NOTICE
OF ANNUAL MEETING OF SHAREHOLDERS
TO
BE HELD ON MARCH ___, 2008
An
annual
meeting of shareholders of Peoples Bancorp (the “Company”) will be held on
____________, March ___, 2008, at 2:00 p.m., local time, at the LaQuinta Inn,
located at 306 Touring Drive, Auburn, Indiana 46706:
(1)
Reverse/Forward Stock
Split.
To consider and vote upon a proposal to adopt two
amendments to the Company’s Articles of Incorporation. The amendments will
provide for (a) a reverse 1-for-760 stock split, followed immediately by (b)
a
forward 760-for-1 stock split. Each record shareholder owning fewer
than 760 shares of common stock, $1.00 par value per share, immediately prior
to
the reverse split will, instead of participating in the forward split, receive
a
cash payment equal to $16.75 per share on a pre-split basis.
(2)
Election of
Directors.
To elect three directors of the Company, two with a
term of three years, and one with a term of two years.
(3)
Appointment of
Auditors.
To approve the appointment of BKD, LLP, independent
certified public accountants, as the auditors of the Company for the fiscal
year
ending September 30, 2008.
(4)
Adjournment.
To
approve a proposal to adjourn the annual meeting to permit further solicitation
of proxies in the event that an insufficient number of shares are present in
person or by proxy to approve the proposals presented at the annual
meeting.
(5)
Other
Matters.
To consider and vote upon a proposal to transact any
other business that properly comes before the annual meeting or any adjournment
or postponement of the annual meeting.
The
Board
of Directors has fixed the close of business on February ___, 2008, as the
record date for determining those shareholders entitled to vote at the annual
meeting and any adjournment or postponement of the annual meeting. Only
shareholders at the close of business on the record date are entitled to notice
of, and to vote at, the annual meeting.
A
copy of
our Annual Report for the fiscal year ended September 30, 2007, is
enclosed. The Annual Report is not part of the proxy soliciting
material enclosed with this letter, except as otherwise provided
herein.
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By
order of the Board of Directors
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Cheryl
L. Taylor
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Corporate
Secretary
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Auburn,
Indiana
February
___, 2008
YOUR
VOTE
IS VERY IMPORTANT.
Whether
or not you plan to attend the annual meeting in person, please take the time
to
vote by completing and marking the enclosed proxy card in the enclosed
postage-paid envelope. If you attend the annual meeting, you may
still vote in person if you wish, even if you have previously returned your
proxy card.
Your
Board of Directors unanimously
recommends that you vote “FOR” approval of the amendments to our Articles of
Incorporation, the election of the three nominated directors, the ratification
of the appointment of BKD, LLP, as our auditors for the fiscal year ended
September 30, 2008, and the proposal to adjourn the meeting if necessary to
allow extra time to solicit proxies.
TABLE
OF CONTENTS
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SUMMARY
TERM SHEET
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1
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Date,
Time and Place of Annual Meeting; Proposals to be Considered at
the Annual
Meeting
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1
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Record
Date
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2
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Vote
Required for Approval
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2
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The
Company and Peoples Federal
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2
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Introduction
and Overview of the Split Transaction
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3
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Background
of the Split Transaction
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3
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Reasons
for the Split Transaction
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3
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Fairness
of the Split Transaction
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4
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Fairness
Opinion of Financial Advisor
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4
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Structure
of the Split Transaction
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4
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Effects
of the Split Transaction
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4
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Interests
of Certain Persons in the Split Transaction
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5
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Financing
of the Split Transaction
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5
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Material
Federal Income Tax Consequences of the Split Transaction
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5
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Dissenters’
Rights
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6
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Recommendation
of Board of Directors
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6
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QUESTIONS
AND ANSWERS ABOUT THE SPLIT TRANSACTION AND THE ANNUAL
MEETING
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7
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ABOUT
THE ANNUAL MEETING
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10
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Date,
Time and Place of Annual Meeting
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10
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Matters
to be Considered at the Annual Meeting
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10
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Record
Date; Voting Power
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11
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Quorum
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11
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Vote
Required for Approval
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11
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Voting
and Revocation of Proxies
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12
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Solicitation
of Proxies; Expenses of Solicitation
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12
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Other
Matters to be Considered at Annual Meeting
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12
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PROPOSAL
1 - THE SPLIT TRANSACTION - SPECIAL FACTORS
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13
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Overview
of the Split Transaction
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13
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Background
of the Split Transaction
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14
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Reasons
for the Split Transaction
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18
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Fairness
of the Split Transaction
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22
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Effects
of the Split Transaction on Affiliates
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26
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Determination
of Fairness of Split Transaction By Affiliates
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27
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Board
Recommendation
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27
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Fairness
Opinion of Financial Advisor
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28
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Structure
of the Split Transaction
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34
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Effects
of the Split Transaction on the Company
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35
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Interests
of Certain Persons in the Split Transaction
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37
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Financing
of the Split Transaction
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37
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Federal
Income Tax Consequences
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38
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Appraisal
Rights and Dissenters’ Rights
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40
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Regulatory
Requirements
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40
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Accounting
Treatment
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40
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Fees
and Expenses
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40
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SELECTED
HISTORICAL AND PRO FORMA FINANCIAL DATA
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41
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PEOPLES
BANCORP SELECTED CONSOLIDATED FINANCIAL INFORMATION
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42
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MARKET
PRICE OF PEOPLES BANCORP COMMON STOCK AND DIVIDEND
INFORMATION
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43
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COMMON
STOCK PURCHASE INFORMATION
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43
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PROPOSAL
2 - ELECTION OF DIRECTORS OF THE COMPANY
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44
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Voting
Securities and Principal Holders Thereof
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44
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Section
16(a) Beneficial Ownership Reporting Compliance
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46
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Directors
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46
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Executive
Officers
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47
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Corporate
Governance and Other Matters
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48
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Compensation
Committee Interlocks and Insider Participation
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50
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Nominating
Committee Matters
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50
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COMPENSATION
DISCUSSION AND ANALYSIS
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51
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Overview
of Compensation Program
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51
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Impact
of Performance on Compensation
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52
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Objectives
of Compensation Program
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52
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2007
Executive Compensation Components
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52
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SUMMARY
COMPENSATION TABLE FOR FISCAL 2007
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54
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REPORT
OF THE BUDGET/COMPENSATION COMMITTEE
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56
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STOCK
OPTION INFORMATION
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56
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The
1998 Stock Option and Incentive Plan
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56
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The
Three Rivers Financial Corporation Stock Option and Incentive
Plan
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57
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Option
Exercises for 2007
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57
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Outstanding
Equity Awards at September 30, 2007
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57
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OTHER
COMPENSATION OF EXECUTIVES
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58
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Defined
Benefit Pension Plan at September 30, 2007
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58
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401(k)
Plan
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59
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Bonus
Plan
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59
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Employment
Agreements
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60
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Retirement
Benefits Agreement of G. Richard Gatton
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61
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DIRECTOR
COMPENSATION
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62
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Director
Compensation for 2007
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62
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Deferred
Fee Agreement
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63
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TRANSACTIONS
WITH CERTAIN RELATED PERSONS
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64
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PROPOSAL
3 - APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
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64
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Audit
Committee Report
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64
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Accountant’s
Fees
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65
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PROPOSAL
4 - ADJOURNMENT OF THE ANNUAL MEETING
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65
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SHAREHOLDER
PROPOSALS
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66
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SHAREHOLDER
COMMUNICATIONS
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66
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OTHER
MATTERS
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67
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Forward-Looking
Statements
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67
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Where
You Can Find More Information
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67
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Information
Incorporated by Reference
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67
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FORM
10-K ANNUAL REPORT
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68
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HOUSEHOLDING
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68
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APPENDIX
A-1
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Proposed
Form of Amendment to Articles of Incorporation to Effect Reverse
Stock
Split
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A-1
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APPENDIX
A-2
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Proposed
Form of Amendment to Articles of Incorporation to Effect Forward
Stock
Split
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A-2
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APPENDIX
B
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Opinion
of Commerce Street Capital, LLC
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B-1
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SUMMA
RY
TERM
SHEET
This
summary provides an overview of material information from this proxy
statement. However, it is a summary only. To better
understand the reverse stock split and forward stock split transaction and
for a
more complete description of its terms, and for a description of other matters
to be considered at the annual meeting, we encourage you to read
carefully this entire document and the documents to which it refers before
voting.
In
this proxy statement, “the Company,” “we,” “our,” “ours,” and “us” refer to
Peoples Bancorp, an Indiana corporation. The term “Peoples Federal”
refers to the Company’s wholly-owned subsidiary, Peoples Federal Savings Bank of
DeKalb County, which is a federal savings bank. It is the survivor of
a merger of First Savings Bank, FSB, another wholly-owned subsidiary of the
Company, with Peoples Federal as of October 1, 2007. The term “split
transaction” refers to the reverse and forward stock splits, together with the
related cash payments to registered shareholders holding fewer than 760 shares
at the effective time of the split transaction. The term
“non-continuing shareholders” of the Company means all record holders of common
stock of the Company (i.e., registered owners of the shares whose names appear
on the Company’s records as shareholders) with fewer than 760 shares at the
effective time of the reverse stock split transaction. The term
“continuing shareholders” means all record holders of common stock of the
Company with at least 760 shares at the effective time of the reverse stock
split transaction. References to “common stock” or “shares” refer to
the Company’s common stock, par value $1.00 per share.
Date,
Time and Place of Annual Meeting; Proposals to be Considered at the Annual
Meeting
Our
Board
of Directors is asking for your proxy for use at an annual meeting of
shareholders to be held on ___________, March ___, 2008, at 2:00 p.m., local
time, at the LaQuinta Inn, 306 Touring Drive, Auburn, Indiana, and at any
adjournments or postponements of that meeting. At the annual meeting,
shareholders will be asked:
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to
consider and vote upon a proposal to adopt amendments to our Articles
of
Incorporation that will result in a 1-for-760 reverse stock split
followed
immediately by a 760-for-1 forward stock split;
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to
elect three directors of the Company, two with a term of three years
and
one with a term of two years;
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to
approve the appointment of BKD, LLP, independent certified public
accountants, as the auditors of the Company for the fiscal year ended
September 30, 2008; and
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to
adjourn the annual meeting if necessary to permit the further solicitation
of proxies in the event that an insufficient number of shares is
present
in person or by proxy to approve the proposals presented at the annual
meeting.
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Shareholders
are also being asked to consider and vote upon any other matters that may
properly be submitted to a vote at the meeting or any adjournment or
postponement of the annual meeting. See “ABOUT THE ANNUAL
MEETING.”
Record
Date
You
may
vote at the annual meeting if you owned Company common stock at the close of
business on February ___, 2008, which has been set as the record date. At the
close of business on the record date, there were 3,104,990
shares of our common
stock
outstanding. You are entitled to one vote on each matter considered
and voted upon at the annual meeting for each share of common stock you held
of
record at the close of business on the record date.
Vote
Required for Approval
Proposal
1 — The
Reverse/Forward Stock Split.
Approval of the split transaction
requires the affirmative vote of the holders of a majority of all outstanding
shares of our common stock entitled to vote at the annual meeting, or 1,552,496
of the 3,104,990 outstanding shares. Because the executive officers
and directors of the Company have the power to vote a total of 138,426 shares
and we believe that all of such executive officers and directors will vote
in
favor of the transaction, this means a total of 1,414,070 shares held by
shareholders who are not executive officers or directors of the Company will
be
required to vote in favor of the transaction for it to be
approved. Because the executive officers and directors of the Company
own only approximately 4.5% of the voting power of our outstanding common stock,
there is no assurance that the split transaction will be approved.
Proposal
2 —
Election of Directors.
Directors will be elected by a
plurality of the votes cast at the annual meeting. Plurality means
that the individuals who receive the largest number of votes cast are elected
up
to the maximum number of directors to be elected at the meeting.
Proposal
3
— Approval of Auditors.
More votes cast in favor of
the proposal than are cast against it will be necessary to approve the Company’s
independent certified public accountants.
Proposal
4 —
Adjournment of the Annual Meeting.
Approval of the proposal to
adjourn or postpone the meeting to allow extra time to solicit proxies requires
more votes cast in favor of the proposal than are cast against
it. See “ABOUT THE ANNUAL MEETING—Vote Required for
Approval.”
The
Company and Peoples Federal
Peoples
Bancorp is a unitary savings and loan holding company, with a business address
of 212 West Seventh Street, Auburn, Indiana 46706-1723, and a business telephone
number of (260) 925-2500. We own 100% of our subsidiary bank, Peoples
Federal Savings Bank of DeKalb County, a federal savings bank. As of
October 1, 2007, our other wholly-owned subsidiary, First Savings Bank, FSB,
merged into Peoples Federal. The Company’s common stock is publicly
traded on the Nasdaq Global Market (“NGM”) under the symbol
“PFDC.” As of the close of business on February ___, 2008, the market
price of our common stock as reported on the NGM was $______ per
share.
Peoples
Federal Savings Bank of DeKalb County (“Peoples Federal”) is a federal savings
bank. Peoples Federal conducts business from its main office in
Auburn and its full-service offices located in Avilla, Columbia City, Garrett,
Kendallville, LaGrange, Topeka, Waterloo, Howe and Middlebury, Indiana, and
in
Three Rivers, Union, and Schoolcraft, Michigan. Peoples Federal
offers a full range of retail deposit services and lending services to
northeastern Indiana and southern Michigan.
Introduction
and Overview of the Split Transaction
We
are
proposing that our shareholders adopt amendments to our Articles of
Incorporation that will result in a reverse 1-for-760 stock split followed
immediately by a forward 760-for-1 stock split. If the split
transaction is completed, our record shareholders who hold only fractional
shares after giving effect to the reverse 1-for-760 stock split will receive
a
payment of $16.75 per share for each pre-split share. If the reverse
stock split is completed, record shareholders with fewer than 760 pre-split
shares will have no interest in the Company and will become entitled only to
a
cash payment for their shares following the reverse stock
split. After we complete the reverse stock split and identify those
shareholders entitled to payment for their pre-split shares, we will complete
a
forward stock split in which each share of common stock will be converted into
760 shares of common stock post-split. As a result of this subsequent
forward stock split, record shareholders who hold 760 or more shares prior
to
the reverse stock split will ultimately hold the same number of shares following
the forward stock split. The effect of the split transaction will be to reduce
the number of shareholders of record to less than 300, which will allow us
to
suspend our reporting obligations under federal securities laws.
We
expect
to pay a total of approximately $2,872,357 to shareholders in the reverse stock
split and we anticipate that the number of outstanding shares of our common
stock will decrease approximately 5.5%, from 3,104,990 shares to approximately
2,933,506 shares as a result of the split transaction. These numbers
and amounts may change as a result of trading activity in our shares between
the
date hereof and the effective date of the split
transaction. See “PROPOSAL 1—THE
SPLIT TRANSACTION—SPECIAL FACTORS—Overview of the Split
Transaction.”
Background
of the Split Transaction
For
a
description of the events leading to the approval of the split transaction
by
our Board of Directors and the reasons for its approval, you should refer to
“PROPOSAL 1—THE SPLIT TRANSACTION—SPECIAL FACTORS—Background of the Split
Transaction,” “—Reasons for the Split Transaction,” “—Fairness of the Split
Transaction,” and “—Board Recommendation” on pages 13 through 27. As
we explain more fully in these sections, our Board considered and rejected
various alternative methods of effecting a transaction that would enable us
to
become a non-SEC reporting company, while remaining an independent,
community-owned company.
Reasons
for the Split Transaction
The
Board’s reasons for the split transaction are set forth on pages 18 to
22. The Board has concluded that the costs of complying with the
securities laws outweigh the benefits the Company receives for being an SEC
reporting company. See “PROPOSAL 1—THE SPLIT TRANSACTION—SPECIAL
FACTORS—Reasons for the Split Transaction.”
Fairness
of the Split Transaction
Based
on
a careful review of the facts and circumstances relating to the split
transaction, our Board of Directors believes that the split transaction and
the
terms and provisions of the split transaction, including the cash to be paid
to
the non-continuing shareholders, are substantively and procedurally fair to
our
unaffiliated shareholders, including unaffiliated shareholders that are
continuing shareholders and unaffiliated shareholders that are non-continuing
shareholders. Our directors unanimously approved the split
transaction. See “PROPOSAL 1—THE SPLIT TRANSACTION—SPECIAL
FACTORS—Fairness of the Split Transaction.”
For
a
complete discussion of the positive and negative factors considered by the
Board, please see pages 22 through 26.
Fairness
Opinion of Financial Advisor
In
deciding to approve the split transaction and recommend it to our shareholders,
our Board of Directors considered the opinion of Commerce Street Capital, LLC
(“Commerce”) that the $16.75 consideration proposed to be paid to the
non-continuing shareholders, whether affiliated or unaffiliated, is fair from
a
financial point of view to those shareholders.
The
full
text of the fairness opinion is attached to this proxy statement as
Appendix B
, and you are
encouraged to read it carefully. See “PROPOSAL 1—THE SPLIT
TRANSACTION—SPECIAL FACTORS—Fairness Opinion of Financial Advisor.”
Structure
of the Split Transaction
The
transaction has been structured as a two-step stock split transaction because
the reverse stock split will enable us to reduce the number of our shareholders
of record to fewer than 300, while the forward stock split will avoid disruption
to the record shareholders that own 760 or more shares of common stock prior
to
the split transaction. Because shareholders owning 760 or more shares
of common stock are not affected by the two-step structure, this structure
minimizes the costs of our becoming a non-SEC reporting company while achieving
the goals outlined in this proxy statement. See “PROPOSAL 1—THE SPLIT
TRANSACTION—SPECIAL FACTORS—Background of the Split Transaction” beginning on
page 14.
The
split
transaction is being effected at the record shareholder level. This
means that we will look at the number of shares registered in the name of a
single holder to determine if that holder’s shares will be cashed
out. Because we think it is likely that any nominee (including
nominees in whose name brokers or banks hold their customers’ shares) will hold
more than 760 shares in the aggregate, we think it is likely that all “street
name” holders will remain continuing shareholders.
Effects
of the Split Transaction
The
split
transaction is a going private transaction for the Company, meaning it will
allow us to de-register with the SEC and our reporting obligations under federal
securities laws will be suspended.
For
a
further description of how the split transaction will affect our shareholders,
including the different effects on the affiliated and unaffiliated continuing
and non-continuing shareholders, please see “PROPOSAL 1—THE SPLIT
TRANSACTION—SPECIAL FACTORS—Fairness of the Split Transaction—Substantive
Fairness” on pages 22 through 25. For more information on the effects
on the Company of the split transaction, see “PROPOSAL 1—THE SPLIT
TRANSACTION—SPECIAL FACTORS—Effects of the Split Transaction on the
Company.”
Interests
of Certain Persons in the Split Transaction
You
should be aware that the directors and executive officers of the Company have
interests in the split transaction that may present actual or potential, or
the
appearance of actual or potential, conflicts of interest in connection with
the
split transaction. See “PROPOSAL 1—THE SPLIT TRANSACTION—SPECIAL
FACTORS—Interests of Certain Persons in the Split Transaction.”
Financing
of the Split Transaction
We
estimate that the total funds required to fund the payment of the split
transaction consideration to the non-continuing shareholders and to pay fees
and
expenses relating to the split transaction will be approximately
$2,967,357. This amount may increase as a result of trading activity
in our shares between the date hereof and the effective date of the split
transaction. The Company intends to seek approval from the Office of
Thrift Supervision (“OTS”) for a special dividend of $12 million which will be
more than enough to fund the split transaction. If such approval is
not obtained for an amount that is at least $5 million, the Company will explore
options to finance the transaction. The Company anticipates that the
necessary OTS approval will be received.
Material
Federal Income Tax Consequences of the Split Transaction
We
believe that the split transaction, if approved and completed, will have the
following federal income tax consequences:
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the
split transaction should result in no material federal income tax
consequences to us;
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the
continuing shareholders, whether affiliated or unaffiliated, will
not
recognize any gain or loss or dividend income in connection with
the split
transaction; and
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the
receipt of cash in the split transaction by the non-continuing
shareholders, whether affiliated or unaffiliated, will be taxable
to those
shareholders, who will generally recognize gain or loss in the split
transaction in an amount determined by the difference between the
cash
they receive and their adjusted tax basis in their common stock
surrendered. Any such recognized gain will be treated as capital
gain
unless, in the case of the particular shareholder, the receipt of
the cash
is deemed to have the effect of a dividend.
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Because
determining the tax consequences of the split transaction can be complicated,
you should consult your own tax advisor to understand fully how the split
transaction will affect you. See “PROPOSAL 1—THE SPLIT
TRANSACTION—SPECIAL FACTORS—Federal Income Tax Consequences.”
Dissenters’
Rights
Under
Indiana law, you do
not have dissenters’ rights in connection with the split
transaction. Although you will not have dissenters’ rights in
connection with the split transaction, you may pursue all available remedies
under applicable law.
Recommendation
of Board of Directors
Our
Board of Directors unanimously recommends that you vote “FOR” the proposed
amendments to our Articles of Incorporation that will effect the split
transaction.
Our
Board of Directors also recommends that you vote “FOR” the director nominees,
namely John C. Thrapp, G. Richard Gatton, and Douglas D. Marsh.
Our
Board of Directors also recommends that you vote “FOR” BKD, LLP, as auditors of
the Company for the fiscal year ended September 30, 2008.
Our
Board of Directors also recommends a vote “FOR” the proposal to adjourn or
postpone the meeting to allow extra time to solicit proxies, if
necessary.
QUEST
IONS
AND ANSWERS ABOUT
THE
SPLIT
TRANSACTION
AND THE ANNUAL
MEETING
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Q:
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What
is the date, time and place of the annual meeting?
