-----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, Ok0EB8JnZAv7siG3xgEed8OPrcnY1KvqOalKvBHO6SS+0q3d0qPi1EiEhzhexbMo OJAU3ZmeLl5HYNAa71nR7w== 0000714395-98-000006.txt : 19980817 0000714395-98-000006.hdr.sgml : 19980817 ACCESSION NUMBER: 0000714395-98-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 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: SEC FILE NUMBER: 000-11244 FILM NUMBER: 98689768 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 June 30, 1998 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 August 10, 1998 Common Stock, No par value 6,348,590 GERMAN AMERICAN BANCORP INDEX PART I. FINANCIAL INFORMATION Item 1. Consolidated Balance Sheets _ June 30, 1998 and December 31, 1997 Consolidated Statements of Income -- Three Months Ended June 30, 1998 and 1997 Consolidated Statements of Income -- Six Months Ended June 30, 1998 and 1997 Consolidated Statements of Cash Flows -- Six Months Ended June 30, 1998 and 1997 Notes to Consolidated Financial Statements -- June 30, 1998 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Item 3. Quantitative and Qualitative Disclosures about Market Risk. PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders. Item 5. Other Events Item 6. Exhibits and Reports on Form 8-K SIGNATURES PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS GERMAN AMERICAN BANCORP CONSOLIDATED BALANCE SHEET (unaudited, dollars in thousands except per share data) June 30, December 31, 1998 1997 ASSETS Cash and Due from Banks $19,472 $20,090 Federal Funds Sold 14,225 20,300 Cash and Cash Equivalents 33,697 40,390 Interest-bearing Balances with Banks 2,673 2,798 Securities Available-for-Sale, at market 105,837 100,449 Securities Held-to-Maturity, at cost 26,230 35,382 Total Loans 407,100 378,380 Less: Unearned Income (1,033 ) (1,057) Allowance for Loan Losses (7,133 ) (7,416) Loans, Net 398,934 369,907 Premises, Furniture and Equipment, Net 13,351 13,191 Other Real Estate 365 388 Intangible Assets 1,478 1,572 Accrued Interest Receivable and Other Assets 11,596 11,765 TOTAL ASSETS $594,161 $575,842 LIABILITIES Noninterest-bearing Deposits $54,985 $62,502 Interest-bearing Deposits 461,417 438,531 Total Deposits 516,402 501,033 Short-term Borrowings 4,542 5,548 FHLB Borrowings 1,000 --- Accrued Interest Payable and Other Liabilities 6,512 7,182 TOTAL LIABILITIES 528,456 513,763 SHAREHOLDERS' EQUITY Common Stock, No par value, $1 stated value; 20,000,000 shares authorized 6,347 6,279 Preferred Stock, $10 par value; 500,000 shares authorized, none issued --- --- Additional Paid-in Capital 39,497 38,088 Retained Earnings 19,167 16,945 Unrealized Appreciation on Securities Available-for-Sale, net of tax 694 767 TOTAL SHAREHOLDERS' EQUITY 65,705 62,079 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $594,161 $575,842 Common Shares issued and outstanding at end of period 6,347,226 6,278,636 See accompanying notes to consolidated financial statements. GERMAN AMERICAN BANCORP CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (unaudited, dollars in thousands except per share data) Three Months Ended June 30, 1998 1997 INTEREST INCOME Interest and Fees on Loans $8,970 $8,411 Interest on Federal Funds Sold 277 202 Interest on Short-term Investments 40 37 Interest and Dividends on Securities 2,028 2,150 TOTAL INTEREST INCOME 11,315 10,800 INTEREST EXPENSE Interest on Deposits 5,246 4,964 Interest on Borrowings 61 85 TOTAL INTEREST EXPENSE 5,307 5,049 NET INTEREST INCOME 6,008 5,751 Provision for Loan Losses 55 (652 ) NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 5,953 6,403 NONINTEREST INCOME Income from Fiduciary Activities 92 87 Service Charges on Deposit Accounts 389 323 Investment Services Income 140 117 Other Charges, Commissions and Fees 202 180 Gain on Sales of Loans and Other Real Estate --- 2 Net Gain on Sales of Securities 7 --- TOTAL NONINTEREST INCOME 830 709 NONINTEREST EXPENSE Salaries and Employee Benefits 2,342 2,111 Occupancy Expense 384 277 Furniture and Equipment Expense 238 264 Computer Processing Fees 159 146 Professional Fees 159 350 Other Operating Expenses 898 819 TOTAL NONINTEREST EXPENSE 4,180 3,967 Income before Income Taxes 2,603 3,145 Income Tax Expense 808 1,083 Net Income $1,795 $2,062 Weighted Average Shares Outstanding: Basic 6,346,754 6,337,223 Diluted 6,361,299 6,345,005 Earnings Per Share And Diluted Earnings Per Share $0.28 $0.33 Dividends Paid Per Share $0.12 $0.10 Comprehensive Income (See Note 1) $1,848 $ 2,487 See accompanying notes to consolidated financial statements. GERMAN AMERICAN BANCORP CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (unaudited, dollars in thousands except per share data) Six Months Ended June 30, 1998 1997 INTEREST INCOME Interest and Fees on Loans $17,900 $16,530 Interest on Federal Funds Sold 568 447 Interest on Short-term Investments 85 82 Interest and Dividends on Securities 4,011 4,267 TOTAL INTEREST INCOME 22,564 21,326 INTEREST EXPENSE Interest on Deposits 10,396 9,837 Interest on Borrowings 117 187 TOTAL INTEREST EXPENSE 10,513 10,024 NET INTEREST INCOME 12,051 11,302 Provision for Loan Losses 119 (426 ) NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 11,932 11,728 NONINTEREST INCOME Income from Fiduciary Activities 174 173 Service Charges on Deposit Accounts 709 637 Investment Services Income 274 223 Other Charges, Commissions and Fees 384 304 Gain on Sales of Loans and Other Real Estate 8 2 Net Gain on Sales of Securities 7 --- TOTAL NONINTEREST INCOME 1,556 1,339 NONINTEREST EXPENSE Salaries and Employee Benefits 4,639 4,152 Occupancy Expense 669 577 Furniture and Equipment Expense 556 525 Computer Processing Fees 329 290 Professional Fees 327 572 Other Operating Expenses 1,756 1,593 TOTAL NONINTEREST EXPENSE 8,276 7,709 Income before Income Taxes 5,212 5,358 Income Tax Expense 1,668 1,826 Net Income $3,544 $3,532 Weighted Average Shares Outstanding: Basic 6,346,299 6,337,017 Diluted 6,360,844 6,344,799 Earnings Per Share And Diluted Earnings Per Share $0.56 $0.56 Dividends Paid Per Share $0.23 $0.20 Comprehensive Income (See Note 1) $3,471 $3,485 See accompanying notes to consolidated financial statements. GERMAN AMERICAN BANCORP CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, dollar references in thousands) Six Months Ended June30, 1998 1997 CASH FLOWS FROM OPERATING ACTIVITIES Net Income $3,544 $3,532 Adjustments to Reconcile Net Income to Net Cash from Operating Activities: Amortization and Accretion of Investments (58 ) 28 Depreciation and Amortization 661 799 Provision for Loan Losses 119 (426) Net Gain on Sales of Securities (7 ) --- Gain of Sales of Loans and Other Real Estate(8 ) (2) Change in Assets and Liabilities: Unearned Income (24 ) (146) Deferred Loan Fees (18 ) 1 Other Assets 612 104 Deferred Taxes (150 ) (204) Other Liabilities (774 ) (174) Total Adjustments 353 832 Net Cash from Operating Activities 3,897 4,364 CASH FLOWS FROM INVESTING ACTIVITIES Cash and Cash Equivalents of Acquired Subsidiary, net of Purchase Price 3,715 --- Change in Interest-bearing Balances with Banks 173 (597) Proceeds from Maturities of Other Short-term Investments --- 1,000 Proceeds from Maturities of Securities Available-for-Sale 52,670 17,314 Proceeds from Sales of Securities Available-for-Sales 9,465 --- Purchase of Securities Available-for-Sale (59,255 ) (17,964) Proceeds from Maturities of Securities Held-to-Maturity 5,040 318 Proceeds from Sales of Securities Held-to-Maturity 204 --- Purchase of Securities Held-to-Maturity (2,988 ) (1,780) Purchase of Loans (264 ) (27) Loans Made to Customers net of Payments Received (19,159 ) (13,418) Proceeds from Sales of Loans 255 9 Property and Equipment Expenditures (373 ) (1,419) Proceeds from Sales of Other Real Estate 76 31 Net Cash from Investing Activities (10,441 ) (16,533) CASH FLOWS FROM FINANCING ACTIVITIES Change in Deposits 1,173 (458) Change in Short-term Borrowings (1,006 ) (8,392) Advances of Long-term Debt 1,000 --- Repayments of Long-term Debt --- (1,000) Dividends Paid (1,311 ) (1,123) Purchase of interests in Fractional Shares (5 ) (5) Exercise of Stock Options --- 2 Net Cash from Financing Activities (149 ) (10,976) Net Change in Cash and Cash Equivalents (6,693 ) (23,145) Cash and Cash Equivalents at Beginning of Year 40,390 54,152 Cash and Cash Equivalents at End of Period $33,697 $31,007 Cash Paid During the Year for: Interest $10,960 $10,039 Income Taxes 1,418 1,530 See accompanying notes to consolidated financial statements. GERMAN AMERICAN BANCORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1998 (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. Except for adjustments resulting from the merger transactions described below, 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, 1997 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 Citizens State Bank, Petersburg, Indiana ("Citizens State") and Peoples National Bank, Washington, Indiana ("Peoples"). The Company, through its four bank subsidiaries, operates 24 banking offices in seven contiguous counties in southwestern Indiana. On June 1, 1998 the Company consummated mergers with the parent companies of Citizens State and FSB Bank of Francisco, Indiana ("FSB Bank"). FSB Bank and an existing affiliate, Community Trust Bank of Petersburg, Indiana were merged into the Citizens State charter on that date. The reported operating results for periods prior to June 1, 1998 have been retroactively adjusted to give the effect to the merger with Citizens State. These mergers were accounted for as poolings of interests. Prior year results do not include the effect of the merger with FSB Bank, as restatement would not have resulted in a material change in overall financial results. Under a new accounting standard, comprehensive income is now reported for all periods. Comprehensive income includes both net income and other comprehensive income. Other comprehensive income includes the change in unrealized appreciation on securities available for sale, net of tax. Note 2 -- Per Share Data The Company paid a 5 percent stock dividend in December 1997. In lieu of issuing fractional shares, the company purchased from shareholders their fractional interest. The Cmpany also paid a two-for-one stock split in October 1997. In addition, the Company issued 995,678 shares related to the mergers with the parent companies of Citizens State and FSB Bank on June 1, 1998. Earnings per share amounts have been retroactively computed as though these additionally issued shares had been outstanding for all periods presented. Dividends paid per share amounts represent historical dividends declared without restatement for pooling. The computation of Earnings per Share and Diluted Earnings per Share are provided as follows: Three Months Ended June 30, 1998 1997 Earnings per Share: Net Income $1,795,000 $2,062,000 Weighted Average Shares Outstanding 6,346,754 6,337,223 Earnings per Share: $ 0.28 $ 0.33 Diluted Earnings per Share: Net Income $1,795,000 $2,062,000 Weighted Average Shares Outstanding 6,346,754 6,337,223 Stock Options 29,976 36,692 Assumed Shares Repurchased upon Exercise of Options (15,431 ) (28,910 ) Diluted Weighted Average Shares Outstanding 6,361,299 6,345,005 Diluted Earnings per Share $ .28 $ 0.33 Six Months Ended June 30, 1998 1997 Earnings per Share: Net Income $3,544,000 $3,532,000 Weighted Average Shares Outstanding 6,346,299 6,337,017 Earnings per Share: $ 0.56 $ 0.56 Diluted Earnings per Share: Net Income $3,544,000 $3,532,000 Weighted Average Shares Outstanding 6,346,299 6,337,017 Stock Options 29,976 36,692 Assumed Shares Repurchased upon Exercise of Options (15,431) (28,910 ) Diluted Weighted Average Shares Outstanding 6,360,844 6,344,799 Diluted Earnings per Share $ 0.56 $ 0.56 Note 3 _ Securities The amortized cost and estimated market values of Securities as of June 30, 1998 are as follows (dollars in thousands): Estimated Amortized Market Securities Available-for-Sale: Cost Value U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies $52,648 $52,807 Obligations of State and Political Subdivisions 25,973 26,597 Asset-/Mortgage-backed Securities 23,376 23,383 Corporate Securities 2,462 2,461 Total $104,459 $105,608 Estimated Amortized Market Securities Held-to-Maturity: Cost Value Obligations of State and Political Subdivisions $23,653 $24,507 Asset-/Mortgage-backed Securities 521 533 Other Securities 2,056 2,056 Total $26,230 $27,096 On the date of merger with Citizens State, investment securities with an amortized cost of $8.0 million and estimated market value of $8.1 million were reclassified from Held-to-Maturity to Available-for-Sale. This action was taken as a result of the business combination and in order to conform Citizens State's investment portfolio to the Company's asset/liability and interest rate risk position. The amortized cost and estimated market values of Securities as of December 31, 1997 are as follows (dollars in thousands): Estimated Amortized Market Securities Available-for-Sale: Cost Value U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies $58,544 $58,575 Obligations of State and Political Subdivisions 20,448 21,670 Asset-/Mortgage-backed Securities 15,668 15,661 Corporate Securities 4,528 4,529 Other Securities 1 14 Total $99,189 $100,449 Estimated Amortized Market Securities Held-to-Maturity: Cost Value U.S. Treasury Securities and Obligations of U.S. Government Corporation and Agencies $5,598 $5,601 Obligations of State and Political Subdivisions 24,980 26,167 Asset-/Mortgage-backed Securities 2,372 2,389 Corporate Securities 311 303 Other Securities 2,121 2,121 Total $35,382 $36,581 At June 30, 1998 and December 31, 1997, U.S. Government Agency structured notes with an amortized cost of $1,500,000 and $5,000,000 respectively, and fair value of $1,497,000 and $4,986,000 respectively, are included in securities available-for-sale. These notes consist primarily of step-up and single-index bonds. Securities classified as held-to-maturity with a market value of $204,000 were sold during the second quarter, primarily due to their small block sizes, which were not cost effective to maintain in the Company's investment portfolio. Each of these securities had a de minimus book value relative to the original purchase price at the dates of sale. Note 4 -- Loans Total loans, as presented on the balance sheet, are comprised of the following classifications (dollars in thousands): June 30,December 31, 1998 1997 Real Estate Loans Secured by 1-4 Family Residential Properties $130,652 $126,289 Agricultural Loans 63,279 60,421 Commercial and Industrial Loans 131,452 111,240 Loans to Individuals for Household, Family and Other Personal Expenditures 80,842 79,385 Lease Financing 875 1,045 Total Loans $407,100 $378,380 The overall loan portfolio is diversified among a variety of borrowers; however, a significant portion of the debtors' ability to honor their contracts is dependent upon the wood furniture manufacturing and agriculture industries, including poultry. No unguaranteed concentration of credit in excess of 10 percent of total assets exists within any single industry group. Note 5 -- Allowance for Loan Losses A summary of the activity in the Allowance for Loan Losses is as follows (dollars in thousands): 1998 1997 Balance at January 1 $7,416 $7,144 Allowance of Acquired Subsidiary 72 --- Provision for Loan Losses 119 (426) Recoveries of Prior Loan Losses 162 474 Loan Losses Charged to the Allowance (636 ) (536) Balance at June 30 $7,133 $6,656 Note 6 _ Business Combinations On June 1, 1998 the Company acquired by merger CSB Bancorp of Petersburg, Indiana (and its wholly owned subsidiary, Citizens State Bank of Petersburg) in exchange for 928,475 shares of German American Bancorp common stock. Fractional interests were paid in cash of $3. The transaction was accounted for as a pooling of interests. Also on June 1, 1998 the Company acquired by merger FSB Financial Corporation of Francisco, Indiana (and its wholly owned subsidiary, FSB Bank of Francisco, Indiana) in exchange for 67,203 shares of German American Bancorp common stock. Fractional interests for this transaction were paid in cash of $2. The transaction was accounted for as a pooling of interests; however, results for 1997 do not include the effect of this transaction, as restatement would not have resulted in a material change in overall financial results. Total assets and equity of FSB Bank at the date of merger were $15.5 million and $1.4 million, respectively. The following is a reconciliation of the separate and combined net interest income and net income of German American Bancorp, CSB Bancorp and FSB Financial Corporation for the periods prior to the acquisition: GERMAN AMERICAN BANCORP CSB FSB (as previously reported)BANCORP FINANCIAL COMBINED For the period January 1, 1998 through June 1, 1998 Net interest income $8,518 $1,186 $250 $9,954 Net income / (Loss) $2,548 $444 $(64) $2,928 For the three months ended June 30, 1997 Net interest income $5,024 $727 $ --- $5,751 Net income $1,850 $212 $ --- $2,062 For the six months ended June 30, 1997 Net interest income $9,852 $1,450 $ --- $11,302 Net income $3,124 $408 $ --- $3,532 Note 7 -- Proposed Acquisitions In August 1998, the Company signed a definitive agreement providing for the merger with 1st Bancorp, a $260 million banking company headquartered in Vincennes, Indiana (Knox County). Under the terms of the agreement, the shareholders of 1ST BANCORP would receive shares of common stock of German American with a targeted aggregate market value of $57,120,000 (based on market prices of German American common stock during a period of 15 trading days ending on the second trading date preceding closing) in a tax-free exchange, or approximately $50.94 per 1ST BANCORP share (assuming exercise of all outstanding options). If the German American share price is less than $28 per share or more than $33 per share during the valuation period, however, then the number of shares to be issued in the transaction will be based on a minimum or maximum share price, as the case may be, of $28 or $33. Accordingly, to the extent that German American's share price during the valuation period is less than $28 or more than $33, then the market value of the transaction could vary from the targeted value. The proposed merger is subject to the approval of 1ST BANCORP's and German American's shareholders as well as the approval of the appropriate bank regulatory agencies, receipt of a fairness opinion and other conditions. The merger is expected to be effective in the first quarter of 1999. 1ST BANCORP has also signed a Stock Option Agreement with German American, giving German American an option to purchase up to 19.9% of 1ST BANCORP's outstanding shares, exercisable at $50.94 per share upon the occurrence of certain events that create the potential for another party to acquire control of 1ST BANCORP. 1ST BANCORP's subsidiaries include First Federal Bank, A Federal Savings Bank; First Financial Insurance Agency, Inc.; and First Title Insurance Company, Inc. First Federal Bank operates a loan origination office in Evansville, Indiana. First Financial Insurance Agency has offices in Vincennes and Princeton, Indiana. Following the merger, First Federal Bank and 1ST BANCORP's insurance subsidiaries will remain intact as wholly owned direct or indirect subsidiaries of German American and will continue to serve their existing markets from their present facilities. 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 24 offices in Dubois, Daviess, Gibson, 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 June 30, 1998 and December 31, 1997 and the consolidated results of operations for the periods ended June 30, 1998 and 1997. 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, as well as the Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's December 31, 1997 Annual Report to Shareholders. On June 1, 1998 the Company consummated mergers with the parent companies of Citizens State and FSB Bank of Francisco, Indiana ("FSB Bank"). FSB Bank and an existing affiliate, Community Trust Bank of Otwell, Indiana were merged into the Citizens State charter on that date. The reported operating results for periods prior to June 1, 1998 have been retroactively adjusted to give the effect to the merger with Citizens State. Prior year results do not include the effect of the merger with FSB Bank, as restatement would not have resulted in a material change in overall financial results. RESULTS OF OPERATIONS Net Income: Net income for the quarter and year-to-date ended June 30, 1998 was $1,795,000 and $3,544,000. This compares to earnings for the quarter and year- to-date ended June 30, 1997 of $2,062,000 and $3,532,000. Prior year net income included $459,000 ($0.07 per share) in after-tax earnings due to a negative provision for loan loss recorded at the Company's Union Banking Division, which resulted from the collection of a single previously charged-off credit. Excluding this non-recurring event, earnings increased 12 percent for the second quarter of 1998, and 15 percent for the year-to-date ended June 30, 1998, over comparative 1997 adjusted operating results. Net income was $0.28 per share for the three months, and $0.56 per share for the six months ended June 30, 1998 compared to $0.33 per share for the quarter, and $0.56 for the six months ended June 30, 1997. As adjusted for the non- recurring event previously discussed, net income was $0.26 per share for the three months ended, and $0.49 per share for the six months ended June 30, 1997. 1998 per share earnings increased 12 percent in the second quarter, and 17 percent for the year-to-date ended June 30, 1998, over the adjusted comparative 1997 results. The Company achieved year-to-date improvements over the prior year (again excluding the impact of the non-recurring event in 1997) for return on assets (1.20 percent versus 1.10 percent), return on equity (11.01 percent versus 10.55 percent) and net interest margin (4.64 percent versus 4.60 percent). The Company's year-to-date efficiency ratio showed continued improvement, declining to 57.6 percent from the prior year's 57.9 percent. Net Interest Income: The following table summarizes German American Bancorp's net interest income (on a taxable-equivalent basis, at an effective tax rate of 34 percent for each period) for each of the periods presented herein (dollars in thousands): Three Months Change from Ended June 30, Prior Period 1998 1997 Amount Percent Interest Income $11,707 $11,136 $571 5.1% Interest Expense 5,307 5,049 258 5.1 Net Interest Income $6,400 $6,087 $313 5.1 Six Months Change from Ended June 30, Prior Period 1998 1997 Amount Percent Interest Income $23,341 $21,997 $1,344 6.1% Interest Expense 10,513 10,024 489 4.9 Net Interest Income $12,828 $11,973 $855 7.1 The increase in net interest income for the three and six months ended June 30, 1998 compared to the same periods of 1997 was primarily due to an increase of loans, which generally provide a higher yield than investment securities, in the mix of average earning assets. In addition, 1998 results include the recovery of interest on a previously charged-off loan of approximately $68,000. Net interest income, on a taxable-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 half of 1998, the net interest margin was 4.64 percent compared to 4.60 percent for the comparable period of 1997. This increase in margin was due primarily to a decrease in debt to equity leverage. Provision For Loan Losses: The Company provides for future 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 $119,000 and $(426,000) for the first half in 1998 and 1997 and $55,000 and ($652,000) in the second quarter in 1998 and 1997. The negative provision in the second quarter of 1997 resulted from the collection of a single, previously charged-off credit, combined with management's determination that certain specific reserve allocations were no longer necessary due to the performance of the related loans. Absent this non- recurring event, the provision totaled $302,000 for the first half, and $76,000 for the second quarter of 1997. The provision for loan losses to be recorded in future periods will be subject to adjustment based on the results of on-going evaluations of the adequacy of the allowance for loan losses. Net charge-offs were $460,000 or 0.46 percent of average loans for the three months ended, and $474,000 or 0.24 percent of loans for the six months ended June 30, 1998. Net charge-offs (recoveries) for the second quarter of 1997 were $(376,000) or (0.10) percent of loans and were $62,000 or 0.03 percent of loans for the first half of 1997. The majority of the 1998 charge-offs occurred at Citizens State, on loans for which Citizens State had previously fully reserved a specific allowance. Underperforming loans as a percentage of total loans were 0.82 percent and 0.86 percent, respectively on June 30, 1998 and December 31, 1997. See discussion under "Financial Condition" for more information regarding underperforming assets. Noninterest Income: Noninterest income increased approximately 15 percent over the prior year, excluding net gains on sale, and was $823,000 and $1,541,000 for the second quarter and year-to-date ended June 30, 1998. This compares to $707,000 and $1,337,000 for the same periods in 1997. Higher revenues resulted from an 11 percent increase in service charges on deposits, a 23 percent increase in investment services income and an increase of approximately $87,000 from other ventures. Noninterest Expense: Noninterest expense was $4.2 million for the second quarter of 1998 compared to $4.0 million for the second quarter of 1997. Year-to-date 1998 results were $8.3 million versus $7.7 million for the first six months of 1997. This represented a 5 percent increase for the quarter and 7 percent for the year-to- date ended June 30, 1998 over the comparative periods for the prior year. Noninterest expense slightly increased as an annualized percentage of average total assets to 2.80 percent in 1998 from 2.77 percent in the prior year. The Company's efficiency ratio improved to 57.6 percent from 57.9 percent for 1997. Salaries and Employee Benefits totaled $2.3 million and $4.6 million, respectively, for the second quarter and year-to-date ended June 30, 1998 or 56 percent of total noninterest expense. These expenses increased approximately 12 percent over the same periods for 1997, when salaries and employee benefits totaled $2.1 million and $4.2 million, respectively. Increases were incurred in base compensation and selected benefits, including the Company's employee computer purchase program, beginning in late 1997. Total occupancy, furniture and equipment expense for the first six months of 1998 totaled $1.2 million. This was approximately $120,000 or 11 percent greater than the $1.1 million incurred for the same period of the prior year. These expenses are expected to continue to be higher in comparison to the prior year, largely as a consequence of upgrading the Company's computer systems at its existing and new affiliates. The Company is continuing its 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 by all of its affiliate community banks. Computer processing fees increased $39,000 in the first half of 1998 from the first half of 1997. Nearly all of this difference is attributable to conversion of new affiliates to the Company's data processing systems. Professional fees for the first six months of 1998 totaled $327,000. This was a reduction of $245,000 from the $572,000 recorded for the same period of 1997, primarily due to a reserve for legal fees established in the second quarter of 1997, related to an unasserted potential claim. Other operating expenses increased approximately 10 percent from $819,000 and $1,593,000 in the first three and six months of 1997 to $898,000 and $1,756,000 in the first three and six months of 1998. These increases were incurred due to the introduction of new banking products, related expenses and a refund of SAIF assessment fees received in the first quarter of 1997. FINANCIAL CONDITION Total assets at June 30, 1998 were $594 million. This was an increase of $18 million from the December 31, 1997 total asset position and was due to an increase in the loan portfolio. Deposits at June 30, 1998 were $516 million, which was a $15 million increase from year-end 1997. Transaction deposits experienced a seasonal decline from year-end, while interest-bearing deposits increased $23 million. Combined Short- and Long-term Borrowings at June 30, 1998 were $5.5 million, representing no change from the December 31, 1997 position. All of the Company's affiliate banks are members of the Federal Home Loan Bank System ("FHLB"). The banks' membership in the FHLB provides an additional source of liquidity for both long and short-term borrowing needs. The Company had $1 million in FHLB borrowings outstanding at June 30, 1998. Underperforming Assets: The following is an analysis of the Company's underperforming assets at June 30, 1998 and December 31, 1997 (dollars in thousands): June 30, December 31, 1998 1997 Nonaccrual Loans $753 $562 Loans contractually past due 90 days or more 2,583 2,710 Renegotiated Loans --- --- Total Underperforming Loans 3,336 3,272 Other Real Estate 365 146 Total Underperforming Assets $3,701 $3,418 Allowance for Loan Loss to Underperforming Loans 213.82% 226.65% Underperforming Loans to Total Loans 0.82% 0.86% Capital Resources: Shareholders' equity totaled $65.7 million at June 30, 1998 or 11.1 percent of total assets, and $62.1 million at December 31, 1997 or 10.8 percent of total assets. 