consummation of the transactions contemplated by this Agreement. Subject to the requirements of applicable law, each of First Capital and Hometown agrees that it will keep confidential, and will cause its representatives to keep confidential, all information and documents obtained pursuant to this SECTION 5.3 unless such information (i) was already known to it or an affiliate of it, other than pursuant to a confidentiality agreement or other confidential relationship, (ii) becomes available to it or an affiliate of it from other sources not known by such party to be bound by a confidentiality agreement or other obligation of secrecy, (iii) is disclosed with the prior written approval of the other party or (iv) is or becomes readily ascertainable from published information or trade sources. (d) From and after the date hereof, representatives First Capital and Hometown shall meet on a regular basis to discuss and plan for the conversion of Hometown's and its Subsidiaries' data processing and related electronic informational systems to those used by First Capital and its Subsidiaries with the goal of conducting such conversion simultaneously with the consummation of the Bank Merger. 5.4 APPLICATIONS; CONSENTS. (a) The parties hereto shall cooperate with each other and shall use their reasonable best efforts to prepare and file as soon as practicable after the date hereof all necessary applications, notices and filings to obtain all permits, consents, approvals and authorizations of all Governmental Entities that are necessary or advisable to consummate the transactions contemplated by this Agreement. Hometown and First Capital shall furnish each other with all information concerning themselves, their respective subsidiaries, and their and their respective subsidiaries' directors, officers and stockholders and such other matters as may be reasonably necessary or advisable in connection with any application, notice or filing made by or on behalf of First Capital, Hometown or any of their respective subsidiaries to any Governmental Entity in connection with the transactions contemplated by this Agreement and the Plan of Bank Merger. First Capital and Hometown shall have the right to review in advance, and to the extent practicable each will consult with the other on, all the information relating to First Capital and Hometown, as the case may be, and any of their respective subsidiaries, that appears in any filing 44 48 made with, or written materials submitted to, any Governmental Entity pursuant to this SECTION 5.4(A). (b) As soon as practicable after the date hereof, each of the parties hereto shall, and they shall cause their respective subsidiaries to, use its best efforts to obtain any consent, authorization or approval of any third party that is required to be obtained in connection with the transactions contemplated by this Agreement and the Plan of Bank Merger. 5.5 ANTITAKEOVER PROVISIONS. Each party and its Subsidiaries shall take all steps required by any relevant federal or state law or regulation or under any relevant agreement or other document to exempt or continue to exempt First Capital, First Harrison Bank, the Agreement, the Plan of Bank Merger and the Merger from any provisions of an antitakeover nature in their respective articles of incorporation and bylaws, or similar organizational documents, and the provisions of any federal or state antitakeover laws. 5.6 ADDITIONAL AGREEMENTS. Subject to the terms and conditions herein provided, each of the parties hereto agrees to use all reasonable efforts to take promptly, or cause to be taken promptly, all actions and to do promptly, or cause to be done promptly, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement as expeditiously as possible, including using efforts to obtain all necessary actions or non-actions, extensions, waivers, consents and approvals from all applicable Governmental Entities, effecting all necessary registrations, applications and filings (including, without limitation, filings under any applicable state securities laws) and obtaining any required contractual consents and regulatory approvals. 5.7 PUBLICITY. The initial press release announcing this Agreement shall be a joint press release and thereafter Hometown and First Capital shall consult with each other prior to issuing any press releases or otherwise making public statements with respect to the Merger and any other transaction contemplated hereby and in making any filings with any Governmental Entity or with any national securities exchange or market with respect thereto; PROVIDED, HOWEVER, that nothing in this SECTION 5.7 shall be deemed to prohibit any party from making any disclosure which its counsel deems necessary in order to satisfy such party's disclosure obligations imposed by law. 5.8 STOCKHOLDER MEETING. Hometown will submit to its stockholders this Agreement and any other matters required to be approved or adopted by stockholders in order to carry out the intentions of this Agreement. In furtherance of that obligation, Hometown will take, in accordance with applicable law and its articles of incorporation and bylaws, all action necessary to call, give notice of, convene and hold a meeting of its stockholders (the "STOCKHOLDER MEETING") as promptly as practicable for the purpose of considering and voting on approval and adoption of this Agreement and the transactions provided for in this Agreement. Unless Hometown's Board of Directors submits this Agreement to the Hometown stockholders without a recommendation of approval, Hometown's Board of Directors will use all reasonable best 45 49 efforts to obtain from Hometown's stockholders a vote approving this Agreement. Except as provided in this Agreement or required by law, (i) Hometown's Board of Directors shall recommend to Hometown's stockholders approval of this Agreement, (ii) the Proxy Statement- Prospectus shall include a statement to the effect that Hometown's Board of Directors has recommended that Hometown's stockholders vote in favor of the approval of this Agreement and (iii) neither Hometown's Board of Directors nor any committee thereof shall withdraw, amend or modify, or propose or resolve to withdraw, amend or modify in a manner adverse to First Capital, the recommendation of Hometown's Board of Directors that Hometown's stockholders vote in favor of approval of this Agreement or make any statement in connection with the Stockholder Meeting inconsistent with such recommendation. Notwithstanding the foregoing, if Hometown's Board of Directors, after consultation with and based on the advice of counsel, determines in good faith that it would result in a violation of its fiduciary duties under applicable law to recommend this Agreement, then in submitting the Agreement to stockholders at the Stockholder Meeting it may submit the Agreement without recommendation of approval, in which case the Board of Directors may communicate the basis for its lack of a recommendation of approval to the stockholders in the Proxy Statement-Prospectus or an appropriate amendment or supplement thereto to the extent required by law. 5.9 REGISTRATION OF FIRST CAPITAL COMMON STOCK. (a) As promptly as reasonably practicable following the date hereof, First Capital shall prepare and file with the SEC a registration statement on Form S-4 with respect to the issuance of First Capital Common Stock in the Merger (such Form S-4, and any amendments or supplements thereto, the "REGISTRATION STATEMENT"). The Registration Statement shall contain proxy materials relating to the matters to be submitted to the Hometown stockholders at the Stockholders Meeting, which shall also constitute the prospectus relating to the shares of First Capital Common Stock to be issued in the Merger (such proxy statement/prospectus, and any amendments or supplements thereto, the "PROXY STATEMENT-PROSPECTUS"). Hometown will furnish to First Capital the information required to be included