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A:
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The
annual meeting of our shareholders will be held on __________, March
___,
2008, at 2:00 p.m. local time at the LaQuinta Inn located at 306
Touring
Drive, Auburn, Indiana 46706.
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Q:
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What
is the proposed split transaction?
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A:
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We
are proposing that our shareholders approve a reverse 1-for-760 stock
split followed immediately by a forward 760-for-1 stock split of
our
outstanding common stock.
The
purpose of the split transaction is to allow us to suspend our
SEC-reporting obligations (referred to as “going private”) by reducing the
number of our shareholders of record to fewer than 300. This
will allow us to terminate our registration under the Securities
Exchange
Act of 1934, and relieve us of the costs typically associated with
the
preparation and filing of reports and other documents with the
SEC.
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Q:
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What
will I receive in the split transaction?
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A:
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If
you are the registered owner of fewer than 760 shares of our common
stock
on the date of the reverse stock split, you will receive $16.75 in
cash
from us for each pre-split share you own. If you are the registered
owner
of 760 or more shares of our common stock on the date of the reverse
stock
split, you will not receive any cash payment for your shares in connection
with the split transaction and will continue to hold the same number
of
shares of our common stock as you did before the split transaction.
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Q:
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Why
is 760 shares the “cutoff” number for determining which shareholders will
be cashed out and which shareholders will remain as shareholders
of the
Company?
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A:
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The
purpose of the split transaction is to reduce the number of our
shareholders of record to fewer than 300, which will allow us to
de-register as an SEC-reporting company. Our Board selected 760 shares
as
the “cutoff” number in order to enhance the probability that after the
split transaction, if approved, we will have fewer than 300 shareholders
of record.
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Q:
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May
I buy additional shares in order to remain a shareholder of the Company?
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A:
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Yes.
The key date for acquiring additional shares is March ___, 2008.
So long
as you are able to acquire a sufficient number of shares so that
you are
the registered owner of 760 or more shares by _______________, March
___,
2008, your shares of common stock will not be cashed out by the split
transaction.
|
|
Q:
|
What
if I hold my shares in “street name”?
|
|
A:
|
The
split transaction will be effected at the registered shareholder
level.
This means that we will look at the number of shares registered in
the
name of a single holder as that name appears in the Company’s records to
determine if that holder’s shares will be cashed out. So for
shares held in “street name,” because it is likely that your brokerage
firm holds 760 or more total shares registered in nominee name, you
are
not likely to be cashed out, even if you beneficially own fewer than
760
shares. If you hold shares in “street name,” you should talk to
your broker, nominee or agent to determine how the split transaction
will
affect you.
|
|
Q:
|
What
is the recommendation of our Board of Directors regarding the proposal?
|
|
A:
|
Our
Board of Directors has determined that the split transaction is advisable
and in the best interests of the Company’s shareholders, including
affiliated and unaffiliated shareholders. Our Board of
Directors has unanimously approved the split transaction and recommends
that you vote “FOR” approval of the split transaction at the annual
meeting.
|
|
Q:
|
When
is the split transaction expected to be completed?
|
|
A:
|
If
the proposed amendments to our Articles of Incorporation are approved
at
the annual meeting, we expect the split transaction to be completed
as
soon as practicable thereafter. We need to file the amendments with
the
Indiana Secretary of State for the split transaction to become effective.
|
|
Q:
|
Who
is entitled to vote at the annual meeting?
|
|
A:
|
Holders
of record of our common stock as of the close of business on February
___,
2008, are entitled to vote at the annual meeting. Each of our shareholders
is entitled to one vote for each share of our common stock owned
at the
record date.
|
|
Q:
|
What
vote is required for our shareholders to approve the split transaction?
|
|
A:
|
For
the amendments to our Articles of Incorporation to be adopted and
the
split transaction to be approved, holders of a majority of the outstanding
shares entitled to vote at the annual meeting must vote “FOR” the split
transaction.
|
|
Q:
|
What
if the proposed split transaction is not completed?
|
|
A:
|
It
is possible that the proposed split transaction will not be completed.
The
proposed split transaction will not be completed if, for example,
the
holders of a majority of our common stock do not vote to adopt the
proposed amendments to our Articles of Incorporation and approve
the
proposed split transaction. Alternatively, even if shareholder approval
is
received, if the Board determines that it is not in the best interests
of
the Company’s shareholders to complete the transaction, the Board may
decide to abandon it. If the split transaction is not
completed, we will continue our current operations, and we will continue
to be subject to the reporting requirements of the SEC.
|
|
Q:
|
What
happens if I do not return my proxy card?
|
|
A:
|
Because
the affirmative vote of the holders of a majority of the shares of
our
common stock outstanding on the record date is required to approve
the
split transaction, unless you vote in person, a failure to return
your
proxy card will have the same effect as voting against the split
transaction proposal.
|
|
Q:
|
What
do I need to do now?
|
|
A:
|
After
carefully reading and considering the information contained in this
proxy
statement, please vote your shares of common stock as soon as possible.
You may vote your shares by returning the enclosed proxy or by voting
in
person at the annual meeting of shareholders. This proxy statement
includes detailed information on how to cast your vote.
|
|
Q:
|
If
my shares are held for me by my broker, will my broker vote those
shares
for me?
|
|
A:
|
Your
broker will vote your shares only if you provide instructions to
your
broker on how to vote. You should instruct your broker on how to
vote your
shares using the voting instruction card provided by your broker.
|
|
Q:
|
Can
I change my vote after I have mailed my proxy card?
|
|
A:
|
Yes.
You can change your vote at any time before your proxy is voted at
the
annual meeting by following the procedures outlined in this proxy
statement.
|
|
Q:
|
Do
I need to attend the annual meeting in person?
|
|
A:
|
No.
You do not have to attend the annual meeting to vote your Company
shares.
|
|
Q:
|
Will
I have appraisal or dissenters’ rights in connection with the split
transaction?
|
|
A:
|
No.
Under Indiana law, which governs the split transaction, you do not
have
the right to demand the appraised value of your shares or any other
dissenters’ rights if you vote against the proposed split
transaction. Your rights are described in more detail under
“PROPOSAL 1—THE SPLIT TRANSACTION—SPECIAL FACTORS—Appraisal Rights and
Dissenters’ Rights” at page ___.
|
|
Q:
|
Should
I send in my stock certificates now?
|
|
A:
|
No.
If you are the registered owner of fewer than 760 shares of common
stock
on the date the split transaction is completed, our transfer agent
will
send you written instructions for exchanging your stock certificates
for
cash. If you are the registered owner of 760 or more shares of our
common
stock, you will continue to hold the same shares after the split
transaction as you did before.
|
|
Q:
|
If
I own fewer than 760 shares and cannot locate my stock certificates,
what
should I do?
|
|
A:
|
If
you are entitled to receive cash in the split transaction you will
be sent
a Letter of Transmittal with instructions for tendering your stock
certificates. Those instructions will explain what to do if you cannot
find your stock certificates. Generally, you will need to submit
a lost
share affidavit and a fee for a surety bond in lieu of submitting
the
lost, misplaced or destroyed stock certificate.
|
|
Q:
|
What
are the tax consequences of the split transaction to me?
|
|
A.
|
There
will be no tax consequences to you if you are the registered owner
of 760
or more shares of Company common stock or if you hold shares with
a
brokerage firm or bank that owns through a nominee in the aggregate
760 or
more shares of Company common stock. If you receive cash in the split
transaction because you are the registered owner of fewer than 760
shares
of Company common stock, you will generally recognize gain or loss
in the
split transaction in an amount determined by the difference between
the
cash you receive and your adjusted tax basis in your shares of common
stock surrendered. See “PROPOSAL 1—THE SPLIT TRANSACTION—SPECIAL
FACTORS—Federal Income Tax Consequences.”
|
|
Q:
|
Where
can I find more information about the Company?
|
|
A.
|
We
file periodic reports and other information with the SEC. You may
read and
copy this information at the SEC’s public reference
facilities. Please call the SEC at 1-800-SEC-0330 for
information about these facilities. This information is also
available at the Internet site maintained by the SEC at
http://www.sec.gov. General information about us is available
at our Internet site at www.peoplesbancorp.us; the information on
our
Internet site is not incorporated by reference into this proxy statement
and does not form a part of this proxy statement. For a more
detailed description of the information available, please see pages
67
through 68.
|
|
Q:
|
Who
can help answer my questions?
|
|
A.
|
If
you have questions about the split transaction after reading this
proxy
statement or need assistance in voting your shares, you should contact
Maurice F. Winkler, III, our President, at (260) 925-2500, or Steven
H.
Caryer, our Vice President and Chief Financial Officer, at (260)
837-9155.
|
ABOU
T
THE ANNUAL MEETING
Date,
T
ime and Place of Annual
Meeting
Our
Board
of Directors is asking for your proxy for use at our annual meeting of
shareholders to be held on ___________, March ___, 2008, at 2:00 p.m., local
time, at the LaQuinta Inn located at 306 Touring Drive, Auburn, Indiana, and
at
any adjournments or postponements of that meeting.
Matter
s
to be Considered at the Annual Meeting
The
purpose of the annual meeting is for you to consider and vote upon:
Proposal
1:
The adoption of amendments to our Articles of Incorporation that will
result in a reverse, followed by a forward, stock split
transaction. This transaction is comprised of:
|
|
•
|
a
reverse stock split, in which each 760 shares of our common stock
held in
the record name of a shareholder at the effective time of the reverse
stock split will be converted into one share of common stock; followed
immediately by
|
|
|
•
|
a
forward stock split, in which each share of common stock outstanding
after
completion of the reverse stock split will be converted into 760
shares of
common stock.
|
Each
record shareholder owning fewer than 760 shares of common stock immediately
prior to the reverse stock split will receive a cash payment of $16.75 per
share
on a pre-split basis.
Proposal
2:
The election of three directors, two to serve until 2011, and one to
serve until 2010.
Proposal
3:
The approval of the appointment of BKD, LLP, independent certified
public accountants, as the auditors of the Company for the fiscal year ended
September 30, 2008.
Proposal
4:
Any necessary adjournment of the meeting to permit further solicitation
of proxies in the event that insufficient shares are represented at the
meeting.
Shareholders
are also being asked to consider and vote upon any other matters that may
properly be submitted to a vote at the meeting or any adjournment or
postponement of the annual meeting. The Board is not aware of any
other business to be conducted at the annual meeting.
Record
D
ate; Voting Power
You
may vote at the
annual meeting if you were the record owner of shares of our common stock at
the
close of business on February ___, 2008, which has been set as the record
date. At the close of business on the record date, there were
3,104,990 shares of our common stock, $1.00 par value per share,
outstanding. You are entitled to one vote on each matter considered
and voted upon at the annual meeting for each share of common stock you held
of
record at the close of business on the record date.
Qu
orum
The
presence, in person or by proxy, of a majority of our outstanding shares is
necessary to constitute a quorum at the annual meeting. Abstentions
and broker non-votes are counted for purposes of establishing a quorum at the
annual meeting.
Vote
Req
uired for Approval
Approval
of the split transaction (
Proposal 1
) requires the
affirmative vote of the holders of a majority of all outstanding shares of
our
common stock entitled to vote at the annual meeting, or 1,552,496 of the
3,104,990 outstanding shares. Because the executive officers and
directors of the Company have the power to vote a total of 138,426 shares and
because we believe that all of the executive officers and directors will vote
in
favor of the transaction, this means a total of 1,414,070 shares held by
shareholders who are not executive officers or directors of the Company will
be
required to vote in favor of the transaction for it to be
approved. Because the executive officers and directors hold only
approximately 4.5% of the voting power of our outstanding common stock, there
is
no assurance that the split transaction will be approved. Approval of
the amendments and the split transaction do not require the separate vote of
a
majority of our unaffiliated shareholders, and no separate vote will be
conducted. Because broker non-votes and abstentions are not
affirmative votes, they will have the effect of a vote against the split
transaction.
The
election of directors (
Proposal 2
) will be
determined by a plurality of the votes cast at the annual
meeting. Plurality means that the individuals who receive the largest
number of votes cast are elected up to the maximum number of directors to be
elected at the meeting. Broker non-votes, abstentions and
instructions to withhold votes for one or more directors will result in that
nominee receiving fewer votes but will not count as a vote against the
nominee.
More
votes cast in favor of the proposal than those cast against it are required
to
approve the Company’s independent public accountants (
Proposal
3
). Abstentions and broker non-votes will not be treated as
“No” votes and, therefore, will have no effect on this proposal.
The
proposal to adjourn or postpone the annual meeting (
Proposal 4
), if necessary,
must be approved by more votes cast in favor of that proposal than are cast
against it. Abstentions and broker non-votes will not be treated as
“No” votes and, therefore, will have no effect on this proposal.
Voting
and R
evocation of
Proxies
You
may vote your shares
in person by attending the annual meeting, or by mailing us your completed
proxy
if you are unable or do not wish to attend. If a proxy card is
submitted without instructions, the proxies will be voted “FOR” the proposal to
approve the split transaction, the director nominees, BKD, LLP, as the Company’s
auditors for the fiscal year ended September 30, 2008, and the proposal to
adjourn or postpone the meeting, if necessary.
You
can
revoke your proxy at any time before the vote is taken at the meeting
by:
|
|
•
|
delivering
to Cheryl L. Taylor, our Corporate Secretary, at our corporate office
at
212 West Seventh Street, P. O. Box 231, Auburn, Indiana 46706-1723,
on or
before the date of the annual meeting, a later-dated and signed proxy
card
or a written revocation of the proxy;
|
|
|
•
|
delivering
to us at the annual meeting prior to the taking of the vote a later-dated
and signed proxy card or a written revocation;
|
|
|
•
|
attending
the annual meeting and voting in person; or
|
|
|
•
|
if
you have instructed a broker to vote your shares, following the directions
received from your broker to change those instructions.
|
Revoking
a proxy will not affect a vote once the vote has been
taken. Attendance at the annual meeting will not, in itself,
constitute a revocation of a proxy. You must vote in person at the annual
meeting if you wish to change a vote that you have previously made by submitting
a signed proxy.
Solici
tation
of Proxies; Expenses of
Solicitation
We
are
mailing this proxy material to our shareholders on or about February ___,
2008.
The
enclosed proxy is solicited on behalf of our Board of Directors. The
cost of soliciting proxies in the accompanying form will be borne by
us. In addition to the use of mail, our officers and directors may
solicit proxies by telephone or other electronic means. These
individuals will receive no additional compensation for these services, but
will
be reimbursed for any transaction expenses incurred by them in connection with
these services. Upon request, we will reimburse brokers, dealers, banks and
trustees or their nominees for reasonable expenses incurred by them in
forwarding proxy material to beneficial owners of shares of existing common
stock. In addition, the Company has retained __________________ (the
“Proxy Solicitor”) to solicit proxies on the Company’s behalf. For
acting as its proxy solicitor, the Company will pay the Proxy Solicitor a fee
of
$[8,000].
Other
Matte
rs to be Considered
at Annual
Meeting
As
of the
date of this proxy statement, the only business that our management expects
to
be presented at the meeting is that set forth above. If any other
matters are properly brought before the meeting, or any adjournments thereof,
it
is the intention of the persons named in the accompanying form of proxy to
vote
the proxy on such matters in accordance with their best judgment.
PROP
OSAL
1 - THE SPLIT TRANSACTION - SPECIAL
FACTORS
Overview
of the S
plit Transaction
This
proxy statement is furnished in connection with the solicitation of proxies
by
the Board of Directors of Peoples Bancorp, an Indiana corporation, and is to
be
used at an annual meeting at which our shareholders, among other things, will
be
asked to consider and vote upon a proposal to amend our Articles of
Incorporation. If approved, the amendments will result in a 1-for-760
reverse split of our common stock, followed immediately by a 760-for-1 forward
split of our common stock.
If
the
reverse and forward stock splits are approved as described below, record holders
of fewer than 760 shares of our common stock prior to the reverse split will
no
longer be shareholders of the Company. Instead, those shareholders
will be entitled only to receive payment of $16.75 per share of common stock
held prior to the reverse split. Record shareholders holding 760 or
more pre-split shares will remain shareholders. We intend,
immediately following the split transaction, to terminate the registration
of
our shares, and our registration and further reporting under the Securities
Exchange Act of 1934.
If
approved by our shareholders at the annual meeting and implemented by our Board
of Directors, the split transaction will generally affect our shareholders
as
follows:
|
SHAREHOLDER
POSITION
PRIOR
TO SPLIT TRANSACTION
|
|
EFFECT
OF SPLIT
TRANSACTION
|
|
Shareholders
holding in registered name 760 or more shares of common
stock
|
|
Shareholders
will continue to hold the same number of shares they held prior to
the
split transaction.
|
|
|
|
|
|
Shareholders
holding in registered name fewer than 760 shares of common
stock
|
|
Shares
will be converted into $16.75 per share of common stock outstanding
immediately prior to the reverse stock split.
|
|
|
|
|
|
Shareholders
holding common stock in “street name” through a nominee (such as a bank or
broker)
|
|
The
split transaction will be effected at the record shareholder
level. Therefore, regardless of the number of beneficial
holders or the number of shares held by each beneficial holder, shares
held in “street name” by a bank or broker who holds through a nominee in
the aggregate more than 760 shares for its customers will be subject
to
the forward split, and the beneficial holders who hold their shares
in
“street name” will be continuing shareholders with the same number of
shares as before the split transaction. If a shareholder owns
fewer than 760 shares with a bank or broker who does not own of record
in
its own name or in a nominee name at least 760 shares in the aggregate
for
its customers, that shareholder will receive $16.75 per share of
common
stock outstanding immediately prior to the reverse stock
split.
|
Our
Board
of Directors will have the discretion to determine if and when to effect the
split transaction, and reserves the right to abandon the transaction even if
it
is approved by the shareholders. Under applicable Indiana law, the
Board has a duty to act in the best interest of the Company’s
shareholders. Accordingly, the Board reserves the right to abandon
the split transaction after shareholder approval and before the effective time
of the split transaction, if for any reason the Board determines that, in the
best interest of the Company’s shareholders, it is not advisable to proceed with
the split transaction. The Board intends to complete the split
transaction if approved by the Company’s shareholders, and the Board is unaware
of any circumstance that would cause it to abandon the transaction, other than
(i) a significant increase in transaction costs resulting from purchases of
shares prior to the effective date of the split apparently made solely for
the
purpose of receiving the premium to be paid to holders of fewer than 760 shares
or (ii) a determination that the approved split will not reduce the number
of
shareholders of record to fewer than 300.
The
split
transaction will become effective upon the filing of the necessary amendments
to
our Articles of Incorporation with the Indiana Secretary of State or a later
date specified in that filing. The forms of the amendments to our Articles
of
Incorporation are attached to this proxy statement as
Appendix A
. Under
no circumstances would the Board consummate the reverse stock split and not
the
forward stock split, for the reasons set forth in “PROPOSAL 1—THE SPLIT
TRANSACTION—SPECIAL FACTORS—Fairness of the Split Transaction.”
Although
there is no date by which the split transaction must occur, we expect that
if
the shareholders approve and the Board elects to effect the split transaction,
the split transaction will be completed as soon as practicable after the annual
meeting (generally expected to be no later than three business days following
the annual meeting).
Background
of the Split Transaction
As
an SEC
reporting company, we are required to prepare and file with the SEC, among
other
items, the following:
|
|
•
|
Annual
Reports on Form 10-K;
|
|
|
•
|
Quarterly
Reports on Form 10-Q;
|
|
|
•
|
Proxy
Statements and related materials;
|
|
|
•
|
Shareholder
Annual Reports; and
|
|
|
•
|
Current
Reports on Form 8-K.
|
In
addition to the burden on management, the costs associated with these reports
and other filing obligations comprise a significant corporate overhead expense.
These costs include securities counsel fees, auditor fees, special Board and
committee meeting fees, costs of printing and mailing shareholder documents,
and
EDGAR filing costs. For the fiscal year ended September 30, 2007, the
total costs, including costs of management and staff time, of being a public
company were $129,000. These costs have been increasing over the
years, and we believe they will continue as a significant expense of the
Company, particularly as a result of the additional reporting and disclosure
obligations imposed on SEC-reporting companies by the Sarbanes-Oxley Act of
2002
(“SOX”). We estimate that our costs and expenses incurred in
connection
with being a public company increased by approximately $13,000 in fiscal
2007. We are projecting additional increases in such costs in fiscal
2008 of approximately $20,000 not considering the costs described in the
next
paragraph.
If
the Company does not go
private before September 30, 2008, it will need to file with its Form 10-K
for
that year a report of management on the Company’s internal control over
financial reporting pursuant to Section 404 of SOX. Moreover, under
Section 404 of SOX for the fiscal year ended September 30, 2009, an attestation
report of the Company’s independent auditors on management’s assessment of the
Company’s internal control over financial reporting will be required if the
Company has not gone private by that date. The one-time costs of such
initial compliance are estimated at $100,000 and $50,000 for each of the
fiscal
years ended September 30, 2008 and 2009, respectively (assuming the Company
outsources the project). These costs will be avoided if the
shareholders approve the reverse/forward stock split described in this proxy
statement.
Our
Board
of Directors and management believe that the recurring expense and burden of
our
SEC-reporting requirements described above are not cost efficient for the
Company. Becoming a non-SEC reporting company will allow us to avoid
these costs and expenses. In addition, once our SEC reporting
obligations are suspended, we will not be subject to the provisions of SOX,
and
our officers will not be required to certify the accuracy of our financial
statements under SEC rules. However, we will continue to be subject
to the rules and regulations imposed by the Office of Thrift Supervision and
the
Federal Deposit Insurance Corporation, including those relating to financial
reporting.