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. The Company is required to maintain minimum levels of capital 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 deferred tax assets defined by bank regulations. Tier 2 capital is defined as the amount of the allowance for loan losses which does not exceed 1.25 percent 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 percent leverage ratio, which is Tier 1 capital divided by defined "total assets"; 4.0 percent Tier 1 capital to risk-adjusted assets; and, an 8.0 percent 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, under-capitalized, significantly under- capitalized, and critically under-capitalized. Under these regulations, a "well-capitalized" entity must achieve a Tier 1 Risk-based capital ratio of at least 6.0 percent; a total capital ratio of at least 10.0 percent; and, a leverage ratio of at least 5.0 percent, and not be under a capital directive order. At June 30, 1998 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 risk-based capital structure and capital ratios under regulatory guidelines (dollars in thousands): June 30, December 31, 1998 1997 Tier 1 Capital: Shareholders' Equity as presented on the Balance Sheet $65,705 $62,079 Less: Unrealized Appreciation on Securities Available-for-Sale (694) (767) Less: Intangible Assets and Ineligible Deferred Tax Assets (1,567) (1,713) Total Tier 1 Capital 63,444 59,599 Tier 2 Capital: Qualifying Allowance for Loan Loss 5,091 4,786 Total Capital $68,535 $64,385 Risk-adjusted Assets $405,277 $378,770 To be Well Capitalized Under Prompt Minimum for Corrective Capital Action Adequacy Provisions June 30, December 31, Purposes (FDICIA) 1998 1997 Leverage Ratio 4.00% 5.00% 10.74% 10.59% Tier 1 Capital to Risk-adjusted Assets 4.00% 6.00% 15.65% 15.73% Total Capital to Risk-adjusted Assets 8.00% 10.00% 16.91% 17.00% LIQUIDITY The Consolidated Statement of Cash Flows details the elements of change in the Company's cash and cash equivalents. During the first six months of 1998, operating activities provided $3.9 million of available cash, which included net income of $3.5 million. Maturities of securities and short-term investments netted $5.3 million in cash above the dollar amount of purchases. Major cash outflows experienced during this six month period of 1998 included $1.3 million in dividends, $373,000 in property and equipment purchases and net loan outlays in the amount of $19.2 million. Deposits and borrowings increased by $1.2 million during the period. Total cash outflows for the period exceeded inflows by $6.7 million, leaving cash and cash equivalents of $33.7 million at June 30, 1998. YEAR 2000 All banks and financial institutions are faced with addressing a potentially materially adverse event should their computer and operating systems fail to accurately process business in the Year 2000. The Company, like any financial institution, would suffer an interruption in its ability to transact business should its systems fail due to Year 2000 programming inaccuracy. An on-going formal review of the Company's computer systems and systems providers is continuing, in order to determine the extent to which changes must be implemented to avoid or minimize service issues associated with the Year 2000. The Company has developed a formal plan for the review, testing and implementation of procedures to address certain issues that require attention prior to the Year 2000, in order that its operations will not be materially adversely affected. The Company's Year 2000 process is subject to regulatory examination and at this time the Company believes itself to be in compliance with significant regulatory requirements. The Company's service provider for all of its loan and deposit account processing activity is Fiserv, a publicly listed company headquartered in Milwaukee, Wisconsin. Fiserv's systems have been designated as mission critical for the Year 2000 issue. Fiserv, a national service provider for over 3,300 financial institutions, has confirmed to the Company that the renovation and testing of all core systems will be largely completed by December 25, 1998. While the Company can obviously give no assurance as to Fiserv's performance in the completion of this matter, the Company is unaware of any issues that would cause Fiserv to be unable to renovate mission critical systems satisfactorily. Due to the Company's existing computer upgrade initiatives and its reliance on third party systems for the bulk of its processing functions, the incremental expenses associated with Year 2000 issues are not expected to be material to financial results. The Year 2000 issue could also affect the ability of the Company's customers to conduct operations in a timely and effective manner, and as such, could adversely impact the quality of the Company's loan portfolio, its deposits, or other sources of revenue and funding from customers. Although the Company has not generally requested information from its customers regarding their potential exposure to the Year 2000 issue or their plans to minimize any such exposure, the Company is not aware of any specific significant customer which does not expect to have this issue resolved prior to the Year 2000. The above summary of the Company's Year 2000 preparations includes forward looking statements, concerning the Company's present expectation that its operations will not be materially adversely affected by Year 2000 issues. There can be no assurance, however, that Year 2000 issues will not be encountered or that their effect on the Company's operations, technology expenditures or customer relationships will not be material. Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company's exposure to market risk is reviewed on a regular basis by the Asset/Liability Committee and the Boards of Directors of the holding company and its affiliate banks. Other than as a result of the June 1, 1998 mergers with Citizens State and FSB Bank, there have been no material changes in the quantitative and qualitative disclosures about market risks from December 31, 1997. While these acquisitions added $93 million in assets and $10 million in equity to the Company at the date of the mergers, the acquired banks distribution of assets and liabilities do not materially impact the overall market risk profile of the Company which was presented in the analysis and disclosures provided in the Company's Form 10-K for the year ended December 31, 1997. PART II. -- OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders. The Company held its Annual Meeting of Shareholders on April 23, 1998. At the Annual Meeting, the shareholders elected as Directors for an additional two- year term the six nominees proposed by the Board of Directors, and approved an amendment of the Corporation's Articles of Incorporation to change the par value of its capital stock from $10.00 per share to no par value per share. Votes Votes Broker Nominee Cast For Withheld Non-Votes Gene C. Mehne 3,938,742.10 9,767.00 1,439,509.90 Robert L. Ruckriegel 3,935,837.23 9,767.00 1,439,509.90 Mark A. Schroeder 3,938,742.10 9,767.00 1,439,509.90 Larry J. Seger 3,938,742.10 9,767.00 1,439,509.90 Joseph L. Steurer 3,938,742.10 9,767.00 1,439,509.90 C.L. Thompson 3,938,547.10 9,962.00 1,439,509.90 There were no abstentions. The amendment of the Articles of Incorporation was approved by a vote of 3,881,068.30 votes in favor and 67,440.80 votes opposed with 1,439,509.90 abstentions or broker non-votes. Item 5. Other Events In August 1998, the Company signed a definitive agreement providing for the merger with 1st Bancorp, a $260 million banking company headquartered in Vincennes, Indiana (Knox County). Under the terms of the agreement, the shareholders of 1ST BANCORP would receive shares of common stock of German American with a targeted aggregate market value of $57,120,000 (based on market prices of German American common stock during a period of 15 trading days ending on the second trading date preceding closing) in a tax-free exchange, or approximately $50.94 per 1ST BANCORP share (assuming exercise of all outstanding options). If the German American share price is less than $28 per share or more than $33 per share during the valuation period, however, then the number of shares to be issued in the transaction will be based on a minimum or maximum share price, as the case may be, of $28 or $33. Accordingly, to the extent that German American's share price during the valuation period is less than $28 or more than $33, then the market value of the transaction could vary from the targeted value. The proposed merger is subject to the approval of 1ST BANCORP's and German American's shareholders as well as the approval of the appropriate bank regulatory agencies, receipt of a fairness opinion and other conditions. The merger is expected to be effective in the first quarter of 1999. 1ST BANCORP has also signed a Stock Option Agreement with German American, giving German American an option to purchase up to 19.9% of 1ST BANCORP's outstanding shares, exercisable at $50.94 per share upon the occurrence of certain events that create the potential for another party to acquire control of 1ST BANCORP. 1ST BANCORP's subsidiaries include First Federal Bank, A Federal Savings Bank; First Financial Insurance Agency, Inc.; and First Title Insurance Company, Inc. First Federal Bank operates a loan origination office in Evansville, Indiana. First Financial Insurance Agency has offices in Vincennes and Princeton, Indiana. Following the merger, First Federal Bank and 1ST BANCORP's insurance subsidiaries will remain intact as wholly owned direct or indirect subsidiaries of German American and will continue to serve their existing markets from their present facilities. Following completion of the 1st Bancorp transaction, C. James McCormick, Chairman of the Board of 1st Bancorp, will join the Company's Board of Directors. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit No. Description 2.1 Agreement and Plan of Reorganization between the Registrant, CSB Bancorp, and Affiliates, dated December 8,1997. This exhibit is incorporated by reference from Exhibit 2.1 to the Registrant's Registration Statement on Form S-4 filed February 26, 1998. 2.2 Agreement and Plan of Reorganization between the Registrant, FSB Financial Corporation, and Affiliates, dated January 30, 1998. This exhibit is incorporated by reference from Exhibit 2.2 to the Registrant's Registration Statement on Form S-4 filed on February 26, 1998. 2.3 Agreement and Plan of Reorganization dated as of August 6, 1998 between 1st Bancorp and the Registrant. 2.4 Stock Option Agreement dated as of August 6, 1998 between 1st Bancorp and Registrant. 3 Restated Articles of Incorporation of German American Bancorp (as amended to change the par value from $10.00 to no par value). 10.1 Stock Option Agreement executed May 1, 1998 between the Registrant and James E. Essany (1,155 shares). 27 Financial Data Schedule for the periods ended June 30, 1998 and 1997. (b) Reports on Form 8-K No reports on Form 8-K were filed during the three months ended June 30, 1998 except for a report filed June 16, 1998 which reported under Item 2, the consummation on June 1, 1998 of the merger of FSB Financial Corporation of Francisco, Indiana and CSB Bancorp of Petersburg, Indiana into German American Holdings Corporation. A Press Release attached as Exhibit 99 to the June 16, 1998 8-K more fully described this transaction. It was also noted under Item 5, "Other Events" in the 8-K, that Michael J. Voyles, a member of the Board of Directors of CSB Bancorp was added to the Board of Directors of the Company. 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 August 14, 1998 By/s/George W. Astrike --------------- ------------------------ George W. Astrike Chairman Date August 14, 1998 By/s/John M. Gutgsell --------------- ------------------------ John M. Gutgsell Controller and Principal Accounting Officer EX-2.3 2 AGREEMENT AND PLAN OF REORGANIZATION by and between 1ST BANCORP, an Indiana corporation, and GERMAN AMERICAN BANCORP, an Indiana corporation. Dated: August 6, 1998 Exhibit 2.3 AGREEMENT AND PLAN OF REORGANIZATION THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made August 6, 1998, by and between 1ST BANCORP, an Indiana corporation ("1ST BANCORP"), and GERMAN AMERICAN BANCORP, an Indiana corporation ("German American"). Recitals A. 1ST BANCORP is a corporation duly organized and existing under the Indiana Business Corporation Law ("IBCL") that is duly registered with the Office of Thrift Supervision ("OTS") as a savings and loan holding company under the Home Owners' Loan Act ("HOLA"). 1ST BANCORP owns all of the outstanding capital stock of First Federal Bank, A Federal Savings Bank (the "Bank"). The principal place of business of 1ST BANCORP is Vincennes, Knox County, Indiana. B. C. The Bank is a federal savings bank duly organized and existing under the HOLA, chartered by the OTS, with its principal banking office located in Vincennes, Knox County, Indiana D. E. C. Financial Services of Southern Indiana Corporation ("FSSIC") is a wholly-owned subsidiary of the Bank, and First Financial Insurance Agency, Inc. ("FFIAI"), and First Title Insurance Company ("FTC") are wholly-owned subsidiaries of 1ST BANCORP, all with principal offices in Vincennes, Knox County, Indiana (collectively FSSIC, FFIAI and FTC are referred to herein as the "Subsidiaries"). The Subsidiaries are all Indiana corporations duly organized and existing under the IBCL. F. D German American is a corporation duly organized and existing under the IBCL and is duly registered with the Board of Governors of the Federal Reserve System ("FRB") as a bank holding company under Bank Holding Company Act of 1956, as amended ("BHC Act"). The principal place of business of German American is Jasper, Dubois County, Indiana. E. The parties desire to effect a transaction whereby 1ST BANCORP will be merged with and into German American in consideration of the issuance of German American Common Stock. Agreements In consideration of the premises and the mutual terms and provisions set forth in this Agreement, the parties agree as follows: ARTICLE ONE TERMS OF THE MERGER AND CLOSING Section 1.01. The Merger. Pursuant to the terms and provisions of this Agreement, the IBCL and the Plan of Merger attached hereto as Appendix A and incorporated herein by reference (the "Plan of Merger"), 1ST BANCORP shall merge with and into German American (the "Merger"). 1ST BANCORP shall be the "Merging Company" in the Merger and its corporate identity and existence, separate and apart from German American, shall cease on consummation of the Merger. German American shall be the "Surviving Company" in the Merger, and its name shall not be changed pursuant to the Merger. Section 1.02. Effect of the Merger. The Merger shall have all the effects provided by the IBCL. Section 1.03. The Merger - Conversion of Shares. (a) At the time of filing with the Indiana Secretary of State of appropriate Articles of Merger with respect to the Merger or at such later time as shall be specified by such Articles of Merger (the "Effective Time"): (b) i) ( Each of the shares of common stock, $1.00 par value, of 1ST BANCORP ("1ST BANCORP Common") that are issued and outstanding immediately prior to the Effective Time shall thereupon and without further action be converted into shares of common stock, no par value, of German American ("German American Common") at the Exchange Ratio which shall be calculated as set forth in this Section 1.03(a)(i). 1ST BANCORP's shareholders of record at the Effective Time, for the shares of 1ST BANCORP Common then held by them, respectively, shall be allocated and entitled to receive (upon surrender of certificates representing said shares for cancellation) shares of German American Common, which total number of shares of German American Common shall have a value (as hereinafter determined) of $57,120,000 subject, however, to (A) the provisions of this Section 1.03(a) with respect to the minimum and maximum number of shares to be exchanged, (B) the provisions of Section 1.03(f) of this Agreement, and (C) the provisions of this Section 1.03(b) with respect to fractional shares. The consideration payable to 1ST BANCORP shareholders hereunder is sometimes hereafter referred to as the "Merger Consideration." For purposes of establishing the number of shares of German American Common into which each share of 1ST BANCORP Common shall be converted at the Effective Time (the "Exchange Ratio"), each share of German American Common shall be valued (the "GA Common Value") at the average of the highest closing bid and the lowest closing asked prices of German American Common as reported by the NASDAQ National Market System for the 15 trading days ending on the second trading day preceding the Closing Date (as defined by Section 1.06 hereof) (the "Valuation Period"). The GA Common Value shall then be divided into the sum of $57,120,000 to establish (to the nearest whole share) the aggregate number of shares of German American Common into which all of the then issued and outstanding shares of 1ST BANCORP Common shall be converted at the Effective Time. Notwithstanding the above, if the GA Common Value exceeds $33 per share, then the aggregate number of shares to be issued in the Merger will be determined by using $33 as the GA Common Value. Similarly, if the GA Common Value is below $28 per share, then the aggregate number of shares to be issued in the Merger will be determined by using $28 as the GA Common Value. The number of shares of German American Common as so calculated shall then be divided by the number of shares of 1ST BANCORP Common that are issued and outstanding as of the Effective Time, with the quotient therefrom (carried to the fourth figure past the decimal point) being the Exchange Ratio. The maximum and minimum figures for the GA Common Value shall be subject to adjustment in accordance with the provisions of Section 1.03(f) of this Agreement. i) ( The shares of German American issued and outstanding immediately prior to the Effective Time shall continue to be issued and outstanding shares of German American. (a) No fractional shares of German American Common shall be issued and, in lieu thereof, holders of shares of 1ST BANCORP Common who would otherwise be entitled to a fractional share interest (after taking into account all shares of 1ST BANCORP Common held by such holder) shall be paid an amount in cash equal to the product of such fractional share and the average of the highest bid and the lowest asked price of a share of German American Common as quoted on the NASDAQ National Market System on the last day of the Valuation Period. (b) (c) At the Effective Time, all of the outstanding shares of 1ST BANCORP Common, by virtue of the Merger and without any action on the part of the holders thereof, shall no longer be outstanding and shall be canceled and retired and shall cease to exist, and each holder of any certificate or certificates which immediately prior to the Effective Time represented outstanding shares of 1ST BANCORP Common (the "Certificates") shall thereafter cease to have any rights with respect to such shares, except the right of such holders to receive, without interest, the Merger Consideration upon the surrender of such Certificate or Certificates in accordance with Section 1.05. (d) (e) At the Effective Time, each share of 1ST BANCORP Common, if any, held in the treasury of 1ST BANCORP or by any direct or indirect subsidiary of 1ST BANCORP, including the Bank and the Subsidiaries (other than shares held in trust accounts for the benefit of others or in other fiduciary, nominee or similar capacities) immediately prior to the Effective Time shall be canceled. (f) (g) At the Effective Time, the shares of common stock of the Bank outstanding immediately prior to the Effective Time shall be unchanged by the Merger and shall be deemed owned by the Surviving Company. (h) (i) If (i) German American shall hereafter declare a stock dividend or other distribution of property or securities (excluding any cash dividends and excluding the five percent stock dividend that German American intends to declare in late 1998) upon its shares of common stock or shall subdivide, split up, reclassify or combine its shares of common stock, and (ii) the record date for such transaction is prior to the date on which the Effective Time occurs, appropriate adjustment or adjustments will be made in the maximum and minimum figures for the GA Common Value as set forth in Section 1.03(a)(i) above. (j) (k) If any holders of 1ST BANCORP Common dissent from the Merger and demand dissenters' rights under the IBCL, any issued and outstanding shares of 1ST BANCORP Common held by such dissenting holders shall not be converted as described in this Section 1.03 but shall from and after the Effective Time represent only the right to receive such consideration as may be determined to be due to such dissenting holders pursuant to the IBCL; provided, however, that each share of 1ST BANCORP Common outstanding immediately prior to the Effective Time and held by a dissenting holder who shall, after the Effective Time, withdraw his or her demand for dissenters' rights or lose his or her right to exercise dissenters' rights shall have only such rights as provided under the IBCL. (l) (m) Section 1.04. The Closing. The closing of the Merger (the "Closing") shall take place at the offices of Leagre Chandler & Millard (or at such other place as the parties may agree) at 9:00 A.M. Eastern Standard Time on the Closing Date described in Section 1.06 of this Agreement. (n) Section 1.05. Exchange Procedures; Surrender of Certificates. (a) The Fifth Third Bank, Cincinnati, Ohio, shall act as Exchange Agent in the Merger (the "Exchange Agent"). (a) As soon as reasonably practicable but in no event more than ten working days after the Effective Time, the Exchange Agent shall mail to each record holder of any Certificate or Certificates whose shares were converted into the right to receive the Merger Consideration, a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon proper delivery of the Certificates to the Exchange Agent and shall be in such form and have such other provisions as German American may reasonably specify) (each such letter the "Merger Letter of Transmittal") and instructions for use in effecting the surrender of the Certificates in exchange for the Merger Consideration. As soon as reasonably practical but in no event more than ten days after surrender to the Exchange Agent of a Certificate, together with a Merger Letter of Transmittal duly executed and any other required documents, the Exchange Agent shall transmit to the holder of such Certificate the Merger Consideration. No interest on the Merger Consideration issuable upon the surrender of the Certificates shall be paid or accrued for the benefit of holders of Certificates. (b) (c) With respect to any certificate for shares of 1ST BANCORP Common which has been lost, stolen or destroyed, German American shall be authorized to issue its common stock (or to pay cash as to fractional shares) to the registered owner of such certificate upon German American's receipt of an agreement to indemnify German American against loss from such lost, stolen or destroyed certificate and an affidavit of lost, stolen or destroyed stock certificate, both in form and substance reasonably satisfactory to German American, and upon payment by the 1ST BANCORP shareholder of a reasonable fee for a security bond from a recognized insurance company. (d) (e) No dividends that are otherwise payable on shares of German American Common constituting the Merger Consideration shall be paid to persons entitled to receive such shares of German American Common until such persons surrender their Certificates. Upon such surrender, there shall be paid to the person in whose name the shares of German American Common shall be issued any dividends which shall have become payable with respect to such shares of German American Common (without interest and less the amount of taxes thereon, if any, which are required to be withheld), between the Effective Time and the time of such surrender. (f) (g) Section 1.06. The Closing Date. The Closing shall take place on the last business day of the month during which each of the conditions in Sections 6.01(d) and 6.02(d) is satisfied or waived by the appropriate party, or on such later or earlier date as 1ST BANCORP and German American may agree (the "Closing Date"). The parties shall use their best efforts to cause the Effective Time of the Merger to be as of the first business day of the calendar month that follows the month in which the Closing occurs; provided, however, that in no event shall the Effective Time be prior to January 4, 1999. (h) Section 1.07. Actions At Closing. (a) At the Closing, 1ST BANCORP shall deliver to German American: (i) certified copies of (A) the Articles of Incorporation and Bylaws