in the Registration Statement with respect to its business and affairs and shall have the right to review and consult with First Capital and approve the form of, and any characterizations of such information included in, the Registration Statement prior to its being filed with the SEC. First Capital shall use reasonable best efforts to have the Registration Statement declared effective by the SEC and to keep the Registration Statement effective as long as is necessary to consummate the Merger and the transactions contemplated hereby. Hometown will use reasonable best efforts to cause the Proxy Statement-Prospectus to be mailed to Hometown's stockholders as promptly as practicable after the Registration Statement is declared effective under the Securities Act. First Capital will advise Hometown, promptly after it receives notice thereof, of the time when the Registration Statement has become effective, the issuance of any stop order, the suspension of the qualification of the First Capital Common Stock issuable in connection with the Merger for offering or sale in any jurisdiction, or any request by the SEC for amendment of the Proxy Statement-Prospectus or the Registration Statement. If at any time prior to the Effective Time any information relating to First Capital or Hometown, or any of their respective affiliates, officers or directors, should be 46 50 discovered by First Capital or Hometown which should be set forth in an amendment or supplement to any of the Registration Statement or the Proxy Statement-Prospectus so that any of such documents would not include any misstatement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, the party which discovers such information shall promptly notify the other party hereto and, to the extent required by law, rules or regulations, an appropriate amendment or supplement describing such information shall be promptly filed by First Capital with the SEC and disseminated by Hometown to the stockholders of Hometown. (b) First Capital shall also take any action required to be taken under any applicable state securities laws in connection with the Merger and each of Hometown and First Capital shall furnish all information concerning it and the holders of Hometown Common Stock as may be reasonably requested in connection with any such action. (c) Prior to the Effective Time, First Capital shall notify The Nasdaq Stock Market of the additional shares of First Capital Common Stock to be issued by First Capital in exchange for the shares of Hometown Common Stock. 5.10 AFFILIATE LETTERS. Hometown shall use its best efforts to cause each director, executive officer and other person who is an "affiliate" of Hometown under Rule 145 of the Securities Act to deliver to First Capital as soon as practicable and prior to the mailing of the Proxy Statement-Prospectus executed letter agreements, each substantially in the form attached hereto as Exhibit C, --------- providing that such person will comply with Rule 145. 5.11 NOTIFICATION OF CERTAIN MATTERS. Each party shall give prompt notice to the other of: (i) any event or notice of, or other communication relating to, a default or event that, with notice or lapse of time or both, would become a default, received by it or any of its Subsidiaries subsequent to the date of this Agreement and prior to the Effective Time, under any contract material to the financial condition, properties, businesses or results of operations of each party and its Subsidiaries taken as a whole to which each party or any Subsidiary is a party or is subject; and (ii) any event, condition, change or occurrence which individually or in the aggregate has, or which, so far as reasonably can be foreseen at the time of its occurrence, is reasonably likely to result in a Material Adverse Effect. Each of Hometown and First Capital shall give prompt notice to the other party of any notice or other communication from any third party alleging that the consent of such third party is or may be required in connection with any of the transactions contemplated by this Agreement. 5.12 EMPLOYEE BENEFITS MATTERS. (a) Subject to determination of its staffing needs, First Capital desires to retain substantially all of the employees of Hometown National Bank following the Effective Time. All persons who are employees of Hometown National Bank immediately prior to the Effective Time and whose employment is not specifically terminated at or prior to the Effective Time (a 47 51 "CONTINUING EMPLOYEE") shall, at the Effective Time, become employees of First Harrison Bank; PROVIDED, HOWEVER, that in no event shall any of Hometown National Bank's employees be officers of First Harrison Bank, or have or exercise any power or duty conferred upon such an officer, unless and until duly elected or appointed to such position in accordance with the bylaws of First Harrison Bank. All of the Continuing Employees shall be employed at the will of First Harrison Bank and no contractual right to employment shall inure to such employees because of this Agreement. (b) As of the Effective Time, First Capital shall make available employer- provided health and other employee welfare benefit plans to each Continuing Employee on the same basis as it provides such coverage to First Capital employees except that any pre-existing condition, eligibility waiting period or other limitations or exclusions otherwise applicable under such plans to new employees shall not apply to a Continuing Employee or their covered dependents who were covered under a similar Hometown plan at the Effective Time of the Merger. (c) As of the Effective Time, each Continuing Employee shall be eligible to participate in First Capital's 401(k) plan and employee stock ownership plan with full credit for prior service with Hometown for purposes of eligibility and vesting. As soon as administratively practicable following the Effective Time, First Capital shall cause Hometown's 401(k) plan to be merged into First Capital's 401(k) plan. (d) First Capital agrees to honor in accordance with their terms all benefits vested as of the Effective Time under the Hometown Employee Plans and all vested benefits or other vested amounts earned or accrued through such time under contracts, arrangement commitments or understandings described in Hometown's Disclosure Letter, including benefits which vest or are otherwise accrued as a result of the consummation of the transactions contemplated by this Agreement. (e) Except as otherwise provided in Hometown's Disclosure Letter, each Hometown employee who is terminated at the Effective Time and each Continuing Employee who is terminated within 12 months of the Effective Time (other than for cause) shall receive a severance payment equal to the greater of (i) two weeks salary for every year of employment with Hometown or (ii) one month's salary. 