There
can
be many advantages to being a public company, including a more active trading
market and the enhanced ability to use Company stock to raise capital or make
acquisitions. However, there is a limited market for our common
stock, and we have therefore not been able to effectively take advantage of
these benefits. This may be due, in part, to the relatively few
number of shareholders owning the Company’s common stock and the fact that our
directors and executive officers beneficially own and have voting power over
only 4.5%. In the past twelve months ending September 30, 2007, our
common stock was not traded at all on 67 of the 250 trading days. On
the days traded during such period, our common stock had an average trading
volume of 2,715 shares. Moreover, our limited trading market makes it
difficult for our shareholders to liquidate a large number of shares of our
stock without negatively affecting the per share sale price. In
contrast, the split transaction will allow our small shareholders to sell their
shares at a fixed price that will not decline based upon the number of shares
sold, and allow them to do so without incurring typical transaction
costs.
Another
potential advantage of being a public company is the ability to access capital
markets to meet additional capital needs. However, since becoming a
public company in 1990, we have had no additional capital needs. We
have also not made any additional public offerings of common stock or any other
equity or debt securities since our organization in 1990. In
addition, we have used our common stock as consideration for only one
acquisition, that of Three Rivers Financial Corp. completed in
2000. Currently, we do not anticipate issuing additional shares of
common stock in either public or private transactions.
For
these
and other reasons noted below, our Board of Directors and management have
concluded that the benefits of being an SEC-reporting company are substantially
outweighed by the burden on management and the expense related to the SEC
reporting obligations. As a result, during the past three years, our
management began to explore the possibility of reducing our
number
of
record shareholders to below 300 in order to suspend our periodic reporting
obligations to the SEC.
As
far
back as the May 2004 regular meeting of the Company’s Board of Directors, a
discussion was held on Section 404 of SOX and the impact this would have on
publicly traded companies and the advantages of remaining a publicly traded
company were reviewed. Maurice F. Winkler asked the directors to
begin thinking about a possible tender offer or reverse stock split to take
the
Company private.
At
the
March 2005 regular Board meeting, discussion was again held on the costs related
to SOX. In May of 2005 Mr. Winkler informed the Board he was
reviewing SEC guidelines regarding a possible tender offer to repurchase shares
of stock from shareholders holding fewer than 100 shares. Following
discussion, it was the consensus of the Board for Mr. Winkler to continue his
research.
The
discussion continued and at the June 2005 regular Board meeting, Mr. Winkler
reported he had contacted an attorney and was told that SEC regulations would
apply to a regular or Dutch auction, a tender offer, or a reverse stock
split.
At
a
regular Company Board meeting held on October 19, 2007, the burdens and costs
and potential liabilities associated with filing reports as a public company,
including risks associated with the officer certifications required by SOX,
were
reviewed and discussed by the directors. Such potential liabilities
make it more difficult to attract and retain directors and executive officers
and generally result in higher costs, including increased compensation, director
fees, and director and officer liability insurance premiums. The
directors focused on the illiquid trading market for the Company’s shares, its
high capital position and the expenses involved in being a public company,
including the costs of compliance with Section 404 of SOX. Steps that
could be taken to become a private company, including a reverse/forward stock
split, a freeze-out merger, a tender offer, and open market repurchases were
examined. The directors resolved to initiate the process of moving
forward with a possible going private transaction.
After
the
regular Board meeting, the directors held a special teleconference meeting
at
which they discussed the fact that the process of going private would take
several months to complete and the transaction would need to be presented to
the
Company’s shareholders for their approval. The directors discussed
the fact that the annual meeting of shareholders, which is normally held in
January of each year, would need to be delayed if the going private transaction
were to be presented to a vote of shareholders at that meeting. They
tentatively set a new record date and meeting date for that meeting although
they agreed to review those dates again, if necessary, to accommodate the
timetable for the transaction.
At
the
next regular Company Board meeting held on November 20, 2007, the directors
reviewed the available methods of reducing the number of our record shareholders
to allow us to suspend SEC reporting requirements, including open market stock
repurchases, a tender offer, a cash-out merger, reverse stock split, and a
reverse/forward stock split. For a more detailed discussion of the
alternative methods of effecting a going private transaction that were reviewed
by the Board see “—Reasons for the Split Transaction.” The directors
also considered the advantages and disadvantages of these possible
structures. If the Board decided to proceed with a going private
transaction, the Board of Directors would need to consider the structure and
price to be paid in any such transaction.
The
Board
also considered the fact that any shareholders who do not want to cease being
shareholders of the Company could transfer shares into nominee name or purchase
shares on the market either before or after the split
transaction. They also discussed the advisability of obtaining a
fairness opinion in connection with any transaction in which shareholders were
cashed out other than in a voluntary transaction.
The
President of the Company had contacted two financial advisors to discuss their
possible engagement as financial advisor to the Company in the going private
transaction.
At
the
November meeting of the Board of Directors, Keller & Co., Inc. and Commerce
Street Capital, LLC (“Commerce Street Capital”) presented proposed engagement
letters under which they would be engaged to represent the Company in
considering the fairness of the split transaction to affiliated and unaffiliated
shareholders cashed out in the transaction. The Company decided to
retain Commerce Street Capital based on that firm’s extensive experience,
knowledge and background in valuing financial institutions and holding companies
and the proposed services.
At
the
next regular Company Board meeting held on December 18, 2007, the Company’s
Chief Financial Officer, Steven H. Caryer, presented a report showing the costs
of compliance with Section 404 of SOX. The report indicated that it
would cost the Company approximately $45,000 to do the necessary work internally
or $100,000 to outsource the work to a third party. The Board
concluded that the time that would be required from at least five employees
at
Peoples Federal, including Mr. Caryer, the Controller of Peoples Federal, an
accounting employee, an internal auditor, and an assistant auditor to perform
the work in-house would be at an unacceptable level, as it would divert them
from other responsibilities they needed to perform for the
Company. Mr. Caryer estimated that his time devoted to matters for
the Company was projected to increase from 25% to 35%, the Controller’s time was
projected to increase from 5% to 25%, the accounting employee’s time was
projected to increase from 5% to 25%, the internal auditor’s time was projected
to increase from 1% to 15%, and the assistant auditor’s time was projected to
increase from 1% to 15%, as a result of the requirements of SOX.
The
directors discussed the fact that from a management time, cost and liability
standpoint, it appeared that it would be in the best interests of the Company
and its shareholders to become a private company.
The
Company also discussed possible stock split ratios which could be used to reduce
the number of the Company’s record shareholders to less than 300, concluding
that a 1 for 760 share split made the most sense given the Company’s
objectives. Prices that could be paid to such shareholders were
discussed, including the basis for those possible prices.
After
the
meeting held on December 18, 2007, Commerce Street Capital presented three
different ways of determining the price to be paid to shareholders to be cashed
out in the transaction. The Company tentatively concluded, based on
the information provided and subject to the receipt of a fairness opinion from
Commerce Street Capital, that $16.75 would be an appropriate amount to pay
non-continuing shareholders in the split transaction. In reaching
that conclusion, the Company considered the premiums provided in other “going
private” transactions as well as other methodologies for arriving at such
price. It also focused on the fact that the $16.75 per share price
exceeded recent market prices for the Company common stock and all prices the
Company had paid for such shares in its stock repurchase
programs. This seemed to be a fair price based on the information
presented by Commerce Street Capital and yet was not so high as to be unfair
to
shareholders not cashed out in the transaction. The Company
again
considered
the fact that shareholders who did not wish to be cashed out at that price
could
purchase additional shares on the market either before or after the transaction
was completed, or transfer their currently held shares into nominee name
through
a broker to avoid being cashed out.
At
a
meeting of the Company’s Board held on December 28, 2007, the Board considered a
draft proxy statement for the annual meeting at which the reverse/forward stock
split would be presented to a vote of shareholders, along with a draft Schedule
13E-3, and the directors provided comments on those documents.
Also
at
the meeting of the directors, the directors were provided with a draft copy
of
the fairness opinion prepared by Commerce Street Capital. A
representative of Commerce Street Capital reviewed the draft fairness opinion
with the outside directors and described the methodologies used by Commerce
Street Capital as a basis for the fairness opinion. Commerce Street
Capital indicated that it would be able to render such an opinion based on
a
price of $16.75 per share to the shareholders cashed out in the transaction.
The
Board adopted resolutions recommending to the shareholders the proposed split
transaction with a cash payment of $16.75 per share to the shareholders who
were
to be cashed out in the transaction.
After
reviewing the draft fairness opinion of Commerce Street Capital and following
lengthy discussion, the Board approved the split transaction by means of a
1 for
760 reverse stock split followed by a 760 for 1 forward stock split, pursuant
to
which shareholders owning fewer than 760 shares would receive $16.75 in cash
for
their pre-split shares of our common stock. Following the Board’s
determination of the $16.75 per share price, Commerce Street Capital delivered
its oral opinion that the $16.75 per share cash consideration to be paid to
shareholders holding fewer than 760 shares of our common stock prior to the
reverse stock split was fair from a financial point of view to our
non-continuing shareholders who will be cashed out in the
transaction.
Thereafter,
Commerce Street Capital delivered to the Board its written fairness opinion,
dated February ___, 2008, a copy of which is attached as
Appendix B
.
Reasons
for the Split Transaction
The
Company is undertaking the split transaction at this time to end our SEC
reporting obligations, which will enable us to save the Company and our
shareholders the substantial costs associated with being a reporting
company. The specific factors considered in electing at this time to
undertake the split transaction and become a non-SEC reporting company are
as
follows:
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We
estimate that we will eliminate costs of approximately $129,000 on
an
annual basis by eliminating the requirement to make periodic reports
and
reducing the expenses of shareholder communications. These expenses
include legal expenses ($6,000), accounting expenses ($20,000), printing,
EDGAR and miscellaneous costs ($29,000), Nasdaq listing fees ($30,000),
and costs of staff and management time spent on reporting and securities
law compliance matters ($44,000).
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If
the Company does not go private before September 30, 2008, it will
need to
file with its Form 10-K for that year a report of management on the
Company’s internal control over financial reporting pursuant to Section
404 of SOX. Moreover, under Section 404 of SOX for the fiscal
year ended September 30, 2009, an attestation report of the Company’s
independent auditors on management’s assessment of the Company’s internal
control over financial reporting will be required if the Company
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has
not gone private by that date. The one-time costs of such initial
compliance are estimated at $100,000 for the fiscal year ended September
30, 2008, and $50,000 for the fiscal year ended September 30, 2009
(assuming the Company outsources the project). These costs will be
avoided
if the shareholders approve the reverse/forward stock split described
in
the accompanying proxy statement.
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We
believe that, as a result of the recent disclosure and procedural
requirements resulting from SOX, the legal, accounting and administrative
expense, and diversion of our Board of Directors, management and
staff
effort necessary to continue as an SEC-reporting company will remain
significant, particularly in view of the requirements of Section
404,
without a commensurate benefit to our shareholders. We expect to
continue
to provide our shareholders with Company financial information by
disseminating our annual reports, but we anticipate that the costs
associated with these reports will be substantially less than those
we
incur currently.
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In
the Board of Directors’ judgment, little justification exists for the
continuing direct and indirect costs of registration with the SEC,
which
costs have recently increased as a result of SOX, given the low trading
volume in our common stock and that our earnings are sufficient to
support
growth and we therefore do not depend on raising capital in the public
market, and do not expect to do so in the near future. If it
becomes necessary to raise additional capital, we believe that there
are
adequate sources of additional capital available, whether through
borrowing at the holding company level or through private or institutional
sales of equity or debt securities, although we recognize that there
can
be no assurance that we will be able to raise additional capital
if
required, or that the cost of any required additional capital will
be
attractive.
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The
expense of administering accounts of small shareholders is
disproportionate to their ownership in the Company. As of the record
date,
approximately 747 of our 1,010 shareholders of record beneficially
own
fewer than 760 shares of our common stock. These shareholders owned
approximately 5.5% of our shares of common stock on the record date.
A
disproportionate amount of our administrative expenses relating to
shareholder accounts and reporting requirements is attributable to
those
shareholders.
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The
split transaction allows non-continuing shareholders to receive fair
value
and cash for their shares, in a simple and cost-effective manner,
particularly given the possible ineffectiveness and inefficiencies
of a
tender offer, an open market share repurchase or a cash-out merger.
Shareholders owning under 760 shares may find it uneconomical to
dispose
of those shares due to minimum brokerage commissions which are often
charged.
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The
split transaction will allow the non-continuing shareholders to realize
what our Board has determined to be fair value for their Company
common
stock, without incurring brokerage commissions. In addition to the
fairness opinion of Commerce Street Capital, the Board considered
the
following specific factors in reaching its conclusion that the price
to be
paid in the reverse stock split to certain unaffiliated shareholders
in
lieu of fractional shares is fair to such shareholders. Individual
directors may have given differing weights to different factors.
Due to
the relative illiquidity of the common stock, the Board as a whole
generally placed more emphasis on the fairness opinion than on the
stock
prices as quoted on Nasdaq, and
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the
Board ultimately relied on the findings of Commerce Street Capital
in
determining that the $16.75 price per share is fair to unaffiliated
shareholders.
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Current
and
Historical Market Prices of the Company’s Common
Stock.
Although the common stock is quoted on Nasdaq, there is
a limited trading market for the common stock. The high and low sale
prices for the common stock from October 1, 2006 to September 30, 2007, ranged
from a high of $20.78 on October 24, 2006, to a low of $15.45 per share on
September 27, 2007. The closing sale price of the common stock on
December 27, 2007, which was the last trading day on which the common stock
was
traded before announcement of the proposed reverse stock split on December
28,
2007, was $14.20 per share.
Premium
Over
Market Price.
In order to increase the value of the
transaction to those unaffiliated shareholders who hold fewer than 760 shares
pre-split and thus will be cashed out in the reverse stock split, the Board
decided to add a premium over current market prices in determining the price
to
be paid for fractional shares. The $16.75 price to be paid for
fractional shares includes a premium of $2.55 per share (17.96%) over the last
closing trading price of $14.20 prior to the announcement of the split
transaction on December 28, 2007, and a premium of $1.65 per share (10.93%)
over
the average closing trading price of $15.10 for the thirty calendar days prior
to December 28, 2007.
Net
Book
Value.
As of September 30, 2007, the book value per share of
common stock was $19.97, and the $16.75 per share price represents 84% of that
book value.
Goin
g
Concern Value.
Based on applicable Indiana law, the Board of Directors concluded that
going concern value, in the context of a reverse/forward stock split, should
not
be given much weight, as shareholders cashed out in the transaction can avoid
its effects by purchasing a sufficient amount of stock to survive the reverse
stock split or by simply using the payment received in the reverse stock split
to purchase shares of the Company common stock after the transaction is
effective. If the cashed-out shareholders are awarded the value of
the Company as a going concern, they, rather than the Company and its continuing
shareholders, would receive a windfall. The cashed-out shareholders
could capture the full proportionate value of the fractional interest, return
to
the market and buy new stock at the market price, and realize the going concern
value a second time should the Company ever merge or otherwise become subject
to
a change of control transacti
on.
Liquidation
Value.
The Board did not consider the liquidation value of the Company
when selecting the purchase price. A liquidation analysis is not
believed to be a relevant factor because the liquidation of a bank or
discontinuance of a bank’s operations is not considered to be a viable
alternative. Historically, banks have generally only been liquidated
in the event of insolvency or receivership. Neither the Company’s
management nor the Board has any intention of liquidating Peoples
Federal.
Stock
Repurchases.
In reaching its determination as to fairness of
the $16.75 per share price, the directors considered the purchase prices paid
by
the Company in previous purchases pursuant to its stock repurchase
programs. See “COMMON STOCK PURCHASE INFORMATION.” In the
15 months ending December 31, 2007, those prices ranged from $15.60 to $21.85
per share. The directors did not consider these prices to be a
material factor in their consideration of the fairness of the split transaction,
because these purchase prices generally approximated the then-
market
value of our common stock. As discussed above, given the relatively
low number of trades in our common stock, we feel that market price is not
necessarily the most applicable measure of our common stock’s fair
value.
Completing
the split transaction at this time will allow us to begin to realize cost
savings, and will allow our management to focus on long-term beneficial business
prospects to our shareholders, customers and commun
ities.
We
considered that some shareholders may prefer to continue as shareholders of
the
Company as an SEC-reporting company, which is a factor weighing against the
split transaction. However, we believe that the disadvantages of
remaining a public company subject to the registration and reporting
requirements of the SEC outweigh any advantages. We have no present
intention to raise capital through sales of securities in a public offering
in
the future or to acquire other business entities using stock as the
consideration for such acquisition. Accordingly, we are not likely to make
use
of advantages that our status as an SEC-reporting company may
offer. Moreover, those shareholders wishing to remain shareholders
have the option of purchasing shares so that their total shares exceed 760
or
transferring the shares they own into nominee name.
In
view
of the wide variety of factors considered in connection with its evaluation
of
the split transaction, our Board of Directors did not find it practicable to,
and did not, quantify or otherwise attempt to assign relative weights to the
specific factors it considered in reaching its determinations.
We
reviewed and considered various alternative transactions to accomplish the
proposed transaction, but ultimately elected to proceed with the split
transaction. The following were the alternative transactions
considered, but rejected:
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Tender
Offer to Shareholders.
Our Board of Directors determined
that it would require more funds to effect a tender offer. In
addition, there might not be a sufficient number of record shareholders
tendering their shares to reduce the number of shareholders of record
below 300, resulting in the requirement of a second-step merger.
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Open
Market
Stock Repurchase.
The Board considered announcing a
stock buy-back plan and purchasing shares on the open market. Although
the
expenses associated with such a transaction would be low, it might
not
result in the desired reduction of shareholders of record. The
Board determined that an open market stock repurchase might not achieve
the record shareholder reduction objective.
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Cash-Out
Merger.
The Board considered a cash-out merger of the
Company into a newly-formed corporation, with the conversion of the
outstanding shares occurring in the same general manner and ratios
as in
the split transaction. This type of merger would have the same
net effect on our shareholders as the split
transaction. However, the Board determined that a cash-out
merger was not a preferable option because it did not offer any advantages
over the split transaction, but would have required the formation
of a new
corporation, more documentation than the split transaction, including
a
plan of the merger, and likely increased costs.
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Business
Combination.
Although in the past, the Board considered possible
affiliations with other financial institutions, it concluded that
the
Company’s shareholders would be better served if the Company achieved the
cost savings
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attributable
to going private and focused on business strategies to enhance shareholder
value as an independent customer-oriented and community-based financial
institution. The Board has not engaged in any discussions with other
financial institutions concerning a business combination during the
past
33 months.
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Maintaining
the Status Quo.
The Board considered maintaining the
status quo. In that case, we would continue to incur the
significant expenses, as outlined above, of being an SEC-reporting
company
without the expected commensurate benefits. Thus, the Board
considered maintaining the status quo not to be in our best interests
or
the best interests of our shareholders and rejected this alternative.
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Fair
ness
of the Split Transaction
Based
on
a careful review of the facts and circumstances relating to the split
transaction, our Board of Directors believes that the split transaction and
the
terms and provisions of the split transaction, including the cash to be paid
to
non-continuing shareholders, are substantively and procedurally fair to our
affiliated and unaffiliated shareholders. Our Board of Directors
unanimously approved the split transaction.
Substa
ntive
Fairness
In
concluding that the terms and conditions of the split transaction, including
the
cash to be paid to the non-continuing shareholders, are substantively fair
to
our unaffiliated shareholders, our Board of Directors considered a number of
factors.
The
factors that our Board of Directors considered positive for all unaffiliated
shareholders, including both those that are continuing and non-continuing
shareholders, included the following:
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our
smaller shareholders who prefer to remain as shareholders of the
Company,
despite the Board’s recommendation, may elect to do so by acquiring
sufficient shares so that they hold at least 760 shares of common
stock in
their own names immediately prior to the split transaction or transferring
their registered shares into nominee name with a broker who holds
in
nominee name over 760 shares;
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beneficial
owners who hold their shares in “street name,” who would be cashed out if
they were record owners instead of beneficial owners, and who wish
to be
cashed out as if they were record owners instead of beneficial owners,
can
work with their broker or nominee to transfer their shares into a
record
account in their own name so that they will be cashed out;
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shareholders
receive limited benefit from our being an SEC-reporting company because
of
our size and the limited trading of our common stock; and
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the
holders of a majority of the shares of the Company’s common stock must
vote in favor of the split transaction in order for it to occur.
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In
addition to the positive factors applicable to all of our shareholders set
forth
above, the factors that the Board of Directors considered beneficial for the
unaffiliated shareholders that are non-continuing shareholders
included:
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the
cash price of $16.75 represents a 17.96% premium per share over
the last
closing trading price of $14.20 prior to the announcement of the
split
transaction on December 28, 2007; and a 10.93% premium per share
over the
average closing trading price of $15.10 for the thirty calendar
days prior
to December 28, 2007; and represents 18.82 times earnings per share
for
fiscal 2007;
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the
factors relating to the fairness of the $16.75 per share price set
forth
on pages 28 through 34 hereof;
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our
common stock trades infrequently, not trading at all on 67 of the
250
trading days during the twelve months ended September 30, 2007, and
with
an average trading volume on the trading days during that period
of only
2,715 shares, a volume that the Board felt did not provide our
shareholders with sufficient opportunity to readily obtain cash for
a
significant number of shares;
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the
cash to be paid to non-continuing shareholders in the split transaction
will provide certainty of value to those shareholders and immediate
liquidity for them; and
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no
brokerage or other transaction costs are to be incurred by them in
connection with the transfer of their shares to the Company.