of 1ST BANCORP, as amended; (B) the Charter and Bylaws of the Bank, as amended; and (C) the Articles of Incorporation and Bylaws of each of the Subsidiaries; (i) a certificate or certificates signed by the chief executive officer of 1ST BANCORP, to the best of his knowledge and belief, after due inquiry, that (A) each of the representations and warranties contained in Article Two hereof is true and correct in all material respects at the time of the Closing with the same force and effect as if such representations and warranties had been made at Closing, and (B) 1ST BANCORP, the Bank, and the Subsidiaries have performed and complied in all material respects, unless waived by German American, with all of its respective obligations and agreements required to be performed hereunder prior to the Closing Date; (i) certified copies of the resolutions of 1ST BANCORP's Board of Directors and shareholders, approving and authorizing the execution of this Agreement and the Plan of Merger and authorizing the consummation of the Merger; (i) a certificate of the Indiana Secretary of State, dated a recent date, stating that 1ST BANCORP is duly organized and validly existing under the IBCL; (i) a certificate of the OTS, dated a recent date, stating that the Bank is duly organized and validly existing under the laws of the United States of America; (i) certificates of the Indiana Secretary of State, dated a recent date, stating that each of the Subsidiaries is duly organized and exists under the IBCL; and (i) the legal opinion of Barnes & Thornburg, counsel for 1ST BANCORP to the effect set forth as Exhibit 1.07(a)(vii). (a) At the Closing, German American shall deliver to 1ST BANCORP: (b) (i) a certificate signed by the Chief Executive Officer of German American stating, to the best of his knowledge and belief, after due inquiry, that (A) each of the representations and warranties contained in Article Three is true and correct in all material respects at the time of the Closing with the same force and effect as if such representations and warranties had been made at Closing and (B) German American has performed and complied in all material respects, unless waived by 1ST BANCORP with all of its obligations and agreements required to be performed hereunder prior to the Closing Date; (i) certified copies of the resolutions of German American's Board of Directors and (if required by the NASDAQ NMS listing standards or the IBCL) German American's shareholders authorizing the execution of this Agreement and the Plan of Merger and the consummation of the Merger; (i) a certificate of the Indiana Secretary of State, dated a recent date, stating that German American is duly organized and validly existing under the IBCL; and (i) the legal opinion of Leagre Chandler & Millard, counsel for German American, in the form attached hereto as Exhibit 1.07(b)(iv). (ii) (b) At the Closing, the parties shall insert the Exchange Ratio determined in accordance with Section 1.03 of this Agreement into the Plan of Merger, and shall execute and/or deliver to one another such Plan of Merger and such other documents and instruments and take such other actions as shall be necessary or appropriate to consummate the Merger. (c) ARTICLE TWO REPRESENTATIONS AND WARRANTIES OF 1ST BANCORP 1ST BANCORP hereby makes the following representations and warranties: Section 2.01. Organization and Capital Stock. (a) 1ST BANCORP is a corporation duly organized and validly existing under the IBCL and has the corporate power to own all of its property and assets, to incur all of its liabilities and to carry on its business as now being conducted. (a) The Bank is a federal savings bank duly chartered and validly existing under the laws of the United States of America and has the corporate power to own all of its property and assets, to incur all of its liabilities and to carry on its business as now being conducted. (b) (c) 1ST BANCORP has authorized capital stock of 7,000,000 shares, 5,000,000 of which are 1ST BANCORP Common, $1.00 par value, and 2,000,000 of which are preferred capital stock, $1.00 par value. At the date of this Agreement, there were 1,096,189 shares of 1ST BANCORP Common duly and validly issued and outstanding, fully paid and non-assessable and no shares of preferred stock issued and outstanding. None of the outstanding shares of 1ST BANCORP Common has been issued in violation of any preemptive rights of the current or past shareholders of 1ST BANCORP or in violation of any applicable federal or state securities laws or regulations. (d) (e) The Bank has authorized capital stock of 5,000,000 shares of common stock, $1.00 par value, 1,000 of which shares are issued and outstanding ("Bank Common") and 2,000,000 shares of preferred stock, none of which are outstanding. All of such shares of Bank Common are duly and validly issued and outstanding and are fully paid and nonassessable. None of the outstanding shares of Bank Common has been issued in violation of any preemptive rights of the current or past shareholders of the Bank or in violation of any applicable federal or state securities laws or regulations. (f) (g) (e) FSSIC has authorized capital stock of 1,000 shares of common stock, no par value, one of which is issued and outstanding and is fully paid and nonassessable. None of the outstanding shares of FSSIC Common has been issued in violation of any preemptive rights of the current or past shareholders of FSSIC or in violation of any applicable federal or state securities laws or regulations. (h) (i) (f) FFIAI has authorized capital stock of 1,000 shares of common stock, no par value, 100 of which are issued and outstanding and are fully paid and nonassessable. None of the outstanding shares of FFIAI Common has been issued in violation of any preemptive rights of the current or past shareholders of FFIAI or in violation of any applicable federal or state securities laws or regulations. (j) (k) (g) FTC has authorized capital stock of 1,000 shares of common stock, no par value, 100 of which are issued and outstanding and are fully paid and nonassessable. None of the outstanding shares of FTC Common has been issued in violation of any preemptive rights of the current or past shareholders of FTC or in violation of any applicable federal or state securities laws or regulations. (l) (m) (h) Except as otherwise disclosed with particularity in a confidential writing delivered by 1ST BANCORP to German American prior to execution of this Agreement, which confidential writing thereafter shall be executed by all the parties concurrently with the execution of this Agreement (the "Disclosure Schedule"), there are no shares of capital stock or other equity securities of 1ST BANCORP, the Bank, or the Subsidiaries authorized, issued or outstanding and no outstanding options, warrants, rights to subscribe for, calls, puts, or commitments of any character whatsoever relating to, or securities or rights convertible into or exchangeable for, shares of the capital stock of 1ST BANCORP, the Bank, or the Subsidiaries, or contracts, commitments, understandings or arrangements by which 1ST BANCORP, the Bank, or the Subsidiaries are or may be obligated to issue additional shares of its capital stock or options, warrants or rights to purchase or acquire any additional shares of its capital stock. (n) (o) Section 2.02. Authorization; No Defaults. The Board of Directors of 1ST BANCORP, by all appropriate action, has approved this Agreement, the Plan of Merger and the Merger and has authorized the execution of this Agreement and the Plan of Merger on its behalf by its duly authorized officers and the performance by 1ST BANCORP of its obligations hereunder. Nothing in the Articles of Incorporation or Bylaws of 1ST BANCORP, as amended, or the Charter or Bylaws of the Bank, as amended, or the Articles of Incorporation or Bylaws of any of the Subsidiaries, as amended, or in any material agreement or instrument, or any decree, proceeding, law or regulation (except as specifically referred to in or contemplated by this Agreement) by or to which 1ST BANCORP, the Bank, or any of the Subsidiaries is bound or subject, would prohibit 1ST BANCORP from consummating, or would be violated or breached by 1ST BANCORP's consummation of, this Agreement and the Merger and other transactions contemplated herein on the terms and conditions herein contained. This Agreement has been duly and validly executed and delivered by 1ST BANCORP and constitutes a legal, valid and binding obligation of 1ST BANCORP, enforceable against 1ST BANCORP in accordance with its terms, subject to the provisions of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium, or similar laws affecting the enforceability of creditors' rights generally from time to time in effect and equitable principles relating to the granting of specific performance and other equitable remedies as a matter of judicial discretion. Neither 1ST BANCORP, the Bank, nor any of the Subsidiaries is, nor will be by reason of the consummation of the transactions contemplated herein, in material default under or in material violation of any provision of, nor will the consummation of the transactions contemplated herein afford any party a right to accelerate any indebtedness under, 1ST BANCORP's, the Bank's, or any of the Subsidiaries' articles of incorporation or bylaws, any material promissory note, indenture or other evidence of indebtedness or security therefor, or any material lease, contract, or other commitment or agreement to which either 1ST BANCORP or the Bank is a party or by which it or its property is bound. (p) (q) Section 2.03. Subsidiaries. Except (i) as otherwise disclosed in the Disclosure Schedule, (ii) for the ownership by 1ST BANCORP of all the capital stock of the Bank and FFIAI and FTC and (iii) for the ownership by the Bank of all of the capital stock of FSSIC, neither 1ST BANCORP nor the Bank nor any of the Subsidiaries has (or has had at any time in the last ten years) any direct or indirect ownership interest in any corporation, partnership, limited liability company, joint venture or other business. (r) (s) Section 2.04. Financial Information. (t) (u) 1ST BANCORP has furnished to German American its audited financial statements of 1ST BANCORP for the years ended June 30, 1997, 1996 and 1995 and all subsequent financial statements of 1ST BANCORP included as part of 1ST BANCORP's Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission. Such financial statements were prepared in accordance with generally accepted accounting principles applied on a consistent basis (except as may be reflected in the notes thereto), and fairly present the consolidated financial position and the consolidated results of operations, changes in shareholders' equity and cash flows of 1ST BANCORP in all material respects as of the date and for the period indicated. (v) (w) The Bank has furnished to German American its Thrift Financial Reports as filed with the OTS for the quarters ended March 31, 1998, and June 30, 1998 (the "TFR Reports"). The TFR Reports were prepared in accordance with the applicable regulatory instructions on a consistent basis with previous such reports, and fairly present the financial position and results of operations of the Bank in all material respects as of the dates and for the periods indicated, subject, however, to normal recurring year-end adjustments, none of which will be material. (x) (y) (c) Each of the Subsidiaries has furnished to German American its financial statements for the year-to-date periods ended March 31, 1998 and June 30, 1998. Such reports were prepared in accordance with any applicable regulatory instructions on a consistent basis with previous such reports, and fairly present the financial position and results of operations of the Subsidiaries in all material respects as of the dates and for the periods indicated, subject, however, to normal recurring year-end adjustments, none of which will be material. (z) (d) Except as set forth in the Disclosure Schedule, neither 1ST BANCORP, the Bank, nor any one of the Subsidiaries, has any material liability, fixed or contingent, except to the extent set forth in the financial statements and the TFR Reports described in subsections (a), (b) and (c) of this Section 2.04 (collectively, the "1ST BANCORP Financial Statements") or incurred in the ordinary course of business since the date of the most recent balance sheet of 1ST BANCORP, the Bank, or the Subsidiaries included in the 1ST BANCORP Financial Statements. (e) Except as otherwise provided in the Disclosure Schedule, 1ST BANCORP does not engage in the lending business (except by and through the Bank) or any other business or activity other than that which is incident to its ownership of all the capital stock of the Bank or of FFIAI and FTC and does not own any investment securities (except the capital stock of the Bank and FFIAI and FTC). Section 2.05. Absence of Changes. Since June 30, 1997, and except to the extent reflected in the TFR Reports, there has not been any material adverse change in the financial condition, the results of operations or the business of 1ST BANCORP or the Bank, taken as a whole. The making by the Bank after June 30, 1998, of provisions for the purpose of increasing its allowance for possible loan losses not exceeding in the aggregate the amount specified by Section 4.05 of this Agreement shall not be deemed a material adverse change for purposes of this Section 2.05. Section 2.06. Absence of Agreements with Banking Authorities. Neither 1ST BANCORP nor the Bank is subject to any order (other than orders applicable to saving and loan holding companies or savings banks generally) and neither is a party to any agreement or memorandum of understanding with any federal or state agency charged with the supervision or regulation of saving and loan holding companies or savings banks, including without limitation, the OTS or the Federal Deposit Insurance Corporation (the "FDIC"). Section 2.07. Tax Matters. 1ST BANCORP and the Bank have filed all federal, state and local tax returns due in respect of any of their respective business, income and properties in a timely fashion and has paid or made provision for all amounts shown due on such returns. All such returns fairly reflect the information required to be presented therein in all material respects. All provisions for accrued but unpaid taxes contained in the 1ST BANCORP Financial Statements were made in accordance with generally accepted accounting principles. Section 2.08. Absence of Litigation. There is no material litigation, claim or other proceeding pending or, to the knowledge of 1ST BANCORP, threatened, before any judicial, administrative or regulatory agency or tribunal, to which 1ST BANCORP, the Bank, or any one of the Subsidiaries is a party or to which any of their properties are subject. Set forth in Section 2.08 of the Disclosure Schedule is a listing of all litigation to which 1ST BANCORP is a named party. Section 2.09. Employment Matters. (a) Except as set forth in the Disclosure Schedule, neither 1ST BANCORP, the Bank, nor any one of the Subsidiaries is a party to or bound by any material contract arrangement or understanding (written or otherwise) for the employment, retention or engagement of any past or present officer, employee, agent, consultant or other person or entity which, by its terms, is not terminable by 1ST BANCORP, the Bank, or one of the Subsidiaries respectively, on thirty (30) days' written notice or less without the payment of any amount by reason of such termination. (b) (c) (b) 1ST BANCORP, the Bank and each of the Subsidiaries are and have been in material compliance with all applicable laws respecting employment and employment practices, terms and conditions of employment and wages and hours, including, without limitation, any such laws respecting employment discrimination and occupational safety and health requirements, and (i) neither 1ST BANCORP, the Bank, nor any one of the Subsidiaries is engaged in any unfair labor practice; (ii) there is no unfair labor practice complaint against 1ST BANCORP, the Bank, or any of the Subsidiaries pending or, to the knowledge of 1ST BANCORP, threatened before the National Labor Relations Board; (iii) there is no labor dispute, strike, slowdown or stoppage actually pending or, to the knowledge of 1ST BANCORP, threatened against or directly affecting 1ST BANCORP, the Bank, or any of the Subsidiaries; and (iv) neither 1ST BANCORP, the Bank, nor any one of the Subsidiaries has experienced any material work stoppage or other material labor difficulty during the past five years. (d) (e) (c) Except as set forth in the Disclosure Schedule, neither the execution nor the delivery of this Agreement, nor the consummation of any of the transactions contemplated hereby, will (i) result in any payment (including without limitation severance, unemployment compensation or golden parachute payment) becoming due to any director or employee of 1ST BANCORP, the Bank, or any of the Subsidiaries from any of such entities, (ii) increase any benefit otherwise payable under any of their employee plans or (iii) result in the acceleration of the time of payment of any such benefit. No amounts paid or payable by 1ST BANCORP, the Bank, or any of the Subsidiaries to or with respect to any employee or former employee of 1ST BANCORP, the Bank, or any of the Subsidiaries will fail to be deductible for federal income tax purposes by reason of Section 280G of the Internal Revenue Code of 1986, as amended ("Code") or otherwise. (f) (g) Section 2.10. Reports. Since June 30, 1995, 1ST BANCORP, the Bank, and each of the Subsidiaries have filed all reports, notices and other statements, together with any amendments required to be made with respect thereto, if any, that they were required to file with (i) the Securities and Exchange Commission ("SEC"), (ii) the OTS, (iii) the FDIC and (iv) any other governmental authority with jurisdiction over 1ST BANCORP, the Bank, or any of the Subsidiaries. As of their respective dates, each of such reports and documents, including the financial statements, exhibits and schedules thereto, complied in all material respects with the relevant statutes, rules and regulations enforced or promulgated by the regulatory authority with which they were filed. (h) (i) Section 2.11. Investment Portfolio. All United States Treasury securities, obligations of other United States Government agencies and corporations, obligations of States and political subdivisions of the United States and other investment securities held by the Bank, as reflected in the TFR Reports, are carried on the books of the Bank in accordance with generally accepted accounting principles, consistently applied. The Bank from and after the date hereof will not engage in activities that would require that it establish a trading account under applicable regulatory guidelines and interpretations. (j) Section 2.12. Loan Portfolio. To the knowledge of 1ST BANCORP, all loans and discounts shown in the TFR Reports, or which were entered into after June 30, 1998, but before the Closing Date, were and will be made in all material respects for good, valuable and adequate consideration in the ordinary course of the business of the Bank, in accordance in all material respects with the Bank's lending policies and practices unless otherwise approved by the Bank's Board of Directors, and are not subject to any material defenses, set offs or counterclaims, including without limitation any such as are afforded by usury or truth in lending laws, except as may be provided by bankruptcy, insolvency or similar laws or by general principles of equity. To the knowledge of 1ST BANCORP, the notes or other evidences of indebtedness evidencing such loans and all forms of pledges, mortgages and other collateral documents and security agreements are and will be, in all material respects, enforceable, valid, true and genuine and what they purport to be. To the knowledge of 1ST BANCORP, the Bank has complied and will through the Closing Date continue to comply with all laws and regulations relating to such loans, or to the extent there has not been such compliance, such failure to comply will not materially interfere with the collection of any such loan. Except as set forth in the Disclosure Schedule, the Bank has not sold, purchased or entered into any loan participation arrangement except where such participation is on a pro rata basis according to the respective contributions of the participants to such loan amount. Except as set forth in the Disclosure Schedule, 1ST BANCORP has no knowledge that any condition of property in which the Bank has an interest as collateral to secure a loan or that is held as an asset of any trust violates the Environmental Laws (defined in Section 2.15) in any material respect or obligates 1ST BANCORP, or the Bank, or the owner or operator of such property to remedy, stabilize, neutralize or otherwise alter the environmental condition of such property. Section 2.13. ERISA. (a) Except as disclosed in the Disclosure Schedule, no person participates in any "employee welfare benefit plan" or "employee pension benefit plan" (as those terms are respectively defined in Sections 3(1) and 3(2) of the Employee Retirement Income Security Act of 1974 ("ERISA")), nor may any person reasonably expect to participate in any such plan, in either case, on account of his or her past or present employment with 1ST BANCORP or the Bank. 1ST BANCORP and the Bank do not maintain any retirement or deferred compensation plan, savings, incentive, stock option or stock purchase plan, unemployment compensation plan, vacation pay, severance pay, bonus or benefit arrangement, insurance or hospitalization program or any other fringe benefit arrangements (referred to collectively hereinafter as "fringe benefit arrangements") for any past or present employee, consultant or agent of 1ST BANCORP or the Bank, whether pursuant to contract, arrangement, custom or informal understanding, which does not constitute an "employee benefit plan" (as defined in Section 3(3) of ERISA), except as listed in the Disclosure Schedule. (a) During the past sixty months, 1ST BANCORP has not maintained any employee welfare benefit plans or employee pension benefit plans except for plans listed on the Disclosure Schedule. There have been no amendments to any of the employee pension benefit plans, employee welfare benefit plans or fringe benefit arrangements listed on the Disclosure Schedule since June 30, 1997, except as set forth in the Disclosure Schedule. (b) (c) To the knowledge of 1ST BANCORP, all employee pension benefit plans, employee welfare benefit plans and fringe benefit arrangements listed on the Disclosure Schedule comply in form and in operation in all material respects with all applicable requirements of law and regulation. To the knowledge of 1ST BANCORP, all employee pension benefit plans maintained by 1ST BANCORP and the Bank comply in form and in operation with all applicable requirements of Section 401(a) and, to the extent applicable, Section 401(k) of the Code. To the knowledge of 1ST BANCORP, except as disclosed in the Disclosure Schedule, neither 1ST BANCORP nor the Bank has (i) incurred any liability for tax under Section 4971 of the Code on account of any accumulated funding deficiency and no plan or arrangement listed in the Disclosure Schedule has incurred any accumulated funding deficiency within the meaning of Section 412 or 418(B) of the Code; (ii) applied for or obtained a waiver by the IRS of any minimum funding requirement under Section 412 of the Code; (iii) become subject to any disallowance of deductions under Sections 419 or 419(A) of the Code; (iv) incurred any liability for excise tax under Sections 4972, 4975, or 4976 of the Code or any liability under Section 406 of ERISA; (v) incurred any liability to the Pension Benefit Guaranty Corporation; (vi) had a reportable event (within the meaning of Section 4043 of ERISA) for which notice is not waived by applicable regulations; or (vii) breached any of the duties or failed to perform any of the obligations imposed upon the fiduciaries or plan administrators under Title I or ERISA. (d) (e) A true and correct copy of each of the plans and arrangements listed on the Disclosure Schedule as in effect on the date hereof and each trust agreement relating to each such plan and arrangement, has been supplied to German American. A true and correct copy of the annual report (as described in Section 103 of ERISA) most recently filed for each plan listed in the Disclosure Schedule has been supplied to German American, and there have been no material changes in the financial condition in the respective plans from that stated in the annual reports supplied. In the case of any plan or arrangement which is not in written form, the Disclosure Schedule includes an accurate description of such plan or arrangement. 1ST BANCORP and the Bank have provided to German American a description of any liability or contingent liability which may be incurred by 1ST BANCORP or the Bank if any plan or arrangement listed on the Disclosure Schedule (including without limitation the payment by the Bank of premiums for health care coverage for active employees or retirees) were terminated or if 1ST BANCORP or the Bank was to cease its participation therein. To the best of the knowledge of the present non-employee members of the Board of Directors of 1ST BANCORP and of the Bank (without any independent review of the books and records of 1ST BANCORP and the Bank or the making of any other independent inquiry), and to the best of the knowledge of the President of the Bank (after review of the books and records of the Bank but without the obligation to make any further independent inquiry), neither 1ST BANCORP nor the Bank nor any of their affiliates or persons acting on their behalf have made any written or oral promises or statements to employees or retirees who are now living which might reasonably have been construed by them as promising "lifetime" or other vested rights to benefits under any plan or arrangement (other than any employee pension plan disclosed in the Disclosure Schedule) that cannot be unilaterally terminated or modified by the Bank or 1ST BANCORP at their discretion at any time without further obligation. (f) (g) Except as disclosed in the Disclosure Schedule, in the case of each plan or arrangement listed in the Disclosure Schedule which is a defined benefit plan (within the meaning of Section 3(35) of ERISA), the net fair market value of the assets held to fund such plan or arrangement equals or exceeds the present value of all accrued benefits thereunder, both vested and nonvested, on a plan continuation basis and as determined in accordance with an actuarial costs method acceptable under Section 3(31) of ERISA. (h) (i) On a timely basis, 1ST BANCORP and the Bank have made all contributions or payments to or under each plan or arrangement listed in the Disclosure Schedule as required pursuant to each such plan or arrangemen or in the alternative have made sufficient provision for reserves to meet contributions and payments under such plans or arrangements which have not been made because they are not yet due. (j) (k) Except as otherwise provided in the Disclosure Schedule, none of the plans or arrangements listed in the Disclosure Schedule owns (or has owned within the past 60 months) any 1ST BANCORP Common or other securities of 1ST BANCORP, the Bank or a related entity. (l) (m) Section 2.14. Title to Properties; Insurance. 