5.13 INDEMNIFICATION. (a) From and after the Effective Time through the sixth anniversary of the Effective Time, First Capital agrees to indemnify and hold harmless each present and former director and officer of Hometown and its Subsidiaries and each officer or employee of Hometown and its Subsidiaries that is serving or has served as a director or trustee of another entity expressly at Hometown's request or direction (each, an "INDEMNIFIED PARTY"), against any costs or expenses (including reasonable attorneys' fees), judgments, fines, amounts paid in 48 52 settlement, losses, claims, damages or liabilities incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of matters existing or occurring at or prior to the Effective Time (including the transactions contemplated by this Agreement), whether asserted or claimed prior to, at or after the Effective Time, as they are from time to time incurred, in each case to the fullest extent such person would have been indemnified or have the right to advancement of expenses pursuant to the articles of incorporation and bylaws of Hometown and its Subsidiaries, as applicable, as in effect on the date of this Agreement and to the fullest extent permitted by law. (b) Any Indemnified Party wishing to claim indemnification under SECTION 5.13(A), upon learning of any such claim, action, suit, proceeding or investigation, shall promptly notify First Capital thereof, but the failure to so notify shall not relieve First Capital of any liability it may have hereunder to such Indemnified Party if such failure does not materially and substantially prejudice First Capital. (c) First Capital shall maintain Hometown's existing directors' and officers' liability insurance policy (or provide a policy providing comparable coverage and amounts on terms no less favorable to the persons currently covered by Hometown's existing policy, including First Capital's existing policy if it meets the foregoing standard) covering persons who are currently covered by such insurance for a period of six years after the Effective Time; PROVIDED, HOWEVER, that in no event shall First Capital be obligated to expend, in order to maintain or provide insurance coverage pursuant to this SECTION 5.13(C), an amount per annum in excess of 150% of the amount of the annual premiums paid by Hometown as of the date hereof for such insurance ("MAXIMUM INSURANCE AMOUNT"); PROVIDED FURTHER, that if the amount of the annual premiums necessary to maintain or procure such insurance coverage exceeds the Maximum Insurance Amount, First Capital shall obtain the most advantageous coverage obtainable for an annual premium equal to the Maximum Insurance Amount. (d) In the event First Capital or any of its successors or assigns (i) consolidates with or merges into any other person or entity and shall not be the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers or conveys all or substantially all of its properties and assets to any person or entity, then, and in each such case, to the extent necessary, proper provision shall be made so that the successors and assigns of First Capital assume the obligations set forth in this SECTION 5.13. (e) The provisions of this SECTION 5.13 are intended to be for the benefit of, and shall be enforceable by, each Indemnified Party and his or her representatives. 5.14 ADVISORY BOARD. For a period of two years from the Effective Time or such longer time as First Capital in its sole discretion shall determine, First Capital shall maintain an advisory board for the purpose of advising First Capital on the operations of Hometown National Bank. Each of the non-employee directors of Hometown as of the Effective Time shall be 49 53 invited to serve on the advisory board. Each advisory director shall be paid $150 per meeting attended. ARTICLE VI CONDITIONS TO CONSUMMATION 6.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS. The respective obligations of each party to effect the Merger shall be subject to the satisfaction of the following conditions: (a) STOCKHOLDER APPROVAL. This Agreement shall have been approved by the requisite vote of Hometown's stockholders in accordance with applicable laws and regulations. (b) REGULATORY APPROVALS. All approvals, consents or waivers of any Governmental Entity required to permit consummation of the transactions contemplated by this Agreement shall have been obtained and shall remain in full force and effect, and all statutory waiting periods shall have expired; PROVIDED, HOWEVER, that none of such approvals, consents or waivers shall contain any condition or requirement that would so materially and adversely impact the economic or business benefits to First Capital of the transactions contemplated hereby that, had such condition or requirement been known, First Capital would not, in its reasonable judgment, have entered into this Agreement. (c) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No party hereto shall be subject to any order, decree or injunction of a court or agency of competent jurisdiction that enjoins or prohibits the consummation of the Merger or the Bank Merger and no Governmental Entity shall have instituted any proceeding for the purpose of enjoining or prohibiting the consummation of the Merger or the Bank Merger or any transactions contemplated by this Agreement. No statute, rule or regulation shall have been enacted, entered, promulgated or enforced by any Governmental Entity which prohibits or makes illegal consummation of the Merger. (d) REGISTRATION STATEMENT; BLUE SKY LAWS. The Registration Statement shall have been declared effective by the SEC and no proceedings shall be pending or threatened by the SEC to suspend the effectiveness of the Registration Statement, and First Capital shall have received all required approvals by state securities or "blue sky" authorities with respect to the transactions contemplated by this Agreement. (e) THIRD PARTY CONSENTS. First Capital and Hometown shall have obtained the consent or approval of each person (other than the governmental approvals or consents referred to in SECTION 6.1(B)) whose consent or approval shall be required to consummate the transactions contemplated by this Agreement, except those for which failure to obtain such consents and approvals would not, individually or in the aggregate, have a Material Adverse Effect on First Capital (after giving effect to the consummation of the transactions contemplated hereby). 50 54 (f) TAX OPINIONS. First Capital and Hometown shall have received opinions of Muldoon Murphy & Faucette LLP, dated as of the Closing Date, in form and substance customary in transactions of the type contemplated hereby, and reasonably satisfactory to Hometown and First Capital, as the case may be, substantially to the effect that on the basis of the facts, representations and assumptions set forth in such opinions which are consistent with the state of facts existing at the Effective Time, (i) the Merger will be treated for federal income tax purposes as a reorganization within the meaning of Section 368(a) of the IRC, (ii) First Capital and Hometown will each be a party to that reorganization within the meaning of Section 368(b) of the IRC and (iii) except to the extent of any cash received in lieu of a fractional share interest in First Capital Common Stock, no gain or loss will be recognized by the stockholders of Hometown who exchange their Hometown Common Stock for First Capital Common Stock pursuant to the Merger. Such opinions may be based on, in addition to the review of such matters of fact and law as counsel considers appropriate, representations contained in certificates of officers of First Capital, Hometown and others. 6.2 CONDITIONS TO THE OBLIGATIONS OF FIRST CAPITAL. The obligations of First Capital to effect the Merger shall be further subject to the satisfaction of the following additional conditions, any one or more of which may be waived by First Capital: (a) HOMETOWN'S REPRESENTATIONS AND WARRANTIES. Each of the representations and warranties of Hometown contained in SECTIONS 3.2(A) (except as relates to qualification), (B) (except as relates to qualification), (C), (D), (E)(I) and (II), (Y) and (GG) of this Agreement shall be true and correct (except for inaccuracies that are de minimis) as of the date of this Agreement and as of the Closing Date as though made at and as of the Closing Date, and there shall not exist any inaccuracies in the representations and warranties of Hometown contained in this Agreement (including the representations and warranties set forth in the Sections designated above) such that the effect of such inaccuracies individually or in the aggregate has, or is reasonably likely to have, a Material Adverse Effect on Hometown. (b) PERFORMANCE OF HOMETOWN'S OBLIGATIONS. Hometown shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Effective Time. (c) OFFICERS' CERTIFICATE. First Capital shall have received a certificate signed by the chief executive officer and the chief financial or principal accounting officer of Hometown to the effect that the conditions set forth in SECTIONS 6.2(A) and (B) have been satisfied. (d) MINIMUM BOOK VALUE. The total stockholder's equity of Hometown as of December 31, 2002 as shown on its audited consolidated balance sheet as of such date shall not be less than $6,800,000, exclusive of the effect of (i) any payments made or expenses incurred by Hometown after June 30, 2002 in connection with the execution, performance and consummation of this Agreement and (ii) any actions taken by Hometown at the request of First Capital pursuant to SECTION 5.2. 