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The
factors that the Board of Directors considered positive for the affiliated
and
unaffiliated shareholders that are continuing shareholders
included:
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they
will continue to have the opportunity to participate in our future
growth
and earnings;
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they
will realize the potential benefits of termination of registration
of our
common stock, including reduced expenses as a result of no longer
needing
to comply with SEC reporting requirements;
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the
fact that we anticipate that our shares will continue to be traded
on the
OTC Bulletin Board (“OTCBB”) or in the pink sheets electronic quotation
system after the split transaction, which will provide opportunities
for
continuing shareholders to trade their shares in the future;
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although
net income for the year ended September 30, 2007, on a pro forma
basis
would decrease from $2,801,416 ($.89 per share) on a historical basis
to
approximately $2,731,416, earnings per share increases to $.91 on
a pro
forma basis as a result of the split transaction;
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the
Company anticipates that the book value per share of common stock
as of
September 30, 2007, will be increased from $19.97 per share on a
historical basis to $20.13 per share on a pro forma basis, which
represents a .80% change in the book value per share of our common
stock
as a result of the split transaction; and
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the
two step structure of the split transaction will avoid disruption
to
holders of 760 or more shares of our common stock, who are not being
cashed out in the transaction, by avoiding the requirement that these
shareholders forward their stock certificates to the Company for
cash for
fractional shares of common stock and replacement stock certificates
for
whole shares of common stock.
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The
Board also
considered the per-share purchase price to be fair from the perspective of
continuing shareholders, as it was based on a price that willing buyers and
sellers pay for the shares on the market, and that the purchase of shares
in the
split transaction at this price was a good use of the Company’s excess capital
at this time.
The
Board is aware of, and
has considered, the impact of certain potentially countervailing factors
on the
substantive fairness of the split transaction to the unaffiliated non-continuing
shareholders, including that, unless they take specific steps to avoid being
cashed out, such as purchasing more shares or transferring their shares into
a
brokerage account that would avoid the elimination of their
shares:
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they
will be required to surrender their shares involuntarily in exchange
for
the cash-out price determined by the Board without the opportunity
to
liquidate their shares at a time and for a price of their choosing;
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they
will not have the opportunity to participate in any of our future
growth,
earnings and dividends; and
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they
will be required to pay income tax on the receipt of cash in the
split
transaction.
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The
factors that our Board of Directors considered as potentially negative for
the
affiliated and unaffiliated shareholders that are continuing shareholders
included:
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they
will have reduced access to our financial information once we are
no
longer an SEC-reporting company, including forms filed by our directors
and executive officers reporting changes in their beneficial ownership,
although we do intend to continue to provide the continuing shareholders
with our annual reports and the Company and Peoples Federal will
continue
to be subject to the filing requirements of the Office of Thrift
Supervision and/or the Federal Deposit Insurance Corporation;
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the
fact that future business partners might require more information
from us
before entering into a business relationship due to the lack of publicly
available information about us;
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the
fact that we may have a lower public profile in our community, which
may
be a negative factor with some of our customers;
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the
fact that continuing shareholders will lose certain protections currently
provided under the Securities Exchange Act of 1934, such as limitations
on
short-swing transactions by executive officers and directors under
Section
16 of that Act;
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the
liquidity of our shares of common stock held by continuing shareholders
may be further reduced by the termination of the registration of
the
common stock under the Securities Exchange Act of 1934 and the delisting
of the common stock from the Nasdaq market. Future trading in our
shares
after we go private if it occurs will only occur in the OTCBB, the
pink
sheets electronic quotation system or in privately negotiated sales;
and
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the
Company expects to pay approximately $2,967,357 (including expenses)
to
effect the split transaction. This amount may change as a result
of
trading activity in our shares between the date hereof and the effective
date of the split transaction.
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Our
Board of
Directors believes that these potentially countervailing factors did not,
individually or in the aggregate, outweigh the overall substantive fairness
of
the split transaction to our affiliated and unaffiliated shareholders, whether
they be continuing or non-continuing shareholders and that the foregoing
factors
are outweighed by the positive factors previously described.
Procedural
Fairness
We
believe that the split transaction is procedurally fair to our unaffiliated
shareholders, including those that are continuing shareholders and those that
are non-continuing shareholders. The factors that our Board of
Directors considered positive for all shareholders, including both continuing
and non-continuing shareholders, included the following:
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the
split transaction is being effected in accordance with all applicable
requirements of Indiana law;
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the
Board obtained a fairness opinion from an independent third party
concerning the price to be paid to cash out shareholders, and the
Board of
Directors imposed no limitations upon Commerce Street Capital with
respect
to the investigation made or procedures followed in rendering its
fairness
opinion;
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the
Company retained and received advice from legal counsel in evaluating
the
terms of the split transaction;
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management
and the Board considered alternative methods of effecting a transaction
that would result in our becoming a non-SEC reporting company, each
of
which was determined to be impractical, more expensive than the split
transaction, or potentially ineffective in achieving the goals of
providing cash and value to the non-continuing shareholders as soon
as
possible and eliminating the costs and burdens of public company
status;
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shareholders
will have the opportunity to determine whether or not they will remain
shareholders after the split transaction by acquiring sufficient
shares so
that they hold at least 760 shares immediately prior to the split
transaction or transferring their shares into nominee name or selling
sufficient shares so that they hold fewer than 760 shares immediately
prior to the split transaction, so long as they act sufficiently
in
advance of the split transaction so that the sale or purchase is
reflected
in our shareholder records by the close of business (local time)
on the
effective date of the split transaction;
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the
Company has sufficient cash resources to undertake the necessary
actions
to finance the split transaction, with total expenditures estimated
at
$2,967,357, and therefore the split transaction should not materially
affect our financial condition and results of operations; and
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the
holders of a majority of the shares of the Company’s common stock must
vote in favor of the split transaction in order for it to occur.
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The
Board
is aware of, and has considered, the impact of the following potentially
countervailing factors, which affect both continuing and non-continuing
shareholders to the same degree, on the procedural fairness of the split
transaction:
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the
transaction is not structured to require approval of at least a
majority
of shareholders being cashed out in the split transaction; however,
we
determined that any such voting requirement would improperly usurp
the
power of the holders of a majority of our outstanding shares to
consider
and approve the proposed amendments, as provided in our Articles
of
Incorporation;
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no
appraisal or dissenters’ rights are available under Indiana law to
shareholders who dissent from the split transaction;
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we
did not receive a valuation of our common stock by an independent
appraiser; and
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we
did not appoint a special committee of independent directors to consider
the split transaction as a majority of the members of the Company’s Board
of Directors are independent.
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The
Board
of Directors believes that the foregoing potentially countervailing factors
did
not, individually or in the aggregate, outweigh the overall procedural fairness
of the split transaction to our unaffiliated shareholders, whether they are
continuing or non-continuing shareholders, and the foregoing factors are
outweighed by the procedural safeguards previously described.
In
addition, with respect to the determination not to seek a valuation, our Board
felt that the fairness opinion to be given by Commerce Street Capital provided
sufficient procedural safeguards with respect to the cash to be paid to the
non-continuing shareholders, and determined that it would be unnecessary to
incur the additional cost associated with obtaining a valuation.
Because
shareholders will have the opportunity to adjust their share ownership levels
and thereby elect whether or not to remain a shareholder, the Board did not
consider the absence of appraisal rights to be a significant factor with respect
to the split transaction.
We
therefore believe that the split transaction is substantively and procedurally
fair to our affiliated and unaffiliated shareholders, including those that
are
continuing shareholders and those that are non-continuing shareholders, for
the
reasons and factors described above. In reaching this determination,
we have not assigned specific weights to particular factors, and we considered
all factors as a whole.
We
have
not made any provision in connection with the split transaction to grant
unaffiliated shareholders access to our corporate files or to obtain counsel
or
appraisal services at our expense. With respect to unaffiliated
shareholders’ access to our corporate files, our Board determined that this
proxy statement, together with our other filings with the SEC, provide adequate
information for unaffiliated shareholders. With respect to obtaining
counsel or appraisal services solely for unaffiliated shareholders at our
expense, the Board did not consider these actions necessary or
customary. Our Board also considered the fact that under Indiana
corporate law, and subject to certain conditions set forth under Indiana law,
shareholders have the right to review our relevant books and records of acco
unt.
Effec
ts
of the Split Transaction on Affiliates
The
split
transaction will impact both affiliated and non-affiliated shareholders of
the
Company. As used in this proxy statement, the term “affiliated
shareholder” means any shareholder who is a director or executive officer of the
Company, and the term “unaffiliated shareholder” means any shareholder other
than an affiliated shareholder. All of the affiliated
shareholders
of the Company own over 760 shares of Company common stock (except for one
officer holding 699 shares in nominee name under the Company’s 401(k) Plan who,
accordingly, will not be cashed out). Therefore, the effects of the
split transaction on each of the affiliated shareholders will be the
same. We expect that our executive officers and directors will
beneficially own approximately 138,426 shares (excluding unexercised options)
as
a group immediately after the split transaction. For more information
regarding the beneficial ownership of directors and executive officers of
the
Company, see “PROPOSAL 2—ELECTION OF DIRECTORS OF THE COMPANY—Voting Securities
and Principal Holders Thereof.”
Other
potential effects of the split transaction which are unique to the affiliated
shareholders include the following:
|
|
•
|
Reduced
reporting requirements for officers and directors.
The
directors and executive officers will no longer be subject to the
reporting and short-swing profit provisions under the Securities
Exchange
Act of 1934 with respect to changes in their beneficial ownership
of our
common stock.
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|
|
|
Share
Ownership.
If the split transaction occurs, we expect that the
percentage of beneficial ownership of voting common stock of the
Company
held by executive officers and directors of the Company as a group
will
increase from 4.5% to 4.7% resulting in greater voting power for
affiliated shareholders and less for non-affiliated shareholders.
|
|
|
|
Net
Book
Value.
The aggregate net book value of the Company, as
of September 30, 2007, with respect to the directors’ and executive
officers’ relative ownership is expected to decrease $15,383 from
$2,791,485 to $2,776,102, or a decrease of approximately .55%.
|
|
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|
Net
Income.
The directors’ and executive officers’ interest
in the net income from continuing operations of the Company for the
fiscal
year ended September 30, 2007, would increase from $126,090 on a
historical basis to approximately $128,357 on a pro forma basis as
a
result of the split transaction, an increase of approximately 1.79%.
|
Determ
ination
of Fairness of Split Transaction By
Affiliates
Erica
D.
Dekko, Maurice F. Winkler, III, Bruce S. Holwerda, Stephen R. Olson, John C.
Thrapp, G. Richard Gatton, Douglas D. Marsh, Cheryl L. Taylor, Steven H. Caryer,
Jeffrey H. Gatton, and Jeffrey L. Grate are considered “affiliates” of the
Company due to their positions in senior management and/or on the Board of
Directors of the Company. The affiliates who are not Board members
reviewed the same information regarding the split transaction that the Board
reviewed and considered the same factors as the Board of
Directors. Each of these affiliates adopts the analysis of the Board
of Directors which is discussed in this proxy statement and has separately
determined that the split transaction is fair to affiliated and unaffiliated
shareholders.
Board
Reco
mmendation
Our
Board
of Directors believes the terms of the split transaction are fair and in the
best interests of our unaffiliated and affiliated shareholders and unanimously
recommends that you vote
“FOR”
the adoption of the
amendments to our Articles of Incorporation that will allow us to effect the
split transaction.
Fairness
Opin
ion of Financial
Advisor
At
a meeting of the
Board of Directors on December 28, 2007, Commerce Street Capital, LLC (“Commerce
Street Capital”) rendered an oral opinion as investment bankers as to the
fairness, from a financial point of view, to the shareholders of the Company
of
the consideration received as a result of cashing out certain shares in
conjunction with the proposed reverse stock split. Commerce Street
Capital’s fairness opinion was addressed to the Board of Directors as to the
fairness of the offer price, from a financial point of view, to the shareholders
of the Company of the consideration received as a result of the reverse stock
split by the shareholders who will be cashed out in the split
transaction. The Board of Directors unanimously approved the split
transaction. While Commerce Street Capital advised and assisted the
Company in considering the desirability of the decision to privatize, Commerce
Street Capital’s opinion does not consider the merits of the Company’s decision
to privatize, but addresses only the fairness of the consideration received
for
those shareholders being cashed out.
The
full text of the opinion of Commerce Street Capital, which is attached as
Appendix B
to this document,
sets forth certain assumptions made, matters considered and limitations on
the
review undertaken by Commerce Street Capital, and should be read in its
entirety. The summary of the Commerce Street Capital opinion set
forth in this document is qualified in its entirety by reference to the full
text of Commerce Street Capital’s opinion. The opinion of Commerce Street
Capital is directed to the Board of Directors and does not constitute a
recommendation to any shareholder as to any action that such shareholder should
take in the matter, or otherwise.
The
Board
of Directors of the Company retained Commerce Street Capital, LLC (“Commerce”)
to act as its financial advisor in connection with the proposed going private
transaction (the “split transaction”). As part of its engagement,
Commerce rendered an opinion at the Company’s request with respect to the
fairness of the cash consideration to be paid to fractional shareholders in
the
split transaction (the “Consideration”), from a financial point of view, to the
Company’s shareholders. On December 18, 2007 Commerce delivered to
the Board a report regarding its evaluation of and analysis concerning the
Company’s common stock. Commerce then delivered an oral opinion on
December 28, 2007 to the Board that as of such date, the Consideration to be
paid to fractional shareholders was fair, from a financial point of view, to
all
Company shareholders. Commerce delivered its written opinion on
February __, 2008.
Commerce
is a national investment banking firm, and the Company selected Commerce as
an
advisor based on the firm’s reputation, its experience in investment banking,
its extensive experience and knowledge of the banking market, its recognized
expertise in the valuation of financial institutions, and its familiarity with
Company. Commerce, through its investment banking business,
specializes in banks and thrifts and is regularly engaged in the valuation
of
such businesses and their securities in connection with mergers and acquisitions
and other corporate transactions.
In
connection with providing its fairness opinion and other services rendered
in
connection with the split transaction, Commerce received no specific
instructions from the Company’s Board of Directors other than to provide the
Board with an opinion stating whether or not the Consideration would be fair
to
the Company’s shareholders from a financial point of view. No
limitation was imposed on Commerce with respect to the scope of Commerce’s
investigation in rendering its services.
In
rendering its opinion, Commerce:
|
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(1)
|
Reviewed,
among other things,
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•
|
Annual
Reports on Form 10-K for Company for the four fiscal years ended
September
30, 2007; and
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Other
financial information concerning the business and operations of Company
furnished to Commerce by the Company for purposes of Commerce’s analysis.
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(2)
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Held
discussions with members of senior management of Company regarding
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historical
and current business operations;
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(3)
|
Reviewed
the historical market price and trading activity for the common stock
of
Company and compared market activity of the Company’s common stock with
market activity of shares of certain publicly traded companies deemed
relevant;
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(4)
|
Reviewed
the results of operations of the Company with those of certain financial
institutions deemed relevant;
|
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(5)
|
Reviewed
the financial terms of other going private transactions deemed relevant;
and
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(6)
|
Performed
other studies and analyses that it deemed appropriate.
|
In
conducting its review and arriving at its opinion, Commerce relied upon and
assumed the accuracy and completeness of all of the financial and other
information provided to or otherwise made available to Commerce or that was
discussed with, or reviewed by Commerce or that was publicly
available. Commerce did not attempt or assume any responsibility to
verify such information independently. Commerce relied upon the
management of Company as to the reasonableness and achievability of financial
and operating forecasts and projections (and assumptions therefor) provided
to
Commerce. Commerce assumed, without independent verification, that
the aggregate allowance for loan and lease losses for the Company was adequate
to cover those losses. Commerce did not make or obtain any
evaluations or appraisals of any assets or liabilities of Company and Commerce
did not examine any books and records or review individual credit
files.
The
projections furnished to Commerce and used by it in certain of its analyses
were
prepared by Company senior management. Company does not disclose
internal management projections of the type provided to Commerce in
connection with its review of the split transaction. As a result,
such projections were not prepared with a view towards public
disclosure. The projections were based on numerous variables and
assumptions which are inherently uncertain, including factors related to general
economic and competitive conditions. Accordingly, actual results
could vary significantly from those set for the projections.
A
copy of
Commerce’s written opinion dated February ___, 2008, which sets forth the
assumptions made, matters considered and extent of review by Commerce, is
attached to this proxy statement as Appendix B. You should read the
fairness opinion carefully and in its entirety. The following summary
of Commerce’s opinion is qualified in its entirety by reference to the full text
of the opinion. Commerce’s opinion is addressed to the Company’s
board and does not constitute a recommendation to any shareholder as to how
the
shareholder should vote at the special meeting with regard to the split
transaction.
The
Company has agreed to pay Commerce a fee of $17,500 as compensation for
financial advisory services rendered in connection with the split transaction,
including a fee that is contingent on the delivery of Commerce’s written
opinion. In addition, the Company has agreed to reimburse Commerce
for its reasonable out-of-pocket expenses incurred by it on the Company’s
behalf, and to indemnify Commerce against certain liabilities, including those
which may arise under the federal securities laws.
The
following is a summary of the material analyses performed by Commerce in
connection with its opinion. The summary is not a complete
description of the analyses underlying the Commerce opinion or the presentation
made by Commerce to the Company board, but summarizes the material analyses
performed and presented in connection with such opinion. The
preparation of a fairness opinion is a complex analytic process involving
various determinations as to the most appropriate and relevant methods of
financial analysis and the application of those methods to the particular
circumstances. Therefore, a fairness opinion is not readily
susceptible to partial analysis or summary description. In arriving
at its opinion, Commerce did not attribute any particular weight to any analysis
or factor that it considered, but rather made qualitative judgments as to the
significance and relevance of each analysis and factor. The financial
analyses summarized below include information presented in tabular
format. Accordingly, Commerce believes that its analyses and the
summary of its analyses must be considered as a whole and that selecting
portions of its analyses and factors or the full narrative description of the
financial analyses, including the methodologies and assumptions underlying
the
analyses, could create a misleading or incomplete view of the process underlying
its analyses and opinion. The tables alone do not constitute a
complete description of the financial analyses.
Discounted
Cash Flow Analysis
Using
discounted dividends analysis, Commerce estimated the present value of the
future stream of dividends that Company could produce over the next five years,
under various circumstances, assuming Company performed in accordance with
management’s earnings forecast for fiscal 2008, earnings grow 4% annually in
2009 to 2012, and cash dividends of $0.76 per share for 2008 increase by 4%
as
well. Commerce then estimated the terminal values of Company common
stock at the end of the period by applying multiples ranging from 16 to 22
of
projected earnings per share in year five. The terminal values were
then discounted to present values using discount rates of 10% and 11% chosen
to
reflect different assumptions regarding the required rates of return to holders
or prospective buyers of Company common stock. This discounted
dividend analysis indicated a reference range of between $13.75 and $18.53
per
share of Company common stock.
|
Discounted
Cash Flow Analysis - Peoples Bancorp
|
|
(Dollars
in thousands, except per share amounts)
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|
PRESENT VALUE OF PFDC
|
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Terminal
Value as a Multiple of 2012 Projected Earnings
|
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|
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Price
/ Earnings:
|
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|
16.00
x
|
|
19.00
x
|
|
22.00
x
|
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|
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|
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Discount
Rate:
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10.0%
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$14.32
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$16.43
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$18.53
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11.0%
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$13.75
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$15.76
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$17.77
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Selected
Peer Group Analysis
Commerce
compared the financial performance and market performance of Company to those
of
a group of comparable Midwestern public thrift organizations. The
comparisons were based on various financial measures including:
Comparisons
to market performance included:
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Price
to last twelve months core earnings per share
|
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Price
to tangible book value
|
To
perform
this analysis, Commerce used the financial information as of and for the twelve
months ended September 30, 2007 and market price information as of December
10,
2007. The 24 companies in the peer group included the following:
|
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Citizens
First Bancorp Inc.
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MI
|
CTZN
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|
First
Defiance Financial
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OH
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FDEF
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BankFinancial
Corp
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IL
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BFIN
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CFS
Bancorp Inc.
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IN
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CITZ
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HMN
Financial Inc.
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MN
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HMNF
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Pulaski
Financial Corp.
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MO
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PULB
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HF
Financial Corp.
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SD
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HFFC
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MutualFirst
Financial Inc.
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IN
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MFSF
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HopFed
Bancorp Inc.
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KY
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HFBC
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First
Federal Bankshares Inc.
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IA
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FFSX
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NorthWest
Indiana Bancorp
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IN
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NWIN
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MFB
Corp.
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IN
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MFBC
|
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First
Capital Inc.
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IN
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FCAP
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Ameriana
Bancorp
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IN
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ASBI
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Wayne
Savings Bancshares
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OH
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WAYN
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First
Clover Leaf Fin Corp.
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IL
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FCLF
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First
Bancorp of Indiana Inc.
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IN
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FBEI
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Sturgis
Bancorp
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MI
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STBI
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River
Valley Bancorp
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IN
|
RIVR
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|
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LSB
Financial Corp.
|
IN
|
LSBI
|
|
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|
First
Franklin Corp.
