-----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, NATzT9iN9BDuM+O9YHtwsLWHTL1EJ9PdJ0lNDnlyPibLzimOHl4FmzevAjqWA5V4 9oAxzP3nMHCNHTqIW6vv5A== 0000714395-97-000004.txt : 19970515 0000714395-97-000004.hdr.sgml : 19970515 ACCESSION NUMBER: 0000714395-97-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970514 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GERMAN AMERICAN BANCORP CENTRAL INDEX KEY: 0000714395 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 351547518 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-11244 FILM NUMBER: 97604401 BUSINESS ADDRESS: STREET 1: 711 MAIN ST STREET 2: P O BOX 810 CITY: JASPER STATE: IN ZIP: 47546 BUSINESS PHONE: 8124821314 MAIL ADDRESS: STREET 1: 711 MAIN STREET CITY: JASPER STATE: IN ZIP: 47546 FORMER COMPANY: FORMER CONFORMED NAME: GAB BANCORP DATE OF NAME CHANGE: 19950510 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) I X I Quarterly Report pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 for the Quarterly Period Ended March 31, 1997 Or I I Transition Report pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 for the Transition Period from to ---------- ----------- Commission File Number 0-11244 German American Bancorp (Exact name of registrant as specified in its charter) INDIANA 35-1547518 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 711 Main Street, Jasper, Indiana 47546 (Address of Principal Executive Offices and Zip Code) Registrant's telephone number, including area code: (812) 482-1314 Indicate by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ---------- ---------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at May 10, 1997 Common Stock, $10.00 par value 2,541,552 GERMAN AMERICAN BANCORP INDEX PART I. FINANCIAL INFORMATION Item 1. Consolidated Balance Sheets -- March 31, 1997 and December 31, 1996 Consolidated Statements of Income -- Three Months Ended March 31, 1997 and 1996 Consolidated Statements of Cash Flows -- Three Months Ended March 31, 1997 and 1996. Notes to Consolidated Financial Statements -- March 31, 1997 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II. OTHER INFORMATION Item 2. Changes in Securities Item 6. Exhibits and Reports on Form 8-K a) Exhibits 3 Restated Articles of Incorporation 10.1 Form of Incentive Stock Option Agreement executed January 28, 1997 between the Registrant and George W. Astrike (2,284 shares). 10.2 Schedule of Incentive Stock Option Agreements between the Registrant and its executive officers. 27 Financial Data Schedule b) Reports on Form 8-K SIGNATURES PART 1.FINANCIAL INFORMATION ITEM 1.FINANCIAL STATEMENTS GERMAN AMERICAN BANCORP CONSOLIDATED BALANCE SHEET (dollar references in thousands except share data) (unaudited) March 31, December 31, 1997 1996 ASSETS Cash and Due from Banks $16,848 $17,134 Federal Funds Sold 950 20,600 Cash and Cash Equivalents 17,798 37,734 Interest-bearing Balances with Banks 788 597 Other Short-term Investments 996 979 Securities Available-for-Sale,at market 103,734 98,557 Securities Held-to-Maturity, at cost 23,014 22,832 Loans 318,280 313,734 Less: Unearned Income (399) (452) Allowance for Loan Losses (6,386) (6,528) Loans, Net 311,495 306,754 Premises, Furniture and Equipment, Net 11,691 11,585 Other Real Estate 202 203 Intangible Assets 1,723 1,774 Accrued Interest Receivable and Other Assets 8,335 8,428 TOTAL ASSETS $479,776 $489,443 LIABILITIES Noninterest-bearing Deposits $47,050 $52,674 Interest-bearing Deposits 372,385 370,232 Total Deposits 419,435 422,906 Short-term Borrowings 7,109 12,527 FHLB Borrowings --- 1,000 Accrued Interest Payable and Other Liabilities 4,049 4,217 TOTAL LIABILITIES 430,593 440,650 SHAREHOLDERS' EQUITY Common Stock, $10 par value; 5,000,000 shares authorized, and 2,541,552 and 2,539,059 issued and outstanding in 1997 and 1996, respectively 25,416 25,390 Preferred Stock, $10 par value; 500,000 shares authorized, no shares issued --- --- Additional Paid-in Capital 3,839 3,649 Retained Earnings 19,910 19,259 Unrealized Appreciation on Securities Available-for-Sale, net of tax 18 495 TOTAL SHAREHOLDERS' EQUITY 49,183 48,793 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $479,776 $489,443 See accompanying notes to consolidated financial statements. GERMAN AMERICAN BANCORP CONSOLIDATED STATEMENTS OF INCOME (dollar references in thousands except per share data) (unaudited) Three Months Ended March 31, 1997 1996 INTEREST INCOME Interest and Fees on Loans $7,036 $6,785 Interest on Federal Funds Sold 101 180 Interest on Short-term Investments 27 85 Interest and Dividends on Securities 1,925 1,600 TOTAL INTEREST INCOME 9,089 8,650 INTEREST EXPENSE Interest on Deposits 4,162 3,921 Interest on Short-term Borrowings 99 133 TOTAL INTEREST EXPENSE 4,261 4,054 NET INTEREST INCOME 4,828 4,596 Provision for Loan Losses 139 23 NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 4,689 4,573 NONINTEREST INCOME Income from Fiduciary Activities 66 51 Service Charges on Deposit Accounts 280 206 Investment Services Income 106 102 Other Charges, Commissions, and Fees 95 101 Gains on Sales of Loans and Other Real Estate --- 2 Gains on Sales of Securities --- --- TOTAL NONINTEREST INCOME 547 462 NONINTEREST EXPENSE Salaries and Employee Benefits 1,826 1,763 Occupancy Expense 279 241 Furniture and Equipment Expense 226 258 Computer Processing Fees 125 107 Professional Fees 212 79 Other Operating Expenses 651 641 TOTAL NONINTEREST EXPENSE 3,319 3,089 Income before Income Taxes 1,917 1,946 Income Tax Expense 643 626 Net Income $1,274 $1,320 Earnings Per Share (Note 2) $.50 $.52 Dividends Paid Per Share (Note 2) $.21 $.19 See accompanying notes to consolidated financial statements. GERMAN AMERICAN BANCORP CONSOLIDATED STATEMENTS OF CASH FLOWS (dollar references in thousands) (unaudited) Three Months Ended March 31, 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES Net Income $1,274 $1,320 Adjustments to Reconcile Net Income to Net Cash from Operating Activities: Amortization and Accretion of Investments (36) (30) Depreciation and Amortization 282 289 Provision for Loan Losses 139 23 Gains on Sales of Securities 0 0 Gains on Sales of Loans and Other Real Estate 0 (2) Change in Assets and Liabilities: Unearned Income (53) (81) Deferred Loan Fees (26) (1) Interest Receivable (834) 329 Other Assets 928 (386) Deferred Taxes` 21 109 Interest Payable 469 143 Other Liabilities (637) (19) Total Adjustments 253 374 Net Cash from Operating Activities 1,527 1,694 CASH FLOWS FROM INVESTING ACTIVITIES Change in Interest-bearing Balances with Banks (191) 98 Proceeds from Maturities of Other Short-term Investments 0 3,000 Purchase of Other Short-term Investments 0 (979) Proceeds from Maturities of Securities Available-for-Sale 7,336 8,973 Proceeds from Sales of Securities Available-for-Sale 0 0 Purchase of Securities Available-for-Sale (12,971) (9,126) Proceeds from Maturities of Securities Held-to-Maturity 318 1,726 Proceeds from Sales of Securities Held-to-Maturity 0 0 Purchase of Securities Held-to-Maturity (500) (342) Purchase of Loans 0 (24) Loans Made to Customers net of Payments Received (4,822) (4,795) Property and Equipment Expenditures (337) (171) Proceeds from Sales of Other Real Estate 0 15 Net Cash from Investing Activities (11,167) (1,625) CASH FLOWS FROM FINANCING ACTIVITIES Change in Deposits (3,471) (402) Change in Short-term Borrowings (5,418) (2,602) Change in Long-term Borrowings (1,000) 2,000 Dividends Paid (404) (402) Purchase of Fractional Shares (5) 0 Exercise of Stock Options 2 6 Purchase and Retire Common Stock 0 0 Net Cash from Financing Activities (10,296) (1,400) Net Change in Cash and Cash Equivalents (19,936) (1,331) Cash and Cash Equivalents at Beginning of Year 37,734 32,601 Cash and Cash Equivalents at End of Period $17,798 $31,270 Cash Paid During the Year for: Interest $3,975 3,911 Income Taxes 171 188 See accompanying notes to consolidated financial statements. GERMAN AMERICAN BANCORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1997 (unaudited) Note 1 -- Basis of Presentation Certain information and footnote disclosures normally included in financial statements prepared in accordance with Generally Accepted Accounting Principles have been condensed or omitted. All adjustments made by management to these unaudited statements were of a normal recurring nature. It is suggested that these consolidated financial statements and notes be read in conjunction with the financial statements and notes thereto in the German American Bancorp's December 31, 1996 Annual Report to Shareholders. German American Bancorp (referred to herein as the ``Company,'' the `Corporation,'' or the ``Registrant'') is a multi-bank holding company organized in Indiana in 1982. The Company's principal subsidiaries are The German American Bank, Jasper, Indiana (`German American Bank''), First State Bank, Southwest Indiana, Tell City, Indiana (`First State Bank''), and German American Holdings Corporation (`GAHC''), an Indiana corporation that owns all of the outstanding capital stock of both Community Trust Bank, Otwell, Indiana (`Community Bank'') and The Peoples National Bank and Trust Company of Washington, Washington, Indiana (`Peoples''). The Company, through its four bank subsidiaries operates twenty banking offices in six contiguous counties in