51 55 6.3 CONDITIONS TO THE OBLIGATIONS OF HOMETOWN. The obligations of Hometown to effect the Merger shall be further subject to the satisfaction of the following additional conditions, any one or more of which may be waived by Hometown: (a) FIRST CAPITAL'S REPRESENTATIONS AND WARRANTIES. Each of the representations and warranties of First Capital contained in SECTIONS 3.3(A) (except as relates to qualification), (B) (except as relates to qualification), (C), (D), (E)(I) and (II), and (R) of this Agreement shall be true and correct (except for inaccuracies that are de minimis) as of the date of this Agreement and as of the Closing Date as though made at and as of the Closing Date, and there shall not exist any inaccuracies in the representations and warranties of First Capital contained in this Agreement (including the representations and warranties set forth in the Sections designated above) such that the effect of such inaccuracies individually or in the aggregate has, or is reasonably likely to have, a Material Adverse Effect on First Capital. (b) PERFORMANCE OF FIRST CAPITAL'S OBLIGATIONS. First Capital shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Effective Time. (c) OFFICERS' CERTIFICATE. Hometown shall have received a certificate signed by the chief executive officer and the chief financial or principal accounting officer of First Capital to the effect that the conditions set forth in SECTIONS 6.3(A) and (B) have been satisfied. (d) DEPOSIT OF MERGER CONSIDERATION. First Capital shall have deposited with the Exchange Agent sufficient cash to pay the aggregate Cash Consideration. ARTICLE VII TERMINATION 7.1 TERMINATION. This Agreement may be terminated, and the Merger abandoned, at any time prior to the Effective Time, by action taken or authorized by the Board of Directors of the terminating party, either before or after any requisite stockholder approval: (a) by the mutual written consent of First Capital and Hometown; or (b) by either First Capital or Hometown, in the event of the failure of Hometown's stockholders to approve the Agreement at the Stockholder Meeting; PROVIDED, HOWEVER, that Hometown shall only be entitled to terminate the Agreement pursuant to this clause if it has complied in all material respects with its obligations under SECTION 5.8; or (c) by either First Capital or Hometown, if either (i) any approval, consent or waiver of a Governmental Entity required to permit consummation of the transactions contemplated by this Agreement shall have been denied or (ii) any Governmental Entity of 52 56 competent jurisdiction shall have issued a final, unappealable order enjoining or otherwise prohibiting consummation of the transactions contemplated by this Agreement; or (d) by either First Capital or Hometown, in the event that the Merger is not consummated by June 30, 2003 unless the failure to so consummate by such time is due to the failure of the party seeking to terminate this Agreement to perform or observe the covenants and agreements of such party set forth herein; or (e) by either First Capital or Hometown (provided that the party seeking termination is not then in material breach of any representation, warranty, covenant or other agreement contained herein), in the event of a breach of any covenant or agreement on the part of the other party set forth in this Agreement, or if any representation or warranty of the other party shall have become untrue, in either case such that the conditions set forth in SECTIONS 6.2(A) and (B) or SECTIONS 6.3(A) and (B), as the case may, be would not be satisfied and such breach or untrue representation or warranty has not been or cannot be cured within thirty (30) days following written notice to the party committing such breach or making such untrue representation or warranty; or (f) by First Capital, if the Board of Directors of Hometown does not publicly recommend in the Proxy Statement-Prospectus that stockholders approve and adopt this Agreement or if, after recommending in the Proxy Statement-Prospectus that stockholders approve and adopt this Agreement, the Board of Directors of Hometown withdraws, qualifies or revises such recommendation or takes any action in any respect materially adverse to First Capital. 7.2 TERMINATION FEE. (a) If First Capital terminates this Agreement pursuant to SECTION 7.1(F), then Hometown shall make payment to First Capital of a termination fee in the amount of $175,000. Such amount shall be paid by wire transfer of immediately available funds within two business days following such termination. If within 12 months after such termination, Hometown shall consummate or enter into an agreement with respect to an Acquisition Proposal, then Hometown shall make payment to First Capital of an additional termination fee in the amount of $175,000. Such amount shall be paid by wire transfer of immediately available funds on the date of such consummation or execution. (b) If this Agreement is terminated by (i) First Capital pursuant to SECTION 7.1(E) where the breach giving rise to such termination was willful and in such case an Acquisition Proposal by a third party with respect to Hometown has been publicly announced, disclosed or communicated or made known to the senior management or Board of Directors of Hometown by such third party at any time after the date of this Agreement and prior to the date of the date of termination or (ii) either party pursuant to SECTION 7.1(B) and in such case an Acquisition Proposal by a third party with respect to Hometown has been publicly announced, disclosed or communicated or made known to the senior management or Board of Directors of 53 57 Hometown by such third party at any time after the date of this Agreement and prior to the date of the Stockholders Meeting, then Hometown shall make payment to First Capital of a termination fee in the amount of $350,000 if within 12 months after such termination, Hometown shall consummate or enter into any agreement with respect to an Acquisition Proposal. Such amount shall be paid by wire transfer of immediately available funds on the date of such execution or consummation. (c) Notwithstanding anything herein to the contrary, in no event shall the aggregate amount that Hometown must pay to First Capital pursuant to SECTIONS 7.2(A) and (B) exceed $350,000. (d) If this Agreement is terminated by Hometown pursuant to SECTION 7.1(E) where the breach giving rise to such termination was willful and in such case an Acquisition Proposal by a third party with respect to First Capital has been publicly announced, disclosed or communicated or made known to the senior management or Board of Directors of First Capital by such third party at any time after the date of this Agreement and prior to the date of the date of termination, then First Capital shall make payment to Hometown of a termination fee in the amount of $350,000 if within 12 months after such termination, First Capital shall consummate or enter into any agreement with respect to an Acquisition Proposal. Such amount shall be paid by wire transfer of immediately available funds on the date of such execution or consummation. 