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OH
|
FFHS
|
|
|
|
First
BancTrust Corp.
|
IL
|
FBTC
|
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FFW
Corp.
|
IN
|
FFWC
|
|
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|
Central
Federal Corp.
|
OH
|
CFBK
|
|
Commerce’s
analysis showed the following concerning the Company’s financial
performance
|
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|
Median
|
|
Company
|
|
|
Return
on Average Assets
|
0.56%
|
|
0.57%
|
|
|
Return
on Average Equity
|
6.23%
|
|
4.44%
|
|
|
Net
Interest Margin
|
2.91%
|
|
3.03%
|
|
|
Efficiency
Ratio
|
73.60%
|
|
73.85%
|
|
|
Equity
/ Assets
|
8.72%
|
|
13.22%
|
|
|
Tangible
Equity / Tangible Equity
|
8.06%
|
|
12.78%
|
|
|
Nonperforming
Assets / (Loans + ORE)
|
1.32%
|
|
0.89%
|
|
|
Net
Charge Offs / Average Loans
|
0.15%
|
|
0.04%
|
Commerce’s
analysis showed the following concerning the Company’s market
performance
|
|
|
Median
|
|
Company
|
|
|
Price
/ Last Twelve Months Core EPS
|
16.5
x
|
|
17.9
x
|
|
|
Price
/ Book Value
|
96.2%
|
|
79.6%
|
|
|
Price
/ Tangible Book Value
|
103.5%
|
|
82.8%
|
|
|
Dividend
Yield
|
3.3%
|
|
4.8%
|
|
|
Dividend
Payout Ratio
|
56.0%
|
|
85.4%
|
Comparable
Split Transaction Analysis
In
addition to other financial analyses performed by Commerce, Commerce also looked
at transactions deemed similar to the contemplated split transaction to
determine what premium, if any, has been paid in some other transactions deemed
similar. In its analysis, Commerce selected 12 transactions deemed
comparable announced since January 1, 2006 engaged to ultimately de-register
that company’s common stock from Exchange Act reporting
requirements. Commerce relied on the reported acquisition price paid
by these companies in connection with the comparable transactions and compared
that price to the recently reported trading prices for the same shares to
determine a median and average premiums paid. By observing premiums
paid in other similar transactions of publicly traded companies, Commerce was
able to estimate a range of premiums comparable for the cash out
price. Commerce did not consider the trading history of the 12
subject companies other than the recent trading price as compared to the
announced acquisition price pursuant to the comparable transaction.
The
following is a list of the 12 transactions considered by Commerce in its premium
analysis:
|
Company
|
Ticker
|
Announce
Date
|
Assets
($000s)
|
Premium
|
|
Treaty
Oak Bancorp, Inc.
|
TOAK
|
11/15/07
|
115,000
|
10.0%
|
|
Tri-State
1st Banc, Inc.
|
TSEO
|
11/09/07
|
104,317
|
25.5%
|
|
CB
Financial Corp.
|
CBFJ
|
10/25/07
|
190,371
|
25.0%
|
|
Citizens
Bancorp
|
CZBC
|
09/11/07
|
362,014
|
23.7%
|
|
PSB
Group, Inc.
|
PSBG
|
05/24/07
|
507,456
|
38.6%
|
|
Northway
Financial, Inc.
|
NWFI
|
04/16/07
|
678,729
|
24.5%
|
|
Regional
Bancshares, Inc.
|
none
|
04/09/07
|
87,515
|
11.5%
|
|
Monarch
Community Bancorp, Inc.
|
MCBF
|
02/16/07
|
291,274
|
27.4%
|
|
American
Bank, Inc.
|
AMBK
|
02/08/07
|
504,289
|
15.8%
|
|
Ohio
State Bancshares, Inc.
|
OSBI
|
01/12/07
|
143,309
|
3.0%
|
|
Harbor
Bancshares Corporation
|
HRBK
|
05/12/06
|
250,955
|
17.00%
|
|
Home
City Financial Corporation
|
HCFL
|
01/26/06
|
149,553
|
11.90%
|
|
|
|
|
|
|
|
Median
|
|
|
|
20.4%
|
|
Average
|
|
|
|
17.99%
|
|
High
|
|
|
|
38.60%
|
|
Low
|
|
|
|
3.00%
|
Summary
The
opinion as expressed by Commerce was based on market, economic and other
relevant considerations as they existed and could be evaluated as of the date
of
the opinion. Events occurring after the date of the opinion
including, but not limited to, changes affecting the securities markets, the
results of operations or material changes in the financial condition of Company
could materially affect the assumptions used in preparing this
opinion.
Availability
of Documents
Commerce’s
fairness opinion is attached as
Appendix B
to this proxy
statement. In addition, the fairness opinion will be made available
for inspection and copying at our principal executive offices, located at 212
West Seventh Street, Auburn, Indiana 46706-1723, during our regular business
hours by any interested shareholder or representative who has been designated
in
writing. A copy of these materials will also be sent to any
interested shareholder or representative who has been designated in writing,
upon written request and at the expense of the requesting
shareholder.
Stru
cture
of the Split Transaction
The
proposed transaction has been structured as a two-step stock split transaction
to allow small shareholders easily to obtain the fair value in cash for their
shares, to avoid disruption to shareholders of 760 or more shares who would
not
be cashed out in the transaction, and to limit the costs of the split
transaction by avoiding costs associated with cashing out the fractional shares
of the holders of 760 or more shares of common stock and reissuing stock
certificates to those shareholders.
The
Board
elected to structure the transaction to take effect at the record shareholder
level, meaning that the Company will look at the number of shares registered
in
the name of a single holder on the Company’s records to determine if that
holder’s shares will be cashed out. The Board chose to structure the
transaction this way in part because it determined that this method would
provide the Company with the best understanding at the effective time of how
many shareholders would be cashed out and what the exact cost to the Company
would be, because the Company’s transfer agent will be able to provide it with a
complete and final list of all record shareholders at the effective
time. In addition, the Board considered that effecting the
transaction at the record shareholder level would allow shareholders some
flexibility with respect to whether they will be treated as continuing or
non-continuing shareholders. The Board felt that this flexibility
would help to enhance the substantive fairness of the transaction to both
continuing and non-continuing shareholders.
If
you
hold your shares in “street name,” you should talk to your broker, nominee or
agent to determine how they expect the split transaction to affect
you. Because other “street name” holders who hold shares in nominee
name through your broker, agent or nominee may adjust their holdings prior
to
the split transaction, you may have no way of knowing whether you will be cashed
out in the transaction until it is consummated. However, because we
think it is unlikely that any brokerage firm or other nominee will hold in
a
single nominee name fewer than 760 shares in the aggregate, we think it is
likely that all “street name” holders will remain continuing
shareholders.
Effects
of the S
plit Transaction
on the
Company
The
split transaction
will have various effects on us, which are described below.
Effect
of the Proposed Transaction on Common Stock and Trading of Common
Stock
Our
Articles of Incorporation currently authorize the issuance of 7,000,000 shares
of common stock. The number of authorized shares of common stock will
remain unchanged after completion of the split transaction. As of the
record date, the number of outstanding shares of common stock was
3,104,990. Based upon our best estimates, if the split transaction
had been consummated as of the record date, the number of outstanding shares
of
common stock would have been reduced approximately 5.5% from 3,104,990 to
approximately 2,933,506, cash would have been paid for approximately 171,484
shares, and the number of record shareholders would have been reduced from
approximately 1,010 to approximately 263.
Our
common stock is publicly traded on the Nasdaq Global Market under the symbol
PFDC, and we will not be able to trade our common stock on Nasdaq after we
become a private company. We anticipate that our common stock will be
traded on the OTCBB or in the pink sheets electronic quotation system following
the completion of the split transaction.
Termination
of Securities Exchange Act Registration and Reporting Requirements
Upon
the
completion of the split transaction, we expect that our common stock will be
held by fewer than 300 record shareholders. Accordingly, our
obligation to continue to file periodic reports with the SEC will be suspended
pursuant to Rule 12h-3 of the Securities Exchange Act of 1934.
The
suspension of the filing requirement will substantially reduce the information
required to be furnished by us to our shareholders and to the SEC. Therefore,
we
estimate that we will eliminate annual costs associated with these filing
requirements, which we estimate to be approximately $129,000 on an annual
basis. These annual costs are broken down as follows:
|
|
|
|
|
|
|
|
Independent
Auditors (SEC review work)
|
|
$
|
20,000
|
|
|
|
SEC
Counsel
|
|
$
|
6,000
|
|
|
|
Staff
and Executive Time
|
|
$
|
44,000
|
|
|
|
Printing,
EDGAR, and Miscellaneous Costs
|
|
$
|
29,000
|
|
|
|
Nasdaq
Listing Fees
|
|
$
|
30,000
|
|
|
|
Total
|
|
$
|
129,000
|
|
In
addition, the Company anticipates saving a one-time cost of approximately
$150,000 which we estimate would be required to comply with Section 404 of
SOX
in fiscal 2008 and in fiscal 2009 if the Company does not go private and
outsources the Section 404 compliance. Each year after fiscal 2009,
additional costs associated with Section 404 compliance are also
anticipated.
We
will
apply for termination of the registration of our common stock and suspension
of
our SEC reporting obligations as soon as practicable following completion of
the
split transaction. Following completion of the split transaction, we
intend to continue to provide our shareholders with financial information by
continuing to disseminate annual reports.
Elimination
of Non-Continuing Shareholders
As
a
result of the split transaction, all shares held by non-continuing shareholders
will be converted into the right to receive $16.75 per share in
cash. As a result, the non-continuing shareholders will not have the
opportunity to participate in our earnings and growth after the split
transaction. Similarly, the non-continuing shareholders will not face
the risk of losses generated by our operations or any decline in our value
after
the split transaction. For more effects of the split transaction on
our shareholders, see “—Fairness of the Split Transaction.”
Financial
Effects of the Split Transaction
We
expect
that the split transaction will require $2,967,357 in cash to
complete. This includes approximately $2,872,357 to be paid to
non-continuing shareholders in exchange for their shares, and approximately
$95,000 in professional fees, printing and mailing costs, filing fees and EDGAR
costs, and other expenses related to the split transaction. We do not
anticipate that this expenditure will have any material adverse effect on our
capital adequacy, liquidity, results of operations or cash flow. The
amount to be paid to non-continuing shareholders may change as a result of
trading activity in our shares between the date hereof and the effective date
of
the split transaction. See “—Fees and Expenses” for a description of
the fees and expenses we expect to incur in connection with the split
transaction. See “—Financing of the Split Transaction” below for a
description of how the split transaction will be financed.
Effect
on Options
Upon
effectiveness of the split transaction, the number of shares of common stock
subject to outstanding options under the Company’s stock option plans and the
exercise prices of the options will remain the same.
Effect
on Conduct of Business after the Transaction
We
expect
our business and operations to continue as they are currently being conducted
and the transaction is not anticipated to have any effect upon the conduct
of
our business. Although we cannot guarantee the continued payment of a
dividend, we do not intend to change our current dividend policy or practice
at
this time. No changes in our directors or executive officers are
anticipated to result from the split transaction.
Dividend
Payments
The
Company has not yet declared a second quarter dividend. This dividend
payment is likely to be declared with a record date following the closing of
the
split transaction. Shareholders who are cashed out in the split
transaction will not receive that dividend if the split transaction closes
before the record date for the second quarter dividend. Accordingly,
shareholders cashed out in the split transaction are not expected to receive
any
additional dividend payments with respect to the shares they hold.
Plans
or Proposals
The
Company during the last 33 months has not engaged in serious negotiations with
any potential merger parties and is not engaged in any discussions with such
parties at this time. The Company has no present plans to engage in a
merger with or acquisition of any financial institutions. Other than
as described in this proxy statement, neither we nor our management
has
any
current plans or proposals to effect any extraordinary corporate transaction,
either with respect to the Company or Peoples Federal, such as a merger,
reorganization or liquidation, to sell or transfer any material amount of
our or
Peoples Federal’s assets, to change either our Board of Directors or management,
to change materially our indebtedness or capitalization, or otherwise to
effect
any material change in our corporate structure or business or that of Peoples
Federal. Although our management does not presently have any intent
to enter into any transaction described above, either at the holding company
or
bank level, nor is our management in negotiations with respect to any such
transaction, there is always a possibility that we may enter into such an
arrangement or transaction in the future, including, but not limited to,
entering into a merger or acquisition transaction, making a public or private
offering of our shares or entering into any other arrangement or transaction
we
may deem appropriate. In such event, our continuing shareholders may
receive payment for their shares in any such transaction lower than, equal
to or
in excess of the amount paid to the non-continuing shareholders in the split
transaction. Any acquisition strategy is dependent upon the
opportunities that might arise, and there can be no certainty that any such
transactions will occur.
Interests
of Ce
rtain Persons in the
Split
Transaction
It
is not
anticipated that the split transaction will have any effect on the directors
and
executive officers of the Company and Peoples Federal, other than with respect
to their relative share ownership. We expect that all of our
directors and executive officers who presently own shares will either hold
more
than 760 shares, or will hold shares only in a nominee name aggregating to
760
or more shares. Therefore all directors and executive officers who
presently own shares will continue to own shares after the split
transaction.
Because
total outstanding shares will be reduced, the executive officers and directors
as a group will hold a larger relative percentage of the Company. As
of the record date, these directors and executive officers collectively
beneficially held 138,426 shares (excluding 2,688 unexercised options), or
4.5%
of our common stock. Based upon our estimates, taking into account
the effect of the split transaction on our outstanding shares as described
above, the directors and executive officers will beneficially hold 4.7% of
our
voting common stock (excluding unexercised options) following the split
transaction.
This
represents a potential conflict of interest because the directors of the Company
approved the split transaction and are recommending that you approve
it. Despite this potential conflict of interest, the Board believes
the proposed split transaction is fair to our unaffiliated shareholders for
the
reasons discussed in this proxy statement.
Financ
ing
of the Split Transaction
The
Company expects that the split transaction will require approximately $2,967,357
in cash, which includes approximately $2,872,357 to be paid to non-continuing
shareholders in exchange for their shares and approximately $95,000 in
professional fees, printing and mailing costs, filing fees and EDGAR costs,
and
other expenses payable by us related to the split transaction. See
“—Fees and Expenses” for a breakdown of the expenses associated with the split
transaction. The amount payable to non-continuing shareholders may
change as a result of trading activity in our shares between the date hereof
and
the effective date of the split transaction. The Company has
sufficient working capital at the holding company level to pay these amounts
or
projected increases in these amounts.
Federal
Inco
me
Tax Consequences
This
section
discusses the material federal income tax consequences to us and our
shareholders that would result from the split transaction. No opinion
of counsel or ruling from the Internal Revenue Service has been sought or
obtained with respect to the tax consequences of the split transaction, and
the
conclusions contained in this summary are not binding on the Internal Revenue
Service. This discussion is based on existing U.S. federal income tax
law, which may change, even retroactively. This discussion does not
discuss all aspects of federal income taxation that may be important to you
in
light of your individual circumstances. In particular, it does not
address the federal income tax considerations applicable to certain types of
shareholders, such as: financial institutions; insurance companies; tax-exempt
organizations; dealers in securities or currency; traders in securities that
elect mark-to-market; persons who hold our common stock as part of a straddle,
hedge, risk reduction, constructive sale, or conversion transaction; persons
who
are considered foreign persons for U.S. federal income tax purposes, or who
acquired their shares of the Company common stock through the exercise of an
employee stock option or otherwise as compensation. In addition, this
discussion does not address any state, local, foreign or other tax
considerations. This discussion also assumes that you have held and,
in the case of continuing shareholders will continue to hold, your shares as
capital assets within the meaning of the Internal Revenue Code of 1986, as
amended, which we refer to as the Code. Shareholders are encouraged
to consult their own tax advisor as to the particular federal, state, local,
foreign and other tax consequences of the split transaction, in light of their
individual circumstances.
The
Company and
Peoples Federal.
The split transaction will constitute a
tax-free “recapitalization” for federal income tax purposes, within the meaning
of Section 368(a)(1)(E) of the Code, meaning that neither the Company nor
Peoples Federal will recognize any gain or loss with respect to the
transaction.
Affiliated
and
Unaffiliated Shareholders Who Receive No Cash.
If you continue
to hold the Company common stock immediately after the split transaction, and
you receive no cash as a result of the split transaction, then you will not
recognize any gain or loss or dividend income in connection with the transaction
and you will have the same adjusted tax basis and holding period in your Company
common stock as you had in such stock immediately prior to the split
transaction.
Affiliated
and
Unaffiliated Shareholders Who Receive Cash.
If you receive cash as a
result of the split transaction and do not continue to hold shares of the
Company common stock immediately after the split transaction, you will be
treated as having had your shares redeemed by the Company and you will recognize
gain or loss on the redeemed shares equal to the difference between the cash
and
your adjusted tax basis in the redeemed shares. Any recognized gain will be
treated as capital gain unless the receipt of cash is deemed to have the effect
of a dividend under Section 302 of the Code, in which case the gain will be
treated: (a) first, as a taxable dividend to the extent of your allocable share
of the Company’s accumulated earnings and profits, if any; (b) second, as a
tax-free return of capital to the extent of your adjusted tax basis in the
redeemed shares; and (c) finally, any remaining amount as capital gain.
Under the principles of Section 302, you will recognize capital gain rather
than
dividend income with respect to the cash received if the redemption is (1)
“not
essentially equivalent to a dividend,” (2) is “substantially disproportionate,”
or (3) is a “complete termination” of your interest in the Company. In applying
the principles of Section 302, the constructive ownership rules of Section
318
of the Code will apply in determining your ownership interest in the
Company. Whether a redemption by the Company is “not essentially
equivalent to a dividend” with respect to you will depend on
whether
the
redemption was a “meaningful reduction” of your interest in the Company based on
the facts and circumstances. For example, if (1) you exercise no control over
the affairs of the Company (e.g., you are not an officer, director, or high
ranking employee), (2) your relative stock interest in the Company is minimal,
and (3) your post-split transaction ownership percentage is less than your
pre-split transaction ownership percentage, then your receipt of cash would
be
generally regarded as “not essentially equivalent to a dividend.” A
redemption would be “substantially disproportionate” and, therefore, would not
have the effect of a distribution of a dividend with respect to you if the
percentage of the Company shares of common stock actually and constructively
owned by you immediately after the redemption is less than 80% of the percentage
of all shares of the Company common stock actually and constructively owned
by
you immediately before the redemption. Your interest in the Company is
“completely terminated” if all of the shares of Company common stock actually
and constructively owned by you are redeemed, unless you make a waiver of family
attribution election and file it with the Internal Revenue Service pursuant
to
Section 302(c) of the Code, in which case the Company common stock
constructively owned by you does not have to be redeemed.
Any
capital gain will be long-term capital gain subject to a rate not to exceed
15%
if, as of the date of the exchange, the holding period for your Company shares
is greater than one year. Any gain recognized by you and classified
as a dividend under Section 302 of the Code will be treated as either ordinary
income or qualified dividend income. Any gain treated as qualified dividend
income will be taxable to you, if you are an individual shareholder, at the
long-term capital gains rate, provided that you held the shares giving rise
to
such income for more than 61 days during the 121 day period beginning 60 days
before the closing date. Gain treated as ordinary income will be taxed at
ordinary income rates.
In
all
other cases, if you receive cash in lieu of a fractional share of the Company
common stock, and immediately after the split transaction you constructively
own
shares of the Company common stock, the cash you receive will be treated: (1)
first, as a taxable dividend to the extent of your ratable share of the
Company’s accumulated earnings and profits; (2) then, if the total amount of
cash paid in the split transaction exceeds the Company’s accumulated earnings
and profits, as a tax-free return of capital to the extent of your adjusted
tax
basis in the redeemed shares; and (3) finally, to the extent of the cash in
excess of your adjusted tax basis in the redeemed shares, as capital gain from
the sale or exchange of the redeemed shares.
Payments
of cash to you for the surrender of your redeemed shares of the Company common
stock will be subject to information reporting and “backup” withholding at a
rate of 28% of the cash payment, unless you furnish the Company with your
taxpayer identification number in the manner prescribed in applicable Treasury
Regulations, certify that such number is correct, certify as to no loss of
exemption from backup withholding, and satisfy certain other
conditions. Backup withholding is not an additional
tax. Any amounts withheld from payments to you under the backup
withholding rules will be allowed as a refund or credit against your United
States federal income tax liability, provided the required information is
furnished to the Internal Revenue Service.
As
explained above, the amounts paid to you as a result of the split transaction
may result in dividend income, capital gain income, or some combination of
dividend and capital gain income to you depending on your individual
circumstances. The foregoing discussion of material United States
federal income tax consequences of the split transaction set forth above
represents general information only and is based upon the Code, its legislative
history, existing and proposed regulations thereunder, published rulings and
decisions, all as currently in effect as of the date hereof, and all of which
are subject to change, possibly with retroactive effect. You
should
consult
your tax advisor as to the particular federal, state, local, foreign and
other
tax consequences of the split transaction, as well as the applicability of
the
alternative minimum tax to you, in light of your specific
circumstances.
Appraisal
Rights and Dissenters’ Rights
No
appraisal or dissenters’ rights are available under Indiana law to shareholders
who dissent from the split transaction. There may exist other rights
or actions under Indiana law or federal or state securities laws for
shareholders who can demonstrate that they have been damaged by the split
transaction. Although the nature and extent of these rights or
actions are uncertain and may vary depending upon facts or circumstances,
shareholder challenges to corporate actions in general are related to the
fiduciary responsibilities of corporate officers and directors and to the
fairness of corporate transactions.
Regulat
ory
Requirements
In
connection with the split transaction, we will be required to make a number
of
filings with, and obtain a number of approvals from, various federal and state
governmental agencies, including:
|
|
•
|
filing
of amendments to the Company’s Articles of Incorporation with the Indiana
Secretary of State, in accordance with Indiana law; and
|
|
|
•
|
complying
with federal and state securities laws, including filing of this
proxy
statement on Schedule 14A and a transaction statement on Schedule
13E-3
with the SEC.
|
Accoun
ting
Treatment
We
anticipate that we will account for the split transaction by treating the shares
repurchased in the split transaction as shares that are cancelled and restored
to the status of authorized but unissued shares.