southwestern Indiana. Peoples, organized under the National Bank Act in 1888, was acquired by the Company on March 4, 1997 pursuant to a merger of the parent corporation of Peoples into GAHC. Simultaneously with and as an integral part of this merger, The Union Bank of Loogootee, Indiana, a subsidiary of the Company, was merged with and into Peoples. At December 31, 1996 Peoples had assets of $91,937,000 and equity of $9,452,000. The Company's financial statements for all periods prior to the merger date have been retroactively restated to include the accounts of Peoples because the merger was recorded utilizing the pooling-of-interests method of accounting. Note 2 -- Per Share Data The weighted average number of shares used in calculating earnings and dividends per share amounts were 2,541,137 and 2,533,373 for the first quarters of 1997 and 1996, respectively. The weighted average number of shares have been retroactively restated for stock dividends and poolings of interests. Dividends paid per share amounts represent historical dividends declared without retroactive restatement for pooling. Note 3 -- Securities At March 31, 1997 and December 31, 1996, U.S. Government Agency structured notes with an amortized cost of $6,000,000 and $6,000,000, respectively and fair value of $5,927,000 and $5,901,000, respectively, are included in securities available-for-sale, consisting primarily of step-up and single-index bonds. Note 3 -- Securities (continued) The amortized cost and estimated market values of Securities as of March 31, 1997 are as follows: Estimated Amortized Market Securities Available-for-Sale: Cost Value U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies $56,227 $55,577 Obligations of State and Political Subdivisions 20,173 20,900 Corporate Securities 6,516 6,590 Mortgage-backed Securities 20,729 20,667 Total $103,645 $103,734 Estimated Amortized Market Securities Held-to-Maturity: Cost Value U.S. Treasury Securities and Obligations of U.S. Government Corporation and Agencies $2,514 $2,496 Obligations of State and Political Subdivisions 18,117 18,514 Corporate Securities 40 32 Mortgage and Asset-backed Securities 948 927 Other Securities 1,395 1,395 Total $23,014 $23,364 The amortized cost and estimated market values of Securities as of December 31, 1996 are as follows: Estimated Amortized Market Securities Available-for-Sale: Cost Value U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies $47,181 $47,041 Obligations of State and Political Subdivisions 19,560 20,186 Corporate Securities 7,221 7,245 Mortgage-backed Securities 23,783 24,078 Other Securities 1 7 Total $97,746 $98,557 Estimated Amortized Market Securities Held-to-Maturity: Cost Value U.S. Treasury Securities and Obligations of U.S. Government Corporation and Agencies $2,519 $2,498 Obligations of State and Political Subdivisions 18,253 18,881 Corporate Securities 47 47 Mortgage and Asset-backed Securities 999 989 Other Securities 1,014 1,014 Total $22,832 $23,429 Note 4 -- Loans Loans, as presented on the balance sheet, are comprised of the following classifications: March 31, December 31, 1997 1996 (dollar references in thousands) Real Estate Loans Secured by 1-4 Family Residential Properties $96,712 $93,713 Agricultural Loans 53,853 57,073 Commercial and Industrial Loans 113,577 111,469 Loans to Individuals for Household, Family and Other Personal Expenditures 52,912 50,200 Lease Financing 1,226 1,279 Total Loans $318,280 $313,734 Note 5 -- Allowance for Loan Losses A summary of the activity in the Allowance for Loan Losses is as follows: 1997 1996 (dollar references in thousands) Balance at January 1 $6,528 $6,893 Provision for Loan Losses 139 23 Recoveries of Prior Loan Losses 47 101 Loan Losses Charged to the Allowance (328) (70) Balance at March 31 $6,386 $6,947 Note 6 -- Subsequent Event During April 1997, the Company's Articles of Incorporation were amended to increase the number of authorized common shares from 5,000,000 shares to 20,000,000 shares. Note 7 -- Business Combinations On March 4, 1997, the Company acquired all of the outstanding shares of Peoples Bancorporation of Washington, Indiana (and its wholly owned subsidiary, The Peoples National Bank and Trust Company of Washington) in exchange for 615,285 shares of German American Bancorp common stock. Fractional interests were paid in cash of $5. The transaction was accounted for as a pooling of interests. The following is a reconciliation of the separate and combined net interest income and net income of German American Bancorp and Peoples Bancorporation of Washington for the periods prior to the acquisition: GERMAN AMERICAN PEOPLES BANCORP BANCORPORATION (as previously reported)OF WASHINGTON COMBINED For the period January 1, 1997 through February 28, 1997 Net interest income $2,558 $696 $3,254 Net income $698 $218 $916 For the three months ended March 31, 1996 Net interest income $3,654 $942 $4,596 Net income $1,091 $229 $1,320 ITEM 2. GERMAN AMERICAN BANCORP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS German American Bancorp (``the Company'') is a multi-bank holding company based in Jasper, Indiana. Its four affiliate banks conduct business in twenty offices in Dubois, Daviess, Martin, Pike, Perry and Spencer Counties in Southwest Indiana. The banks provide a wide range of financial services, including accepting deposits; making commercial, mortgage and consumer loans; issuing credit life, accident and health insurance; providing trust services for personal and corporate customers; providing safe deposit facilities; and providing investment advisory and brokerage services. This section presents an analysis of the consolidated financial condition of the Company as of March 31, 1997 and December 31, 1996 and the consolidated results of operations for the periods ended March 31, 1997 and 1996. This review should be read in conjunction with the consolidated financial statements and other financial data presented elsewhere herein and with the financial statements and other financial data and the Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's December 31, 1996 Annual Report to Shareholders. Because of the Peoples National Bank acquisition on March 4, 1997 under the pooling-of-interests method of accounting, all financial statements have been retroactively restated for all periods. Also see Footnote 7 `Business Combinations.'' RESULTS OF OPERATIONS Net Income: The Company's earnings for the first quarter of 1997 were $1,274,000 or $.50 per share, a decrease of $46,000 (or 3.5%) from the Company's first quarter earnings for 1996 of $1,320,000 or $.52 per share. The comparison of first quarter 1997 earnings relative to those of the same period of 1996 was materially impacted by an increase in net interest income and Deposit Service Charges. These earnings improvements were offset by an increase in the Provision for Loan Losses and an increase in Professional fees largely related to the Company's merger and acquisition activities. Excluding the merger related expenses recorded in connection with the completion of the March 4, 1997 merger with Peoples, 1997 earnings were $1,408,000 or $.55 per share, an increase of $88,000 or 6.7% over 1996 earnings. Return on average assets (ROA) was 1.05% and return on average equity was 10.46% for the first quarter of 1997 versus 1.16% and 11.41%, respectively for the first three months of 1996. Net Interest Income: The following table summarizes German American Bancorp's net interest income (on a tax-equivalent basis) for each of the periods presented herein. An effective tax rate of 34 percent is used on each period presented. Three Months Change from Ended March 31, Prior Period 1997 1996 Amount Percent (dollar references in thousands) Interest Income $9,384 $8,900 $484 5.4% Interest Expense 4,261 4,054 207 5.1% Net Interest Income $5,123 $4,846 $277 5.7% Net interest income is the difference between interest income (which includes yield-related fees) and interest expense. Net interest income on a tax-equivalent basis was $5,123,000 for this first quarter of 1997 compared with $4,846,000 for the same period of 1996. The increase in net interest income for the first quarter of 1997 compared to 1996 was primarily due to an increase in average earning assets. Net interest income on a tax-equivalent basis expressed as a percentage of average earning assets is referred to as the net interest margin, which represents the average net effective yield on earning assets. For the first quarter of 1997, the net interest margin was 4.51 percent compared to 4.58 percent for the comparable period of 1996. The decrease in the margin in 1997 compared with 1996 was primarily attributable to the mix of funding sources. The Company continues to experience a shift in deposit mix toward money market deposits and longer term certificates of deposits. This movement is largely attributable to customer reaction to the higher level of interest rates paid on these products relative to that paid on savings and interest-bearing checking accounts. Provision For Loan Losses: The Company provides for loan losses through regular provisions to the allowance for loan losses. These provisions are made at a level which is considered necessary by management to absorb estimated losses in the loan