1ST BANCORP, the Bank, and the Subsidiaries have marketable title, insurable at standard rates, free and clear of all liens, charges and encumbrances (except taxes which are a lien but not yet payable and liens, charges or encumbrances reflected in the 1ST BANCORP Financial Statements and easements, rights-of-way, and other restrictions which are not material and, in the case of other real estate owned, as such real estate is internally classified on the books of the Bank, rights of redemption under applicable law) to all real properties reflected on the 1ST BANCORP Financial Statements as being owned by 1ST BANCORP, the Bank, or the Subsidiaries, respectively. All material leasehold interests used by 1ST BANCORP, the Bank, and the Subsidiaries in their respective operations are held pursuant to lease agreements which are valid and enforceable in accordance with their terms, subject to the provisions of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium, or similar laws affecting the enforceability of creditors' rights generally from time to time in effect and equitable principles relating to the granting of specific performance and other equitable remedies as a matter of judicial discretion. Except as set forth in the Disclosure Schedule, all such properties comply in all material respects with all applicable private agreements, zoning requirements and other governmental laws and regulations relating thereto and there are no condemnation proceedings pending or, to the knowledge of 1ST BANCORP, threatened with respect to such properties. 1ST BANCORP, the Bank, and the Subsidiaries have valid title or other ownership or use rights under licenses to all material intangible personal or intellectual property used by 1ST BANCORP, the Bank, and the Subsidiaries in their respective business free and clear of any claim, defense or right of any other person or entity which is material to such property, subject only to rights of the licensor pursuant to applicable license agreements, which rights do not materially adversely interfere with the use or enjoyment of such property. All insurable properties owned or held by 1ST BANCORP, the Bank, or the Subsidiaries are insured in such amounts, and against fire and other risks insured against by extended coverage and public liability insurance, as is customary with companies of the same size and in the same business. (n) Section 2.15. Environmental Matters. (a) As used in this Agreement, "Environmental Laws" means all local, state and federal environmental, health and safety laws and regulations in all jurisdictions in which 1ST BANCORP, the Bank, or any one of the Subsidiaries has done business or owned property, including, without limitation, the Federal Resource Conservation and Recovery Act, the Federal Comprehensive Environmental Response, Compensation and Liability Act, the Federal Clean Water Act, the Federal Clean Air Act, and the Federal Occupational Safety and Health Act. (b) Except as disclosed in the Disclosure Schedule, to the knowledge of 1ST BANCORP, the Bank, or the Subsidiaries, neither (i) the conduct by 1ST BANCORP, the Bank, and the Subsidiaries of operations at any property, nor (ii) any condition of any property owned by 1ST BANCORP, the Bank, or the Subsidiaries within the past ten (10) years and used in its business operations, nor (iii) the condition of any property owned by them within the past ten (10) years but not used in their business operations, nor (iv) the condition of any property held by them as a trust asset within the past ten (10) years, violates or violated Environmental Laws in any material respect, and no condition or event has occurred with respect to any such property that, with notice or the passage of time, or both, would constitute a material violation of Environmental Laws or obligate (or potentially obligate) 1ST BANCORP, the Bank, or the Subsidiaries to remedy, stabilize, neutralize or otherwise alter the environmental condition of any such property. Neither 1ST BANCORP, the Bank, nor any one of the Subsidiaries has received any notice from any person or entity that 1ST BANCORP, the Bank, or the Subsidiaries or the operation of any facilities or any property owned by any of them, or held as a trust asset, are or were in violation of any Environmental Laws or that any one of them is responsible (or potentially responsible) for the cleanup of any pollutants, contaminants, or hazardous or toxic wastes, substances or materials at, on or beneath any such property. Section 2.16. Compliance with Law. 1ST BANCORP, the Bank, and each of the Subsidiaries have all material licenses, franchises, permits and other governmental authorizations that are legally required to enable it to conduct their respective businesses as presently conducted and, to their knowledge, are in compliance in all material respects with all applicable laws and regulations, the violation of which would be material. Section 2.17. Brokerage. Except as set forth in the Disclosure Schedule, there are no claims, agreements, arrangements, or understandings (written or otherwise) for brokerage commissions, finders' fees or similar compensation in connection with the Merger payable by 1ST BANCORP, the Bank, or any of the Subsidiaries. Section 2.18. Material Contracts. Except as set forth in the Disclosure Schedule, neither 1ST BANCORP, the Bank, nor any one of the Subsidiaries is a party to or bound by any oral or written (i) material agreement, contract or indenture under which it has borrowed or will borrow money (not including federal funds and money deposited, including without limitation, checking and savings accounts, certificates of deposit, money market accounts and other deposit accounts and borrowings from the Federal Home Loan Bank ("FHLB") and the FRB); (ii) material guaranty of any obligation for the borrowing of money or otherwise, excluding endorsements made for collection and guarantees made in the ordinary course of business and letters of credit issued in the ordinary course of business; (iii) contract, arrangement or understanding with any present or former officer, director or shareholder (except for deposit or loan agreements entered into in the ordinary course of business); (iv) material license, whether as licensor or licensee; (v) contract or commitment for the purchase of materials, supplies or other real or personal property in an individual amount in excess of $10,000 or for the performance of services over a period of more than thirty days and involving an individual amount in excess of $25,000; (vi) joint venture or partnership agreement or arrangement; (vii) contract arrangement or understanding with any present or former consultant, advisor, investment banker, broker, attorney or accountant; or (viii) contract, agreement or other commitment not made in the ordinary course of business. Section 2.19. Compliance with Americans with Disabilities Act. (a) To the best of 1ST BANCORP's knowledge, 1ST BANCORP, the Bank, and the Subsidiaries, and their respective properties (including those held by any of them in a fiduciary capacity) are in material compliance with all applicable provisions of the Americans with Disabilities Act (the "ADA"), and (b) no action under the ADA against 1ST BANCORP, the Bank, the Subsidiaries, or any of its properties has been initiated nor, to the best of 1ST BANCORP's knowledge, has been threatened or contemplated. Section 2.20. Statements True and Correct. None of the information supplied or to be supplied by 1ST BANCORP, the Bank, or the Subsidiaries for inclusion in any documents to be filed with the SEC, the OTS, the FDIC, or any other regulatory authority in connection with the Merger will, to the best of the knowledge of 1ST BANCORP at the respective times such documents are filed, be false or misleading with respect to any material fact or omit to state any material fact necessary in order to make the statements therein not misleading. Section 2.21. 1ST BANCORP's Knowledge. With respect to representations and warranties herein that are made or qualified as being made "to the knowledge of 1ST BANCORP" or words of similar import, it is understood and agreed that matters within the knowledge of the directors and the executive officers of 1ST BANCORP, of the Bank and of each of the Subsidiaries shall be considered to be within the knowledge of 1ST BANCORP. ARTICLE THREE REPRESENTATIONS AND WARRANTIES OF GERMAN AMERICAN German American hereby makes the following representations and warranties: Section 3.01. Organization and Capital Stock. (a) German American is a corporation duly incorporated and validly existing under the IBCL and has the corporate power to own all of its property and assets, to incur all of its liabilities and to carry on its business as now being conducted. (b) (c) (b) German American has authorized capital stock of (i) 20,000,000 shares of German American Common, of which, as of the date of this Agreement, 6,346,039 shares are issued and outstanding (not including an additional approximately 317,302 shares that will be issued and delivered in December 1998, pursuant to German American's annual five percent stock dividend), and (ii) 500,000 shares of preferred stock, no par value per share, of which no shares are issued and outstanding. All of the issued and outstanding shares of German American Common are duly and validly issued and outstanding, fully paid and non-assessable. (d) (e) (c) The shares of German American Common that are to be issued to the shareholders of 1ST BANCORP pursuant to the Merger have been duly authorized and, when issued in accordance with the terms of this Agreement, will be validly issued and outstanding, fully paid and non-assessable. (f) (g) Section 3.02. Authorization. The Board of Directors of German American has, by all appropriate action, approved this Agreement, the Plan of Merger and the Merger and authorized the execution hereof on its behalf by its duly authorized officers and its performance of its obligations hereunder. Nothing in the Articles of Incorporation or Bylaws of German American, as amended, or any other agreement, instrument, decree, proceeding, law or regulation (except for the need for approval of the issuance of additional shares pursuant to the Merger by the shareholders of German American under the National Market System listing standards of NASDAQ or the IBCL, and except as specifically referred to in or contemplated by this Agreement) by or to which it or any of its subsidiaries is bound or subject would prohibit German American from entering into and consummating this Agreement and the Merger on the terms and conditions herein contained. This Agreement has been duly and validly executed and delivered by German American and constitutes a legal, valid and binding obligation of German American enforceable against German American in accordance with its terms and no other corporate acts or proceedings are required by law to be taken by German American to authorize the execution, delivery and performance of this Agreement. Except for any requisite approvals of the FRB and OTS, and the SEC's order declaring effective German American's registration statement under the Securities Act of 1933, as amended ("Securities Act") with respect to the Merger, and applicable state securities law filings and approvals, no notice to, filing with, authorization by, or consent or approval of, any federal or state regulatory authority is necessary for the execution and delivery of this Agreement or the consummation of the Merger by German American. German American is not, nor will by reason of the consummation of the transactions contemplated herein be, in material default under or material violation of any provision of, nor will the consummation of the transactions contemplated herein afford any party a right to accelerate any indebtedness under, German American's articles of incorporation or bylaws, any material promissory note, indenture or other evidence of indebtedness of security thereof, or any material lease, contract or other commitment or agreement to which German American is a party or other commitment or agreement to which it is a party or by which it or its property is bound. (h) (i) Section 3.03. Subsidiaries. Each of German American's subsidiaries is duly organized and validly existing under the laws of the jurisdiction of its incorporation and has the corporate power to own its respective properties and assets, to incur its respective liabilities and to carry on its respective business as now being conducted. (j) (k) Section 3.04. Financial Information. The consolidated balance sheet of German American and its subsidiaries as of December 31, 1997 and related consolidated statements of income, changes in shareholders' equity and cash flows for the year then ended together with the notes thereto, included in German American's most recent Annual Report on Form 10-K, as filed with the SEC (the "10-K"), and the unaudited consolidated balance sheets of German American and its subsidiaries as of March 31, 1998 and the related unaudited consolidated statements of income, changes in shareholders' equity and cash flows for the periods then ended included in German American's Quarterly Reports on Form 10-Q for the quarter ended March 31, 1998 as filed with the SEC (the "10-Q Reports") (collectively the financial statements and notes thereto included in the 10-Q Reports and the 10-K are sometimes referred to as the "German American Financial Statements"), have been prepared in accordance with generally accepted accounting principles applied on a consistent basis (except as disclosed therein) and fairly present the consolidated financial position and the consolidated results of operations, changes in shareholders' equity and cash flows of German American and its consolidated subsidiaries as of the dates and for the periods indicated (subject, in the case of interim financial statements, to normal recurring year-end adjustments, none of which will be material). (l) (m) Section 3.05. Absence of Changes. Since December 31, 1997 (and except to the extent reflected in the 10-Q Reports), there has not been any material adverse change in the consolidated financial condition or the consolidated results of operations or the business of German American and its subsidiaries, taken as a whole. (n) (o) Section 3.06. Reports. Since January 1, 1995 (or, in the case of subsidiaries of German American, the date of acquisition thereof by German American, if later), German American and each of its subsidiaries have filed all reports, notices and other statements, together with any amendments required to be made with respect thereto, that it was required to file with (i) the SEC, (ii) the FRB, (iii) the FDIC, (iv) the Office of the Comptroller of the Currency ("OCC"), (v) the Indiana Department of Financial Institutions ("IDFI"), (vi) any applicable state securities or banking authorities, and (vii) any other governmental authority with jurisdiction over German American or any of its subsidiaries. As of their respective dates, each of such reports and documents, as amended, including the financial statements, exhibits and schedules thereto, complied in all material respects with the relevant statutes, rules and regulations enforced or promulgated by the regulatory authority with which they were filed. None of the information included in such reports or documents was, at their respective dates of filing, false or misleading with respect to any material fact, or omitted to state any material fact necessary in order to make the statements therein not misleading, on a consolidated basis, taking into account the circumstances under which such reports or documents were filed and considering the total mix of information that was at the time publicly available concerning German American and its subsidiaries. (p) (q) Section 3.07. Absence of Litigation. There is no material litigation, claim or other proceeding pending or, to the knowledge of German American, threatened, before any judicial, administrative or regulatory agency or tribunal against German American or any of its subsidiaries, or to which the property of German American or any of its subsidiaries is subject, which is required to be disclosed in SEC reports under Item 103 of Regulation S-K, and which has not been so disclosed. (r) Section 3.08. Absence of Agreements with Banking Authorities. Neither German American nor any of its subsidiaries is subject to any order (other than orders applicable to bank holding companies or banks generally) or is a party to any agreement or memorandum of understanding with any federal or state agency charged with the supervision or regulation of banks or bank holding companies, including without limitation the FDIC, the OCC, the IDFI, and the FRB. (s) (t) Section 3.09. Compliance with Law. German American and its subsidiaries have all material licenses, franchises, permits and other governmental authorizations that are legally required to enable them to conduct their respective businesses as presently conducted and are, and all times while this Agreement is in effect shall be, in compliance in all material respects with all applicable laws and regulations, including, without limitation, all rules, regulations and requirements of the SEC, the violation of which would be material. (u) (v) Section 3.10. Environmental Matters. (w) (x) As used in this Agreement, "Environmental Laws" means all local, state and federal environmental, health and safety laws and regulations in all jurisdictions in which German American or any of its subsidiaries has done business or owned property, including, without limitation, the Federal Resource Conservation and Recovery Act, the Federal Comprehensive Environmental Response, Compensation and Liability Act, the Federal Clean Water Act, the Federal Clean Air Act, and the Federal Occupational Safety and Health Act. (y) (z) (b) Except as previously disclosed to 1ST BANCORP regarding the banking offices at 9th and Main Streets, Petersburg, Indiana and 231 West Broadway, Princeton, Indiana, to the knowledge of German American or any of its subsidiaries, neither (i) the conduct by German American or any of its subsidiaries of operations at any property, nor (ii) any condition of any property owned by German American or any of its subsidiaries within the past ten (10) years and used in its business operations, nor (iii) the condition of any property owned by them within the past ten (10) years but not used in their business operations, nor (iv) the condition of any property held by them as a trust asset within the past ten (10) years, violates or violated Environmental Laws in any material respect, and no condition or event has occurred with respect to any such property that, with notice or the passage of time, or both, would constitute a material violation of Environmental Laws or obligate (or potentially obligate) German American or any of its subsidiaries to remedy, stabilize, neutralize or otherwise alter the environmental condition of any such property. Neither German American or any of its subsidiaries has received any notice from any person or entity that German American or any of its subsidiaries or the operation of any facilities or any property owned by any of them, or held as a trust asset, are or were in violation of any Environmental Laws or that any one of them is responsible (or potentially responsible) for the cleanup of any pollutants, contaminants, or hazardous or toxic wastes, substances or materials at, on or beneath any such property. (aa) (bb)Section 3.11. Statements True and Correct. None of the information supplied or to be supplied by German American or any of its subsidiaries for inclusion in any documents to be filed with the SEC, the OTS, the FDIC, or any other regulatory authority in connection with the Merger will, to the best of the knowledge of German American at the respective times such documents are filed, be false or misleading with respect to any material fact or omit to state any material fact necessary in order to make the statements therein not misleading. (cc) Section 3.12. German American's Knowledge. With respect to representations and warranties herein that are made or qualified as being made "to the knowledge of German American" or words of similar import, it is understood and agreed that matters within the knowledge of the directors and the executive officers of German American shall be considered to be within the knowledge of German American. ARTICLE FOUR COVENANTS OF 1ST BANCORP The parties hereto agree that the covenants contained in this Article Four shall be effective from the date hereof through the earlier of the Effective Time or the termination of this Agreement. Section 4.01. Conduct of Business. (a) 1ST BANCORP, the Bank, and the Subsidiaries shall continue to carry on their respective businesses, and shall discharge or incur obligations and liabilities, only in the ordinary course of business as heretofore conducted and, by way of amplification and not limitation with respect to such obligation, neither 1ST BANCORP, the Bank nor any one of the Subsidiaries will, without the prior written consent of German American: (b) (i) declare or pay any dividend or make any other distribution to shareholders, whether in cash, stock or other property, except as provided in Section 4.09 of this Agreement; or (i) issue (or agree to issue) any common or other capital stock (other than common stock for an aggregate of 25,200 shares issued to directors or employees of 1ST BANCORP upon the exercise of stock options issued and outstanding prior to the execution of the Letter of Intent dated June 15, 1998 between German American and 1ST BANCORP), or any options, warrants or any other rights to subscribe for or purchase common or any other capital stock or any securities convertible into or exchangeable for any capital stock; or (i) directly or indirectly redeem, purchase or otherwise acquire (or agree to redeem, purchase or acquire) (except for shares acquired in satisfaction of a debt previously contracted) any of their own common or any other capital stock; or (i) effect a split, reverse split, reclassification, or other similar change in, or of, any common or other capital stock or otherwise reorganize or recapitalize; or (i) change the Articles of Incorporation or Bylaws of 1ST BANCORP or the Charter or Bylaws of the Bank; or (vi) pay or agree to pay, conditionally or otherwise, any bonus other than bonuses that were accrued as of June 30, 1998, for the fiscal year ended June 30, 1998, in the aggregate amount of $278,000 and bonuses for the six month period ended December 31, 1998, equal to $124,500 (which amount approximates 50 percent of the average of the total amount of bonuses paid in each of the prior two fiscal years); or (vii) pay or agree to pay, conditionally or otherwise, additional compensation (other than ordinary and normal salary increases consistent with past practices) or severance benefit or otherwise make any changes out of the ordinary course of business with respect to the fees or compensation payable or to become payable to consultants, advisors, investment bankers, brokers, attorneys, accountants, directors, officers or employees or, except as required by law or this Agreement, adopt or make any change in any Employee Plan or other arrangement or payment made to, for or with any of such consultants, advisors, investment bankers, brokers, attorneys, accountants, directors, officers or employees; provided, however, that 1ST BANCORP and the Bank may pay the fees, expenses and other compensation of consultants, advisors, investment bankers, brokers, attorneys and accountants disclosed on the Disclosure Schedule when, if, and as earned by them; or (viii) borrow or agree to borrow any material amount of funds except in the ordinary course of business, or directly or indirectly guarantee or agree to guarantee any material obligations of others except in the ordinary course of business or pursuant to outstanding letters of credit; or (ix) make or commit to make (or renew or commit to renew) any new loan, or issue or commit to issue (or renew or commit to renew) any new letter of credit or line of credit, or make (or commit to make) any additional discretionary advance (not including any advance for the purposes and in the amount already committed) under any existing letter of credit or line of credit, or purchase or agree to purchase any interest in a loan participation, in aggregate principal amounts (A) in excess of $300,000 to any one borrower (or group of affiliated borrowers) or (B) that would cause the Bank's credit extensions or commitments to any one borrower (or group of affiliated borrowers) to exceed $500,000 (German American's consent to credit extensions in the ordinary course of business will not be unreasonably withheld); or (x) other than U.S. Treasury obligations or asset-backed securities issued or guaranteed by United States governmental agencies or financial institution certificates of deposit insured by the FDIC, in either case having an average remaining life of five years or less (except that maturities may extend to seven years on variable-rate securities), purchase or otherwise acquire any investment security for their own accounts, or sell any investment security owned by either of them which is designated as held-to-maturity, or engage in any activity that would require the establishment of a trading account for investment securities; or (xi) increase or decrease the rate of interest paid on time deposits, or on certificates of deposit, except in a manner and pursuant to policies consistent with past practices; or (xii) enter into or amend any agreement, contract or commitment out of the ordinary course of business; or (xiii) except in the ordinary course of business, place on any of their assets or properties any mortgage, pledge, lien, charge, or other encumbrance; or (xiv) except in the ordinary course of business, cancel, release, compromise or accelerate any material indebtedness owing to 1ST BANCORP, the Bank, or the Subsidiaries, or any claims which either of them may possess, or voluntarily waive any material rights with respect thereto; or (xv) sell or otherwise dispose of any real property or any material amount of any personal property other than properties acquired in foreclosure or otherwise in the ordinary course of collection of indebtedness to 1ST BANCORP, the Bank, or the Subsidiaries; or (xvi) foreclose upon or otherwise take title to or possession or control of any real property without first obtaining a phase one environmental report thereon, prepared by a reliable and qualified person or firm reasonably acceptable to German American, which indicates that the property is free of pollutants, contaminants or hazardous or toxic waste materials; provided, however, that neither 1ST BANCORP, the Bank, nor any one of the Subsidiaries shall be required to obtain such a report with respect to single