Fee
s
and Expenses
We
will
be responsible for paying the split transaction related fees and expenses,
consisting primarily of fees and expenses of our financial advisor, attorneys,
printing and mailing costs, filing fees and EDGAR costs, and other related
charges. We estimate that our expenses will total approximately
$95,000, assuming the split transaction is completed. This amount
consists of the following estimated fees:
|
|
|
|
|
|
|
|
Commerce
Street Capital
fees and
expenses
|
|
$
|
20,000
|
|
|
|
Legal
fees and
expenses
|
|
$
|
30,000
|
|
|
|
Paying
agent fees and
expenses
|
|
$
|
20,000
|
|
|
|
Printing
and mailing
costs
|
|
$
|
11,500
|
|
|
|
Filing
Fees and EDGAR
charges
|
|
$
|
2,500
|
|
|
|
Miscellaneous
expenses
|
|
$
|
3,000
|
|
|
|
Proxy
Solicitor
Fees
|
|
$
|
8,000
|
|
|
|
Total
|
|
$
|
95,000
|
|
SELECTED
HIS
TORICAL
AND
PRO FORMA FINANCIAL DATA
Set
forth
below is our selected historical and pro forma consolidated financial
information. The historical financial information was derived from
the audited consolidated financial statements (including the balance sheets,
statements of income, changes in shareholders’ equity and statements of cash
flows as of September 30, 2007 and 2006 and for the three years ending September
30, 2007) included in our Annual Report on Form 10-K for the fiscal year ended
September 30, 2007, and from other information and data contained in the Annual
Report. The Annual Report is incorporated herein by reference in its
entirety. More comprehensive financial information is included in the
Annual Report. The financial information that follows is qualified in
its entirety by reference to, and should be read in conjunction with, the Annual
Report, and all of the financial statements and related notes contained in
the
Annual Report, copies of which may be obtained as set forth below under the
caption “OTHER MATTERS—Where You Can Find More Information.”
The
following summary pro forma balance sheet data is based on historical data,
adjusted to give effect to the cash payment for fractional shares resulting
from
the transaction and expenses related to the transaction. The pro
forma balance sheet data is based on the assumption that an aggregate of 171,484
shares will result in fractional shares and will be purchased for approximately
$2,872,357, with $95,000 in costs incurred as of September 30,
2007.
The
following summary unaudited income statement data gives effect to the
transaction as if it had occurred on October 1, 2006. The pro forma information
set forth below is not necessarily indicative of what our actual financial
position would have been had the transaction been consummated as of the above
referenced dates or of the financial position that may be reported by us in
the
future.
PEOPLES
BANCORP
SELECTED
CONSOLIDATED FINANCIAL INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars
in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Year Ending
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash,
investments and cash equivalents
|
|
$
|
101,902
|
|
|
$
|
(2,967
|
)
|
|
$
|
98,935
|
|
|
Loans
|
|
$
|
348,485
|
|
|
$
|
-
|
|
|
$
|
348,485
|
|
|
Other
assets
|
|
$
|
18,806
|
|
|
$
|
-
|
|
|
$
|
18,806
|
|
|
Total
Assets
|
|
$
|
469,193
|
|
|
$
|
(2,967
|
)
|
|
$
|
466,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
349,291
|
|
|
$
|
-
|
|
|
$
|
349,291
|
|
|
Other
borrowings
|
|
$
|
54,481
|
|
|
$
|
-
|
|
|
$
|
54,481
|
|
|
Other
liabilities
|
|
$
|
3,388
|
|
|
$
|
-
|
|
|
$
|
3,388
|
|
|
Total
Liabilities
|
|
$
|
407,160
|
|
|
$
|
-
|
|
|
$
|
407,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock
|
|
$
|
3,106
|
|
|
$
|
(171
|
)
|
|
$
|
2,935
|
|
|
Surplus
|
|
$
|
680
|
|
|
$
|
(2,796
|
)
|
|
$
|
(2,021
|
)
|
|
Retained
earnings
|
|
$
|
58,570
|
|
|
$
|
-
|
|
|
$
|
58,454
|
|
|
Accumulated
other comprehensive income (loss)
|
|
$
|
(323
|
)
|
|
$
|
-
|
|
|
$
|
(323
|
)
|
|
Total
Shareholders Equity
|
|
$
|
62,033
|
|
|
$
|
(2,967
|
)
|
|
$
|
59,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Year Ending
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
$
|
28,660
|
|
|
$
|
(119
|
)
|
|
$
|
28,541
|
|
|
Interest
expense
|
|
$
|
14,559
|
|
|
$
|
-
|
|
|
$
|
14,559
|
|
|
Provision
for loan losses
|
|
$
|
77
|
|
|
$
|
-
|
|
|
$
|
77
|
|
|
Net
interest income
|
|
$
|
14,024
|
|
|
$
|
(119
|
)
|
|
$
|
13,905
|
|
|
Noninterest
income
|
|
$
|
2,105
|
|
|
$
|
-
|
|
|
$
|
2,105
|
|
|
Noninterest
expense
|
|
$
|
12,100
|
|
|
$
|
-
|
|
|
$
|
12,100
|
|
|
Income
before income taxes
|
|
$
|
4,029
|
|
|
$
|
(119
|
)
|
|
$
|
3,910
|
|
|
Income
tax expense
|
|
$
|
1,227
|
|
|
$
|
(48
|
)
|
|
$
|
1,179
|
|
|
Net
income from continuing operations
|
|
$
|
2,802
|
|
|
$
|
(71
|
)
|
|
$
|
2,731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$
|
0.89
|
|
|
|
|
|
|
$
|
0.91
|
|
|
Diluted
earnings per share
|
|
$
|
0.89
|
|
|
|
|
|
|
$
|
0.91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book
value per share
|
|
$
|
19.97
|
|
|
|
|
|
|
$
|
20.13
|
|
MARKET
PRICE OF PEOPLES
BANCORP
COMMON
STOCK AND DIVIDEND
INFORMATION
The
Company’s shares are traded on the
Nasdaq Global Market under the trading symbol “PFDC.”
|
|
Sales
Price Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
Through
March ___, 2008
|
$
|
$
|
N/A
|
|
December
31, 2007
|
$
|
$
|
$.19
|
|
September
30, 2007
|
$19.25
|
$15.45
|
$.19
|
|
June
30, 2007
|
$19.50
|
$18.25
|
$.19
|
|
March
31, 2007
|
$20.20
|
$18.91
|
$.19
|
|
December
31, 2006
|
$19.80
|
$17.91
|
$.19
|
|
September
30, 2006
|
$21.00
|
$19.49
|
$.19
|
|
June
30, 2006
|
$20.70
|
$19.75
|
$.19
|
|
March
31, 2006
|
$22.25
|
$20.27
|
$.19
|
|
December
31, 2005
|
$21.62
|
$19.97
|
$.19
|
There
were 1,010 record holders of our common stock on February ___,
2008.
We
do not
have a formal dividend policy. Regulations issued by the Office of
Thrift Supervision govern Peoples Federal’s capital requirements and may affect
the amount of dividends we can pay. Generally, the timing and amount
of future dividends on our shares will depend on earnings, cash requirements,
our and Peoples Federal’s financial condition, applicable government regulations
and other factors that our Board deems relevant.
Under
the
Indiana Business Corporation Law we may pay dividends if after the dividend
payment, we are able to pay our debts as they become due and our assets exceed
our liabilities.
COMMO
N
STOCK
PURCHASE INFORMATION
The
Company has effected the following
repurchases of its shares during the last two fiscal years:
|
|
Total
Number of Shares Purchased
|
|
Average
Price
Paid
Per Share
|
|
|
|
|
|
|
09/30/07
|
39,255
|
$18.02
to $18.80
|
$18.65
|
|
06/30/07
|
-0-
|
-0-
|
-0-
|
|
03/31/07
|
41,965
|
$18.89
to $19.94
|
$19.73
|
|
12/31/06
|
27,338
|
$19.21
to $19.70
|
$19.53
|
|
09/30/06
|
39,495
|
$19.00
to $20.55
|
$20.10
|
|
06/30/06
|
53,499
|
$20.05
to $21.40
|
$20.81
|
|
03/31/06
|
55,942
|
$20.00
to $21.85
|
$20.87
|
|
12/31/05
|
22,480
|
$20.00
to $21.35
|
$20.69
|
In
addition, in the
first quarter of fiscal 2008, the Company repurchased 1,738 shares, with a
range
of prices paid of $15.60 to $16.00. Under a previously announced repurchase
program, there are 60,593 shares remaining
available
for repurchase by the
Company at this time. The Company has suspended its repurchase
program during the period that proxies are being solicited for the annual
meeting of shareholders.
Within
the past 60 days, none of the Company, Peoples Federal, Peoples Federal’s 401(k)
plan, or their affiliates, directors, executive officers or subsidiaries have
made any purchases of the Company common stock, provided that since
January 1, 2008, Peoples Federal’s 401(k) plan has purchased _____ shares
of Company common stock for an average price of $________ per
share.
PROPOSAL
2 - EL
ECTION O
F
DIRECTORS OF THE
COMPANY
In
addition to the consideration of the split transaction, the shareholders of
the
Company are also being asked to vote on the election of three directors, two
to
serve until 2011 and one to serve until 2010. The director nominees
are John C. Thrapp, G. Richard Gatton and Douglas D. Marsh, each of whom
currently serves on the Board of Directors of the Company and Peoples
Federal. This section of this proxy statement contains certain
information about the Company relating to the directors and director nominees
of
the Company.
THE
COMPANY BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE
DIRECTOR NOMINEES, NAMELY, JOHN C. THRAPP, G. RICHARD GATTON AND DOUGLAS D.
MARSH.
Voting
Secu
rities
and Principal Holders
Thereof
The
following table sets forth as of February ___, 2008, information regarding
beneficial share ownership of the Company’s common stock by: (i) each of the
directors of the Company, including each nominee for election; (ii) each
executive officer of the Company named in the Summary Compensation Table
appearing under “Summary Compensation Table for Fiscal 2007” below; and (iii)
the directors and executive officers of the Company as a group.
.
|
Name
(Age)
|
Position
|
|
Director
Since
|
|
|
Present
Term
Expires
|
|
|
Shares
of
Common
Stock
Beneficially
Owned
|
|
Shares
of
Percent
of
Class(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DIRECTORS
CONTINUING
IN
OFFICE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Erica
D. Dekko
(38)
|
Director
|
|
2001
|
|
|
2009
|
|
|
|
15,100
|
(2)
|
|
|
*
|
|
|
Maurice
F. Winkler, III
(51)
|
Director
and President of Peoples
Bancorp and Peoples Federal
|
|
1993
|
|
|
2009
|
|
|
|
45,568
|
(3)
|
|
|
1.47
|
%
|
|
Bruce
S. Holwerda
(59)
|
Director
|
|
1998
|
|
|
2010
|
|
|
|
1,523
|
(4)
|
|
|
*
|
|
|
Stephen
R. Olson
(64)
|
Director
|
|
2000
|
|
|
2010
|
|
|
|
14,551
|
(5)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOMINEE
FOR TWO
YEAR
TERM:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
C. Thrapp
(73)
|
Director
|
|
1990
|
|
|
2010
|
|
|
|
11,165
|
(6)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOMINEE
FOR THREE
YEAR
TERM:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
G.
Richard Gatton
(65)
|
Chairman
of the
Board
|
|
2000
|
|
|
2011
|
|
|
|
27,985
|
(7)
|
|
|
*
|
|
|
Douglas
D. Marsh
(66)
|
Director
|
|
1990
|
|
|
2011
|
|
|
|
10,000
|
(8)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NAMED
EXECUTIVE OFFICERS
WHO
ARE NOT DIRECTORS
OR
NOMINEES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven
H. Caryer (44)
|
Vice
President and Chief Financial
Officer
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
-0-
|
|
|
|
-
|
|
|
Jeffery
H. Gatton (44)
|
Sr.
Vice President and Chief
Operating Officer
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
7,770
|
(9)
|
|
|
*
|
|
|
Jeffrey
L. Grate (44)
|
Vice
President of Lending
Operations
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
6,753
|
(10)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
executive officers and
directors of the Company as a group (11 persons)
|
|
|
|
141,114
|
|
|
|
4.54
|
%
|
______________
*
Under
1.0%
|
|
(1)
|
Computed
based upon a total of 3,104,990 issued and outstanding shares of
common
stock as of
February __,
2008.
|
|
|
(2)
|
All
of the shares owned by Ms. Dekko are owned directly with sole voting
and
investment power.
|
|
|
(3)
|
Of
the shares owned by Mr. Winkler, 37,848 are held by Mr. Winkler with
sole
voting and investment power and 7,720 shares are held by Mr. Winkler’s
wife with sole voting and investment power. Mr. Winkler disclaims
beneficial ownership of shares held by his wife.
|
|
|
(4)
|
All
of the shares owned by Mr. Holwerda are owned directly with sole
voting
and investment power.
|
|
|
(5)
|
Includes
1,188 shares of common stock subject to options exercisable within
60 days
of the voting record date. Also includes, 11,198 shares owned by
Mr. Olson
with sole voting and investment power, 1,809 shares of common stock
owned
by the spouse of Mr. Olson for which Mr. Olson has no voting or
dispositive power and of which Mr. Olson disclaims beneficial ownership.
Mr. Olson was in a partnership that was dissolved on 2/26/2007 and
shared voting
and
investment powers of 594 shares. He retained 356 of these shares
with sole
voting and investment powers.
|
|
|
(6)
|
Of
the shares owned by Mr. Thrapp, 6,500 shares are held by Mr. Thrapp
with
voting and investment power shared with his spouse, 3,689 shares
are held
by Mr. Thrapp with sole voting and dispositive power, and 976 shares
are
held by Mr. Thrapp’s wife with sole voting and investment power. Mr.
Thrapp disclaims beneficial ownership of shares held by his wife.
|
|
|
(7)
|
Includes
11,674 shares of common stock for which Mr. Gatton shares voting
or
dispositive power with his spouse, and 16,311 shares for which
he has sole
voting and dispositive power.
|
|
|
(8)
|
Of
the shares owned by Mr. Marsh, 1,000 shares are held by Mr. Marsh
with
sole voting and investment power, and 9,000 shares are held in the
Judith
A. Marsh Credit Shelter Trust with Mr. Marsh as beneficiary. The
Trust
holds sole voting and investment power.
|
|
|
(9)
|
All
of the shares owned by Mr. Gatton are owned directly with sole voting
and
investment power.
|
|
|
(10)
|
Includes
1,500 shares of common stock subject to options exercisable within
60 days
of the voting record date. Of the remaining 5,253 shares owned by Mr.
Grate, 3,166 shares are held by Mr. Grate with sole voting and investment
power, and he shares voting and investment power with his wife for
2,087
shares. Mr. Grate disclaims beneficial interest in the holdings of
his
wife.
|
There
are
no persons known to the Company who beneficially own more than 5% of the
Company’s common stock as of February ___, 2008.
Section
16(a) Beneficial Ownership Reporting
Compliance
Section
16(a) of the Securities Exchange Act of 1934 requires the Company’s directors
and executive officers, and persons who own more than 10% of a registered class
of the Company’s equity securities, to file with the Securities and Exchange
Commission (“SEC”) initial reports of ownership and reports of changes in
ownership of equity securities of the Company. Officers, directors
and greater than 10% shareholders are required by SEC regulation to furnish
the
Company with copies of all Section 16(a) forms they file.
To
the
Company’s knowledge, based solely on a review of the copies of such reports
furnished to the Company and written representations that no other reports
were
required, during the fiscal year ended September 30, 2007, all Section 16(a)
filing requirements applicable to the Company’s officers and directors were
complied with and there were no late filings
.
D
irectors
Mr.
Gatton
served as
President, Chief Executive Officer of Three Rivers Financial Corporation, and
in
December 1990 became a director of First Savings Bank, a subsidiary of the
Company that merged into Peoples Federal on October 1, 2007. Upon the
merger of Three Rivers Financial Corporation into the Company, Mr. Gatton became
a director of the Company and retained his position as President and Chief
Executive Officer of First Savings. On March 1, 2006, he retired as
President and Chief Executive Officer of First Savings, and as a director of
First Savings. Mr. Gatton was elected Chairman of the Board of the
Company, and Chairman of the Board and director of Peoples Federal and of
Peoples Financial Services, Inc., a wholly-owned subsidiary of Peoples Federal,
on February 1, 2007. Prior to joining First Savings Bank, Mr. Gatton
served as President of the Bank of Three Oaks, Michigan and President and CEO
of
First National Bank of Wabash, Indiana. Mr. Gatton has been involved
in the banking industry since 1966. He is the father of Jeffrey H.
Gatton, former President of First Savings Bank and now Senior Vice President
and
Chief Operating Officer of Peoples Federal.
Ms.
Dekko
has served as a
director of Peoples Federal since January of 2000 and was elected as a director
of the Company January 2001. Ms. Dekko completed her Executive MBA
from Notre Dame in 2000. She is a Financial Adviser for Dekko
Investment Services. Ms. Dekko also serves as a director of Peoples
Financial.
Mr.
Holwerda
was elected a
director of Peoples Federal and the Company in 1998. Mr. Holwerda was
co-owner of Ambassador Steel Corporation, Auburn, Indiana, and served as Vice
President and Chief Operating Officer, positions he held from 1990 to
2003. In 2003, he sold his co-ownership and is serving as consultant
to Ambassador Steel. In addition to his consulting services, Mr.
Holwerda has other real estate investments and is an owner of four
companies. Mr. Holwerda also serves as a director of Peoples
Financial.
Mr.
Marsh
has served as a
director of Peoples Federal since 1982 and a director of the Company since
1990.
He currently serves as Principal Broker of Castle One Realty in Auburn, Indiana,
and Chairman of the Board of Applied Innovations Inc. in Chicago,
Illinois. From 1991 to 1996, Mr. Marsh served as Vice President of
Sales for Superior Chaircraft, a division of JSJ Corporation, Grand Haven,
Michigan. From 1976 to 1991, Mr. Marsh served as President and Chief Executive
Officer of Garrett Industries of Hudson, Indiana. Mr. Marsh also
serves as a director of Peoples Financial.
Mr.
Olson
started with Morton
Buildings, a construction company located in Three Rivers, Michigan in 1970,
serving as manager until 2003 and currently serves as a training director and
sales consultant. Mr. Olson was appointed to the Board of Directors
of First Savings Bank in 1984 and served as Chairman since 1993. Mr.
Olson became a director of the Company upon the merger of Three Rivers Financial
Corporation into the Company on February 1, 2000 and a director of Peoples
Federal on October 1, 2007. He is also on the Board of Directors of
Camp Wakeshma, a non-profit summer youth camp
.
Mr.
Thrapp
served as a
director and officer of First Federal Savings and Loan Association of
Kendallville, which merged with Peoples Federal in August 1990. He
became a director of Peoples Federal and the Company in September
1990. Since 1962, Mr. Thrapp has been an attorney with the firm of
Thrapp & Thrapp in Kendallville, Indiana.
Mr.
Winkler
was appointed to
the Board of Directors of Peoples Federal and the Company in June 1993. Mr.
Winkler joined Peoples Federal in 1979. From 1981 to 1985, he served
as Peoples Federal’s Controller and in December 1985 became Vice
President-Operations. Mr. Winkler assumed the duties of President and
Chief Executive Officer of the Company, Peoples Federal, and Peoples Financial
effective October 1, 1996. Mr. Winkler also serves as a director of
Peoples Financial.
Executive
Officers
The
following table lists the executive officers of the Company.
|
Name
|
|
Age
|
|
Position
|
|
|
|
|
|
|
|
G.
Richard Gatton
|
|
65
|
|
Chairman
of the Board
|
|
Maurice
F. Winkler, III
|
|
51
|
|
President
and Chief Executive Officer
|
|
Cheryl
L. Taylor
|
|
57
|
|
Secretary
|
|
Steven
H. Caryer
|
|
44
|
|
Vice
President and Chief Financial Officer
|
|
Jeffrey
H. Gatton
|
|
44
|
|
Sr.
Vice President and Chief Operating Officer
|
|
Jeffrey
L. Grate
|
|
44
|
|
Vice
President of Retail Lending
|
Ms.
Taylor
joined Peoples Federal in April 1986. She has served in various
capacities for Peoples Federal and was promoted to insurance agent for Peoples
Financial in November 1991. In August of 2000, Ms. Taylor was
promoted to Corporate Secretary for the Company and in October 2000 was promoted
to Vice President and Secretary of Peoples Financial.
Mr.
Caryer
became Vice President and Chief Financial Officer of the Company and Peoples
Federal in September 2006. Previously, Mr. Caryer was employed for
nine years by First Defiance Financial Corp. as Senior Vice President and
Controller. Prior to that, he was with Hicksville Building Loan and
Savings in a similar capacity.
Mr.
Jeffrey Gatton
had over eleven years banking experience when he joined First Savings
in
October 1997 as Vice President and Manager of the Indiana
Division. He was promoted to Executive Vice President and Chief
Operations Officer in late 2000. In March 2006, Mr. Gatton was
promoted to President of First Savings. Upon the merger of Peoples
and First Savings on October 1, 2007, Mr. Gatton was appointed Senior Vice
President and Chief Operating Officer of Peoples Federal. Mr. Gatton
is the son of G. Richard Gatton, the Chairman of the Board of the Company and
Peoples Federal.
Mr.
Grate
joined Peoples Federal in July 1988 as a loan officer and a collection
officer. In July 1997, he was promoted to Vice President of Retail
Lending. He came to Peoples with over two years of banking
experience.