portfolio. A detailed evaluation of the adequacy of this loan loss reserve is completed quarterly by management. The consolidated provision for loan losses was $139,000 and $23,000 for the first quarters of 1997 and 1996, respectively. The lower level of provision during 1996 resulted from a $57,000 negative provision for loan losses at the former Union Bank (now merged into Peoples). The negative provision was due to collections of previous years' charged-off loans combined with management's determination that an adequate level of loan loss reserve existed prior to the loan recoveries. Because of the adequacy of the existing reserve, the recoveries resulted in the recording of a negative provision. The amount of future years' provision for loan loss will be subject to adjustment based on the findings of future evaluations of the adequacy of the loan loss reserve. Net charge-offs were $281,000 or 0.08 percent of average loans for the first three months of 1997. For the same period of 1996, net recoveries were $31,000. Underperforming loans, as a percentage of total loans were 0.60% and 0.79% on March 31, 1997 and December 31, 1996, respectively. See discussion headed `Financial Condition'' for more information regarding underperforming assets. Noninterest Income: Noninterest income, exclusive of gains realized on the sales of loans, for the first quarter of 1997 was $547,000. This was $85,000 or 18.4 percent greater than the $460,000 recorded for the same three months of 1996. Service charges on deposit accounts for 1997 rose $74,000 or 35.9 percent over 1996. The Company made an upward revision to its pricing structure based on a recent review. The Company had no security sales during the first quarters of 1997 or 1996. Noninterest Expense: Total noninterest expense for the first three months of 1997 was $3,319,000 which translates to a $230,000 or 7.4% increase over the $3,089,000 posted for the same period in 1996. Salaries and Employee Benefits expense constituted just over 55% of total noninterest expense. For the first three months of 1997 this amounted to $1,826,000. This was $63,000 or 3.6 percent more than the $1,763,000 recorded for the same period of the prior year. The Company's active full-time equivalent (FTE) staff was 217 at March 31, 1997. Occupancy expense combined with Furniture and Equipment expense for the first three months of 1997 equaled $505,000. This was only $6,000 or slightly more than one percent greater than the $499,000 posted for the same quarter of the prior year. These expenses are expected, however, to moderately increase throughout the remainder of 1997 largely as a consequence of a planned upgrading of computer systems. The Company has recently embarked upon a strategy to implement state-of-the-art computer processing to provide the opportunities to, over the long-term, better control the level of employee related expenses and improve the quality of customer service provided throughout the affiliate bank system. The upgrade of computer equipment at Peoples concurrent with the merger represents the Company's first step in this process. Systems at all affiliate banks will be upgraded on a systematic basis throughout 1997 and 1998. Professional fees for the first three months of 1997 was $212,000. This was $133,000 greater than the $79,000 recorded for the same period of 1996. The bulk of this increase stems directly from the March 4, 1997 merger of Peoples. FINANCIAL CONDITION Total assets at March 31, 1997 stood at $479,776,000. This was a decline from the December 31, 1996 total asset position despite an increase in 1997 in total loans of $4,546,000 and securities of $5,359,000. The bulk of the asset decline was in the holdings of Federal Funds Sold. Deposits at March 31, 1997 stood at $419,435,000 which was a decline of less than one percent from the total deposits held three months earlier. Short-term and Long-term Borrowings at March 31, 1997 were $7,109,000. At December 31, 1996, these borrowings amounted to $13,527,000. Interest-bearing Demand Notes issued to the U.S. Treasury at December 31, 1996 amounted to $2,127,000. German American Bank was the only affiliate with this type of borrowing and by March 31, 1997 had effectively discontinued participation in this arrangement due to operational considerations. All of the Company's Banks are either currently members of the Federal Home Loan Bank System (`FHLB'') or are in the process of obtaining membership. The banks' membership in the FHLB provides a ready alternative for both long and short-term borrowing needs. Underperforming Assets: The following analyzes German American Bancorp's underperforming assets at March 31, 1997 and December 31, 1996. March 31, 1997 December 31, 1996 (dollar references in thousands) Nonaccrual Loans $1,071 $1,370 Loans which are contractually past due 90 days or more 850 1,102 Renegotiated Loans --- --- Total Underperforming Loans 1,921 2,472 Other Real Estate 202 203 Total Underperforming Assets $2,123 $2,675 Allowance for Loan Loss to Underperforming Loans 332.43% 264.08% Underperforming Loans to Total Loans 0.60% 0.79% Underperforming loans at March 31, 1997 were 22.3% less than the $2,472,000 of underperforming loans at December 31, 1996. Stated as a percentage of total loans, underperforming loans were 0.60% and 0.79% for March 31, 1997 and December 31, 1996, respectively. The allowance for loan loss stated as a percentage of underperforming loans equaled 332.43% and 264.08% for the same two dates respectively. The overall loan portfolio is diversified among a variety of individual borrowers, with a substantial portion of debtors' ability to honor their contracts dependent on the agricultural, poultry and wood manufacturing industries. Although wood manufacturers employ a significant number of people in the Company's market area, the Company does not have a concentration of credit to companies engaged in that industry. The Company has historically been involved in the financing of poultry production. However, total poultry loans at March 31, 1997 of $14,276,000 represent only about 4.5 percent of total loans. The drop in the amount of poultry loans reflects a continuing decline in the financing demands in that industry. Capital Resources: Federal banking regulations provide guidelines for determining the capital adequacy of bank holding companies and banks. These guidelines provide for a more narrow definition of core capital and assign a measure of risk to the various categories of assets. Minimum levels of capital are required to be maintained in proportion to total risk-weighted assets and off-balance sheet exposures such as loan commitments and standby letters of credit. Tier 1, or core capital, consists of shareholders' equity less goodwill, core deposit intangibles, and certain tax receivables defined by bank regulations. Tier 2 capital is defined as the amount of the allowance for loan losses which does not exceed 1.25% of gross risk adjusted assets. Total capital is the sum of Tier 1 and Tier 2 capital. The minimum requirements under these standards are generally at least a 4.0% leverage ratio, which is Tier 1 capital divided by defined `total assets'', 4.0% Tier 1 capital to risk-adjusted assets and 8.0% total capital to risk- adjusted assets ratios. Under these guidelines, the Company, on a consolidated basis, and each of its affiliate banks individually, have capital ratios that substantially exceed the regulatory minimums. The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) requires federal regulatory agencies to define capital tiers. These are: well- capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. Under these regulations, a `well-capitalized'' entity must achieve a Tier One Risk-based capital ratio of at least 6.0%, a total capital ratio of at least 10.0% and a leverage ratio of at least 5.0% and not be under a capital directive order. At March 31, 1997, management is not under such a capital directive nor is it aware of any current recommendations by banking regulatory authorities which, if they were to be implemented, would have, or are reasonably likely to have, a material effect on the Company's liquidity, capital resources or operations. The table below presents the Company's consolidated capital ratios under regulatory guidelines. RISK BASED CAPITAL STRUCTURE ($ in thousands) March 31, December 31, 1997 1996 Tier 1 Capital: Shareholders' Equity as presented on Balance Sheet $49,183 $48,793 Add / (Subtract): Unrealized Depreciation / (Appreciation) on Securities Available-for-Sale (18) (495) Less: Intangible Assets and Ineligible Deferred Tax Assets (1,872) (1,924) Total Tier 1 Capital 47,293 46,374 Tier 2 Capital: Qualifying Allowance for Loan Loss 4,091 4,028 Total Capital $51,384 $50,402 Risk-adjusted Assets $325,020 $319,718 To be Well Capitalized Under Prompt Minimum Corrective for Capital Action Adequacy Provisions Purposes (FDICIA) March 31, Dec. 31, 1997 1996 Leverage Ratio 4.00% 5.00% 9.79% 9.70% Tier 1 Capital to Risk-adjusted Assets 4.00% 6.00% 14.55% 14.50% Total Capital to Risk-adjusted Assets 8.00% 10.00% 15.81% 15.76% LIQUIDITY The Consolidated Statement of Cash Flows details the elements of change in the Company's cash and cash equivalents. During the first three months of 1997, the