family, non-agricultural residential property of five acres or less to be foreclosed upon unless it has reason to believe that such property might contain such materials or otherwise might be contaminated; or (xvii) commit any act or fail to do any act which will cause a material breach of any material agreement, contract or commitment to which it is a party; or (xviii) violate any law, statute, rule, governmental regulation or order, which violation could reasonably be expected to have a material adverse effect on its business, financial condition, or earnings; or (xix) purchase any real or personal property or make any other capital expenditure where the amount paid or committed therefor is in excess of $10,000 other than (a) purchases of property made in the ordinary course of business or (b) purchases made or costs incurred in connection with loan collection activities or foreclosure sales in connection with any of 1ST BANCORP's, the Bank's, or any one of the Subsidiaries' loans, without the consent of German American, which consent shall not be unreasonably withheld; or (xx) issue certificate(s) for shares of 1ST BANCORP Common to any 1ST BANCORP shareholder in replacement of certificate(s) claimed to have been lost or destroyed without first obtaining from such shareholder(s), at the expense of such shareholder(s), reasonable payments for a surety bond from a recognized insurance company in an amount that would indemnify 1ST BANCORP (and its successors) against lost certificate(s) and obtaining a usual and customary affidavit of loss and indemnity agreement from such shareholder(s); provided, however, that 1ST BANCORP may waive the surety bond requirement in connection with the issuance of replacement certificates to any shareholder if the number of shares of 1ST BANCORP Common so reissued (together with the number of shares previously reissued since January 1, 1997, to such shareholder and all other shareholders who are affiliated or associated with such shareholder) has an aggregate market value of $2,500 or less; or (xxi) hold a special, regular or annual meeting (or take action by consent in lieu thereof) of the Board of Directors or the sole shareholder of the Bank or of any one of the Subsidiaries for the purpose of appointing or electing any new member to the Board of Directors of the Bank or any one of the Subsidiaries (whether to fill a vacancy or otherwise) unless such new member is approved in advance in writing by German American. (b) 1ST BANCORP, the Bank, and the Subsidiaries shall take all necessary action to ensure that all bonus arrangements of 1ST BANCORP, the Bank, or the Subsidiaries, including all arrangements pursuant to the Management Incentive Award Plan for the fiscal year ended June 30, 1998, and the six months ended December 31, 1998, have been paid and terminated prior to the Closing Date. (c) Neither 1ST BANCORP, the Bank, nor any one of the Subsidiaries shall, without the prior written consent of German American, engage in any transaction or take any other action that would render untrue in any material respect any of the representations and warranties of 1ST BANCORP contained in Article Two hereof if such representations and warranties were given as of the date of such transaction or action. (d) 1ST BANCORP shall promptly notify German American in writing of the occurrence of any matter or event known to 1ST BANCORP that is, or is likely to become, materially adverse to the business, operations, properties, assets or condition (financial or otherwise) of 1ST BANCORP, the Bank, or the Subsidiaries taken as a whole. (e) Neither 1ST BANCORP, the Bank, nor any of the Subsidiaries shall (a) directly or indirectly solicit or encourage (nor shall they permit any of their respective officers, directors, employees or agents directly or indirectly to solicit or encourage), including by way of furnishing information other than the terms of this Agreement, any inquiries or proposals from third parties for a merger, consolidation, share exchange or similar transaction involving 1ST BANCORP, the Bank, or the Subsidiaries or for the acquisition of the stock or substantially all of the assets or business of 1ST BANCORP, the Bank, or the Subsidiaries, or (b) subject to the fiduciary duties of the Directors of 1ST BANCORP as advised by counsel in a written opinion, discuss with or enter into conversations with any person concerning any such merger, consolidation, share exchange, acquisition or other transaction. 1ST BANCORP shall promptly notify German American orally (to be confirmed in writing as soon as practicable thereafter) of all of the relevant details concerning any inquiries or proposals that it may receive relating to any such matters, including actions it intends to take with respect to such matters. Section 4.02. Breaches. 1ST BANCORP shall, in the event it has knowledge of the occurrence of any event or condition which would cause or constitute a breach (or would have caused or constituted a breach had such event occurred or been known prior to the date of this Agreement) of any of its representations or agreements contained or referred to in this Agreement, give prompt notice thereof to German American and use its best efforts to prevent or promptly remedy the same. Section 4.03. Submission to Shareholders. 1ST BANCORP shall cause to be duly called and held, on a date mutually selected by German American and 1ST BANCORP, an annual or special meeting of its shareholders (the "1ST BANCORP Shareholders' Meeting") for submission of this Agreement and the Merger for approval of 1ST BANCORP shareholders as required by the IBCL. In connection with the 1ST BANCORP Shareholders' Meeting, (i) 1ST BANCORP shall cooperate with and assist German American in preparing and filing a registration statement containing a Prospectus/Proxy Statement (the "Prospectus/Proxy Statement") with the SEC in accordance with SEC requirements and 1ST BANCORP shall mail it to its shareholders, (ii) 1ST BANCORP shall furnish German American all information concerning itself that German American may reasonably request in connection with such Prospectus/Proxy Statement, and (iii) the Board of Directors of 1ST BANCORP shall (unless a written opinion of independent counsel for 1ST BANCORP relating to the fiduciary duties of the Board of Directors advises against such a recommendation, in which event the individual members of the Board of Directors shall nevertheless remain personally obligated to support the Agreement and the Merger pursuant to their personal undertakings on the signature page of this Agreement) unanimously recommend to 1ST BANCORP's shareholders the approval of this Agreement and the Merger contemplated hereby. Section 4.04. Consummation of Agreement. 1ST BANCORP shall use its best efforts to perform and fulfill all conditions and obligations on its part to be performed or fulfilled under this Agreement and to effect the Merger in accordance with the terms and provisions hereof. 1ST BANCORP shall furnish to German American in a timely manner all information, data and documents in the possession of 1ST BANCORP, the Bank, or the Subsidiaries requested by German American as may be required to obtain any necessary regulatory or other approvals of the Merger or to file with the SEC a registration statement on Form S-4 (the "Registration Statement") relating to the shares of German American Common to be issued to the shareholders of 1ST BANCORP pursuant to the Merger and this Agreement, and shall otherwise cooperate fully with German American to carry out the purpose and intent of this Agreement. Section 4.05. Financial Information. 1ST BANCORP shall allow German American to make a special review of the assets of the Bank with a view to determining the consistency of the procedures and standards employed by the Bank in determining its allowance for possible loan losses with the procedures and standards employed by German American's present bank subsidiaries. If, as a result of such review or otherwise, the Bank after June 30, 1998, has made or hereafter makes additions to its allowance for possible loan losses for the purpose of increasing the amount of the allowance above its amount as of June 30, 1998, German American shall not assert that such additions (to the extent that the amount thereof does not exceed an aggregate of $300,000) violate any representation, warranty or covenant of 1ST BANCORP in this Agreement or otherwise entitle German American to terminate its obligations to consummate the transactions contemplated hereby. Section 4.06. Environmental Reports. Except as German American shall otherwise consent with respect to any residential real estate (which consent will not be unreasonably withheld by German American), 1ST BANCORP shall, at 1ST BANCORP's and German American's shared expense, cooperate with an environmental consulting firm designated by German American in connection with the conduct by such firm of a phase one environmental investigation on all real property owned or leased by 1ST BANCORP, the Bank, or the Subsidiaries as of the date of this Agreement, and any real property acquired or leased by 1ST BANCORP, the Bank, or the Subsidiaries after the date of this Agreement, except as otherwise provided in Section 4.01(a)(xvi). If further investigation procedures are required as to any property by the report of the phase one investigation in German American's reasonable opinion, 1ST BANCORP shall as soon as practicable, at 1ST BANCORP's and German American's shared expense, commission the taking of such further procedures and provide a report of the results of such further procedures ("Phase Two Report") to German American. German American shall have fifteen (15) business days from German American's receipt of any Phase Two Report to notify 1ST BANCORP of any objection to the contents of the Phase Two Report. Should the cost of taking all remedial and corrective actions and measures (i) required by applicable law, or (ii) recommended or suggested in the Phase Two Report and prudent in light of the recommendations or suggestions in the Phase Two Report findings, in the aggregate, exceed the sum of $250,000, as reasonably estimated by the environmental expert retained for such purpose by German American and reasonably acceptable to 1st BANCORP, or if the cost of such actions and measures cannot be so reasonably estimated by such expert with any reasonable degree of certainty, then German American shall have the right pursuant to Section 7.03 hereof, for a period of 10 business days following receipt of such estimate or indication that the costs of such actions and measures cannot be so reasonably estimated to terminate this Agreement without further obligation to 1ST BANCORP, which shall be German American's sole remedy in such event. Section 4.07. Restriction on Resales. 1ST BANCORP shall obtain and deliver to German American, at least thirty (30) days prior to the Closing Date, signed representations, in form reasonably acceptable to German American, of each shareholder who may reasonably be deemed an "affiliate" of 1ST BANCORP as of the date of the 1ST BANCORP Shareholders' Meeting within the meaning of such term as used in Rule 145 under the Securities Act regarding their prospective compliance with the provisions of such Rule 145. 1ST BANCORP shall also obtain and deliver to German American at least 30 days prior to the Closing Date, the signed agreements of each shareholder who may reasonably be deemed an "affiliate" (as such term is described in the preceding sentence) of 1ST BANCORP as of the date of the Shareholders' Meeting agreeing not to sell any shares of German American Common or otherwise reduce his or her risk relative to such shares, until such time as financial results covering at least thirty (30) days of post-Merger combined operations have been filed by German American with the SEC in a quarterly report on Form 10-Q or in an annual report on Form 10-K. Section 4.08. Access to Information. 1ST BANCORP shall permit German American reasonable access, in a manner which will avoid undue disruption or interference with 1ST BANCORP's normal operations, to its, the Bank's, and the Subsidiaries' properties and shall disclose and make available to German American all books, documents, papers and records relating to its, the Bank's, and the Subsidiaries' assets, stock ownership, properties, operations, obligations and liabilities, including, but not limited to, all books of account (including general ledgers), tax records, minute books of directors' and shareholders' meetings, organizational documents, material contracts and agreements, loan files, filings with any regulatory authority, accountants' workpapers, litigation files, plans affecting employees, and any other business activities or prospects in which German American may have an interest in light of the transactions contemplated by this Agreement. During the period from the date of this Agreement to the Effective Time, 1ST BANCORP will cause one or more of its, the Bank's, or the Subsidiaries' designated representatives to confer on a regular basis with the President of German American, or any other person designated in a written notice given to 1ST BANCORP by German American pursuant to this Agreement, to report the general status of the ongoing operations of 1ST BANCORP, the Bank, and the Subsidiaries. 1ST BANCORP will promptly notify German American of any material change in the normal course of the operation of its business or properties and of any regulatory complaints, investigations or hearings (or communications indicating that the same may be contemplated), or the institution or the threat of litigation involving 1ST BANCORP, the Bank, or any of the Subsidiaries, and will keep German American fully informed of such events. German American hereby understands and agrees that all books, documents, papers and records relating to 1ST BANCORP's, the Bank's, and the Subsidiaries' assets, stock ownership, properties, operations, obligations and liabilities which it obtains, receives, reviews or has access to pursuant to this Section 4.08 shall be subject to the Confidentiality Agreement between 1ST BANCORP and German American ("Confidentiality Agreement"). Section 4.09. Dividends. Notwithstanding Section 4.01(a) of this Agreement, 1ST BANCORP may (in the absence of any material adverse change in its consolidated financial condition, results of operations, or business, other than the adverse change that might result from additional provisions made to increase the Bank's allowance for loan losses as contemplated by, and not exceeding the maximum amount specified by, Section 4.05, and other than the adverse changes that are expected to result from the expenses associated with the Merger and accruals under the Director Deferred Compensation Plan of 1ST BANCORP resulting from the Merger), continue to declare and pay quarterly cash dividends (during September and December 1998 and during the third month of each subsequent calendar quarter with respect to that calendar quarter) to 1ST BANCORP shareholders in a quarterly amount not to exceed $.0667 per share of 1ST BANCORP Common, or an aggregate of not more than $.2668 per share for the fiscal year beginning July 1, 1998; provided, however, that no dividend may be paid to 1ST BANCORP's shareholders during the quarter in which the Merger is consummated if, during such quarter, 1ST BANCORP's shareholders will become entitled to receive dividends on their shares of German American common stock received pursuant to this Agreement. Section 4.10. Termination and Modification of Benefit Plans. On or before the Closing Date, 1ST BANCORP shall terminate the 1ST BANCORP Stock Option Plan, the 1ST BANCORP 1997 Employee Stock Purchase Plan, and the 1ST BANCORP Automatic Dividend Reinvestment and Stock Purchase Plan. On or before the date employees of 1ST BANCORP and its Subsidiaries may begin participating in German American Bancorp's Retirement Profit Sharing Plan, 1ST BANCORP shall terminate and freeze its defined benefit pension plan and, in connection therewith, shall take and shall have taken all necessary action to apply to the IRS for a determination letter in connection with such termination and provide all notices to participants and to the Pension Benefit Guaranty Corporation as required by and in accordance with ERISA. Upon such termination, all accrued benefits of participants in the pension plan shall be payable at the times and in the amounts provided for under that plan. The Bank shall continue to make contributions to the pension plan through the date of such termination only to the extent required to maintain the plan's tax-qualified status and to avoid any federal income taxes or penalties attributable to the plan's funding status. Subject to Section 5.12 hereof, on or before November 1, 1998, 1ST BANCORP shall take and have taken all necessary steps to discontinue all medical insurance benefits provided to any party who would not be eligible for such benefits under the German American Bancorp Employee Benefits Plan. ARTICLE FIVE COVENANTS OF GERMAN AMERICAN Section 5.01. Regulatory Approvals and Registration Statement. (a) German American shall file (and cooperate with 1ST BANCORP, the Bank, and the Subsidiaries, in filing) all regulatory applications required in order to consummate the Merger, including all necessary applications for the prior approval of the FRB under the BHC Act and the OTS under the HOLA, as soon as practicable after the date hereof. German American shall keep 1ST BANCORP reasonably informed as to the status of such applications and promptly send or deliver copies of such applications, and of any supplementally filed materials, to counsel for 1ST BANCORP. (a) German American shall file with the SEC the Registration Statement relating to the shares of German American Common to be issued to the shareholders of 1ST BANCORP pursuant to this Agreement as soon as practicable after the date hereof, and shall use its best efforts to cause the Registration Statement to become effective as soon as practicable. At the time the Registration Statement becomes effective, the form of the Registration Statement shall comply in all material respects with the provisions of the Securities Act and the published rules and regulations thereunder, and shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not false or misleading. At the time of the mailing thereof to the shareholders and at the time of any Shareholders' Meeting, the Prospectus/Proxy Statement included as part of the Registration Statement, as amended or supplemented by any amendment or supplement, shall not contain any untrue statement of a material fact or omit to state any material fact regarding German American or the Merger necessary to make the statements therein not false or misleading. German American shall timely file all documents required to obtain all necessary Blue Sky permits and approvals, if any, required to carry out the Merger, shall pay all expenses incident thereto and shall use its best efforts to obtain such permits and approvals on a timely basis. German American shall promptly and properly prepare and file any other filings required under the Securities Exchange Act of 1934 (the "Exchange Act") relating to the Merger or the Stock Option Agreement referred to in Section 8.04 hereof, or otherwise required of it under the Exchange Act prior to the Effective Time, and shall deliver copies thereof to 1ST BANCORP's counsel promptly upon the filing thereof with the SEC. (b) (c) Section 5.02. Breaches. German American shall, in the event it has knowledge of the occurrence of any event or condition which would cause or constitute a breach (or would have caused or constituted a breach had such event occurred or been known prior to the date of this Agreement) of any of its representations or agreements contained or referred to in this Agreement, give prompt notice thereof to 1ST BANCORP and use its best efforts to prevent or promptly remedy the same. (d) Section 5.03. Consummation of Agreement. German American shall use its best efforts to perform and fulfill all conditions and obligations to be performed or fulfilled under this Agreement and to effect the Merger in accordance with the terms and conditions of this Agreement, and use its best efforts to cause the Effective Time to occur on January 4, 1999 or as soon thereafter as practicable. (e) (f) Section 5.04. Directors' and Officers' Indemnification. (g) Following the Effective Time, German American will provide the directors and officers of 1ST BANCORP, the Bank, and the Subsidiaries from time to time with the same directors' and officers' liability insurance coverage that German American provides to directors and officers of its other banking subsidiaries. (h) (i) For six (6) years after the Effective Time, German American shall (and shall cause the Bank to) indemnify, defend and hold harmless the present and former officers and directors of 1ST BANCORP, the Bank, and the Subsidiaries (each, an "Indemnified Party") against all losses, expenses, claims, damages and liabilities arising out of actions or omissions (arising from their present or former status as officers or directors) occurring on or prior to the Effective Time to the full extent then permitted under the applicable provisions of the IBCL and the HOLA and under the articles of incorporation and bylaws of 1ST BANCORP and the charter and bylaws of the Bank and under the articles of incorporation and bylaws of the Subsidiaries. (j) (k) If during the six (6) year period after the Effective Time German American or the Bank or any of its or their successors or assigns (i) shall consolidate with or merge into any other corporation or entity and shall not be the continuing or surviving corporation or entity of such consolidation or merger or (ii) shall transfer all or substantially all of its properties and assets to any individual, corporation or other entity, then and in each such case, proper provision shall be made so that the successors and assigns of German American and/or the Bank shall assume the obligations set forth in this Section 5.04. (l) (m) Section 5.05. Board of Directors of German American. German American shall cause the Chairman of the Board of 1ST BANCORP to be appointed to the Board of Directors of German American as of the Effective Time and shall take action to waive the retirement provision in the German American Bylaws to allow him to serve as a Director until the third annual meeting of German American following the Closing Date. (n) (o) Section 5.06. Board of Directors of the Bank. At the Effective Time, the Board of Directors of the Bank shall be reconstituted at the sole discretion of German American; provided, however, that German American agrees that no fewer than four current members of the Board of Directors of the Bank shall be appointed to serve as members of the Board of Directors of the Bank after the Effective Time. (p) (q) Section 5.07. Preservation of Business. German American shall: (a) conduct its business substantially in the manner as is presently being conducted and in the ordinary course of business and not amend its articles of incorporation in any manner that requires the approval of shareholders of German American under the IBCL; (b) file, and cause its subsidiaries to file, all required reports with applicable regulatory authorities; (c) comply with all laws, statutes, ordinances, rules or regulations applicable to it and to the conduct of its business, the noncompliance with which results or could result in a material adverse effect on the financial condition, results of operations, business, assets or capitalization of German American on a consolidated basis; and (d) comply in all material respects with each contract, agreement, commitment, obligation, understanding, arrangement, lease or license to which it is a party by which it is or may be subject or bound, the breach of which could result in a material adverse effect on the financial condition, results of operations, business, assets or capitalization of German American on a consolidated basis. (r) (s) Section 5.08. Securities and Exchange Commission Filings. German American will provide 1ST BANCORP with copies of all filings made by German American with the SEC under the Exchange Act; and the Securities Act and the respective rules and regulations of the SEC thereunder as soon as practicable after such filings are made at any time prior to the Effective Time. (t) (u) Section 5.09. Rule 144(c) Information. Following the Effective Time, German American shall make available adequate current public information about itself as that terminology is used in and as required by Rule 144(c) of the SEC under the Securities Act. (v) (w) Section 5.10. Authorization of Common Stock. At the Effective Time and on such subsequent dates when the former shareholders of 1ST BANCORP surrender their 1ST BANCORP share certificates for cancellation, the shares of German American Common to be exchanged with former shareholders of 1ST BANCORP shall have been duly authorized and validly issued by German American and shall be fully paid and non-assessable and subject to no pre-emptive rights and listed for trading on the NASDAQ NMS. (x) (y) Section 5.11. Benefit Plan Eligibility and Past Service Credit. Employees of the Bank shall receive full vesting and eligibility credit under German American's defined contribution retirement and other employee benefit plans for their years and, if applicable, months of service to the Bank; provided, however, that German American reserves the right to retain health insurance benefits for eligible employees of the Bank under the current existing plan or plans pertaining to such employees, which benefits and costs to the employees shall be substantially equal to those under German American's health insurance plan. (z) (aa) Section 5.12. Director and Retiree Benefit Payments. From and after the date hereof and for a period of three years after the Effective Time, German American will make payments to certain Directors and former employees of 1ST BANCORP as outlined in a memorandum from George Astrike to Jim McCormick dated July 27, 1998, a copy of which is attached to this Agreement as Appendix B. Any post-retirement health insurance benefits other than the cash payments to be made in lieu of such benefits as described in Appendix B for any employees or directors of 1ST BANCORP and its Subsidiaries, shall be discontinued as of November 1, 1998, as provided in Section 4.10 hereof. (bb) (cc) Section 5.13. Executive Supplemental Retirement Income Agreements. Following the Effective Time, German American agrees to cause the Bank to honor all obligations under the Executive Supplemental Retirement Income Agreements effective January 1, 1993, between the Bank and C. James McCormick, Frank D. Baracani, Lynn Stenftenagel, Robert W. Ballard, Bradley M. Rust, Carroll C. Hamner, and Gerald R. Belanger, and to guarantee the Bank's obligations thereunder. (dd) (ee) Section 5.14. Director Deferred Compensation Plan. German American agrees to honor all obligations to the individuals listed in the Disclosure Schedule as parties to the related agreements under the Director Deferred Compensation Plan as