Corporate
Governance and Other Matters
At
a Special
Board meeting on June 21, 2007, the Board of Directors of the Company voted
to
merge Peoples Federal and First Savings into one institution, to be known as
Peoples Federal Savings Bank of DeKalb County. An application seeking
approval of the merger from the Office of Thrift Supervision was filed on July
6, 2007. The Office of Thrift Supervision approved the application to
merge the two subsidiaries and the merger was completed on October 1,
2007.
The
Board of
Directors of the Company held twelve regular Board meetings and one special
teleconference Board meeting during the fiscal year ended September 30,
2007. All directors have attended at least 75% of all Board of
Directors’ and Committee meetings. The Board of Directors encourages
the directors to attend the Annual Meeting of shareholders, absent exceptional
cause. All directors attended the 2007 Annual Meeting of
Shareholders.
The
Board of
Directors has determined the following directors, constituting a majority of
the
members of the Board, are independent as defined in the applicable listing
standards of the NASDAQ Stock Exchange: Erica D. Dekko, Bruce S.
Holwerda, Douglas D. Marsh, Stephen R. Olson, and John C. Thrapp.
Five
members
of the Board of Directors are members of the Executive Committee, which is
permitted to act with any three members present in the absence of regularly
scheduled Board meetings. The Executive Committee exercises all the
authority of the Board of Directors to the extent permitted by the Company’s
Bylaws and Indiana law. The Executive Committee consists of G.
Richard Gatton, Chairman; Maurice F. Winkler, John C. Thrapp, Erica D. Dekko,
and Douglas D. Marsh. This Committee meets when needed. No meetings
were held during fiscal 2007.
The
Board
of Directors has standing Budget/Compensation, Audit, and Nominating and
Governance Committees, each of which is comprised of directors who meet the
standards for independence set forth in the Listing Standards of the NASDAQ
Stock Exchange. The Board of Directors of the Company considers the
independence of each of the directors under the Listing Standards of the NASDAQ
Stock Exchange which for purposes of determining the independence of Audit
Committee members also incorporate the standards of the Securities and Exchange
Commission included in Reg. § 240.10A-3(b)(1). Among other things,
the Board considers current or previous employment relationships as well as
material transactions or relationships with and between the Company and its
subsidiaries and the directors, members of their immediate family, or entities
in which the directors have a significant interest. The purpose of
this review is to determine whether any relationships or transactions exist
or
have occurred that are inconsistent with a determination that the director
is
independent. Regularly scheduled Executive Sessions of the
independent directors are held concurrently with Audit Committee
meetings.
The
Budget/Compensation Committee establishes policies and objectives relating
to
compensation, reviews compensation costs, and recommends salaries, bonuses,
and
401(k) contributions for all employees and executive officers. The
members of the Budget/Compensation Committee are: Douglas D. Marsh, Chairman;
Erica D. Dekko, Bruce S. Holwerda, Stephen R. Olson, and John C.
Thrapp. The Budget Committee held five meetings during
the fiscal year ended September 30, 2007. The Board of Directors has
adopted a written Charter for the Budget/Compensation Committee and reviews
and
approves changes to the Charter annually. A copy of the Charter is
available on the Company’s website, www.peoplesbancorp.us.
The
Audit
Committee reviews and approves the scope of the audit procedures employed by
the
Company’s independent auditors and meets with the auditors to discuss the
results of their examination of the Company’s financial
statements. The Committee reviews the operations of the Company’s
internal audits performed by management and the results of its audit procedures.
In addition, the Committee reviews all reports prepared in connection with
the
Company’s examinations by the regulatory authorities. The members of the Audit
Committee are: Erica D. Dekko, Chairperson; Bruce S. Holwerda, Douglas D. Marsh,
and Stephen R. Olson. All members of the Committee are independent as
required by the listing standards of the NASDAQ Stock Exchange. The
Board has determined that Ms. Dekko’s credentials and her expertise in finance
qualify her as a “financial expert” as defined in Item 407(d)(5)(ii) of
Regulation S-K promulgated under the Securities Act of 1933. Ms.
Dekko is independent as defined in the applicable Listing Standards of the
NASDAQ Stock Exchange. The Committee held four meetings during the
fiscal year ended September 30, 2007.
The
Board
of Directors has adopted a written Charter for the Audit Committee and reviews
and approves changes to the Charter annually. A copy of the Charter
is available on the Company’s website, www.peoplesbancorp.us.
The
Nominating and Governance Committee meets when director vacancies occur and
recommends individuals for nomination to the Company’s Board of Directors and to
the governing bodies of its subsidiary corporations. The Nominating
and Governance Committee consists of four independent directors. The
members are: Steven R. Olson, Chairman; Erica D. Dekko, Bruce S.
Holwerda, and Douglas D. Marsh. The Committee held two meetings
during the fiscal year ended September 30, 2007. Under the Company’s
Bylaws, however, nominations may be made by shareholders and voted upon at
the
Annual Meeting if made in writing and delivered to the Secretary of the Company
at least 20 days prior to the date of the Annual
Meeting. No
nominations
for directors, except those made by the Nominating Committee or by the
shareholders in accordance with the Bylaws, shall be voted upon at the Annual
Meeting.
The
Board
of Directors has adopted a written Charter for the Nominating and Governance
Committee and reviews and approves changes to the Charter annually. A
copy of the Charter is available on the Company’s website, www.peoplesbancorp.us
.
All
directors standing for re-election are existing directors. The Board
did not receive any nominees recommended by shareholders or any other matters
to
be presented for action by the shareholders at the Annual Meeting.
Compensation
Committee Interlocks and Insider Participation
No
person
who served as a member of the Budget/Compensation Committee during the 2007
fiscal year has ever been an officer or employee of the Company or any of its
subsidiaries, except for John C. Thrapp, who had served as Assistant Trust
Officer of Peoples Federal without compensation from 1990 to
2003. During the 2007 fiscal year, no executive officers of the
Company or Peoples Federal served as a director or member of the compensation
committee of another entity, one of whose directors or executive officers served
as a director or member of the Budget/Compensation Committee of the Company
or
Peoples Federal.
Nominating
Com
mittee Matters
The
Nominating and Corporate Governance Committee recommends director nominees
to
the Board annually for election by the shareholders. The Nominating
and Corporate Governance Committee will consider qualified director nominees
recommended by shareholders when such recommendations are submitted in
accordance with the Company’s Bylaws and policies regarding director
nominations. Shareholders may submit in writing the names and
qualifications of potential director nominees to the Secretary of Peoples
Bancorp (212 W. 7th Street, P. O. Box 231, Auburn, Indiana 46706-0231) for
delivery to the Chairman of the Nominating and Governance Committee for
consideration.
When
submitting a nomination for consideration, a shareholder must provide the
following minimum information for each director nominee: full name
and address, age, principal occupation during the past five years, current
directorships on publicly held companies and investment companies, number of
Peoples Bancorp shares owned, if any, and a signed statement by the nominee
consenting to serve as a director if elected. Shareholder nominations
for director must also be made in a timely manner and otherwise in accordance
with the Company’s Bylaws (please refer to Article II, Section 2.15 of the
Company’s Bylaws to determine the requirements for any shareholder
nomination). Nominees may be suggested to the Committee by other
directors, members of management, as well as by shareholders. The
Committee also has authority to engage consultants to help identify or evaluate
potential director nominees.
In
its
evaluation of a potential candidate (including a candidate proposed by a
shareholder), the Committee will review the nominee’s experience, independence,
understanding of the banking industry or related industries, the current needs
of the Board, and such other factors as the Committee may determine are
pertinent in light of the needs of the Board at the time. The
Committee will also take into account the ability of a person to devote the
time
and effort necessary to fulfill his or her responsibilities.
COMPENSATION
DISCUSSION AND
ANALYSIS
Overview
of Compensation Program
Peoples
Federal compensates the executive officers of the Company. During the
fiscal year ended September 30, 2007, the Company did not pay any cash
compensation to any of the executive officers.
The
following table lists the Company’s four named executive officers (the “Named
Executive Officers”) who are included in the Summary Compensation Table and
other tables set forth below (with the exception of the Director Compensation
Table). These four officers are referred to as the “Named Executive
Officers”.
|
Executive
Officers
|
|
Bank
Title
|
|
Company
Title
|
|
|
|
|
|
|
|
Maurice
F. Winkler, III
|
|
President
and Chief Executive Officer
|
|
President
and Chief Executive Officer
|
|
|
|
|
|
|
|
Steven
H. Caryer
|
|
Vice
President and Chief Financial Officer
|
|
Chief
Financial Officer
|
|
|
|
|
|
|
|
Jeffrey
H. Gatton
|
|
Sr.
Vice President and Chief Operating Officer
|
|
N/A
|
|
|
|
|
|
|
|
Jeffrey
L. Grate
|
|
Vice
President of Retail Lending
|
|
N/A
|
The
Budget/Compensation Committee of the Company’s Board of Directors determines,
subject to the approval of the Board of Directors, the compensation for the
Named Executive Officers. The Committee reviews payroll costs,
establishes policies and objectives relating to compensation, and approves
the
salaries of all employees, including executive officers. All
recommendations by the Committee relating to salaries of the Company’s executive
officers are approved by the full Board of Directors of the
Company. The Committee uses similar procedures in establishing the
Chief Executive Officer’s annual compensation, including a review of the Chief
Executive Officer’s annual performance in achieving organizational goals and
strategic initiatives as well as using
America’s Community Bankers
Compensation and Benefit Survey for 2007 comparing financial institutions
similar in asset size and located in Indiana.
The
Chief
Executive Officer recommends annual compensation adjustments to the Committee
for all executive officers other than himself. In developing these
recommendations, the Chief Executive Officer considers the performance of the
individual executive officers over the past year, including achievement of
specific goals and objectives, as well as their contribution to the strategic
advancement of the organization. In addition, he reviews salary
surveys and considers his personal knowledge of industry trends in making his
recommendation. The Committee then reviews these recommendations,
along with the executive officer annual review forms, if appropriate and, after
discussion, either accepts the recommendation or recommends
changes. Occasionally, the Chief Financial Officer makes mid-year
recommendations to the Committee for either salary adjustments or other forms
of
compensation, such as options or restricted stock awards. These mid-year
adjustments are infrequent and could result, for example, from a change in
responsibility or title, the recognition of a mile-stone achievement or
an
adjustment
to establish parity with a newly hired individual where warranted. In
fiscal 2007, the Chief Financial Officer did not recommend to the Committee
any
modifications to the annual merit recommendations with respect to executive
officers. However, the full Board of Directors of the Company
recommended a mid-year adjustment for Jeffrey H. Gatton, Peoples Federal’s Sr.
Vice President and Chief Operating Officer. The Board reviewed Mr.
Gatton’s performance as President at First Savings and compared his salary to
peers, and determined he deserved an increase in base salary from $85,000
to
$102,500, which became effective April 1, 2007.
The
Committee has access to and reviews compensation data for comparable financial
institutions in the Midwest in determining and approving the salaries of
executive officers. To determine 2007 compensation, the Committee
reviewed a salary survey compiled by America’s Community Bankers Compensation
and Benefit Survey for 2007, and used the Consumer Price Index. The
Consumer Price Index is used to evaluate interest rates so the employees will
not lose purchasing power. Seniority and performance are also taken
into consideration, as well as amounts of compensation paid by peers of the
Company.
The
Committee has the authority under the Committee’s Charter to retain outside
consultants or advisors to assist the Committee. No outside
consultants were retained in 2007.
Impact
of Performance on Compensation
Each
Executive’s performance is reviewed annually along with the financial
performance of the Company and the extent to which its strategic objectives
have
been achieved. Generally, individual performance drives base salary
adjustments as well as some option awards. The executives’ financial
performance is rewarded through the bonus program described below under “Annual
Cash Bonuses.” In addition, outstanding individual performance or
substantial advancement of strategic organizational goals may also result in
the
award of either options or restricted shares. Also, a change in job
responsibility may trigger a compensation review outside the annual
process.
Objectives
of Compensation Program
We
have
the following objectives with respect to our executive compensation
programs:
|
(1)
|
provide
compensation opportunities comparable to those offered by other similarly
situated financial institutions in order to be able to attract and
retain
talented executives who are critical to the Company’s long-term success;
|
|
(2)
|
reward
executive officers based upon their ability to achieve short-term
and
long-term strategic goals and objectives and enhance shareholder
value;
and
|
|
(3)
|
align
the interests of the executive officers with the long-term interests
of
shareholders by granting stock options which will become more valuable
to
the executives as the value of the Company’s shares increase.
|
2007
Executive Compensation Components
The
Company’s executive compensation system contains the following
components:
|
|
|
post-employment
compensation as prescribed in employment contracts for Mr. Maurice
F.
Winkler, Mr. Steven H. Caryer, and Mr. Jeffrey H. Gatton.
|
Current
compensation, designed to compensate employees for their current
responsibilities and performance, includes monthly salary payments and annual
performance-based bonus payments. The annual bonuses are tied to the
Company’s performance in the areas of growth, profit, quality, and productivity
as they ultimately relate to earnings per share and return on equity for the
current fiscal year. In years in which the performance goals of the
Company are met or exceeded, executive compensation tends to be higher than
in
years in which performance is below expectations.
An
additional component of our executive compensation system is generally more
long
term in nature and includes awards of stock options pursuant to our two stock
option plans described below. See “Stock Option
Information.” Options granted under these plans, which are
non-transferable, have little or no initial value to the
employee. The intent of this form of compensation is
two-fold. First, the potential appreciation in the inherent value of
the options that results from increases in the stock price of the Company aligns
recipients’ interests with those of our shareholders. Second, the
vesting schedules applied to each option grant, which is typically five-year
pro-rata, reduces the potential motivation for short-sighted behavior that
might
sacrifice long-term value for short-term results, and also serves as an
incentive for our key talent pool to remain with the Company for meaningful
periods of time.
The
Company also provides various organization-wide benefit programs such as health
insurance, life insurance, long-term disability insurance, a flexible benefits
plan, a defined benefit plan, and a 401(K) Plan.
Base
Salary.
Base
salary levels of the Company’s executive officers are intended to be comparable
to those offered by similar financial institutions in the Midwest and are based
on asset size and ownership structure. The Committee has access to
and reviews compensation data for comparable financial institutions in the
Midwest in determining and approving the salaries of executive
officers. To determine 2007 base salary compensation, the Committee
reviewed a salary survey compiled by America’s Community Bankers Compensation
and Benefit Survey for 2007, and used the Consumer Price Index. The
Consumer Price Index is used to evaluate inflation rates so the employees will
not lose purchasing power. Seniority and performance are also taken
into consideration, as well as amounts of compensation paid by peers of the
Company.
In
determining base salaries, the Committee also takes into account individual
experience and performance and contributions the employee makes to the
achievement of the Company’s goals. Those contributions vary in type
and scope, depending on the requirements of the job, the skills, experience
and
knowledge an employee brings to a particular position, and the quality of work
performed. These qualities are considered when evaluating the value
of the employee to the organization and determining the appropriate level of
compensation in exchange for those qualifications.
The
base
salary of each of our Named Executive Officers for fiscal 2007 is included
in
the Summary Compensation Table below.
Annual
Cash
Bonuses.
Each year, the Board of Directors determines the
percentage of an employee’s base salary the employee will be eligible to receive
as a cash bonus if the threshold requirements established for that year are
met. No bonuses were paid this year as the profitability of Peoples
Federal did not justify bonuses being awarded.
Stock
Options.
The Company’s
option plans are intended to align executive and other key employees and
shareholder long-term interests by creating a strong and direct link between
executive pay and shareholder return, and enabling executives to acquire a
significant ownership position in the Company’s common stock. Stock
options are granted with exercise prices equal to the prevailing market price
of
the Company’s common stock and will only have value to the recipient if the
stock price increases thereafter. The Company’s Budget/Compensation
Committee determines the number of option grants to make to executive officers
based on the practices of comparable financial institutions as well as the
executive’s level of responsibility and contributions to the
Company. For a description of the Company’s option plans, see “Stock
Option Information--The 1998 Stock Option and Incentive Plan” and “--The Three
Rivers Financial Corporation Stock Option and Incentive Plan.”
Potential
Payments Upon Termination
or Change in Control.
Maurice F. Winkler, III, Steven H.
Caryer, and Jeffrey H. Gatton have entered into employment agreements with
the
Company and Peoples Federal. These agreements provide for
compensation following their termination of employment. The
employment and special termination agreements to which Mr. Winkler, Mr. Caryer,
and Mr. Jeffrey Gatton are parties are described below in more detail under
“Employment Agreements”.
Section
162(m) of the Internal Revenue Code, in specified circumstances, limits to
$1
million the deductibility of compensation, including stock-based compensation,
paid to top executives by public companies. None of the compensation
paid to the Named Executive Officers for fiscal 2007 exceeded the threshold
for
deductibility under Section 162(m).
The
Budget/Compensation Committee believes that linking executive compensation
to
corporate performance results in a better alignment of compensation with
corporate goals and the interests of the Company’s shareholders. As
performance goals are met or exceeded, most probably resulting in increased
value to shareholders, executives are rewarded commensurately. The
Committee believes that compensation levels during fiscal 2007 for executives
and for the Chief Executive Officer adequately reflect the Company’s
compensation goals and policies.
SUMMARY
COMPENSATION TABLE FOR FISCAL
2007
The
following table presents information for compensation awarded to, earned by,
or
paid to the Named Executive Officers for 2007.
Name
and Principal
Position
|
|
|
|
|
Change
in Pension Value and Nonqualified Deferred Compensation Earnings
($)(4)
|
All
Other Compensation
($)(5)
|
|
|
|
|
|
|
|
|
|
|
|
Maurice
F. Winkler, III
President
and Chief Executive Officer
|
2007
|
$170,719
|
$
6,382
|
-0-
|
$42,000
|
$
7,578
|
$226,679
|
|
|
|
|
|
|
|
|
|
|
Steven
H. Caryer
Vice
President and Chief Financial Officer
|
2007
|
$
98,000
|
$10,000
|
-0-
|
N/A
|
$
4,190
|
$112,190
|
|
|
|
|
|
|
|
|
|
|
Jeffrey
H. Gatton
Sr.
Vice President and Chief Operating Officer
|
2007
|
$103,656
|
$
3,800
|
$33,534
|
$
7,000
|
$12,568
|
$160,558
|
|
|
|
|
|
|
|
|
|
|
Jeffrey
L. Grate
Vice
President of Retail Lending
|
2007
|
$
90,105
|
$
3,867
|
-0-
|
$11,000
|
$
1,903
|
$106,875
|
____________________
|
(1)
|
Includes
amounts earned but deferred, including amounts deferred under the
Company’s 401(k) Plan. Mr. Winkler received $26,580 in
director’s fees which are included in this column. Mr. Jeffrey
Gatton received $8,580 in director’s fees while serving on First Savings’
Board which are included in this column. As a result of the
merger of First Savings into Peoples Federal as of October 1, 2007,
Mr.
Gatton no longer serves as a director of First Savings. Mr.
Caryer and Mr. Grate do not receive director’s fees. Mr.
Winkler received an additional $827 due to a change in the timing
of pay
dates, starting October 1, 2006.
|
|
(2)
|
Bonus
was awarded in fiscal 2006 and paid in fiscal 2007.
|
|
(3)
|
The
amounts reflect the dollar amount the Company recognized, before
forfeitures, for financial statement reporting purposes for the fiscal
year ended September 30, 2007, in accordance with FAS 123(R) and
thus may
include amounts from awards granted in and prior to 2007. The expense
recognized in the financial statements is determined by the vested
pro-rata portion of the fair value of the stock or option award on
the
date of award. The assumptions used in calculating these amounts
are
included in Note 19 to the Financial Statements for the fiscal year
ended
September 30, 2007, included in the Company’s Annual Report on
Form 10-K for the year ended September 30, 2007, and in Note 18 to
the
Financial Statements included in the Company’s Annual Report on Form 10-K
for the fiscal year ended September 30, 1999, filed on December 29,
1999.
|
|
(4)
|
This
column includes the increase in actuarial value of the Named Executive
Officer’s interest in the Peoples Federal defined benefit plan, which was
frozen on August 1, 2007. The accrual benefit shown is the
increase in actuarial value between October 1, 2006 and September
30,
2007. All executive officers participated in the defined
benefit plan until it was frozen on August 1, 2007, with the exception
of
Mr. Caryer.
|
|
(5)
|
Includes
the Company’s matching contributions and allocations under its 401(k) Plan
and the value of insurance premiums in excess of IRS
limits. The Named Executive Officers received certain
perquisites during fiscal 2007, but the incremental cost of providing
those perquisites did not exceed the $10,000 disclosure
threshold. Includes the personal benefit to the Named Executive
Officers of split-dollar insurance purchased by Peoples Federal and
First
Savings.
|
REPORT
OF THE BUDGET/COMPENSATION
COMMITTEE
The
Budget/Compensation Committee has reviewed and discussed with management the
Compensation Discussion and Analysis included above. Based on that review and
discussion, the Budget/Compensation Committee has recommended to the Company’s
Board of Directors that the Compensation Discussion and Analysis be included
in
this Proxy Statement and incorporated by reference into the Company’s Annual
Report on Form 10-K for the fiscal year ended September 30, 2007.
This
Report is respectfully submitted by the Budget/Compensation Committee of the
Company’s Board of Directors.
Douglas
D. Marsh, Chairman
Erica
D.
Dekko
Bruce
S.
Holwerda
Stephen
R. Olson
John
C.
Thrapp
STOCK
OPTION
INFORMATION
The
1998 Stock Option and Incentive Plan
On
November 10, 1998, the Company’s Board of Directors adopted the Peoples Bancorp
1998 Stock Option and Incentive Plan (“1998 Plan”) that permits the grant of
incentive and nonqualified options to purchase shares of the Company’s common
stock, as well as stock appreciation rights. Our shareholders
approved the 1998 Plan on January 13, 1999. The Budget/Compensation
Committee administers the 1998 Plan.