7.3 EFFECT OF TERMINATION. In the event of termination of this Agreement by either First Capital or Hometown as provided in SECTION 7.1, this Agreement shall forthwith become void and, subject to SECTION 7.2, have no effect, and there shall be no liability on the part of any party hereto or their respective officers and directors, except that (i) SECTIONS 5.3(C), 7.2, and 8.6, shall survive any termination of this Agreement, and (ii) notwithstanding anything to the contrary contained in this Agreement, no party shall be relieved or released from any liabilities or damages arising out of its willful breach of any provision of this Agreement. ARTICLE VIII CERTAIN OTHER MATTERS 8.1 INTERPRETATION. When a reference is made in this Agreement to Sections or Exhibits such reference shall be to a Section of, or Exhibit to, this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for ease of reference only and shall not affect the meaning or interpretation of this Agreement. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed followed by the words "without limitation." Any singular term in this Agreement shall be deemed to include the plural, and any plural term the singular. Any reference to gender in this Agreement shall be deemed to include any other gender. 8.2 SURVIVAL. None of the representations and warranties in this Agreement or in any instrument delivered pursuant to this Agreement shall survive the Effective Time. This SECTION 54 58 8.2 shall not limit any covenant or agreement of the parties which by its terms contemplates performance after the Effective Time. 8.3 WAIVER; AMENDMENT. Prior to the Effective Time, any provision of this Agreement may be: (i) waived in writing by the party benefitted by the provision or (ii) amended or modified at any time (including the structure of the transaction) by an agreement in writing between the parties hereto except that, after the vote by the stockholders of Hometown, no amendment or modification may be made that would reduce the amount or alter or change the kind of consideration to be received by holders of Hometown Common Stock or contravene any provision of the IBCL or the federal banking laws, rules and regulations. 8.4 COUNTERPARTS. This Agreement may be executed in counterparts each of which shall be deemed to constitute an original, but all of which together shall constitute one and the same instrument. 8.5 GOVERNING LAW. This Agreement shall be governed by, and interpreted in accordance with, the laws of the State of Indiana, without regard to conflicts of laws principles. 8.6 EXPENSES. Each party hereto will bear all expenses incurred by it in connection with this Agreement and the transactions contemplated hereby; provided that the cost of printing and mailing to Hometown's stockholders the Proxy Statement-Prospectus shall be borne equally by First Capital and Hometown. 8.7 NOTICES. All notices, requests, acknowledgments and other communications hereunder to a party shall be in writing and shall be deemed to have been duly given when delivered by hand, overnight courier or facsimile transmission to such party at its address or facsimile number set forth below or such other address or facsimile transmission as such party may specify by notice (in accordance with this provision) to the other party hereto. If to First Capital, to: 220 Federal Drive, NW Corydon, Indiana 47112 Facsimile: (812) 738-2202 Attention: William W. Harrod and Samuel Uhl With copies to: Muldoon Murphy & Faucette LLP 5101 Wisconsin Avenue, NW Washington, DC 20016 Facsimile: (202) 966-9409 Attention: Aaron M. Kaslow, Esq. 55 59 If to Hometown, to: 3131 Grant Line Road New Albany, Indiana 47150 Facsimile: (812) 981-0199 Attention: C. Ronald Clark With copies to: Wyatt Tarrant & Combs LLP PNC Plaza 500 West Jefferson Street Louisville, Kentucky 40202 Facsimile: (502) 589-0309 Attention: Cynthia W. Young, Esq. 8.8 ENTIRE AGREEMENT; ETC. This Agreement, together with the Disclosure Letters, represents the entire understanding of the parties hereto with reference to the transactions contemplated hereby and supersedes any and all other oral or written agreements heretofore made. All terms and provisions of this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. Except for SECTION 5.13, which confers rights on the parties described therein, nothing in this Agreement is intended to confer upon any other person any rights or remedies of any nature whatsoever under or by reason of this Agreement. 8.9 SUCCESSORS AND ASSIGNS; ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that this Agreement may not be assigned by either party hereto without the written consent of the other party. 56 60 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers as of the date first above written. FIRST CAPITAL, INC. By: /s/ William W. Harrod --------------------------------------- William W. Harrod President and Chief Executive Officer HOMETOWN BANCSHARES, INC. By: /s/ C. Ronald Clark --------------------------------------- C. Ronald Clark Chief Executive Officer 57 61 EXHIBIT A ____________, 2002 First Capital, Inc. 220 Federal Drive Corydon, Indiana 47112 Attn: Board of Directors To the Board of Directors: The undersigned is a director of Hometown Bancshares, Inc. ("Hometown") and the beneficial holder of shares of common stock of Hometown (the "Hometown Common Stock"). First Capital, Inc. ("First Capital") and Hometown are considering the execution of an Agreement and Plan of Merger (the "Agreement") contemplating the acquisition of Hometown through the merger of Hometown with and into First Capital (the "Merger"). The execution of the Agreement by First Capital is subject to the execution and delivery of this letter agreement. In consideration of the substantial expenses that First Capital will incur in connection with the transactions contemplated by the Agreement and in order to induce First Capital to execute the Agreement and to proceed to incur such expenses, the undersigned agrees and undertakes, in his capacity as a stockholder of Hometown, and not in his capacity as a director or officer of Hometown, as follows: 1. While this letter agreement is in effect the undersigned shall not, directly or indirectly, (a) sell or otherwise dispose of or encumber prior to the record date of Hometown's Stockholder Meeting (as defined in the Agreement) any or all of his shares of Hometown Common Stock, or (b) deposit any shares of Hometown Common Stock into a voting trust or enter into a voting agreement or arrangement with respect to any shares of Hometown Common Stock or grant any proxy with respect thereto, other than to other members of the Board of Directors of Hometown for the purpose of voting to approve the Agreement and the Merger and matters related thereto. 2. While this letter agreement is in effect the undersigned shall vote or cause to be voted all of the shares of Hometown Common Stock that the undersigned shall be entitled to so vote, whether such shares are beneficially owned by the undersigned on the date of this letter agreement or are subsequently acquired, for the approval of the Agreement and the Merger at Hometown's Stockholder Meeting. 3. The undersigned acknowledges and agrees that any remedy at law for breach of the foregoing provisions shall be inadequate and that, in addition to any other relief which may be 62 First Capital, Inc. Page 2 available, First Capital shall be entitled to temporary and permanent injunctive relief without having to prove actual damages. 4. The foregoing restrictions shall not apply to shares with respect to which the undersigned may have voting power as a fiduciary for others. In addition, this letter agreement shall only apply to actions taken by the undersigned in his capacity as a stockholder of Hometown and, if applicable, shall not in any way limit or affect actions the undersigned may take in his capacity as a director or officer of Hometown. 5. This letter agreement shall automatically terminate upon the earlier of (i) the favorable vote of Hometown's stockholders with respect to the approval of the Agreement and the Merger, (ii) the termination of the Agreement in accordance with its terms or (iii) the Effective Time (as that term is defined in the Agreement) of the Merger. 