net cash from operating activities, including net income of $1,274,000 provided $1,527,000 of available cash. Major cash outflows experienced during this three month period of 1997 included dividends of $404,000, property and equipment purchases of $337,000 and the net funding outlay of loans in the amount of $4,822,000. The purchase of securities and short-term investments (net of proceeds from maturities) decreased cash by $5,817,000. Decreases occurring in deposits and short-term as well as long-term borrowings reduced cash by an additional $9,889,000. Total cash outflows for the period exceeded inflows by $19,936,000 leaving a cash and cash equivalent balance of $17,798,000 at March 31, 1997. PART II. -- OTHER INFORMATION Item 2. Changes in Securities (c) During the three months ended March 31, 1997, the Company issued and sold an aggregate of 11,737 shares of common stock to executive officers of the Company upon exercises by such executive officers of stock options for an aggregate purchase price of $346,945.02 . These issuances and sales were not registered under the Securities Act of 1933 in reliance upon the `private offering''exemption provided by Section 4(2) of the Securities Act because the offer of common shares under the Company's Stock Option Plan is made privately only to executive officers of the Company who have access to the same kind of information as registration would disclose and are able to fend for themselves in making their investment decisions. The purchase price was paid by the executive officers in the form of an aggregate of 10,285 shares of common stock of the Company previously owned by such executive officers. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit No. Description 3 Restated Articles of Incorporation of German American Bancorp (as amended to increase authorized common shares from 5,000,000 to 20,000,000. 10.1 Form of Incentive Stock Option Agreement executed January 28, 1997 between the Registrant and George W. Astrike (2,284 shares) 10.2 Schedule of Incentive Stock Option Agreements between the Registrant and its executive Officers. 27 Financial Data Schedule for the period ended March 31, 1997. (b) Reports on Form 8-K A report on Form 8-K dated March 6, 1997 was filed reporting under Item 2 the March 4, 1997 acquisition by merger of Peoples Bancorp of Washington. A report on Form 8-K dated March 19, 1997 was filed under Item 2 and Item 7, which amended the March 6, 1997 filing to include the Financial Statements of the acquired entity as of and for certain years ended December 31, 1996 and pro forma financial information for the Company giving effect to the acquisition. 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 thereunto duly authorized. GERMAN AMERICAN BANCORP Date By/s/George W. Astrike ----------------- --------------------------- George W. Astrike Chairman Date By/s/John M. Gutgsell ----------------- --------------------------- John M. Gutgsell Controller and Principal Accounting Officer EX-3 2 RESTATED ARTICLES OF INCORPORATION OF GERMAN AMERICAN BANCORP (as ammended April 25, 1997) ARTICLE I Name The name of the Corporation is German American Bancorp. ARTICLE II Purposes and Powers Section 1. Purposes of the Corporation. The purposes for which the Corporation is formed are to transact any or all lawful business permitted by applicable law and for which corporations may now or hereafter be incorporated under the Corporation Law. Section 2. Powers of the Corporation. The Corporation shall have (a) all powers now or hereafter authorized by or vested in corporations pursuant to the provisions of the Corporation Law, (b) all powers now or hereafter vested in corporations by common law or any other statute or act, and (c) all powers authorized by or vested in the corporation by the provisions of these Restated Articles of Incorporation or by the provisions of its Bylaws as from time to time in effect. ARTICLE III Term of Existence The period during which the Corporation shall continue is perpetual. Exhibit 3 ARTICLE IV Registered Office and Agent The street address of the Corporation's registered office at the time of adoption of these Restated Articles of Incorporation is 711 Main Street, P.O. Box 810, Jasper, Indiana 47546, and the name of its Resident Agent at such office at the time of adoption of these Restated Articles of Incorporation is George W. Astrike. ARTICLE V Shares The total number of shares of capital stock the Corporation has authority to issue shall be 20,500,000 shares consisting of 20,000,000 common shares (the `Common Shares'') and 500,000 preferred shares (the ``Preferred Shares''). The Corporation's shares shall have a par value of ten dollars ($10.00) per share. ARTICLE VI Terms of Shares Section 1. General Terms of All Shares. The Corporation shall have the power to acquire (by purchase, redemption, or otherwise), hold, own, pledge, sell, transfer, assign, reissue, cancel, or otherwise dispose of the shares of the Corporation in the manner and to the extent now or hereafter permitted by the laws of the State of Indiana. The power to purchase, redeem, or otherwise acquire the Corporation's own shares, directly or indirectly, may be exercised without pro rata treatment of the owners or holders of any class or series of shares. The Corporation may not purchase, redeem or otherwise acquire the Corporation's own shares if, after giving effect thereto, the Corporation would not be able to pay its debts as they become due in the usual course of business or the Corporation's total assets would be less than its total liabilities (without regard to any amounts that would be needed, if the Corporation were to be dissolved at the time of the purchase, redemption, or other acquisition, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those of the holders of the shares of the Corporation being purchased, redeemed, or otherwise acquired, unless otherwise expressly provided with respect to a series of Preferred Shares in the provisions of these Restated Articles of Incorporation adopted by the Board of Directors pursuant to Section 3(a) of this Article VI describing the terms of such series). Shares of the Corporation purchased, redeemed, or otherwise acquired by it shall constitute authorized by unissued shares, unless the Board of Directors shall at any time adopt a resolution providing that such shares constitute authorized and issued but not outstanding shares. The Board of Directors of the Corporation may dispose of, issue, and sell shares in accordance with, and in such amounts as may be permitted by, the laws of the State of Indiana and the provisions of these Restated Articles of Incorporation and for such consideration, at such price or prices, at such time or times and upon such terms and conditions (including the privilege of selectively repurchasing the same) as the Board of Directors of the Corporation shall determine, without the authorization or approval by any shareholders of the Corporation. Shares may be disposed of, issued, and sold to such persons, firms, or corporations as the Board of Directors may determine, without any preemptive or other right on the part of the owners or holders of other shares of the Corporation of any class or kind to acquire such shares by reason of their ownership of such other shares. The Corporation shall have the power to declare and pay dividends or other distributions upon the issued and outstanding shares of the Corporation, subject to the limitation that a dividend or other distribution may not be made if, after giving it effect, the Corporation would not be able to pay its debts as they become due in the usual course of business or the Corporation's total assets would be less than its total liabilities (without regard to any amounts that would be needed, if the Corporation were to be dissolved at the time of the dividend or other distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those of the holders of shares receiving the dividend or other distribution, unless otherwise expressly provided with respect to a series of Preferred Shares in the provisions of these Restated Articles of Incorporation adopted by the Board of Directors pursuant to Section 3(a) of this Article VI describing the terms of such series). The Corporation shall have the power to issue shares of one class or series as a share dividend or other distribution in respect of that class or series or one or more other classes or series, except as may be otherwise provided with respect to a series of Preferred Shares in the provisions of these Restated Articles of Incorporation adopted by the Board of Directors pursuant to Section 3(a) of this Article VI describing the terms of such series. Section 2. Terms of Common Shares. The Common Shares shall be equal in every respect insofar as their relationship to the Corporation is concerned, but such equality of rights shall not imply equality of treatment as to redemption or other acquisition of shares by the Corporation. Subject to the rights of the holders of any issued and outstanding Preferred Shares under this Article VI, the holders of Common Shares shall be entitled to share ratably in such dividends or other distributions (other than purchases, redemptions, or other acquisitions of Common Shares of