amended pursuant to Section 6.01(j) hereof. No additional director fee deferrals will be permitted on and after the date hereof. ARTICLE SIX CONDITIONS PRECEDENT TO THE MERGER Section 6.01. Conditions of German American's Obligations. The obligations of German American to effect the Merger shall be subject to the satisfaction (or waiver by German American) prior to or on the Closing Date of the following conditions: (a) The representations and warranties made by 1ST BANCORP in this Agreement shall be true in all material respects on and as of the Closing Date with the same effect as though such representations and warranties had been made or given on and as of the Closing Date. (b) (c) 1ST BANCORP shall have performed and complied in all material respects with all of its obligations and agreements required to be performed on or prior to the Closing Date under this Agreement. (d) (e) No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Merger shall be in effect, nor shall any proceeding by any bank regulatory authority or governmental agency seeking any of the foregoing be pending. There shall not be any action taken, or any statute, rule, regulation or order enacted, entered, enforced or deemed applicable to the Merger which makes the consummation of the Merger illegal. (a) All necessary regulatory approvals, consents, authorizations and other approvals required by law or stock market requirements for consummation of the Merger, including approval of the Merger by the shareholders of German American in order to comply with the NASDAQ NMS listing standards or the IBCL, shall have been obtained and all waiting periods required by law shall have expired. (b) (c) German American shall have received the environmental reports required by Sections 4.06 and 4.01(a)(xvi) hereof and shall not have elected, pursuant to Section 4.06 hereof, to terminate and cancel this Agreement. (d) (e) German American shall have received all documents required to be received from 1ST BANCORP or the Bank on or prior to the Closing Date, all in form and substance reasonably satisfactory to German American. (f) (g) German American shall have received a letter, dated as of the Effective Time, from Crowe, Chizek and Company, LLP, its independent public accountants, to the effect that the Merger will qualify for pooling of interests accounting treatment under Accounting Principles Board Opinion No. 16 if closed and consummated in accordance with this Agreement. (h) (i) The Registration Statement shall be effective under the Securities Act and no stop orders suspending the effectiveness of the Registration Statement shall be in effect or proceedings for such purpose pending before or threatened by the SEC. (j) (k) German American shall have received from its counsel, Leagre Chandler & Millard, an opinion to the effect that if the Merger is consummated in accordance with the terms set forth in this Agreement, (i) the Merger will constitute a reorganization within the meaning of Section 368(a) of the Code; (ii) no gain or loss will be recognized by the holders of shares of 1ST BANCORP Common upon receipt of the Merger Consideration (except for cash received in lieu of fractional shares); (iii) the basis of shares of German American Common received by the shareholders of 1ST BANCORP will be the same as the basis of shares of 1ST BANCORP Common exchanged therefor; and (iv) the holding period of the shares of German American Common received by the shareholders of 1ST BANCORP will include the holding period of the shares of 1ST BANCORP Common exchanged therefor, provided such shares were held as capital assets as of the Effective Time. (l) (m) (j) The Bank and each of its directors who have not reached and will not reach, on or before the Effective Time, the "Normal Retirement Date" specified by his or her individual Director Deferred Compensation Agreement with the Bank, shall have agreed to amend such Agreement from and after the Effective Time as follows: (n) (i) the monthly interest factor set forth in Section 1.7 of such Agreement shall be 0.857%; (ii) the monthly interest crediting rate set forth in Section 1.11 of such Agreement shall be 0.521%; and (iii) the phantom stock feature set forth in Section 1.14 and referred to throughout such Agreement shall be eliminated as of December 31, 1998. (k) All officers, directors and employees of 1ST BANCORP, the Bank, and the Subsidiaries shall have exercised all stock options such that no options, warrants, or other rights to purchase 1ST BANCORP Common are outstanding at the Closing Date. Section 6.02. Conditions of 1ST BANCORP's Obligations. 1ST BANCORP's obligations to effect the Merger shall be subject to the satisfaction (or waiver by 1ST BANCORP) prior to or on the Closing Date of the following conditions: (a) The representations and warranties made by German American in this Agreement shall be true in all material respects on and as of the Closing Date with the same effect as though such representations and warranties had been made or given on the Closing Date. (b) (c) German American shall have performed and complied in all material respects with all of its obligations and agreements required to be performed prior to the Closing Date under this Agreement. (d) (e) No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Merger shall be in effect, nor shall any proceeding by any bank regulatory authority or other governmental agency seeking any of the foregoing be pending. There shall not be any action taken, or any statute, rule, regulation or order enacted, enforced or deemed applicable to the Merger which makes the consummation of the Merger illegal. (f) (g) All necessary regulatory approvals, consents, authorizations and other approvals required by law for consummation of the Merger, including the requisite approval of the Merger by the shareholders of 1ST BANCORP, shall have been obtained and all waiting periods required by law shall have expired. (h) (i) 1ST BANCORP shall have received all documents required to be received from German American on or prior to the Closing Date, all in form and substance reasonably satisfactory to 1ST BANCORP. (j) (k) The Registration Statement shall be effective under the Securities Act and no stop orders suspending the effectiveness of the Registration Statement shall be in effect or proceedings for such purpose pending before or threatened by the SEC, and German American shall have received all state securities or "Blue Sky" approvals, authorizations, exemptions or permits required to issue the shares of German American Common as the Merger Consideration to the shareholders of 1ST BANCORP. (l) (m) 1ST BANCORP shall have received from counsel for German American, Leagre Chandler & Millard, an opinion reasonably satisfactory to 1ST BANCORP to the effect that if the Merger is consummated in accordance with the terms set forth in this Agreement, (i) the Merger will constitute a reorganization within the meaning of Section 368(a) of the Code; (ii) no gain or loss will be recognized by the holders of shares of 1ST BANCORP Common upon receipt of the Merger Consideration (except for cash received in lieu of fractional shares); (iii) the basis of German American Common received by the shareholders of 1ST BANCORP will be the same as the basis of 1ST BANCORP Common exchanged therefor; and (iv) the holding period of the shares of German American Common received by the shareholders of 1ST BANCORP will include the holding period of the shares of 1ST BANCORP Common exchanged therefor, provided such shares were held as capital assets as of the Effective Time. (n) (o) (h) The German American Common to be exchanged for the 1ST BANCORP Common pursuant to the Merger shall have an aggregate value (as measured by the per share average value of the German American Common during the Valuation Period that is utilized to determine the Exchange Ratio pursuant to Section 1.03(a)) of at least $57,120,000. (p) (q) (i) 1ST BANCORP shall have received from Olive Corporate Finance, LLC or another reputable financial advisor a written fairness opinion stating that the terms of the Merger are fair to the shareholders of 1ST BANCORP from a financial point of view. Such written fairness opinion shall (i) be in form and substance reasonably satisfactory to 1ST BANCORP, (ii) be dated as of the mailing date of the Prospectus/Proxy Statement, and (iii) be included as an exhibit to such Prospectus/Proxy Statement. (r) (s) ARTICLE SEVEN TERMINATION OR ABANDONMENT Section 7.01. Mutual Agreement. This Agreement may be terminated by the mutual written agreement of the parties approved by their respective Boards of Directors at any time prior to the Effective Time, regardless of whether shareholder approval of this Agreement and the Merger by the shareholders of 1ST BANCORP or German American shall have been previously obtained. Section 7.02. Breach of Representations, Warranties or Covenants. In the event that there is a material breach in any of the representations and warranties or covenants of the parties, which breach is not cured within thirty (30) days after notice to cure such breach is given by the non-breaching party, then the Board of Directors of the non-breaching party, regardless of whether approval by the shareholders of this Agreement and the Merger shall have been previously obtained, and in addition to any other remedies to which the non- breaching party may be entitled, may terminate and cancel this Agreement effective immediately by providing written notice thereof to the other party hereto. Section 7.03. Adverse Environmental Reports. German American as specifically provided by Section 4.06 may terminate this Agreement by giving written notice thereof to1ST BANCORP. Section 7.04. Failure of Conditions. In the event any of the conditions to the obligations of either party are not satisfied or waived on or prior to the Closing Date, and if any applicable cure period provided in Section 7.02 hereof has lapsed, then the Board of Directors of such party may, regardless of whether approval by its shareholders of this Agreement and the Merger shall have been previously obtained, terminate and cancel this Agreement on the Closing Date by delivery of written notice thereof to the other party on such date. Section 7.05. Shareholder Approval Denial. If this Agreement and consummation of the Merger is not approved by the shareholders of 1ST BANCORP, or if the issuance of the additional German American Common is required to be approved by the shareholders of German American pursuant to the NASDAQ NMS listing standards or the IBCL and is not so approved at the meeting of German American's shareholders called to consider such issuance, then either party may terminate this Agreement by giving written notice thereof to the other party, subject to Section 7.02. Section 7.06. Regulatory Enforcement Matters. In the event that 1ST BANCORP or the Bank, on the one hand, or German American, on the other hand, shall become a party or subject to any memorandum of understanding, cease and desist order, or civil money penalties imposed by any federal or state agency charged with the supervision or regulation of savings associations, savings and loan holding companies, or bank holding companies, after the date of this Agreement, then the party that is not subject to such regulatory enforcement may terminate this Agreement by giving written notice thereof to the other party. Section 7.07. Lapse of Time. If the Closing Date does not occur on or prior to June 30, 1999, despite each party's best efforts to consummate the Merger on or before that date, then this Agreement may be terminated by the Board of Directors of either 1ST BANCORP or German American by giving written notice thereof to the other party. ARTICLE EIGHT GENERAL PROVISIONS Section 8.01. Liabilities. In the event that this Agreement is terminated or the Merger is abandoned pursuant to the provisions of Article Seven hereof, no party hereto shall have any liability to any other party for costs, expenses, damages, termination fees, or otherwise. Directors, officers and employees of each party hereto shall have no personal liability under this Agreement with respect to the representations and warranties of their respective parties except for fraud or for their personal intentional and knowing participation in the making of false or misleading statements in such representation and warranties. Section 8.02. Notices. Any notice or other communication hereunder shall be in writing and shall be deemed to have been given or made (a) on the date of delivery, in the case of hand delivery, or (b) three (3) business days after deposit in the United States Registered or Certified Mail, with mailing receipt postmarked by the Postal Service to show date of mailing, postage prepaid, or (c) upon actual receipt if transmitted during business hours by facsimile (but only if receipt of a legible copy of such transmission is confirmed by the recipient); addressed (in any case) as follows: If to German American: German American Bancorp 711 Main Street Box 810 Jasper, Indiana 47546 Attn: George W. Astrike, Chairman of the Board with a copy to: Leagre Chandler & Millard 1400 First Indiana Plaza 135 North Pennsylvania Indianapolis, Indiana 46204 Attn: Mark B. Barnes John R. Zerkle and If to 1ST BANCORP or the Bank: 1ST BANCORP 101 North Third Street Vincennes, Indiana 47951-1220 Attn: C. James McCormick, Chairman of the Board with a copy to: Barnes & Thornburg 1313 Merchants Bank Building 11 South Meridian Street Indianapolis, Indiana 46204 Attn: Claudia V. Swhier or to such other address as any party may from time to time designate by notice to the other. Section 8.03. Non-survival of Representations and Agreements. No representation, warranty or covenant contained in this Agreement shall survive (and no claims for the breach or nonperformance thereof may be brought after) the Effective Time except the covenants of German American in Sections 5.04, 5.05, 5.06, 5.09, 5.10, 5.12, 5.13, and 5.14 which shall survive the Effective Time. No representation, warranty or covenant contained in this Agreement shall survive (and, except for any intentional breach or nonperformance, no claims for the breach or nonperformance, thereof may be brought after) the termination of this Agreement pursuant to Article Seven hereof. The reliability and binding effect of any representation or warranty made by any party in this Agreement shall not be diminished or limited in any way by any review, or by the opportunity to conduct any review, by or on behalf of the intended beneficiary of the subject matter of the representation or warranty, whether before or after the date of this Agreement, unless and to the extent that the reviewing party and the other party expressly agree otherwise in writing. Section 8.04. Stock Option Agreement. Concurrently with the execution of this Agreement, German American and 1ST BANCORP are executing and delivering a Stock Option Agreement that provides for the grant to German American of an option to purchase up to 19.9% of the outstanding common stock of 1ST BANCORP upon the occurrence of certain events that create the potential for another party to acquire control of 1ST BANCORP. German American hereby agrees to make all necessary filings with the SEC and the OTS or other governmental agencies in connection with the receipt of such option from 1ST BANCORP. Section 8.05. Entire Agreement. This Agreement constitutes the entire agreement between the parties and supersedes and cancels any and all prior discussions, negotiations, undertakings and agreements between the parties relating to the subject matter hereof, including, without limitation, the Letter of Intent dated June 15, 1998 of German American accepted by 1ST BANCORP. Section 8.06. Headings and Captions. The captions of Articles and Sections hereof are for convenience only and shall not control or affect the meaning or construction of any of the provisions of this Agreement. Section 8.07. Waiver, Amendment or Modification. The conditions of this Agreement which may only be waived by written notice specifically waiving such condition addressed to the party claiming the benefit of the waiver. The failure of any party at any time or times to require performance of any provision hereof shall in no manner affect the right of such party at a later time to enforce the same. This Agreement may not be amended or modified except by a written document duly executed by the parties hereto. Section 8.08. Rules of Construction. Unless the context otherwise requires (a) a term used herein has the meaning assigned to it, and (b) an accounting term not otherwise defined has the meaning assigned to it in accordance with generally accepted accounting principles. Section 8.09. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which shall be deemed one and the same instrument. Section 8.10. Successors. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors. Except for Sections 5.04, 5.10, 5.12, 5.13 and 5.14 of this Agreement (which are intended to be for the benefit of present and former officers and directors and their spouses, to the extent contemplated thereby, and their beneficiaries, and may be enforced by such persons), there shall be no third party beneficiaries hereof. Section 8.11. Governing Law; Assignment. This Agreement shall be governed by the laws of the State of Indiana. This Agreement may not be assigned by any of the parties hereto. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written, with the unanimous approval of their respective Boards of Directors. GERMAN AMERICAN BANCORP By/s/George W. Astrike George W. Astrike Chairman of the Board and Chief Executive Officer 1ST BANCORP By/C. James McCormick C. James McCormick Chairman of the Board and Chief Executive Officer APPROVED BY THE MEMBERS OF THE BOARD OF DIRECTORS OF 1ST BANCORP: The undersigned Directors of 1ST BANCORP hereby (a) agree in their capacities as Directors of 1ST BANCORP to recommend to 1ST BANCORP's shareholders the approval of this Agreement and the Merger in accordance with 4.03 hereof, and (b) agree to vote their shares of 1ST BANCORP Common that are registered in their personal names (and agree to use their best efforts to cause all additional shares of 1ST BANCORP Common over which they have voting influence or control to be voted) in favor of the Merger at the 1ST BANCORP Shareholders' Meeting. Notwithstanding the foregoing, the execution of the Agreement by the undersigned Directors of 1ST BANCORP or anything herein to the contrary, German American hereby understands and agrees, as evidenced by its execution of this Agreement above, that none of the undersigned Directors of 1ST BANCORP will have any obligation or liability under this Agreement or otherwise to German American or any other person or entity, except as provided in the foregoing sentence and in Section 8.01 hereof. By/s/R. William Ballard By/s/Ruth Mix Carnahan R. William Ballard Ruth Mix Carnahan By/s/Frank Baracani By/s/C. James McCormick Frank Baracani C. James McCormick By/s/Donald G. Bell By/s/Rahmi Soyugenc Donald G. Bell Rahmi Soyugenc By/s/James W. Bobe By/s/Lynn Stenftenagel James W. Bobe Lynn Stenftenagel By/s/John J. Summers John J. Summers PLAN OF MERGER by and between 1ST BANCORP (an Indiana corporation) and GERMAN AMERICAN BANCORP (an Indiana corporation) APPENDIX A PLAN OF MERGER THIS PLAN OF MERGER, made and entered into as of _________, 1998, between 1ST BANCORP, an Indiana corporation ("1ST BANCORP"), and German American Bancorp, an Indiana corporation ("German American"). W I T N E S S E T H: WHEREAS, 1ST BANCORP and German American deem it advisable for 1ST BANCORP to merge with and into German American pursuant to this Plan of Merger in accordance with the IBCL (as defined in Section 1.01); and WHEREAS, the Boards of Directors of the parties hereto have approved an Agreement and Plan of Reorganization that was executed and delivered as of August 6, 1998 between them (the "Agreement and Plan of Reorganization"); NOW, THEREFORE, the parties hereby agree as follows: ARTICLE ONE THE MERGER Section 1.01. The Merger. Pursuant to the terms and provisions of this Plan of Merger and the Indiana Business Corporation Law ("IBCL"), 1ST BANCORP shall merge with and into German American (the "Merger"). The Merger shall be effective at 12:01 a.m. on _______ , 1999, subject to the filing of this Plan of Merger in the Office of the Indiana Secretary of State prior to such time (the "Effective Time"). Section 1.02. Merging Corporation. 1ST BANCORP shall be the merging corporation under the Merger and its corporate identity and existence, separate and apart from German American, shall cease on consummation of the Merger. Section 1.03. Surviving Corporation. German American shall be the surviving corporation in the Merger and the Articles of Incorporation and Bylaws of German American in effect prior to the Merger shall be the Articles of Incorporation and Bylaws of the Surviving Corporation. ARTICLE TWO TERMS OF THE MERGER AND CONVERSION OF SHARES Section 2.01. Effect of the Merger. The Merger shall have all of the effects provided by the IBCL. Section 2.02. Conversion of Shares. At the Effective Time: (a) Each of the not more than ________ shares of common stock, no par value, of 1ST BANCORP ("1ST BANCORP Common") that are issued and outstanding immediately prior to the Effective Time shall thereupon and without further action be converted into the right to receive ______ [Here insert the Exchange Ratio to be determined in accordance with the Agreement and Plan of Reorganization.]shares of common stock, no par value, of German American ("German American Common") (the "Merger Consideration"). (b) The shares of German American Common issued and outstanding immediately prior to the Effective Time shall continue to be issued and outstanding shares of German American. (c) If any holders of 1ST BANCORP Common dissent from the Merger and demand dissenters' rights under the IBCL, any issued and outstanding shares of 1ST BANCORP Common held by such dissenting holders shall not be converted as described in Section 2.02(a) but shall from and after the Effective Time represent only the right to receive such consideration as may be determined to be due to such dissenting holders pursuant to the IBCL; provided, however, that each share of 1ST BANCORP Common outstanding immediately prior to the Effective Time and held by a dissenting holder who shall, after the Effective Time, withdraw his demand for dissenters' rights or lose his right to exercise dissenters' rights shall have only such rights as provided under the IBCL. Section 2.03. Fractional Shares. No fractional shares of German American Common shall be issued and, in lieu thereof, holders of shares of 1ST BANCORP Common who would otherwise be entitled to a fractional share interest (after taking into account all shares of 1ST BANCORP Common held by such holder) shall be paid an amount in cash equal to the product of multiplying such fractional share by $______. [Here insert the average of the highest bid and lowest ask price of a share of German American Common as quoted on the NASDAQ National Market System on the last day of the Valuation Period.] Section 2.04. Exchange Procedures; Surrender of Certificates. (a) The Fifth Third Bank shall act as Exchange Agent in the Merger (the "Exchange Agent"). (a) As soon as reasonably practicable but in no event more than ten working days after the Effective Time, the Exchange Agent shall mail to each record holder of any Certificate or Certificates whose shares were converted into the right to receive the Merger Consideration, a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon proper delivery of the Certificates to the Exchange Agent and shall be in such form and have such other provisions as German American may reasonably specify) (each such letter the "Merger Letter of Transmittal") and instructions for use in effecting the surrender of the Certificates in exchange for the Merger Consideration. As soon as reasonably practical but in no event more than ten days after surrender to the Exchange Agent of a Certificate, together with a Merger Letter of Transmittal duly executed and any other required documents, the Exchange Agent shall transmit to the holder of such Certificate the Merger Consideration. No interest on the Merger Consideration issuable upon the surrender of the Certificates shall be paid or accrued for the benefit of holders of Certificates. If the Merger Consideration is to be issued to a person other than a person in whose name a surrendered Certificate is registered, it shall be a condition of issuance that the surrendered Certificate shall be properly endorsed or otherwise in proper form for transfer and that the person requesting such issuance shall pay to the Exchange Agent any required transfer or other taxes or establish to the satisfaction of the Exchange Agent that such tax has been paid or is not applicable. German American reserves the right in all cases to require that a surety bond on terms and in an amount satisfactory to German American be provided to German American at the reasonable expense of the 1ST BANCORP shareholder in the event that such shareholder claims loss of a Certificate and requests that German American waive the requirement for surrender of such Certificate. ARTICLE THREE AMENDMENT; TERMINATION; ASSIGNMENT Section 3.01. Amendment. At any time prior to the Effective Time, the parties to this Plan of Merger by mutual written agreement authorized by their respective Boards of Directors (and whether before or after the shareholders of German American and 1ST BANCORP have approved and adopted this Plan of Merger) may amend this Plan of Merger; provided, however, that if the shareholders of 1ST BANCORP have approved and adopted this Plan of Merger, any such amendment shall not have a material adverse effect on the shareholders of 1ST BANCORP. Section 3.02. Termination. This Plan of Merger may be terminated by the parties hereto prior to the Effective Time under the circumstances provided in, and strictly in accordance with, the provisions of the Agreement and Plan of Reorganization. Section 3.03. Successors and Assigns. This Plan of Merger and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors but none of the provisions hereof shall inure to the benefit of any other person, firm, or corporation whomsoever. Neither this Plan of Merger nor any of the rights, interests, or obligations hereunder shall be assigned by either of the parties hereto. IN WITNESS WHEREOF, the parties hereto have executed this Plan of Merger as of the day and year first above written. 