6. As of the date hereof, the undersigned has voting power with respect to _______ shares of Hometown Common Stock. IN WITNESS WHEREOF, the undersigned has executed this agreement as of the date first above written. Very truly yours, ---------------------------------- ---------------------------------- Print Name Accepted and agreed to as of the date first above written: First Capital, Inc. - ------------------------ William W. Harrod President and Chief Executive Officer 63 EXHIBIT B PLAN OF MERGER OF HOMETOWN NATIONAL BANK WITH AND INTO FIRST HARRISON BANK THIS PLAN OF MERGER ("Plan of Merger") is entered into as of the 25th day of September, 2002 by and between HOMETOWN NATIONAL BANK, a national banking association chartered and existing under the laws of the United States of America ("Hometown Bank"), and FIRST HARRISON BANK, a stock savings bank chartered and existing under the laws of the United States of America ("First Harrison"). WHEREAS, this Plan of Merger is being entered into pursuant to the Agreement and Plan of Merger dated as of September 25, 2002 (the "Merger Agreement") by and between First Capital, Inc. and Hometown Bancshares, Inc., pursuant to which First Capital, Inc. will acquire Hometown Bancshares, Inc.; and WHEREAS, this Plan of Merger has been approved by at least two-thirds of the directors of each of First Harrison and Hometown Bank. NOW, THEREFORE, in consideration of the covenants and agreements of the parties contained herein, the parties hereto hereby make, adopt and approve this Plan of Merger in order to set forth the terms and conditions for the merger of Hometown Bank with and into First Harrison (the "Merger"). 1. Effective Time of the Merger. The Merger shall not be effective ---------------------------- unless and until the Merger receives any necessary approvals from the Office of Thrift Supervision pursuant to 12 C.F.R. 563.22 or such other later time specified on the Articles of Combination filed with the Office of Thrift Supervision (the "Effective Time"). 2. Constituent Institutions. The name of each constituent institution ------------------------ to the Merger is FIRST HARRISON BANK and HOMETOWN NATIONAL BANK. 3. Name of the Resulting Institution. The resulting institution in the --------------------------------- Merger shall be FIRST HARRISON BANK (First Harrison is sometimes referred to herein as the "Resulting Institution"). 64 4. Location of Home Office and Other Offices of Resulting Institution. ------------------------------------------------------------------ The location of the principal office and other offices of the Resulting Institution are listed in Appendix A hereto attached. ---------- 5. Terms and Conditions of Merger. Subject to the terms and conditions ------------------------------ of this Plan of Merger, at the Effective Time, Hometown Bank shall be merged with and into First Harrison pursuant to the provisions of, and with the effect provided under the laws of, the United States of America. At the Effective Time, the separate existence of Hometown Bank shall cease and First Harrison as the resulting institution, shall continue unaffected and unimpaired by the Merger. 6. Charter. At the Effective Time, the charter of First Harrison, as ------- in effect immediately prior to the Effective Time, shall constitute the charter of the Resulting Institution, unless and until the same shall be amended as provided by law and the terms of such charter. 7. Bylaws. At the Effective Time, the bylaws of First Harrison, as in ------ effect immediately prior to the Effective Time, shall be the bylaws of the Resulting Institution, unless and until amended or repealed as provided by law, its charter and such bylaws. 8. Savings Account Issuance by Resulting Institution. After the ------------------------------------------------- Effective Time, the Resulting Institution will continue to issue deposit accounts, including savings accounts, on the same basis as immediately prior to the Effective Time. 9. Directors of Resulting Institution. The number of the persons who ---------------------------------- shall constitute the Board of Directors of the Resulting Institution after the Effective Time will be eleven (11). The names of the persons who shall constitute the Board of Directors of the Resulting Institution after the Effective Time are listed in Appendix B hereto ---------- attached. 10. Effect on Outstanding Shares of Hometown Bank Common Stock. At the ---------------------------------------------------------- Effective Time, by virtue of the Merger and without any action on the part of the holder thereof, all outstanding shares of common stock, par value $20.00 per share, of Hometown Bank shall automatically be canceled and retired and shall cease to exist. 11. Effect on Outstanding Shares of First Harrison Common Stock. The ----------------------------------------------------------- shares of common stock, par value $1.00 per share, of First Harrison issued and outstanding immediately prior to the Effective Time shall remain outstanding and unchanged after the Merger and shall be the only issued and outstanding shares of the Resulting Institution. 2 65 12. Conditions to Each Party's Obligation to Effect the Merger. The ---------------------------------------------------------- respective obligations of each party to effect the Merger shall be subject to the satisfaction of the conditions set forth in Article VI of the Merger Agreement. 13. Termination. This Plan of Merger shall terminate automatically upon ----------- termination of the Merger Agreement. 14. Amendment. This Plan of Merger may not be amended except by an --------- agreement in writing signed on behalf of each of the parties hereto. 15. Governing Law. This Plan of Merger shall be governed by and ------------- construed and enforced in accordance with the laws of the United States of America. 16. Captions. The captions heading the sections in this Plan of Merger -------- are for convenience only and shall not affect the construction or interpretation of this Plan of Merger. 17. Counterparts. This Plan of Merger may be executed in two or more ------------ counterparts, any of which may be facsimile copies, each of which shall be deemed an original instrument, but all of which together shall constitute one and the same instrument. 3 66 IN WITNESS WHEREOF, each of the Parties has caused this Plan of Merger to be duly executed and delivered by its duly authorized officers as of the date first above written. FIRST HARRISON BANK ATTEST: By: - ------------------------------ ------------------------------------------ Samuel E. Uhl Its: President and Chief Executive Officer ATTEST: HOMETOWN NATIONAL BANK By: - ------------------------------ ------------------------------------------ C. Ronald Clark Its: Chief Executive Officer 4 67 APPENDIX A Location of Home Office and Other Offices of Resulting Institution MAIN OFFICE: 220 Federal Drive, N.W. Corydon, Indiana 47112 BRANCH OFFICES: 391 Old Capitol Plaza, N.W. Corydon, Indiana 47112 8095 State Highway 135, N.W. New Salisbury, Indiana 47161 710 Main Street Palmyra, Indiana 47164 6040 Main Street NE Crandall, Indiana 47114 9849 Highway 150 Greenville, Indiana 47124 1058 North Luther Road Georgetown, Indiana 47122 317 East Highway 150 Hardinsburg, Indiana 47125 4303 Charlestown Road New Albany, Indiana 47150 3131 Grantline Road New Albany, Indiana 47150 4609 Williamsburg Station Floyds Knobs, Indiana 47119 68 APPENDIX B Directors of Resulting Institution Name Residence Address Year Term Expires - ---- ----------------- ----------------- William W. Harrod 7457 Settlers Run 2005 Greenville, IN 47124 J. Gordon Pendleton P.O. Box 728 2005 Corydon, IN 47112 Samuel E. Uhl 3104 Leidolf Court 2004 Floyds Knobs, IN 47119 Mark D. Shireman 3331 County Lane 2004 Lanesville, IN 47136 Dennis L. Huber 1525 Willow Creek Drive, N.E. 2005 Corydon, IN 47112 Kenneth R. Saulman 