the Corporation), if any, as are declared and paid from time to time on the Common Shares at the discretion of the Board of Directors. In the event of any liquidation, dissolution, or winding up of the Corporation, either voluntary or involuntary, after payment shall have been made to the holders of the Preferred Shares of the full amount to which they shall be entitled under this Article VI, the holders of Common Shares shall be entitled, to the exclusion of the holders of the Preferred Shares of any and all series, to share, ratably according to the number of Common Shares held by them, in all remaining assets of the Corporation available for distribution to its shareholders. Section 3. Terms of Preferred Shares. (a) Preferred Shares may be issued from time to time in one or more series, each such series to have such distinctive designation and such preferences, limitations, and relative voting and other rights as shall be set forth in these Restated Articles of Incorporation. Subject to the requirements of the Corporation Law and subject to all other provisions of these Restated Articles of Incorporation, the Board of Directors of the Corporation may create one or more series of Preferred Shares and may determine the preferences, limitations, and relative voting and other rights of one or more series of Preferred Shares before the issuance of any shares of that series by the adoption of an amendment to these Restated Articles of Incorporation that specifies the terms of that series of Preferred Shares. All shares of a series of Preferred Shares must have preferences, limitations, and relative voting and other rights identical to those of other shares of the same series. No series of Preferred Shares need have preferences, limitations, or relative voting or other rights identical with those of any other series of Preferred Shares. Before issuing any shares of a series of Preferred Shares, the Board of Directors shall adopt an amendment to these Restated Articles of Incorporation, which shall be effective without any shareholder approval or other action, that fixes and sets forth the distinctive designation of such series; the number of shares that shall constitute such series, which number may be increased or decreased (but not below the number of shares thereof then outstanding) from time to time by action of the Board of Directors; and the preferences, limitations, and relative voting and other rights of the series. Authority is hereby expressly vested in the Board of Directors, by such amendment, to fix all of the preferences or rights, and any qualifications, limitations, or restrictions of such preferences or rights, of such series to the full extent permitted by the Corporation Law; provided, however, that no such preferences, rights, qualifications, limitations, or restrictions shall be in conflict with these Restated Articles of Incorporation or any amendment hereof. (b) Preferred Shares of any series that have been redeemed (whether through the operation of a sinking fund or otherwise) or purchased by the Corporation, or that, if convertible, have been converted into shares of the Corporation of any other class or series, may be reissued as a part of such series or of any other series of Preferred Shares, subject to such limitations (if any) as may be fixed by the Board of Directors with respect to such series of Preferred Shares in accordance with Section 3 (a) of this Article VI. ARTICLE VII Voting Rights Section 1. Common Shares. Except as otherwise provided by the Corporation Law or by the provisions of these Restated Articles of Incorporation adopted by the Board of Directors pursuant to Section 3(a) of Article VI hereof describing the Preferred Shares or a series thereof, and subject to such shareholder disclosure and recognition procedures (which may include sanctions for noncompliance therewith to the fullest extent permitted by the Corporation Law) as the Corporation may by action of the Board of Directors establish, the Common Shares have unlimited voting rights. At every meeting of the shareholders of the Corporation every holder of Common Shares shall be entitled to one vote in person or by proxy for each Common Share standing in such holder's name on the share transfer records of the Corporation. Section 2. Preferred Shares. Except as required by the Corporation Law or by the provisions of these Restated Articles of Incorporation adopted by the Board of Directors pursuant to Section 3(a) of Article VI hereof describing the terms of Preferred Shares or a series thereof, the holders of Preferred Shares shall have no voting rights or powers. Preferred Shares shall, when validly issued by the Corporation, entitle the record holder thereof to vote on such matters, but only on such matters, as the holders thereof are entitled to vote under the Corporation Law or under these Restated Articles of Incorporation adopted by the Board of Directors pursuant to Section 3(a) of Article VI hereof describing the terms of Preferred Shares or a series thereof (which provisions may provide for special, conditional, limited, or unlimited voting rights, including multiple or fractional votes per share, or for no right to vote, except to the extent required by the Corporation Law) and subject to such shareholder disclosure and recognition procedures (which may include sanctions for noncompliance therewith to the fullest extent permitted by the Corporation Law) as the Corporation may by action of the Board of Directors establish. ARTICLE VIII Directors Section 1. Number. The Board of Directors at the time of adoption of these Restated Articles of Incorporation is composed of ten members. The number of Directors shall be fixed by, or fixed in accordance with, the Bylaws. Whenever there are nine or more Directors, the Bylaws may also provide for staggering the terms of the members of the Board of Directors by dividing the total number of Directors into two or three groups (with each group containing one-half or one-third of the total, as near as may be) whose terms of office expire at different times. Section 2. Election of Directors by Holders of Preferred Shares. The holders of one or more series of Preferred Shares may be entitled to elect all or a specified number of Directors, but only to the extent and subject to limitations as may be set forth in the provisions of these Restated Articles of Incorporation adopted by the Board of Directors pursuant to Section 3(a) of Article VI hereof describing the terms of the series of Preferred Shares. Section 3. Vacancies. Vacancies occurring in the Board of Directors shall be filled in the manner provided in the Bylaws or, if the Bylaws do not provide for the filling of vacancies, in the manner provided by the Corporation Law. Section 4. Removal of Directors. Any or all of the members of the Board of Directors may be removed, with or without cause, at a meeting of the shareholders called expressly for that purpose, by the affirmative vote of the holders of at least 80 percent of the outstanding shares then entitled to vote at an election of Directors. However, a Director elected by the holders of a series of Preferred Shares as authorized by Section 2 of this Article VIII may be removed only by the affirmative vote of the holders of at least 80 percent of the outstanding shares of that series then entitled to vote at an election of Directors. Directors may not be removed by the Board of Directors. Section 5. Liability of Directors. A Director's responsibility to the Corporation shall be limited to discharging his duties as a Director, including his duties as a member of any committee of the Board of Directors upon which he may serve, in good faith, with the care an ordinarily prudent person in a like position would exercise under similar circumstances, and in a manner the Director reasonably believes to be in the best interests of the Corporation, all based on the facts then known to the Director. In discharging his duties, a Director is entitled to rely on information, opinions, reports or statements, including financial statements and other financial data, if prepared or presented by: (a) One or more officers or employees of the Corporation whom the Director reasonably believes to be reliable and competent in the matters presented; (b) Legal counsel, public accountants, or other persons as to matters the Director reasonably believes are within such person's professional or expert competence; or (c) A committee of the Board of which the Director is not a member if the Director reasonably believes the committee merits confidence; but a Director is not acting in good faith if the Director has knowledge concerning the matter in question that makes reliance otherwise permitted by this Section 5 unwarranted. A Director may, in considering the best interests of the Corporation, consider the effects of any action on shareholders, employees, suppliers, and customers of the Corporation, and communities in which offices or other facilities of the Corporation are located, and any other factors the Director considers pertinent. Directors shall be immune from personal liability for any action taken as a Director, or any failure to take any action, to the fullest extent permitted by the applicable provisions of the Corporation