1ST BANCORP By/s/C. James McCormick C. James McCormick Chairman of the Board and Chief Executive Officer GERMAN AMERICAN BANCORP By/s/George W. Astrike George W. Astrike, Chairman of the Board and Chief Executive Officer GERMAN AMERICAN BANCORP MEMO TO: Jim McCormick FROM: George Astrike DATE: July 27, 1998 SUBJECT: Director and Retiree Health Benefits Coverage It is our understanding that 1ST BANCORP and its subsidiaries have no contractual obligation to provide ongoing health benefits to any current or former director and surviving spouses (excluding the obligation as outlined in the agreement dated December 5, 1988 by and between Arthur L. Hart and First Federal Bank). It is our further understanding that 1ST BANCORP and its subsidiaries have no contractual obligation to provide post-retirement health benefits to any current or former employees. Promptly after the signing of a definitive agreement, appropriate disclosures will be provided to all such directors and employees confirming these assumptions. Such disclosures will clearly communicate to all parties that the right of 1ST BANCORP and its subsidiaries to terminate or make modifications to any current health benefits exists and that 1ST BANCORP and its subsidiaries have the right to terminate or make further modifications to any such benefits without further obligation or notice. In consideration of the change from your Company's current practice of paying the cost of health benefits for certain directors, former directors, and retired employees, we agree, for a 36-month period from the effective time of the merger, to the following financial consideration: . GROUP ONE: DIRECTORS ELIGIBLE FOR MEDICARE COVERAGE Directors: Bell, Carnahan, McCormick and Summers Payment: Will pay up to $200 per month ($2,400 annually) as reimbursement of the Director's cost of obtaining Medicare and Medicare supplemental insurance coverage. (In the event any of the above named directors are rejected for Medicare supplemental insurance coverage, GABC will pay $250 per month for a three- year period from the date of our merger transaction in lieu of the $200 monthly payment for Medicare and Medicare supplement coverage). . GROUP TWO: DIRECTORS NOT ELIGIBLE FOR MEDICARE COVERAGE Directors: Bobe and Soyugenc Payment: If Director is or becomes ineligible for any other group medical plan, will pay up to $250 per month ($3,000 annually) as reimbursement of the Director's cost of obtaining other insurance coverage. APPENDIX B . GROUP THREE: ACTIVE EMPLOYEE DIRECTORS Directors: Baracani and Stenftenagel Payment: Not applicable. Coverage and Employee premiums will be consistent to those provided and charged to other full-time active employees. . GROUP FOUR: RETIRED EMPLOYEES ELIGIBLE FOR EARLY RETIREE BENEFITS Individuals: Ballard and Hamner Payment: During the time the director/retired employee is eligible for coverage as an early retiree under GABC's standard health benefit plan, a payment of up to $250 per month ($3,000 annually) as reimbursement of a portion of the premium paid by the director/retired employee toward coverage under GABC's health benefit plan. Upon the director/retired employee's eligibility for Medicare coverage, the monthly payment will be equal to that paid to Group One. . GROUP FIVE: FORMER DIRECTORS, SPOUSES OF FORMER DIRECTORS AND CERTAIN RETIRED EMPLOYEES Individuals: Long, McClure, Riley, Rutledge and Floyd Payment: Will pay up to $200 per month ($2,400 annually) as reimbursement of the Individual's cost of obtaining Medicare and Medicare supplemental insurance coverage. . GROUP SIX: RETIRED EMPLOYEE PAYING THEIR OWN PREMIUM Individuals: Jones and Cunningham Payment: Not Applicable. Cunningham will not be eligible to participate in GABC's health benefit plan. Jones may be eligible to participate in GABC's plan as an early retiree and would be responsible for the full premium amount charged for such coverage. EX-2.4 3 STOCK OPTION AGREEMENT THIS STOCK OPTION AGREEMENT (this "Agreement") is made and entered into as of August 6, 1998, by and between 1ST BANCORP, an Indiana corporation ("Issuer"), and GERMAN AMERICAN BANCORP, an Indiana corporation ("Grantee"). WHEREAS, Grantee and Issuer have entered into that certain Agreement and Plan of Reorganization, dated as of August 6, 1998 (the "Merger Agreement"), providing for, among other things, the merger of Issuer with and into Grantee with Grantee as the surviving entity; and WHEREAS, as a condition and inducement to Grantee's execution of the Merger Agreement, Grantee has required that Issuer agree, and Issuer has agreed, to grant Grantee the Option (as defined below); NOW, THEREFORE, in consideration of the respective representations, warranties, covenants and agreements set forth herein and in the Merger Agreement, and intending to be legally bound hereby, Issuer and Grantee agree as follows: 1 . DEFINED TERMS. Capitalized terms which are used but not defined herein shall have the meanings ascribed to such terms in the Merger Agreement. 2. GRANT OF OPTION. Subject to the terms and conditions set forth herein, Issuer hereby grants to Grantee an irrevocable option (the "Option") to purchase up to 218,142 shares (as adjusted as set forth herein, the "Option Shares," which shall include the Option Shares before and after any transfer of such Option Shares) of common stock, $1.00 par value per share ("Issuer Common Stock"), of Issuer at a purchase price per Option Share (subject to adjustment as set forth herein, the "Purchase Price") equal to $50.94 provided, however, that in no event shall the number of shares of Issuer Common Stock for which this Option is exercisable exceed the lesser of (i) 19.9% of the lssuer's issued and outstanding shares of Issuer Common Stock without giving effect to any shares subject to or issued pursuant to the Option and (ii) that minimum number of shares of Issuer Common Stock which when aggregated with any other shares of Issuer Common Stock beneficially owned by Grantee or any Affiliate thereof would cause the provisions of any Takeover Laws of the IBCL to be applicable to the Merger or the Option. 3. EXERCISE OF OPTION. (a) Provided that (i) Grantee or Holder (as hereinafter defined), as applicable, shall not be in material breach of its agreements or covenants contained in this Agreement or the Merger Agreement, and (ii) no preliminary or permanent injunction or other order against the delivery of shares covered by the Option issued by any court of competent jurisdiction in the United States shall be in effect, Holder may exercise the Option, in whole or in part, at any time and from time to time following the occurrence of a Purchase Event and prior to the termination of the Option. The Option shall terminate and be of no further force and effect upon the earliest to occur of (A) the Effective Time, (B) termination of the Merger Agreement in accordance with the terms thereof prior to the occurrence of a Purchase Event or a Preliminary Purchase Event (other than a termination of the Merger Agreement by Grantee pursuant to (i) Section 7.02 thereof (but only if such termination was a result of a willful breach by Issuer) or (ii) Section Exhibit 2.4 7.05 thereof (but only if such termination was as a result of the failure of the shareholders of Issuer to approve the Merger) (each a "Default Termination")), (C) 18 months after a Default Termination, and (D) 18 months after any termination of the Merger Agreement following the occurrence of a Purchase Event or a Preliminary Purchase Event. Any purchase of shares upon exercise of the Option shall be subject to compliance with applicable law, including, without limitation, any required regulatory approvals under the Bank Holding Company Act of 1956, as amended (the "BHC Act"), and the Savings and Loan Holding Company Act. The term "Holder" shall mean the holder or holders of the Option from time to time, and which initially is the Grantee. The rights set forth in Section 8 shall terminate when the right to exercise the Option terminates (other than as a result of a complete exercise of the Option) as set forth herein. (b) As used herein, a "Purchase Event" means any of the following events subsequent to the date of this Agreement: (i) without Grantee's prior written consent, Issuer shall have authorized, recommended, publicly proposed or publicly announced an intention to authorize, recommend or propose, or entered into an agreement with any person (other than Grantee or any Subsidiary of Grantee) to effect an Acquisition Transaction (as defined below). As used herein, the term Acquisition Transaction shall mean (A) a merger, consolidation or similar transaction involving Issuer, or any of its Subsidiaries (other than transactions solely between Issuer's Subsidiaries and transactions involving Issuer or any Subsidiary in which the voting securities of Issuer outstanding immediately prior thereto continue to represent (by either remaining outstanding or being converted into securities of the surviving entity or the parent thereof) at least 75% of the combined voting power of the voting securities of the Issuer or the surviving entity or the parent thereof outstanding immediately after the consummation of the transaction), (B) the disposition, by sale, lease, exchange or otherwise, of Assets of Issuer or any of its Subsidiaries representing in either case 20% or more of the consolidated assets of Issuer and its Subsidiaries, or (C) the issuance, sale or other disposition of (including by way of merger, consolidation, share exchange or any similar transaction) securities representing 20% or more of the voting power of Issuer or any of its Subsidiaries (any of the foregoing, an "Acquisition Transaction"); or (ii) any person (other than Grantee or any Subsidiary of Grantee) shall have acquired beneficial ownership (as such term is defined in Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), of or the right to acquire beneficial ownership of, or any "group" (as such term is defined under the Exchange Act), other than a group of which Grantee or any of its Subsidiaries is a member, shall have been formed which beneficially owns or has the right to acquire beneficial ownership of, 20% or more of the then-outstanding shares of Issuer Common Stock, (c) As used herein, a "Preliminary Purchase Event" means any of the following events: (i) any person (other than Grantee or any Subsidiary of Grantee) shall have commenced (as such term is defined in Rule 14d-2 under the Exchange Act), or shall have filed a registration statement under the Securities Act of 1933, as amended (the "Securities Act") with respect to, a tender offer or exchange offer to purchase any shares of Issuer Common Stock such that, upon consummation of such offer, such person would own or control 20% or more of the then-outstanding shares of Issuer Common Stock (such an offer being referred to herein as a "Tender Offer" or an "Exchange Offer," respectively); or (ii) the holders of Issuer Common Stock shall not have approved the Merger Agreement at the meeting of such stockholders held for the purpose of voting on the Merger Agreement, such meeting shall not have been held or shall have been canceled prior to termination of the Merger Agreement, or Issuer's Board of Directors shall have withdrawn or modified in a manner adverse to Grantee the recommendation of Issuer's Board of Directors with respect to the Merger Agreement, in each case after it shall have been publicly announced that any person (other than Grantee or any Subsidiary of Grantee) shall have (A) made a proposal to engage in an Acquisition Transaction, (B) commenced a Tender Offer or filed a registration statement under the Securities Act with respect to an Exchange Offer, or (C) filed an application (or given a notice), whether in draft or final form, under any federal or state statute or regulation (including a notice filed under the HSR Act and an application, or notice filed under the BHC Act, the Bank Merger Act, or the Change in Bank Control Act of 1978) seeking the Consent to an Acquisition Transaction from any federal or state governmental or regulatory authority or agency. As used in this Agreement, "person" shall have the meaning specified in Sections 3(a)(9) and 13(d)(3) of the Exchange Act. (d) In the event Holder wishes to exercise the Option, it shall send to Issuer a written notice (the date of which being herein referred to as the "Notice Date") specifying (i) the total number of Option Shares it intends to purchase pursuant to such exercise and (ii) a place and date not earlier than three business days nor later than 30 business days from the Notice Date for the closing (the "Closing") of such purchase (the "Closing Date_). If prior Consent of any governmental or regulatory agency or authority is required in connection with such purchase, Issuer shall cooperate with Holder in the filing of the required notice or application for such Consent and the obtaining of such Consent and the Closing shall occur immediately following receipt of such Consents (and expiration of any mandatory waiting periods). 4. PAYMENT AND DELIVERY OF CERTIFICATES. (a) On each Closing Date, Holder shall (i) pay to Issuer, in immediately available funds by wire transfer to a bank account designated by Issuer, an amount equal to the Purchase Price multiplied by the number of Option Shares to be purchased on such Closing Date, and (ii) present and surrender this Agreement to the Issuer at the address of the Issuer specified in Section 13(f) hereof. (b) At each Closing, simultaneously with the delivery of immediately available funds and surrender of this Agreement as provided in Section 4(a), (i) Issuer shall deliver to Holder (A) a certificate or certificates representing the Option Shares to be purchased at such Closing, which Option Shares shall be free and clear of all liens, claims, charges and encumbrances of any kind whatsoever and subject to no pre-emptive rights, and (B) if the Option is exercised in part only, an executed new agreement with the same terms as this Agreement evidencing the right to purchase the balance of the shares of Issuer Common Stock purchasable hereunder, and (ii) Holder shall deliver to Issuer a letter agreeing that Holder shall not offer to sell or otherwise dispose of such Option Shares in violation of applicable federal and state law or of the provisions of this Agreement. (c) In addition to any other legend that is required by applicable law, certificates for the Option Shares delivered at each Closing shall be endorsed with a restrictive legend which shall read substantially as follows: THE TRANSFER OF THE STOCK REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND PURSUANT TO THE TERMS OF A STOCK OPTION AGREEMENT DATED AS OF AUGUST 6, 1998. A COPY OF SUCH AGREEMENT WILL BE PROVIDED TO THE HOLDER HEREOF WITHOUT CHARGE UPON RECEIPT BY THE ISSUER OF A WRITTEN REQUEST THEREFOR. It is understood and agreed that: (i) the references in the above legend to resale restrictions of the Securities Act shall be removed by delivery of substitute certificate(s) without such reference if Holder shall have delivered to Issuer a copy of a letter from the staff of the SEC, or an opinion of counsel in form and substance reasonably satisfactory to Issuer and its counsel, to the effect that such legend is not required for purposes of the Securities Act: (ii) the references in the above legend to the provisions of this Agreement shall be removed by delivery of substitute certificate(s) without such reference if the shares have been sold or transferred in compliance with the provisions of this Agreement and under circumstances that do not require the retention of such reference; and (iii) the legend shall be removed in its entirety if the conditions in the preceding clauses (i) and (ii) are both satisfied. 5. REPRESENTATIONS AND WARRANTIES OF ISSUER. Issuer hereby represents and warrants to Grantee as follows: (a) Issuer has all requisite corporate power and authority to enter into this Agreement and, subject to any approvals referred to herein, to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Issuer. This Agreement has been duly executed and delivered by Issuer. (b) Issuer has taken all necessary corporate action to authorize and reserve and to permit it to issue, and, at all times from the date hereof until the obligation to deliver Issuer Common Stock upon the exercise of the Option terminates, will have reserved for issuance, upon exercise of the Option, the number of shares of Issuer Common Stock necessary for Holder to exercise the Option, and Issuer will take all necessary corporate action, to authorize and reserve for issuance all additional shares of Issuer Common Stock or other securities which may be issued pursuant to Section 7 upon exercise of the Option. The shares of Issuer Common Stock to be issued upon due exercise of the Option, including all additional Shares of Issuer Common Stock or other securities which may be issuable pursuant to Section 7, upon issuance pursuant hereto, shall be duly and validly issued, fully paid, and nonassessable, and shall be delivered free and clear of all liens, claims, charges, and encumbrances of any kind or nature whatsoever, including any preemptive rights of any stockholder of Issuer. (c) Issuer has taken all action so that the entering into of this Agreement and the consummation of the transactions contemplated by this Agreement do not and will not result in the grant of any rights to any Person under the Articles of Incorporation, Bylaws, or other governing instruments of Issuer or any of its subsidiaries or restrict or impair the ability of Grantee to vote, or otherwise to exercise the rights of a stockholder with respect to, shares of Issuer or any of its subsidiaries that may be directly or indirectly acquired or controlled by it. 6. REPRESENTATIONS AND WARRANTIES OF GRANTEE. Grantee hereby represents and warrants to Issuer that: (a) Grantee has all requisite corporate power and authority to enter into this Agreement and, subject to any approvals or consents referred to herein, to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Grantee. This Agreement has been duly executed and delivered by Grantee. (b) This Option is not being, and any Option Shares or other securities acquired by Grantee upon exercise of the Option will not be, acquired with a view to the public distribution thereof and will not be transferred or otherwise disposed of except in a transaction registered or exempt from registration under any applicable securities laws. (c) Grantee has taken all necessary action to exempt the transactions contemplated by this Agreement from any applicable Takeover Laws. 7. ADJUSTMENT UPON CHANGES IN CAPITALIZATION, ETC. (a) In the event of any change in Issuer Common Stock by reason of a stock dividend, stock split, split-up, recapitalization, combination, exchange of shares or similar transaction, the type and number of shares or securities subject to the Option, and the Purchase Price therefor, shall be adjusted appropriately, and proper provision shall be made in the agreements governing such transaction, if any, so that Holder shall receive, upon exercise of the Option, the number and class of shares or other securities or property that Holder would have received in respect of Issuer Common Stock if the Option had been exercised immediately prior to such event, or the record date therefor, as applicable. If any additional shares of Issuer Common Stock are issued after the date of this Agreement (other than pursuant to an event described in the first sentence of this Section 7(a) or pursuant to this Option), the number of shares of Issuer Common Stock subject to the Option shall be adjusted so that, after such issuance, it, together with any shares of Issuer Common Stock previously issued pursuant hereto, shall not exceed the lesser of (i) 19.9% of the number of shares of Issuer Common Stock then issued and outstanding, without giving effect to any shares subject to or issued pursuant to the Option and (ii) that minimum number of shares of Issuer Common Stock, which when aggregated with any other shares of Issuer Common Stock beneficially owned by Grantee or any Affiliate thereof would cause the provisions of any Takeover Laws of the IBCL to be applicable to the Merger or the Option. (b) In the event that Issuer shall enter in an agreement (i) to consolidate with or merge into any person, other than Grantee or one of its Subsidiaries, and shall not be the continuing or surviving corporation of such consolidation or merger; (ii) to permit any person, other than Grantee or one of its Subsidiaries, to merge into Issuer and Issuer shall be the continuing or surviving corporation, but, in connection with such merger, the then outstanding shares of Issuer Common Stock shall be changed into or exchanged for stock or other securities of Issuer or any other person or cash or any other property and the outstanding shares of Issuer Common Stock immediately prior to such merger shall after such merger represent less than 50% of the outstanding shares and share equivalents of the merged company; or (iii) to sell or otherwise transfer all or substantially all of its assets to any person, other than Grantee or one of its Subsidiaries, then, and in each such case, the agreement governing such transaction shall make proper provisions so that the Option shall, upon the consummation of any such transaction and upon the terms and conditions set forth herein, be converted into, or exchanged for, an option (the "Substitute Option"), at the election of Grantee, of either (x) the Acquiring Corporation (as defined below) or (y) any person that controls the Acquiring Corporation (in each case, such person being referred to as the "Substitute Option Issuer"). (c) The Substitute Option shall have the same terms as the Option, provided that, if the terms of the Substitute Option cannot, for legal reasons, be the same as the Option, such terms shall be as similar as possible and in no event less advantageous to Grantee. The Substitute Option Issuer shall also enter into an agreement with the then holder or holders of the Substitute Option in substantially the same form as this Agreement, which shall be applicable to the Substitute Option. (d) The Substitute Option shall be exercisable for such number of shares of the Substitute Common Stock (as hereinafter defined) as is equal to the Assigned Value (as hereinafter defined) multiplied by the number of shares of the Issuer Common Stock for which the Option was theretofore exercisable, divided by the Average Price (as hereinafter defined). The exercise price of the Substitute Option per share of the Substitute Common Stock (the "Substitute Purchase Price") shall then be equal to the Purchase Price, multiplied by a fraction in which the numerator is the number of shares of the Issuer Common Stock for which the Option was theretofore exercisable and the denominator is the number of shares for which the Substitute Option is exercisable. (e) The following terms have the meanings indicated: (i) "Acquiring Corporation" shall mean (x) the continuing or surviving corporation of a consolidation or merger with Issuer (if other than Issuer), (y) Issuer in a merger in which Issuer is the continuing or surviving person, and (z) the transferee of all or any substantial part of the Issuer's assets (or the assets of its Subsidiaries). (ii) "Substitute Common Stock" shall mean the common stock issued by the Substitute Option Issuer upon exercise of the Substitute Option. (iii) "Assigned Value" shall mean the highest of (x) the price per share of the Issuer Common Stock at which a Tender Offer or Exchange Offer therefor has been made by any person (other than Grantee), (y) the price per share of the Issuer Common Stock to be paid by any person (other than the Grantee) pursuant to an agreement with Issuer, and (z) the highest last sale price per share of Issuer Common Stock quoted on the Nasdaq National Market (or if Issuer Common Stock is not quoted on such exchange, the highest bid price per share on any day as quoted on the principal trading market or securities exchange on which such shares are traded as reported by a recognized source chosen by Grantee) within the six-month period immediately preceding the agreement; provided, that in the event of a sale of less than all of Issuer's assets, the Assigned Value shall be the sum of the price paid in such sale for such assets and the current market value of the remaining assets of Issuer as determined by a nationally recognized investment banking firm selected by Grantee (or by a majority in interest of the Grantees if there shall be more than one Grantee (a "Grantee Majority")) and reasonably acceptable to Issuer, divided by the number of shares of the Issuer Common Stock outstanding at the time of such sale. In the event that an exchange offer is made for the Issuer Common Stock or an agreement is entered into for a merger or consolidation involving consideration other than cash, the value of the securities or other property issuable or deliverable in exchange for the Issuer Common Stock shall be determined by a nationally recognized investment banking firm selected by Grantee and reasonably acceptable to Issuer (or if applicable, Acquiring Corporation). (If there shall be more than one Grantee, any such selection shall be made by a Grantee Majority.) (iv) "Average Price" shall mean the average closing price of a share of the Substitute Common Stock for the one year immediately preceding the consolidation, merger or sale in question, but in no event higher than the last sale price of the shares of the Substitute Common Stock on the day preceding such consolidation, merger or sale; provided that if Issuer is the issuer of the Substitute Option, the Average Price shall be computed with respect to a share of common stock issued by Issuer, the person merging into Issuer or by any company which controls or is controlled by such merger person, as Grantee may elect. (f) In no event pursuant to any of the foregoing paragraphs shall the Substitute Option be exercisable for more than 19.9% of the aggregate of the shares of the Substitute Common Stock outstanding prior to exercise of the Substitute Option. In the event that the Substitute Option would be exercisable for more than 19.9% of the aggregate of the shares of Substitute Common Stock but for this clause (f), the Substitute Option Issuer shall make a cash payment to Grantee equal to the excess of (i) the value of the Substitute Option without giving effect to the limitation in this clause (f) over (ii) the value of the Substitute Option after giving effect to the limitation in this clause (f). This difference in value shall be determined by a nationally recognized investment banking firm selected by Grantee (or a Grantee Majority) and reasonably acceptable to the Acquiring Corporation. (g) Issuer shall not enter into any transaction described in subsection (b) of this Section 7 unless the Acquiring Corporation and any person that controls the Acquiring Corporation assume in writing all the obligations of Issuer hereunder and take all other actions that may be necessary so that the provisions of this Section 7 are given full force and effect (including, without limitation, any action that may be necessary so that the shares of Substitute Common Stock are in no way distinguishable from or have lesser economic value than other shares of common stock issued by the Substitute Option Issuer). (h) The provisions of Sections 8, 9, 10, and 11 shall apply, with appropriate adjustments, to any securities for which the Option becomes exercisable pursuant to this Section 7 and, as applicable, references in such sections to "Issuer," "Option," "Purchase Price" and "Issuer Common Stock" shall be deemed to be references to "Substitute Option Issuer," "Substitute Option," "Substitute Purchase Price" and "Substitute Common Stock," respectively. 