626 Shiloh Road, S.E. 2003 Corydon, IN 47112 John W. Buschemeyer 746 North Capital Avenue 2003 Corydon, IN 47112 Gerald L. Uhl 1485 Willow Creek Drive, N.E. 2005 Corydon, IN 47112 James S. Burden 4525 Highway 64, N.E. 2004 Georgetown, IN 47122 James E. Nett 6520 Wieseka Hill Road 2004 Floyds Knobs, IN 47119 Michael L. Shireman 14845 Greene Street 2004 Palmyra, IN 47164 69 EXHIBIT C _________, 2002 First Capital, Inc. 220 Federal Drive Corydon, Indiana 47112 Ladies and Gentlemen: I have been advised that I may be deemed to be, but do not admit that I am, an "affiliate" of Hometown Bancshares, Inc., an Indiana corporation ("Hometown"), as that term is defined in Rule 144 and used in Rule 145 promulgated by the Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended (the "Securities Act"). I understand that pursuant to the terms of the Agreement and Plan of Merger, dated as of September 25, 2002 (the "Merger Agreement"), by and between Hometown and First Capital, Inc., an Indiana corporation ("First Capital"), Hometown plans to merge with and into First Capital (the "Merger"). I further understand that as a result of the Merger, I may receive shares of common stock, par value $0.01 per share, of First Capital ("First Capital Common Stock") in exchange for shares of common stock, without par value, of Hometown ("Hometown Common Stock"). I have carefully read this letter and reviewed the Merger Agreement and discussed their requirements and other applicable limitations upon my ability to sell, transfer, or otherwise dispose of First Capital Common Stock, to the extent I felt necessary, with my counsel or counsel for Hometown. I represent, warrant and covenant with and to First Capital that in the event I receive any shares of First Capital Common Stock as a result of the Merger: 1. I shall not make any sale, transfer, or other disposition of such shares of First Capital Common Stock unless (i) such sale, transfer or other disposition has been registered under the Securities Act, (ii) such sale, transfer or other disposition is made in conformity with the provisions of Rule 145 under the Securities Act (as such rule may be amended from time to time), or (iii) in the opinion of counsel in form and substance reasonably satisfactory to First Capital, or under a "no-action" letter obtained by me from the staff of the SEC, such sale, transfer or other disposition will not violate the registration requirements of, or is otherwise exempt from registration under, the Securities Act. 70 First Capital, Inc. Page 2 2. I understand that First Capital is under no obligation to register the sale, transfer or other disposition of shares of First Capital Common Stock by me or on my behalf under the Securities Act or to take any other action necessary in order to make compliance with an exemption from such registration available. 3. I understand that stop transfer instructions will be given to First Capital's transfer agent with respect to shares of First Capital Common Stock issued to me as a result of the Merger and that there will be placed on the certificates for such shares, or any substitutions therefor, a legend stating in substance: "The shares represented by this certificate were issued as a result of the merger of Hometown Bancshares, Inc. with and into First Capital, Inc. on _______, 2002, in a transaction to which Rule 145 promulgated under the Securities Act of 1933 applies. The shares represented by this certificate may not be sold, transferred, or otherwise disposed of except or unless (1) covered by an effective registration statement under the Securities Act of 1933, as amended, (2) in accordance with Rule 145(d) of the Rules and Regulations under such Act, or (3) in accordance with a legal opinion satisfactory to counsel for First Capital, Inc. that such sale or offer is otherwise exempt from the registration requirements of such Act." It is understood and agreed that such stop transfer instructions shall be rescinded and the legends set forth above in this paragraph (3) shall be removed by delivery of substitute certificates without such legends if I shall have delivered to First Capital (i) a copy of a "no action" letter from the staff of the SEC, or an opinion of counsel in form and substance reasonably satisfactory to First Capital, to the effect that such legend is not required for purposes of the Act, or (ii) evidence or representations satisfactory to First Capital that First Capital Common Stock represented by such certificates is being or has been sold in conformity with the provisions of Rule 145(d), or (iii) upon the expiration of the restrictive period set forth in Rule 145(d). I further understand and agree that the provisions of Rule 145 shall apply to all shares of First Capital Common Stock that my spouse, any relative of mine, or any relative of my spouse, any one of whom has the same home as me, receives as a result of the Merger and I further represent, warrant and covenant with and to First Capital that I will have, and will cause each of such persons to have, all shares of Hometown Common Stock owned (other than shares held through tax qualified retirement or benefit plans) by me or such persons registered in my name or the name of such persons, as applicable, prior to the effective date of the Merger and not in the name of any bank, broker or dealer, nominee or clearing house. By acceptance hereof, First Capital agrees, for a period of two years after the Effective Time (as defined in the Agreement) that, so long as it is obligated to file reports pursuant to 71 First Capital, Inc. Page 3 Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, that it will use its reasonable best efforts to timely file such reports so that the public information requirements of Rule 144(c) promulgated under the Securities Act are satisfied and the resale provisions of Rule 145(d)(1) and (2) are therefore available to me in the event I desire to transfer any First Capital Common Stock issued to me in the Merger. In addition, in connection with any sale, transfer or other disposition by me of First Capital Common Stock issued to me in the Merger, First Capital agrees to cause its legal counsel to provide promptly an opinion to First Capital's transfer agent to the effect that such sale, transfer or other disposition is exempt from registration under the Securities Act, where such opinion of counsel may be properly given. You have indicated that I can use the attached form to obtain such opinion to the extent I propose to sell my shares pursuant to Rule 145(d). Very truly yours, By: -------------------------------- Name: Agreed and accepted this ____ day of _____________ 2002. First Capital, Inc. By: ------------------------------------------- William W. Harrod President and Chief Executive Officer 72 First Capital, Inc. 220 Federal Drive Corydon, Indiana 47112 This certificate is provided to you in connection with the sale of the following shares of common stock of First Capital, Inc. (the "Shares"). Name of Shareholder Certificate No.(s) Number of Shares - ------------------------------ ---------------------- ------------------ - ------------------------------ ---------------------- ------------------ The undersigned certifies that: 1. The Shares were acquired in connection with the merger of Hometown Bancshares, Inc. with and into First Capital, Inc. 2. (check one) ____ A. The following information reflects all sales of common stock of First Capital, Inc. made during the past three months for the persons specified below: Amount Date i. Myself ---------- ---------- ii. My spouse, children and all other relatives living in my household ---------- ---------- iii. Trusts or estates in which any person in (i) or (ii) above are trustees, executors or have a 10% beneficial interest ---------- ---------- iv. Corporations or other organizations (other than First Capital, Inc.) In which persons in (i) or (ii) above own collectively 10% or more of any class of equity security or have a 10% equity interest ---------- ---------- v. Anyone acting in concert with any of the above for any of the securities of First Capital, Inc. ---------- ---------- B. The undersigned does not intend to sell additional shares of common stock of First Capital, Inc. through any other means until execution or cancellation of this transaction. 