Law from time to time in effect and by general principles of corporate law. ARTICLE IX Provisions for Regulation of Business and Conduct of Affairs of Corporation Section 1. Bylaws. The Board of Directors shall have the exclusive power to make, alter, amend, or repeal, or to waive provisions of, the Bylaws of the Corporation by the affirmative vote of a majority of the number of Directors then in office, except as provided by the Corporation Law. All provisions for the regulation of the business and management of the affairs of the Corporation not stated in these Restated Articles of Incorporation shall be stated in the Bylaws. The Board of Directors may also adopt Emergency Bylaws of the Corporation and shall have the exclusive power (except as may otherwise be provided therein) to make, alter, amend, or repeal, or to waive provisions of, the Emergency Bylaws by the affirmative vote of a majority of the entire number of Directors at the time. Section 2. Amendment or Repeal. (a) Any amendment, change or repeal of Section 4 of Article VIII, Section 2 or 3 of Article IX, or Article X of these Restated Articles of Incorporation, or any other amendment of these Restated Articles of Incorporation which would have the effect of modifying or permitting circumvention of those provisions, shall require the affirmative vote, at a meeting of shareholders of the Corporation, by the holders of a least 80 percent of the outstanding shares of all classes of Voting Shares of the Corporation (considered for purposes of this Section 2(a) as a single class and as defined in Article X) and, if the amendment, change or repeal shall be proposed by or on behalf of a Related Person (as that term is defined in Article X), by an Independent Majority of Shareholders (as defined in Article X); provided, however, that this Section 2(a) shall not apply to, and such vote shall not be required for, any such amendment, change or repeal recommended to shareholders by the favorable vote of not less than two-thirds of the Board of Directors and, if the amendment, change or repeal shall be proposed by or on behalf of a Related Person, by the favorable vote of not less than two-thirds of the Continuing Directors (as defined in Article X and computed with reference to the Related Person who shall propose such amendment, change or repeal), and any such amendment, change or repeal so recommended shall require only the shareholder vote required under the applicable provisions of the Corporation Law. (b) Except as otherwise expressly provided in Section 2(a) above, the Corporation shall be deemed, for all purposes, to have reserved the right to amend, alter, change or repeal any provision contained in these Restated Articles of Incorporation to the extent and in the manner now or hereafter permitted or prescribed by statute, and all rights herein conferred upon shareholders are granted subject to such reservation. Section 3. Removal of Chairman of the Board and President. The Chairman of the Board and the President, and each of them, may be removed from office at any time, with or without cause, at a meeting of the Board of Directors called expressly for that purpose, but only by the affirmative vote of two-thirds of all other members of the entire Board of Directors, Any vacancy created by the removal of the Chairman or the President may be filled only by the affirmative vote of two-thirds of all remaining members of the Board. ARTICLE X Approval of Business Combinations Section 1. Supermajority Vote. Except as provided in Sections 2 and 3 of this Article X, neither the Corporation nor any of its Subsidiaries shall become party to any Business Combination with a Related Person without the prior affirmative vote at a meeting of the Corporation's shareholders: (a) By the holders of not less than 80 percent of the outstanding shares of all classes of Voting Shares of the Corporation considered for purposes of this Article X as a single class, and (b) By an Independent Majority of Shareholders. Such favorable votes shall be in addition to any shareholder vote that would be required without reference to this Section 1 and shall be required notwithstanding the fact that no vote may be required, or that some lesser percentage may be specified by law or in other Articles of these Restated Articles of Incorporation or the Bylaws of the Corporation or otherwise. Section 2. Reduced Supermajority Vote for Fair Pricing. The provisions of Section 1 shall apply to a Business Combination, except that the percentage vote required by Section 1 (a) shall be reduced from not less than 80 percent to not less than two-thirds, if all of the conditions set forth in subsections (a) through (d) of this Section 2 are satisfied. (a) The fair market value of the property, securities or other consideration to be received per share by holders of each class or series of capital shares of the Corporation in the Business Combination is not less, as of the date of the consummation of the Business Combination (the `Consummation Date''), than the higher of the following: (i) the highest per share price (with appropriate adjustments for recapitalizations and for share splits, share dividends and like distributions) including brokerage commissions and solicitation fees paid by the Related Person in acquiring any of its holdings of such class or series of capital shares within the two-year period immediately prior to the first public announcement of the proposed Business Combination (`Announcement Date'') or in the transaction in which it became a Related Person, whichever is higher, plus interest compounded annually, from the later of the date that the Related Person became a Related Person (the `Determination Date''), or the date two years before the Consummation Date, through the Consummation Date, at the rate publicly announced as the `prime rate''of interest of Citibank, N.A. (or of such other major bank headquartered in New York as may be selected by a majority of the Continuing Directors) from time to time in effect, less the aggregate amount of any cash dividends paid and the fair market value of any dividends paid in other than cash on each such share from the date from which interest accrues under the preceding clause through the Consummation Date up to but not exceeding the amount of interest so payable per share; OR (ii) if such class or series is then traded on an exchange or is the subject of regularly published quotations from three or more broker/dealers who make a market in such class or series for their own accounts, the fair market value per share of such class or series on the Announcement Date, as determined by the highest closing sales price on such exchange or the highest closing bid quotation with respect to such shares during the 30-day period immediately preceding the Announcement Date. In the event of a Business Combination upon consummation of which the Corporation would be the surviving corporation or company or would continue to exist (unless it is provided, contemplated or intended that as part of such Business Combination or within one year after consummation thereof a plan of liquidation or dissolution of the Corporation will be effected), the term `other consideration to be received''shall include (without limitation) Common Shares and/or the shares of any other class of shares retained by shareholders of the Corporation other than Related Persons who are parties to such Business Combination; (b) The consideration to be received in such Business Combination by holders of each class or series of capital shares other than the Related Person involved shall, except to the extent that a shareholder agrees otherwise as to all or part of the shares which he or she owns, be in the same form and of the same kind as the consideration paid by the Related Person in acquiring the majority of the capital shares of such class or series already Beneficially Owned by it within the two-year period ending on the Determination Date; (c) After such Related Person became a Related Person and prior to the consummation of such Business Combination: (i) such Related Person shall have taken steps to insure that the Board of Directors of the Corporation included at all times representation by Continuing Directors proportionate to the ratio that the number of Voting Shares of the Corporation from time to time not Beneficially Owned by the Related Person bears to all Voting Shares of the Corporation outstanding at the time in question (with a Continuing Director to occupy any resulting fractional position among the Directors); (ii) such Related Person shall not have acquired from the Corporation, directly or indirectly, any shares of the Corporation (except upon conversion of convertible securities acquired by it prior to becoming a Related Person or as a result of a pro rata share dividend, share split or division of shares or in a transaction that satisfied all applicable requirements of this Article X); (iii) such Related Person shall not have acquired any additional Voting Shares of the Corporation or securities convertible into or exchangeable for Voting Shares except as a part of the transaction which resulted in such Related Person's becoming a Related Person; and (iv) such Related Person shall not have received the