8. REPURCHASE AT THE OPTION OF HOLDER. (a) Subject to the last sentence of Section 3(a), at the request of Holder at any time commencing upon the first occurrence of a Repurchase Event (as defined in Section 8(d)) and ending 18 months immediately thereafter, Issuer shall repurchase from Holder the Option and all shares of Issuer Common Stock purchased by Holder pursuant hereto with respect to which Holder then has beneficial ownership. The date on which Holder exercises its rights under this Section 8 is referred to as the "Request Date." Such repurchase shall be at an aggregate price (the "Section 8 Repurchase Consideration") equal to the sum of: (i) the aggregate Purchase Price paid by Holder for any shares of Issuer Common Stock acquired by Holder pursuant to the Option with respect to which Holder then has beneficial ownership; (ii) the excess, if any, of (x) the Applicable Price (as defined below) for each share of Issuer Common Stock over (y) the Purchase Price (subject to adjustment pursuant to Section 7), multiplied by the number of shares of Issuer Common Stock with respect to which the Option has not been exercised; and (iii) the excess, if any, of the Applicable Price over the Purchase Price (subject to adjustment pursuant to Section 7) paid (or, in the case of Option Shares with respect to which the Option has been exercised but the Closing Date has not occurred, payable) by Holder for each share of Issuer Common Stock with respect to which the Option has been exercised and with respect to which Holder then has beneficial ownership, multiplied by the number of such shares. (b) If Holder exercises its rights under this Section 8, Issuer shall, within ten business days after the Request Date, pay the Section 8 Repurchase Consideration to Holder in immediately available funds, and contemporaneously with such payment Holder shall surrender to Issuer the Option and the certificates evidencing the shares of' Issuer Common Stock purchased thereunder with respect to which Holder then has beneficial ownership, and Holder shall warrant that it has sole record and beneficial ownership of such shares and that the same are then free and clear of all liens, claims, charges and encumbrances of any kind whatsoever. Notwithstanding the foregoing, to the extent that prior notification to or Consent of any governmental or regulatory agency or authority is required in connection with the payment of all or any portion of the Section 8 Repurchase Consideration, Holder shall have the ongoing option to revoke its request for repurchase pursuant to Section 8, in whole or in part, or to require that Issuer deliver from time to time that portion of the Section 8 Repurchase Consideration that it is not then so prohibited from paying and promptly file the required notice or application for Consent and expeditiously process the same (and each party shall cooperate with the other in the filing of any such notice or application and the obtaining of any such Consent). If any governmental or regulatory agency or authority disapproves of any part of Issuer's proposed repurchase pursuant to this Section 8, Issuer shall promptly give notice of such fact to Holder. If any governmental or regulatory agency or authority prohibits the repurchase in part but not in whole, then Holder shall have the right (i) to revoke the repurchase request or (ii) to the extent permitted by such agency or authority, determine whether the repurchase should apply to the Option and/or Option Shares and to what extent to each, and Holder shall thereupon have the right to exercise the Option as to the number of Option Shares for which the Option was exercisable at the Request Date less the sum of the number of shares covered by the Option in respect of which payment has been made pursuant to Section 8(a)(ii) and the number of shares covered by the portion of the Option (if any) that has been repurchased. Holder shall notify Issuer of its determination under the preceding sentence within five business days of receipt of notice of disapproval of the repurchase. Notwithstanding anything herein to the contrary, all of Holder's rights under this Section 8 shall terminate on the date of termination of this Option pursuant to Section 3(a). (c) For purposes of this Agreement, the "Applicable Price" means the highest of (i) the highest price per share of Issuer Common Stock paid for any such share by the person or groups described in Section 8(d)(i), (ii) the price per share of Issuer Common Stock received by holders of Issuer Common Stock in connection with any merger or other business combination transaction described in Section 7(b)(i), 7(b)(ii) or 7(b)(iii), or (iii) the highest last sale price per share of Issuer Common Stock quoted on the Nasdaq National Market (or if Issuer Common Stock is not quoted on such exchange, the highest bid price per share as quoted on the principal trading market or securities exchange on which such shares are traded as reported by a recognized source chosen by Holder) during the 60 business days preceding the Request Date; provided, however, that in the event of a sale of less than all of Issuer's Assets, the Applicable Price shall be the sum of the price paid in such sale for such assets and the current market value of the remaining assets of Issuer as determined by an independent nationally recognized investment banking firm selected by Holder and reasonably acceptable to Issuer (which determination shall be conclusive for all purposes of this Agreement), divided by the number of shares of the Issuer Common Stock outstanding at the time of such sale. If the consideration to be offered, paid or received pursuant to either of the foregoing clauses (i) or (ii) shall be other than in cash, the value of such consideration shall be determined in good faith by an independent nationally recognized investment banking firm selected by Holder and reasonably acceptable to Issuer, which determination shall be conclusive for all purposes of this Agreement. (d) As used herein, a "Repurchase Event" shall occur if (i) any person (other than Grantee or any subsidiary of Grantee) shall have acquired beneficial ownership (as such term is defined in Rule 13d-3 promulgated under the Exchange Act), or the right to acquire beneficial ownership, or any "group" (as such term is defined under the Exchange Act) shall have been formed which beneficially owns or has the right to acquire beneficial ownership of 50% or more of the then-outstanding shares of Issuer Common Stock, or (ii) any of the transactions described in Section 7(b)(i), 7(b)(ii), or 7(iii) shall be consummated. 9. REGISTRATION RIGHTS. (a) Issuer shall, subject to the conditions of subparagraph (c) below, if requested by any Holder, including Grantee and any permitted transferee ("Selling Holder"), as expeditiously as possible prepare and file a registration statement under the Securities Laws if necessary in order to permit the sale or other disposition of any or all shares of Issuer Common Stock or other securities that have been acquired by or are issuable to Selling Holder upon exercise of the Option in accordance with the intended method of sale or other disposition stated by Holder in such request (it being understood and agreed that any such sale or other disposition shall be effected on a widely distributed basis so that, upon consummation thereof, no purchaser or transferee shall beneficially own more than 5% of the shares of Issuer Common Stock then outstanding), including, without limitation, a "shelf" registration statement under Rule 415 under the Securities Act or any successor provision, and Issuer shall use its best efforts to qualify such shares or other securities for sale under any applicable state securities laws. Each such Holder shall provide all information reasonably requested by Issuer for inclusion in any registration statement to be filed hereunder. (b) If Issuer at any time after the exercise of the Option, but prior to the termination of the Option, proposes to register any shares of Issuer Common Stock under the Securities Laws in connection with an underwritten public offering of such Issuer Common Stock, Issuer will promptly give written notice to Holder of its intention to do so and, upon the written request of Holder given within 30 days after receipt of any such notice (which request shall specify the number of shares of Issuer Common Stock intended to be included in such underwritten public offering by Selling Holder), Issuer will use all reasonable efforts to cause all such shares, the holders of which shall have requested participation in such registration, to be so registered and included in such underwritten public offering; provided, that Issuer may elect to not cause any such shares to be so registered (i) if the underwriters in good faith determine that the inclusion of such shares would interfere with the successful marketing of the shares of Issuer Common Stock for the account of Issuer, or (ii) in the case of a registration solely to implement a dividend reinvestment or similar plan, an employee benefit plan or a registration filed on Form S-4 or any successor form, or a registration filed on a form which does not permit registrations of resales; provided, further, that such election pursuant to clause (i) may only be made once. If some but not all the shares of Issuer Common Stock, with respect to which Issuer shall have received requests for registration pursuant to this subparagraph (b), shall be excluded from such registration, Issuer shall make appropriate allocation of shares to be registered among Selling Holders and any other person (other than Issuer or any person exercising demand registration rights in connection with such registration) who or which is permitted to register their shares of Issuer Common Stock in connection with such registration pro rata in the proportion that the number of shares requested to be registered by each Selling Holder bears to the total number of shares requested to be registered by all persons then desiring to have Issuer Common Stock registered for sale (other than Issuer or any person exercising demand registration rights in connection with such registration). (c) Issuer shall use all reasonable efforts to cause the registration statement referred to in subparagraph (a) above to become effective and to obtain all consents or waivers of other parties which are required therefor and to keep such registration statement effective, provided, that Issuer may delay any registration of Option Shares required pursuant to subparagraph (a) above for a period not exceeding 90 days, provided Issuer shall in good faith determine that any such registration would adversely affect an offerings, or contemplated offering of other securities by Issuer. Notwithstanding anything to the contrary contained herein, Issuer shall not be required to register Option Shares under the Securities Laws pursuant to subparagraph (a) above: (i) prior to the occurrence of a Purchase Event and following the termination of the Option; (ii) more than twice; (iii)within 90 days after the effective date of a registration referred to in subparagraph (b) above pursuant to which the Selling Holders concerned were afforded the opportunity to register such shares under the Securities Laws and such shares were registered as requested; and (iv) unless a request therefor is made to Issuer by Selling Holders holding at least 15% or more of the aggregate number of Option Shares then outstanding or the right to acquire at least 15% of the Option Shares. In addition to the foregoing, Issuer shall not be required to maintain the effectiveness of any registration statement after the expiration of 120 days from the effective date of such registration statement. Issuer shall use all reasonable efforts to make any filings, and take all steps, under all applicable state securities laws to the extent necessary to permit the sale or other disposition of the Option Shares so registered in accordance with the intended method of distribution for such shares, provided, that Issuer shall not be required to consent to general jurisdiction or qualify to do business in any state where it is not otherwise required to so consent to such jurisdiction or to so qualify to do business. (d) Except where applicable state law prohibits such payments, Issuer will pay all expenses (including without limitation registration fees, qualification fees, blue sky fees and expenses (including the fees and expenses of Issuer's counsel), accounting expenses, printing expenses, expenses of underwriters, excluding discounts and commissions but including liability insurance if Issuer so desires or the underwriters so require, and the reasonable fees and expenses of any necessary special experts) in connection with each registration pursuant to subparagraph (a) or (b) above (including the related offerings and sales by Selling Holders) and all other qualifications, notifications or exemptions pursuant to subparagraph (a) or (b) above. Underwriting discounts and commissions relating to Option Shares and any other expenses incurred by such Selling Holders in connection with any such registration (including expenses of Selling Holders' counsel) shall be borne by such Selling Holders. (e) In connection with any registration under subparagraph (a) or (b) above Issuer hereby agrees to indemnify the Selling Holders, and each underwriter thereof, including each person, if any, who controls such holder or underwriter within the meaning of Section 15 of the Securities Act, against all expenses, losses, claims, damages and liabilities caused by any untrue statement of a material fact contained in any registration statement or prospectus (including any amendments or supplements thereto) or any preliminary prospectus, or caused by any omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, except insofar as such expenses, losses, claims, damages or liabilities of such indemnified party are caused by any untrue statement or alleged untrue statement or any omission or alleged omission made in reliance upon and in conformity with, information furnished in writing to Issuer by such indemnified party expressly for use therein, and Issuer and each officer, director and controlling person of Issuer shall be indemnified by such Selling Holder, or by such underwriter, as the case may be, for all such expenses, losses, claims, damages and liabilities caused by any untrue, or alleged untrue, statement or omission made in reliance upon, and in conformity with, information furnished in writing to Issuer by such holder or such underwriter, as the case may be, expressly for such use. Promptly upon receipt by a party indemnified under this subparagraph (e) of notice of the commencement of any action against such indemnified party in respect of which indemnity or reimbursement may be sought against any indemnifying party under this subparagraph (e), such indemnified party shall notify the indemnifying party in writing of the commencement of such action, but the failure so to notify the indemnifying party shall not relieve it of any liability which it may otherwise have to any indemnified party under this subparagraph (e), except to the extent such failure to notify materially prejudices the indemnifying party. In case notice of commencement of any such action shall be given to the indemnifying party as above provided, the indemnifying party shall be entitled to participate in and, to the extent it may wish, jointly with any other indemnifying party similarly notified, to assume the defense of such action at its own expense, with counsel chosen by it and reasonably satisfactory to such indemnified party. The indemnified party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel (other than reasonable costs of investigation) shall be paid by the indemnified party unless (i) the indemnifying party either agrees to pay the same, (ii) the indemnifying party falls to assume the defense of such action with counsel satisfactory to the indemnified party, or (iii) the indemnified party has been advised by counsel that one or more legal defenses may be available to the indemnifying party that may be contrary to the interest of the indemnified party, in which case the indemnifying party shall be entitled to assume the defense of such action notwithstanding its obligation to bear fees and expenses of such counsel; provided, however, that the indemnifying party shall not be liable for the expenses of more than one firm of counsel for all indemnified parties in any jurisdiction. No indemnifying party shall be liable for any settlement entered into without its consent, which consent may not be unreasonably withheld If the indemnification provided for in this subparagraph (e) is unavailable to a party otherwise entitled to be indemnified in respect of any expenses, losses, claims, damages or liabilities referred to herein, then the indemnifying party, in lieu of indemnifying such party otherwise entitled to be indemnified, shall contribute to the amount paid or payable by such party to be indemnified as a result of such expenses, losses, claims, damages or liabilities in such proportion as is appropriate to reflect the relative benefits received by issuer, all Selling Holders and the underwriters from the offering of the securities and also the relative fault of Issuer, all Selling Holders and the underwriters in connection with the statements or omissions which resulted in such expenses, losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The amount paid or payable by a party as a result of the expenses, losses, claims, damages and liabilities referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any action or claim; provided, that in no case shall any Selling Holder be responsible, in the aggregate, for any amount in excess of the net offering proceeds attributable to its Option Shares included in the offering. No person guilty of fraudulent misrepresentation (within the meaning of Section 1 (f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Any obligation by any holder to indemnify shall be several and not joint with other holders. In connection with any registration pursuant to subparagraph (a) or (b) above, Issuer and each Selling Holder (other than Grantee) shall enter into an agreement containing the indemnification provisions of this subparagraph (e). (f) Issuer shall use its best efforts to comply with all reporting requirements and will do all such other things as may be necessary to permit the expeditious sale at any time of any Option Shares by Holder in accordance with and to the extent permitted by any rule or regulation promulgated by the SEC from time to time, including, without limitation, Rules 144 and 144A. (g) Issuer will pay all stamp taxes in connection with the issuance and the sale of the Option Shares and in connection with the exercise of the Option, and will save Holder harmless, without limitation as to time, against any and all liabilities, with respect to all such taxes. 10. QUOTATION; LISTING. If Issuer Common Stock or any other securities to be acquired upon exercise of the Option are then authorized for quotation or trading or listing on any securities exchange or any automated quotations system maintained by a self-regulatory organization, Issuer, upon the request of Holder, will promptly file an application, if required, to authorize for quotation or trading or listing the shares of Issuer Common Stock or other securities to be acquired upon exercise of the Option on the securities exchange or any automated quotations system maintained by a self-regulatory organization and will use its best efforts to obtain approval, if required, of such quotation or listing as soon as practicable. 11. DIVISION OF OPTION. This Agreement (and the Option granted hereby) are exchangeable, without expense, at the option of Holder, upon presentation and surrender of this Agreement at the principal office of Issuer for other Agreements providing for Options of different denominations entitling the holder thereof to purchase in the aggregate the same number of shares of Issuer Common Stock purchasable hereunder. The terms "Agreement" and "Option" as used herein include any other Agreements and related Options for which this Agreement (and the Option granted hereby) may be exchanged. Upon receipt by Issuer of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Agreement, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like tenor and date. Any such new Agreement executed and delivered shall constitute an additional contractual obligation on the part of Issuer, whether or not the Agreement so lost, stolen, destroyed or mutilated shall at any time be enforceable by anyone. 12. MISCELLANEOUS. (a) EXPENSES. Except as otherwise provided in Section 9, each of the parties hereto shall bear and pay all costs and expenses incurred by it or on its behalf in connection with the transactions contemplated hereunder, including fees and expenses of its own financial consultants, investment bankers, accountants and counsel. (b) WAIVER AND AMENDMENT. Any provision oft his Agreement may be waived at any time by the party that is entitled to the benefits of such provision. This Agreement may not be modified, amended, altered or supplemented except upon the execution and delivery of a written agreement executed by the parties hereto. (c) ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARY; SEVERABILITY. This Agreement, together with the Merger Agreement and the other documents and instruments referred to herein and therein, between Grantee and Issuer (a) constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof and (b) is not intended to confer upon any person other than the parties hereto (other than any transferees of the Option Shares or any permitted transferee of this Agreement pursuant to Section 12(h) and other than as provided in the Merger Agreement) any rights or remedies hereunder. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or a federal or state governmental or regulatory agency or authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. If for any reason such court or regulatory agency determines that the Option does not permit Holder to acquire, or does not require Issuer to repurchase, the full number of shares of Issuer Common Stock as provided in Sections 3 and 8 (as adjusted pursuant to Section 7), it is the express intention of Issuer to allow Holder to acquire or to require Issuer to repurchase such lesser number of shares as may be permissible without any amendment or modification hereof. (d) GOVERNING LAW. This Agreement shall be governed and construed in accordance with the laws of the State of Indiana without regard to any applicable conflicts of law rules. (e) DESCRIPTIVE HEADINGS. The descriptive headings contained herein are for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement. (f) NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally, telecopied (with confirmation) or mailed by registered or certified mail (return receipt requested) to the parties at the addresses set forth in the Merger Agreement (or at such other address for a party as shall be specified by like notice). (g) COUNTERPARTS. This Agreement and any amendments hereto may be executed in two counterparts, each of which shall be considered one and the same agreement and shall become effective when both counterparts have been signed, it being understood that both parties need not sign the same counterpart. (h) ASSIGNMENT. Neither this Agreement nor any of the rights, interests or obligations hereunder or under the Option shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other party, except that Grantee may assign this Agreement to a wholly owned Subsidiary of Grantee and Grantee may assign its rights hereunder in whole or in part after the occurrence of a Purchase Event. Subject to the preceding sentence, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns. (i) FURTHER ASSURANCES. In the event of any exercise of the Option by Holder, Issuer and Holder shall execute and deliver all other documents and instruments and take all other action that may be reasonably necessary in order to consummate the transactions provided for by such exercise. (j) SPECIFIC PERFORMANCE. The parties hereto agree that this Agreement may be enforced by either party through specific performance, injunctive relief and other equitable relief. Both parties further agree to waive any requirement for the securing or posting of any bond in connection with the obtaining of any such equitable relief and that this provision is without prejudice to any other rights that the parties hereto may have for any failure to perform this Agreement. (k) CONFIDENTIALITY AGREEMENTS. The parties hereto agree that this Agreement supersedes any provision of the Confidentiality Agreements that could be interpreted to preclude the exercise of any rights or the fulfillment of any obligations under this Agreement, and that none of the provisions included in the Confidentiality Agreements will act to preclude Holder from exercising the Option or exercising any other rights under this Agreement or act to preclude Issuer from fulfilling any of its obligations under this Agreement. IN WITNESS WHEREOF, Issuer and Grantee have caused this Stock Option Agreement to be signed by their respective officers thereunto duly authorized, all as of the day and year first written above. GERMAN AMERICAN BANCORP By/s/George W. Astrike George W. Astrike Chairman of the Board and Chief E 1ST BANCORP By/s/C. James McCormick C. James McCormick Chairman of the Board and Chief EX-3 4 RESTATED ARTICLES OF INCORPORATION OF GERMAN AMERICAN BANCORP (as amended April 23, 1998) 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 no par value. Solely for the purpose of any statue or regulation imposing any tax or fee based upon the capitalization of the corporation, however, all of the shares shall be deemed to have a stated value of $1.00 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, spin-off, split-off or split-up 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 by law. EX-10.1 5 May 1, 1998 Mr. James E. Essany German American Bancorp 711 Main Street P O Box 810 Jasper, IN 47547-0810 RE: Incentive Stock Option Agreement Dear Mr. Essany: 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 options dated April 20, 1993 and January 15, 1997, 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. NumberseofPrShares:e$31.1,155ershares,,e subjectteto adjustmentdassprovidedpinethetPlan. 0e noon,atJasper time,eonoAprilf19,o2003. he date of this Option, and shall be cancel 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 your 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 for the 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 1st day of May, 1998. By/s/James E. Essany James E. Essany EX-27 6
9 1,000 6-MOS DEC-31-1997 JUN-30-1998 19,472 2,673 14,225 0 105,837 26,230 27,096 406,067 7,133 594,161 516,402 4,542 6,512 1,000 0 0 6,347 59,358 594,161 17,900 568 4,096 22,564 10,396 10,513 12,051 119 7 8,276 5,212 5,212 0 0 3,544 .56 .56 4.39 753 2,583 0 0 7,488 636 162 7,138 7,133 0 2,381
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