73 C. The undersigned has not solicited or arranged for the solicitation of orders to buy the Shares in anticipation of or in connection with this sale. D. The undersigned has not made any payment in connection with this sale, other than to the broker who executes the order to sell the Shares. or ____ The undersigned is not an officer, director or 10% shareholder of First Capital, Inc. and at least one year has elapsed since the date the Shares were acquired from First Capital, Inc. or ____ The undersigned is not, and has not been for at least three months, an officer, director or 10% shareholder of First Capital, Inc. and at least two years has elapsed since the date the Shares were acquired from First Capital, Inc. ----------------------------- Signature ----------------------------- Print Name ----------------------------- Date 2 EX-99.1 4 firstcapitalex99-1.txt 1 EXHIBIT 99.1 PRESS RELEASE *FOR IMMEDIATE RELEASE* FIRST CAPITAL, INC. AND HOMETOWN BANCSHARES, INC. ANNOUNCE MERGER CORYDON, Ind.--(BUSINESS WIRE)--September 26, 2002--First Capital, Inc. (Nasdaq:FCAP - News), Corydon, Indiana, announced today that it has signed a definitive merger agreement with Hometown Bancshares, Inc., New Albany, Indiana, under which Hometown Bancshares will merge into First Capital in a transaction valued at approximately $10.7 million. The transaction will increase First Capital's assets from $291 million as of June 30, 2002 to approximately $373 million and increase its number of banking offices from nine to eleven. Under the terms of the transaction, as described in more detail below, shareholders of Hometown Bancshares will be entitled to receive either $46.50 in cash or shares of First Capital common stock in exchange for each share of Hometown Bancshares common stock. William W. Harrod, President and Chief Executive Officer of First Capital stated, "We are very pleased to announce our agreement for Hometown Bancshares to merge with First Capital. This merger of two community-oriented institutions represents a natural extension of our franchise and will give our combined company a much stronger presence in the New Albany and Floyd County market area. We look forward to continuing to emphasize the personal service and community banking focus that our and Hometown's customers appreciate." "We believe that this transaction is an excellent opportunity for our customers and the communities we serve," said Ron Clark, Chief Executive Officer of Hometown Bancshares. "Our commitment to preserving a community bank atmosphere and high quality of service will be met by this merger. Moreover, our customers will benefit from access to a greater selection of services." The merger is expected to be completed in the first quarter of 2003. First Capital's management team and board of directors will remain intact following the merger. An advisory board consisting of each of the non-employee directors of Hometown Bancshares will be established and will provide advice to First Capital regarding the operations of the former Hometown branches. The board of directors of First Capital has authorized the repurchase of up to 345,000 shares of its common stock in connection with the merger for the purpose of issuing the repurchased shares to shareholders of Hometown Bancshares. In connection with this transaction, Keefe, Bruyette & Woods, Inc. acted as financial advisor to First Capital and David A. Noyes & Company acted as financial advisor to 2 Hometown Bancshares. Muldoon Murphy & Faucette LLP represented First Capital, while Wyatt, Tarrant & Combs, LLP represented Hometown Bancshares. First Capital is the holding company for First Harrison Bank. First Harrison Bank operates out of nine offices in Indiana. At June 30, 2002, First Capital had total assets of $291 million and total deposits of $208 million. Hometown Bancshares is the holding company for Hometown National Bank. Hometown National Bank operates out of two offices in Indiana. At June 30, 2002, Hometown Bancshares had total assets of $82 million and total deposits of $75 million. Terms of the Merger Under the terms of the agreement, Hometown Bancshares shareholders may elect to receive either shares of First Capital common stock or $46.50 in cash in exchange for their shares of Hometown Bancshares common stock. The elections of Hometown Bancshares shareholders will be subject to the requirement that 50% of Hometown Bancshares shares be exchanged for cash and 50% be exchanged for First Capital common stock. To the extent they receive First Capital shares, the transaction is expected to be tax-free to Hometown Bancshares shareholders. The number of shares of First Capital common stock into which each Hometown Bancshares share will be exchanged will be based on the price of First Capital common stock over a measurement period prior to the closing, as follows:
Average closing price of First Capital common stock during measurement period Exchange Ratio - --------------------------------------------- -------------------------------------------- 1. $14.44 or less 1. $39.52 divided by average closing price 2. Greater than $14.44 and less than $19.55 2. 2.735 3. $19.55 or more 3. $53.47 divided by average closing price
The merger is subject to certain conditions, including the approval of the shareholders of Hometown Bancshares and receipt of regulatory approval. Forward-Looking Statements This news release contains certain forward-looking statements about the proposed merger of First Capital and Hometown Bancshares. These statements include statements regarding the anticipated closing date of the transaction and anticipated future results. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words like "believe," "expect," "anticipate," "estimate," and "intend" or future or conditional verbs such as "will," "would," "should," "could" or "may." Certain factors that could cause actual results to differ materially from expected results include delays in completing the merger, difficulties in achieving cost savings from the merger or in achieving such cost savings within the expected time frame, difficulties in integrating First Capital and Hometown Bancshares, increased competitive pressures, changes in the interest rate environment, changes in general economic conditions, legislative and regulatory changes that adversely affect the business in which First Capital and Hometown Bancshares are engaged, and changes in the securities markets. 2 3 Additional Information About the Merger and Where to Find It Shareholders of Hometown Bancshares and other investors are urged to read the proxy statement/prospectus that will be included in the registration statement on Form S-4 that First Capital will file with the Securities and Exchange Commission in connection with the proposed merger because it will contain important information about First Capital, Hometown Bancshares, the merger, the persons soliciting proxies in the merger and their interests in the merger and related matters. Investors will be able to obtain all documents filed with the SEC by First Capital free of charge at the SEC's website, www.sec.gov. in addition, documents filed with the SEC by First Capital will be available free of charge from the Corporate Secretary of First Capital at 220 Federal Drive N.W., Corydon, Indiana 47112, telephone (812) 738-2198. Read the proxy statement/prospectus carefully before making a decision concerning the merger. Contact: First Capital, Inc. William W. Harrod, 812/738-2198 or Hometown Bancshares C. Ronald Clark, 812/949-2265 3 -----END PRIVACY-ENHANCED MESSAGE-----