benefit, directly or indirectly (except proportionately as a shareholder), of any loans, advances, guarantees, pledges or other financial assistance or tax credits provided by the Corporation or any Subsidiary, or made any major change in the Corporation's business or equity capital structure or entered into any contract, arrangement or understanding with the Corporation except any such change, contract, arrangement or understanding as may have been approved by the favorable vote of not less than a majority of the Continuing Directors of the Corporation; and (d) A proxy statement complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations of the Securities and Exchange Commission thereunder, as then in force for corporations subject to the requirements of Section 14 of such Act (even if the Corporation is not otherwise subject to Section 14 of such Act), shall have been mailed to all holders of Voting Shares for the purpose of soliciting shareholder approval of such Business Combination. Such proxy statement shall contain on the face page thereof, in a prominent place, any recommendations as to the advisability (or inadvisability) of the Business Combination which the Continuing Directors, or any of them, may have furnished in writing and, if deemed advisable by a majority of the Continuing Directors, a fair summary of an opinion of a reputable investment banking firm addressed to the Corporation as to the fairness (or lack of fairness) of the terms of such Business Combination from the point of view of the holders of Voting Shares other than any Related Person (such investment banking firm to be selected by a majority of the Continuing Directors, to be furnished with all information it reasonably requests, and to be paid a reasonable fee for its services upon receipt by the Corporation of such opinion). Section 3. Director Approval Exception. The provisions of Sections 1 and 2 of this Article X shall not apply to, and such votes shall not be required, if: (a) The Continuing Directors of the Corporation by a two-thirds vote (i) have expressly approved a memorandum of understanding with the Related Person with respect to the Business Combination prior to the time the Related Person became a Related Person, or (ii) have otherwise approved the Business Combination (this provision is incapable of satisfaction unless there is at least one Continuing Director); or (b) The Business Combination is solely between the Corporation and another corporation, 100 percent of the Voting Shares of which are owned directly or indirectly by the Corporation. Section 4. Definitions. For the purpose of this Article X: (a) A `Business Combination'' means: (i) the sale, exchange, lease, transfer or other disposition to or with a Related Person or any Affiliate or Associate of such Related Person by the Corporation or any of its Subsidiaries (in a single transaction or a Series of Related Transactions) of all or substantially all, or any Substantial Part, of its or their assets or businesses (including, without limitation, any securities issued by a Subsidiary); (ii) The purchase, exchange, lease or other acquisition by the Corporation or any of its Subsidiaries (in a single transaction or a Series of Related Transactions) of all or substantially all, or any Substantial Part, of the assets or business of a Related Person or any Affiliate or Associate of such Related Person; (iii) Any merger or consolidation of the Corporation or any Subsidiary thereof into or with a Related Person or any Affiliate or Associate of such Related Person or into or with another Person which, after such merger or consolidation, would be an Affiliate or an Associate of a Related Person, in each case irrespective of which Person is the surviving entity in such merger or consolidation; (iv) Any reclassification of securities, recapitalization or other transaction (other than a redemption in accordance with the terms of the security redeemed) which has the effect, directly or indirectly, of increasing the proportionate amount of Voting Shares of the Corporation or any Subsidiary thereof which are Beneficially Owned by a Related Person, or any partial or complete liquidation, spinoff, splitoff or splitup of the Corporation or any Subsidiary thereof; provided, however, that this Section 4(a)(iv) shall not relate to any transaction of the types specified in this Article X that has been approved by a majority of the Continuing Directors; or (v) The acquisition upon the issuance thereof of Beneficial Ownership by a Related Person of Voting Shares or securities convertible into Voting Shares or any voting securities or securities convertible into voting securities of any Subsidiary of the Corporation, or the acquisition upon the issuance thereof of Beneficial Ownership by a Related Person of any rights, warrants or options to acquire any of the foregoing or any combination of the foregoing Voting Shares or voting securities of the Subsidiary. (b) A `Series of Related Transactions'' shall be deemed to include not only a series of transactions with the same Related Person but also a series of separate transactions with a Related Person or any Affiliate or Associate of such Related Person. (c) A `Person'' shall mean any individual, firm, corporation or other entity and any partnership, syndicate or other group. (d) `Related Person'' shall mean any Person (other than the Corporation or any of the Corporation's Subsidiaries) who or that: (i) is the Beneficial Owner, directly or indirectly, of more than ten percent of the voting power of the outstanding Voting Shares; (ii) is an Affiliate of the Corporation and at any time within the two-year period immediately prior to the date in question was the Beneficial Owner, directly or indirectly, of ten percent or more of the voting power of the then outstanding shares of Voting Shares; or (iii) is an assignee of or has otherwise succeeded to any Voting Shares which were at any time within the two-year period immediately prior to the date in question beneficially owned by any Related Person, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. A Related Person shall be deemed to have acquired a share of the Corporation at the time when such Related Person became the Beneficial Owner thereof. For the purposes of determining whether a Person is the Beneficial Owner of ten percent or more of the voting power of the then outstanding Voting Shares, the outstanding Voting Shares shall be deemed to include any Voting Shares that may be issuable to such Person pursuant to a right to acquire such Voting Shares and that is therefore deemed to be Beneficially Owned by such Person pursuant to Section 4(e)(ii)(a). A Person who is a Related Person at (i) the time any definitive agreement relating to a Business Combination is entered into, (ii) the record date for the determination of shareholders entitled to notice of and to vote on a Business Combination, or (iii) the time immediately prior to the consummation of a Business Combination, shall be deemed a Related Person. (e) A Person shall be a `Beneficial Owner'' of any Voting Shares: (i) which such Person or any of its Affiliates or Associates beneficially owns, directly or indirectly; or (ii) which such Person or any of its Affiliates or Associates has (a) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (b) the right to vote pursuant to any agreement, arrangement or understanding; or (iii) which are beneficially owned, directly or indirectly, by any other Person with which such Person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any Voting Shares. (f) An `Affiliate'' of, or a person Affiliated with, a specific Person, means a Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the Person specified. (g) The term `Associate'' used to indicate a relationship with any Person, means (i) any corporation or organization (other than this Corporation or a majority-owned Subsidiary of this Corporation) of which such Person is an officer or partner or is, directly or indirectly, the Beneficial Owner of five percent or more of any class of equity securities, (ii) any trust or other estate in which such Person has a substantial beneficial interest or as to which such Person serves as trustee or in a similar fiduciary capacity, (iii) any relative or spouse of such Person, or any relative of such spouse, who has the same home as such Person, or (iv) any investment company registered under the Investment Company Act of 1940, for which such Person or any Affiliate of such Person serves as investment advisor. (h) `Subsidiary'' means any corporation of which a majority of any class of equity security is owned, directly or indirectly, by the Corporation; provided, however, that for the purposes of the definition of Related Person set forth in paragraph (d) of this Section 4, the term `Subsidiary'' shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the corporation. (i) `Continuing Director'' means any member of the Board of Directors of the Corporation (the `Board''), other than the Related Person who proposes the Business Combination in question and his Affiliates and Associates, who (i) is a member of the Board at the time this Article X first became effective or (ii) was a member of the Board prior to the time that the Related Person who proposes the Business Combination in question became a Related Person or (iii) is a successor of a Continuing Director who was recommended to succeed the Continuing Director by a majority of Continuing Directors then on the Board. (j) `Independent Majority of Shareholders'' shall mean the holders of a majority of the outstanding Voting Shares that are not Beneficially Owned or controlled, directly or indirectly, by the Related Person who proposes the Business Combination in question. (k) `Voting Shares'' shall mean all outstanding capital shares of the Corporation or another corporation entitled to vote generally in the election of Directors, and each reference to a proportion of shares of Voting Shares shall refer to such proportion of the votes entitled to be cast by such shares. (l) `Substantial Part'' means properties and assets involved in any single transaction or a Series of Related Transactions having an aggregate fair market value of more than ten percent of the total consolidated assets of the Person in question as determined immediately prior to such transaction or Series of Related Transactions. Section 5. Director Determinations. A majority of the Continuing Directors shall have the power to determine for the purposes of this Article X, on the bases of information known to them: (i) the number of Voting Shares of which any Person is the Beneficial Owner, (ii) whether a Person is an Affiliate or Associate of another, (iii) whether a Person has an agreement, arrangement or understanding with another as to the matters referred to in the definition of `Beneficial Owner,'' (iv) whether the assets subject to any Business Combination constitute a Substantial Part, (v) whether two or more transactions constitute a Series of Related Transactions, and (vi) such other matters with respect to which a determination is required under this Article X. In connection with the exercise of its judgment in determining what is in the best interests of the Corporation and its shareholders when evaluating a business combination or a proposal by another Person or Persons to make a business combination or a tender or exchange offer (regardless of whether such proposal is otherwise subject to this Article X), the Board of Directors of the Corporation shall, in addition to considering the adequacy of the consideration to be paid in connection with any such transaction, consider all of the following factors and any other factors that it deems relevant: (i) the social and economic effects of the transaction on the Corporation and its Subsidiaries, employees, depositors, loan and other customers, creditors and other elements of the communities in which the Corporation and its Subsidiaries operate or are located; (ii) the business and financial condition and earnings prospects of the acquiring Person or Persons, including, but not limited to, debt service and other existing or likely financial obligations of the acquiring Person or Persons and their Affiliates and Associates, and the possible effect of such conditions upon the Corporation and its Subsidiaries and the other elements of the communities in which the Corporation and its Subsidiaries operate or are located; and (iii) the competence, experience, and integrity of the acquiring Person or Persons and its or their management and Affiliates and Associates. Section 6. Fiduciary Obligations Unaffected. Nothing in this Article X shall be construed to relieve any Related Person from any fiduciary duty imposed EX-10.1 3 January 28, 1997 Mr. George W. Astrike German American Bancorp 711 Main Street P O Box 810 Jasper, IN 47547-0810 RE: Incentive Stock Option Agreement Dear Mr. Astrike: The Stock Option Committee of the Board of Directors of German American Bancorp (the `Corporation''), pursuant to section 7 of the GAB Bancorp 1992 Stock Option Plan (the `Plan''), hereby grants to you, in replacement of a portion of the shares covered by your option dated January 9, 1996, which has been exercised in part as of this date, a replacement option (the `Option''), which Option shall have the following terms and conditions, in addition to those provided in the Plan: 1. Number of Shares: 2,284 shares, subject to adjustment as provided in the Plan. 2. Exercise Price: $37.25 per share, subject to adjustment as provided in the Plan. 3. Expiration Date: The Option, to the extent unexercised, shall expire at 12:00 noon, Jasper time, on April 19, 2003. 4. Exercisability: The Option shall become exercisable in full on the first day following the expiration of twelve months following the date of this Option, and shall be canceled, as specified pursuant to Section 7 of the Plan, if you sell shares of common stock of the Company during such twelve-month period, subject to the exceptions expressed in such Section 7. The Option, which is intended to qualify as an `incentive stock option'' within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, shall be in all respects limited and conditioned as provided in the Plan. A copy of the Plan is enclosed with this letter. During your lifetime, the Option will be exercisable only by you. Neither the Option nor any right thereunder may be transferred other than by will or the laws of descent and distribution. Exercise of the Option shall be subject to your making the representations set forth below and any representations to such other matters as the Committee, in its discretion, may determine to be necessary or advisable to evidence compliance with requirements under the Securities Act of 1933, as amended, or state securities laws for registering or exempting from registration any offer of sale of the Corporation's securities pursuant to the Plan. EXHIBIT 10.1 This letter, upon your delivery of an executed copy to the Corporation, shall constitute a binding incentive stock option agreement between you and the Corporation. Very truly yours, GERMAN AMERICAN BANCORP BY THE STOCK OPTION COMMITTEE OF THE BOARD OF DIRECTORS BY: By/s/Joseph F. Steurer ---------------------------- Chairman of the Stock Option Committee ACKNOWLEDGMENT AND AGREEMENT I hereby acknowledge receipt of this letter granting me the above Option as well as receipt of a copy of the Plan, and I acknowledge and agree to be bound by the following: 1. I have received a copy of the Plan and agree to be bound by the terms and conditions set forth therein. 2. The Common Shares subject to the Option are being offered pursuant to the `private offering'' exemption provided by Section 4(2) of the Securities Act of 1933, as amended (the `1933 Act''). In that connection, I agree that I will acquire Common Shares pursuant to this Option for investment purposes for my own account without any view to redistribute them to others. Further, I agree not to sell, pledge, hypothecate, or otherwise transfer Common Shares acquired pursuant to the Option except upon delivery to the Corporation of an opinion of counsel or such other evidence as may be satisfactory to the Corporation that such transfer is exempt from registration under the 1933 Act, as amended, applicable state securities laws, or any rule or regulation promulgated thereunder. 3. The certificates evidencing the Common Shares, including both originally and subsequently issued certificates, will bear a restrictive legend substantially as follows: The Common Shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, or the securities laws of any state and have been acquired in a private offering. Sales, pledges, hypothecations, and other transfers of the Common may be made only upon delivery to the Corporation of an opinion of counsel or other evidence satisfactory to the Corporation that such transfer is exempt from registration under the Securities Act of 1933, as amended, applicable state securities laws, or any rule or regulation promulgated thereunder. 4. The Corporation will issue instructions to its transfer agent, Fifth Third Bank, not to honor request for transfer of Common Shares issued subject to the Option, whether or not evidenced by originally or subsequently issued certificates, unless the conditions set forth in the preceding legend have been satisfied. EXECUTED the 28th day of January, 1997. By/s/George W. Astrike - ---------------------------- EX-10.2 4 German American Bancorp Schedule of Incentive Stock Option Agreements between the Registrant and its executive officers during the first quarter of 1997. Number of Exercise Price Executive Officer Date Shares Granted Per Share Mark A. Schroeder January 16, 1997 1,669 $37.35 George W. Astrike January 16, 1997 2,677 $37.35 January 28, 1997 2,284 $37.25 Stan Ruhe January 16, 1997 1,129 $37.35 Urban Giesler January 16, 1997 770 $37.35 James E. Essany January 16, 1997 715 $37.35 Total 9,244 The above options were granted on the same form of agreement as the agreement with Mr. Astrike filed as Exhibit 10.1 to the Registrant's report on Form 10-Q for the quarterly period ended March 31, 1997. EX-27 5
9 1,000 3-MOS DEC-31-1997 MAR-31-1997 13,648 788 950 0 103,734 23,014 23,364 317,881 6,386 479,776 419,435 7,109 4,049 0 25,416 0 0 23,767 479,776 7,036 1,925 128 9,089 4,162 99 4,828 139 0 3,319 1,917 1,917 0 0 1,274 .50 .50 4.25 1,071 850 0 1,921 6,528 328 47 6,386 6,386 0 2,403
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