Under
the
1998 Plan, the maximum number of shares of common stock that may be issued
pursuant to awards granted under the 1998 Plan is 200,000 (subject to adjustment
to prevent dilution). The 1998 Plan continues in effect until
November 10, 2008, unless earlier terminated. Pursuant to the 1998
Plan, directors and key employees of the Company (or any affiliate as defined
in
the 1998 Plan) may be granted options at an exercise price not less than 100%
of
the fair market value of the Company’s common stock on the date of the
grant. During fiscal 2007, no options were granted under the 1998
Plan. As of November 30, 2007, options to purchase 16,000 shares were
outstanding under the 1998 Plan at an average price of $21.50 per share, and
170,000 shares were reserved for future awards under the 1998
Plan. No stock appreciation rights have been awarded under the 1998
Plan. Stock options become exercisable in full upon a change in
control of the Company. For this purpose, a change in control means
the execution of an agreement that will result in the sale of all or a material
portion of the assets of the Company, a merger or recapitalization of the
Company in which the Company is not the surviving entity, the acquisition of
control of the Company as defined in 12 CFR § 574.3, or the acquisition of 25%
or more of the Company’s outstanding shares by any person, entity or
group.
The
Three Rivers Financial Corporation Stock Option and Incentive Plan
In
April
1996, Three Rivers Financial Corporation’s Board of Directors adopted, and the
shareholders approved, the Three Rivers Financial Corporation Stock Option
and
Incentive Plan (the “Three Rivers Plan”). The Three Rivers Plan is
administered by the Budget/Compensation Committee. The purpose of the
Three Rivers Plan was to provide additional incentive to directors and key
employees by facilitating their purchase of stock through incentive and
non-qualified stock options, as well as stock appreciation rights. No
further awards may be made under this plan. During the fiscal year
ended September 30, 2007, no options were granted under the Three Rivers Plan
and options for 7,722 shares were exercised. As of September 30,
2007, there were options for 5,643 shares outstanding under the Three Rivers
Plan, at an average price per share of $13.05.
Option
Exercises for 2007
The
following table presents information on the exercise by Named Executive Officers
of stock options during fiscal 2007. No stock options were granted to
the Named Executive Officers during the fiscal year ended September 30,
2007.
|
|
|
|
|
|
|
|
|
|
Number
of Shares Acquired on Exercise (#)
|
|
|
Value
Realized on Exercise ($)(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maurice
F. Winkler, III
|
|
|
—
|
|
|
|
—
|
|
|
|
Steven
H. Caryer
|
|
|
—
|
|
|
|
—
|
|
|
|
Jeffrey
H. Gatton
|
|
|
7,128
|
|
|
|
$40,725
|
|
|
|
Jeffrey
L. Grate
|
|
|
—
|
|
|
|
—
|
|
|
(1)
|
Amounts
reflecting value realized upon exercise of options are based on the
difference between the closing price for a share on the date of exercise
and the exercise price for a share. The Company repurchased 5,728
of these
shares from Mr. Gatton at $19.51 per share for an aggregate price
of
$111,753.
|
Outstanding
Equity Awards at September 30, 2007
The
following table presents information on unexercised stock options held by the
Named Executive Officers that are outstanding as of September 30,
2007:
|
|
|
|
Option
Awards
|
|
|
|
|
|
|
|
|
Number
of Securities Underlying Unexercised Options (#)
Exercisable
|
|
|
Option
Exercise Price ($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maurice
F. Winkler, III
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Steven
H. Caryer
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Jeffrey
H. Gatton
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Jeffrey
L. Grate
|
|
|
1,500
|
|
|
$
|
21.50
|
|
|
|
09-15-2008
|
|
OTHER
COMPENSATION OF EXECUTIVES
Defined
Benefit Pension Plan at September 30, 2007
The
following table provides information on each plan that provides for payments
or
other benefits in connection with a Named Executive Officer’s retirement,
excluding tax-qualified and non-qualified defined contribution
plans.
|
|
|
Number
of Years
Credited
Service
(#)(2)
|
Present
Value of
Accumulated
Benefit
($)(3)
|
Payments
During
Last
Fiscal Year
($)
|
|
|
|
|
|
|
|
Maurice
F. Winkler, III
|
Pentegra
Group Pension Plan (1)
|
27
|
$328,000
|
$0
|
|
|
|
|
|
|
|
Steven
H. Caryer
|
Pentegra
Group Pension Plan (1)
|
0
|
N/A
|
N/A
|
|
|
|
|
|
|
|
Jeffrey
H. Gatton
|
Pentegra
Group Pension Plan (1)
|
8.833
|
$33,000
|
$0
|
|
|
|
|
|
|
|
Jeffrey
L. Grate
|
Pentegra
Group Pension Plan (1)
|
18.250
|
$75,000
|
$0
|
___________________
|
(1)
|
The
Plan is a non-contributory, multi-employer comprehensive Pension
Plan. The
Plan was frozen as to new participants and for additional years of
service
for existing participants on August 1, 2007.
|
|
(2)
|
The
number of years of credited service is computed as of September 30,
2007,
the same pension plan measurement date used for financial statement
reporting purposes in the Company’s Annual Report to Shareholders.
|
|
(3)
|
This
information is as of September 30, 2007, the same pension plan measurement
date used for financial statement reporting purposes in the Company’s
Annual Report to Shareholders, assumes that the Named Executive Officer
retires at age 65, the normal retirement age specified in the Plan,
and is
based on compensation paid to the Named Executive Officers until
the Plan
was frozen. The interest rate assumptions used are the same
ones used in making disclosures about this plan in the Company’s 2007
Annual Report to Shareholders.
|
Peoples
Federal maintains an IRS
qualified defined benefit pension plan (the “Retirement Plan”) for all eligible
employees (the “Participants”). In order to be eligible to
participate, an employee must attain age 21 and complete 12 months of
employment. The Retirement Plan is funded solely by Peoples Federal’s
contributions and generally provides for vested benefits to Participants with
100% vesting after five years of credited service. All full-time
employees who were Participants in the Retirement Plan on
August 1, 2007
,
participate in the Plan, which was
frozen as of that date. Further eligibility and benefit accruals
ceased as of
August 1,
2007
, under this Retirement
Plan. Total Retirement Plan expenses for the fiscal year ended
September 30,
2007
, were
$1,180,669.
A
Participant’s benefit at normal
retirement age (65) is dependent upon his total years of credited service and
his average annual earnings for the five consecutive years of highest earnings
during credited service. However, the benefit so determined is
subject to proportionate reduction for credited service of fewer than 30 years
at normal retirement age, and is also subject to actuarial reduction for
commencement of benefit payments prior to normal retirement age. The
Retirement Plan also provides a death benefit payment in the event of death
prior to retirement.
The
Retirement Plan provides for monthly
or lump sum retirement benefits equal to 2% of the employee’s highest 5-year
average earnings multiplied by their years of credited
service. Earnings include base annual salary as of each January
1
st
,
exclusive of overtime, bonuses, fees,
and other special payments subject to an annual IRS limit of $225,000 on
earnings for 2007. Early retirement, disability, termination of
employment and death benefits are also payable under the Retirement Plan,
depending upon the participant’s age and years of service. Benefits
are payable under the plan at or after age 45. We recorded expenses
totaling $1,180,669 for the
Retirement
Plan during the fiscal year
ended
September 30,
2007
. Benefits
are currently subject
to a maximum of $180,000 under the Internal Revenue
Code. The years of service credited under the Retirement Plan as of
September 30,
2007
, were 27 years for
Mr.
Winkler, 0 years for Mr. Caryer, 8.833 years for Mr. Jeffrey Gatton, and
18.250
years for Mr. Grate.
401(k)
Plan
On
November 15, 1988, the Board of Directors of Peoples Federal adopted an Employee
Stock Ownership Plan (the “ESOP”), which was approved by the shareholders on
January 11, 1989. In August 1995, First Savings’ Board of Directors
adopted an ESOP for the benefit of its employees.
On
May 1,
1999, the Peoples Federal ESOP was amended to convert it into a 401(k) Plan
and
during fiscal 2002, the First Savings’ ESOP was also amended to convert it into
a 401(k) Plan.
The
401(k) Plan provides for employee contributions between 1% and 15% of salary
on
a pre-tax basis with matching employer contributions equal to 50% of a
participant’s contribution up to 6% of salary. The vesting schedule
is the same as the vesting schedule under the ESOP. All shares
originally contributed to the ESOP were allocated to participants’ accounts
under the 401(k) Plan. Withdrawals under the 401(k) Plan are
permitted on the attainment of age 59 or for hardship. Participants
are allowed to choose from a variety of investment vehicles to invest their
401(k) accounts and in the absence of a choice by a participant are invested
in
a money market fund accounts.
The
ESOP
maintained an account for each participant in the ESOP. The ESOP
accounts were transferred into each participant’s 401(k) Plan
account. With respect to shares of common stock allocated to a
participant’s accounts, each participant is entitled to direct the Trustee as to
the manner of voting such shares. If the participant fails to so
direct the Trustee, such un-voted shares will be voted by the Trustee only
upon
instructions from the Committee.
On
May
22, 2007, the Company’s Board of Directors approved a discretionary 401(k)
contribution, based on fiscal year-end salary, to be paid to all full-time
employees by December 31, 2007. In addition, the Board voted to
invest in $7,000,000 of Bank Owned Life Insurance (BOLI) to help fund the health
insurance plan for full-time employees who elect to participate.
Peoples
Federal has an existing BOLI plan with a current cash value of $685,000 to
help
fund the salary continuation benefit for G. Richard Gatton, former President
of
First Savings.
As
of
September 30, 2007, the 401(k) Plan held 87,540 shares of common stock, 100%
of
which has been allocated to participant accounts. The Company
contributed $136,572 for the benefit of the participants under the 401(k) Plan
during the fiscal year ended September 30, 2007 and assumed expenses of $4,748
for 401(k) Plan administration.
Bonus
Plan
Peoples
Federal has a bonus plan for all employees. The plan does not apply
to employees of subsidiaries or affiliates of Peoples Federal. Under
the plan, bonus money is made available to the extent of the net profits of
Peoples Federal up to 10% of an employee’s base annual salary as defined in the
plan. The determination of the amount of a bonus to be paid under the
plan is made by the Board of Directors in its sole discretion, after
consideration and recommendation by the Budget/Compensation Committee, based
on
profitability of Peoples Federal.
During
the fiscal year ended September 30, 2007, bonuses under the plans aggregating
$212,738 were paid to employees of Peoples Federal and First
Savings.
Employment
Agreements
Mr.
Maurice F. Winkler, III, a Director and Chief Executive Officer of the Company
and the President and Chief Executive Officer of Peoples, has entered into
a
three-year employment agreement with the Company and Peoples. The
agreement provides for the full-time employment of Mr. Winkler as President
and
Chief Executive Officer of Peoples and may be amended and extended for
additional twelve-month periods upon the mutual agreement of the
parties. The original effective date of the agreement was May 18,
2000, and the agreement was most recently extended on December 18, 2007, when
the parties executed an amended and restated agreement. The
agreement, as amended and restated, provides for a base salary of $143,312
per
year. Pursuant to the agreement, the base salary amount is reviewed
at least once every twelve months and increases are to be substantially
consistent with the increases to the base salaries of other executives of
Peoples Federal, provided the base salary amount shall be increased by a
percentage no less than the annual increase in the cost of living index for
the
Fort Wayne, Indiana metropolitan area.
Mr.
Steven H. Caryer, the Vice President and Chief Financial Officer of the Company
and Peoples Federal, has entered into a three-year employment agreement with
the
Company and Peoples Federal. The agreement provides for the full-time
employment of Mr. Caryer as the Vice President and Chief Financial Officer
of
Peoples Federal and may be amended and extended for additional twelve-month
periods upon the mutual agreement of the parties. The original
effective date of the agreement was September 26, 2006, and the agreement was
most recently extended on December 18, 2007, when the parties executed an
amended and restated agreement. The agreement, as amended and
restated, provides for a base salary of $100,940 per year. Pursuant
to the agreement, the base salary amount is reviewed at least once every twelve
months and increases are to be substantially consistent with the increases
to
the base salaries of other executives of Peoples Federal, provided the base
salary amount shall be increased by a percentage no less than the annual
increase in the cost of living index for the Fort Wayne, Indiana metropolitan
area.
Mr.
Jeffrey H. Gatton, Senior Vice President and Chief Operating Officer of Peoples
Federal, has entered into a three-year employment agreement with the Company
and
Peoples Federal. The agreement provides for the full-time employment
of Mr. Jeffrey Gatton as Senior Vice President and Chief Operating Officer
of
Peoples Federal and may be amended and extended for additional
twelve-month periods upon the mutual agreement of the parties. The
original effective date of the agreement is December 18, 2007, when the parties
executed the agreement. The agreement provides for a base salary of
$102,500 per year. Pursuant to the agreement, the base salary amount
is reviewed at least once every twelve months and increases are to be
substantially consistent with the increases to the base salaries of other
executive of Peoples, provided the base salary amount shall be increased by
a
percentage no less than the annual increase in the cost of living index for
the
Fort Wayne, Indiana metropolitan area.
The
employment agreements for Messrs. Winkler, Caryer, and Jeffrey Gatton (the
“Executives”) contain similar provisions regarding terminations of employment,
including in the event of a Change of Control of the Company (defined
below). Each agreement provides that the executive may terminate his
employment upon 60 days notice upon the occurrence of one of the events
specified in the agreement. The Company may terminate the employment
of the executive upon the occurrence of certain specified events or at any
time
for cause (as defined in the
agreement). If
the Company terminates an executive’s employment other than for cause or if the
Executive terminates his employment upon the occurrence of the events specified
in the agreement, the agreement provides for the executive to receive an
amount
equal to his base salary for each year remaining under the term of the agreement
plus bonuses in an amount equal to the last bonus received multiplied by
the
number of years remaining under the term of the agreement, as well as the
value
of any medical and retirement benefits provided under the agreement for each
year or portion thereof remaining in the term of the agreement, but such
amounts
are subject to deferment for minimum capital maintenance purposes. In
the event the executive’s employment is terminated by Peoples Federal or the
executive for any reason other than for cause within 12 months following
a
Change of Control (as defined in the agreements), the agreements provide
for Mr.
Winkler,
Mr. Caryer,
and Mr. Jeffrey Gatton
to receive an amount
equal
to 2.99 times his base salary, plus the amount of any bonus compensation
earnings during the 2.99 years immediately preceding the Change of Control,
plus
certain other benefits. The agreements also provide that any unvested
options held by an executive will vest if his employment is terminated as
a
result of a Change of Control. As of the date of this Proxy
Statement, the cash compensation that would be received upon the Executive’s
termination in connection with a change in control would be approximately
$443,068 for Mr. Winkler, $311,811 for Mr. Caryer, and $316,475 for Mr. Jeffrey
Gatton.
For
purposes of the employment agreements of Messrs. Winkler, Caryer, and Gatton,
a
“Change of Control” occurs if:
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a
person or group acquires ownership of stock representing more than
50% of
the Company’s or Peoples Federal’s total fair value or total voting power
of the stock of the Company or Peoples Federal and stock of the Company
or
Peoples Federal remains outstanding after the transaction;
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a
person or group acquires ownership of stock representing 30% or more
of
the total voting power of the stock of the Company or Peoples Federal;
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during
a twelve-month period, a majority of the directors of the Company
is
replaced by directors whose appointment or election is not endorsed
by a
majority of the members of the Company’s Board in office before the date
of the appointment or election, unless another corporation is a majority
shareholder of the Company; or
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a
person or group, other than shareholders of Peoples Federal or an
entity
controlled by shareholders of Peoples Federal acquires more than
40% of
the total gross fair market value of Peoples Federal’s assets, unless the
person or group owns 50% or more of the total value or voting power
of
Peoples Federal’s stock.
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Under
the
employment agreements, the executives are eligible to receive such benefits
as
are made available to other senior executives of Peoples Federal.
Retirement
Benefits Agreement of G. Richard Gatton
On
October 26, 2006, First Savings entered into a Retirement Benefits Agreement
with G. Richard Gatton. Mr. Gatton, age 63, resigned from his position as
President and Chief Executive Officer of First Savings effective March 1, 2006,
but he continues to serve as a member of Peoples Federal’s and the Company’s
Boards of Directors.
On
February 29, 2000, First Savings, Peoples Federal and Mr. Gatton entered into
an
Employment Agreement in which First Savings agreed to pay Mr. Gatton the
additional retirement benefits he would have received if he had continued his
employment with First Savings until age 65, to the extent that such benefits
were not covered by First Savings’ retirement plan or a Salary Continuation
Agreement that First Savings and Mr. Gatton had entered into on September 18,
1996. Pursuant to the Retirement Benefits Agreement, consistent with this
obligation, on January 5, 2007, Mr. Gatton was paid by First Savings an
additional retirement benefit of $55,722 in a lump sum. Mr. Gatton is also
entitled to annual payments of $15,000 per year payable monthly over a 15-year
period. Those benefits commenced on November 1, 2007, and continue for a period
of 15 years. The Retirement Benefits Agreement also provides for Mr. Gatton’s
receipt of health and medical benefits until the later of age 65, or the
commencement date of his Medicare benefits. Peoples Federal is to pay
75% of the cost of such health and medical benefits.
If
the
payments provided for in the employment agreements and, in the case of Mr.
Gatton in his Salary Continuation Agreement, together with any other payments
to
be made to the Named Executive Officers, are deemed to be payments in violation
of the “golden parachute” rules of the Internal Revenue Code of 1986, as
amended, such payments will be reduced to the highest amount permissible before
the executive officer becomes subject to excess parachute payment excise tax
or
the Company or Peoples Federal lose all or part of their compensation deduction
for such payments.
DIREC
TOR
COMPENSATION
Directors
of the Company received fees of $6,000 for fiscal 2007 for serving as directors
of the Company. Directors of Peoples Federal currently receive
$12,000 per year and directors of First Savings received $8,580 per year during
the last fiscal year. For the fiscal year ended September 30, 2007,
directors’ fees for the directors of the Company, Peoples, and First Savings
totaled $158,900. In addition, directors emeritus of Peoples Federal
are paid for each meeting at a monthly fee equal to the fee they received at
the
time of retirement from the Board. For the fiscal year ended
September 30, 2007, director emeritus fees totaled $41,600.
Directors
are also eligible to receive awards under the 1998 Plan, until it terminates
on
November 10, 2008. During the fiscal year ended September 30, 2007,
no options were granted to directors.
Director
Compensation for 2007
The
following table provides information concerning the compensation paid to or
earned by the members of the Company’s Board of Directors other than Maurice F.
Winkler, III.
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Fees
Earned or Paid in Cash ($)
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Change
in Pension Value and Nonqualified Deferred Compensation Earnings
(3)
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All
Other Compensation ($)
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Erica
D. Dekko
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$18,000
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N/A
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-
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-
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$18,000
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G.
Richard Gatton
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$14,000
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N/A
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$55,722
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$7,513
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$77,235
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Bruce
S. Holwerda
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$18,000
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N/A
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-
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-
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$18,000
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Douglas
D. Marsh
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$18,000
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N/A
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-
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-
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$18,000
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Stephen
R. Olson
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$14,580(4)
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N/A
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-
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-
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$14,580
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John
C. Thrapp
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$18,000
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N/A
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-
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-
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$18,000
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(1)
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Information
on Mr. Winkler, who is a Named Executive Officer, is included in
the
Summary Compensation Table.
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(2)
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The
amounts reflect the dollar amount the Company recognized, before
forfeitures, for financial statement reporting purposes for the fiscal
year ended September 30, 2007, in accordance with FAS 123(R) and
this may
include amounts from awards granted in and prior to October 1, 2006.
The
assumptions used in calculating the amounts are included in Note
1 to the
Company’s financial statements for the fiscal year ended September 30,
2007, included in the Company’s Annual Report on Form 10-K for the year
ended September 30, 2007.
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(3)
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This
column includes the increase in actuarial value of the directors’ interest
in the Retirement Plan between September 30, 2006 and September 30,
2007. There were no above market earnings on deferred
compensation to which Mr. Olson was entitled under the First Savings
Deferred Fee Agreement in the fiscal year ended September 30,
2007. Under Mr. Gatton’s Retirement Benefits Agreement with
First Savings, signed on October 26, 2006, he was entitled to a lump
sum
benefit of $55,722, payable on January 5, 2007.
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(4)
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Mr.
Olson defers his board fees under the First Savings Deferred Fee
Agreement
(defined below) during fiscal 2007. On September 30, 2007, deferrals
were
no longer permitted as a result of the merger of First Savings into
Peoples Federal, but Mr. Olson’s account continues to accrue interest and
will be paid out as provided in the Deferred Fee Agreement.
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At
September 30, 2007, director Stephen R. Olson had outstanding a fully vested
nonqualified stock option for 1,188 shares at an option price of $13.05 per
share which expires on October 28, 2008.
Deferred
Fee Agreement
During
fiscal 2007, First Savings maintained a Deferred Director Fee Agreement (the
“Deferred Fee Agreement”) that permits its directors to defer payment of some or
all of their directors fees. Deferred directors fees are distributed
either in a lump-sum payment or in monthly installments over a period specified
by the director. If a director has deferred a minimum of $6,850 in
fees for each year of service on the Board
or if a director dies
while
in active service following a change in control of Peoples Federal, upon his
death his beneficiary will receive a death benefit of $31,642 per year for
15
years. A “change in control” is defined to mean a merger or
consolidation in which Peoples Federal does not survive, a sale of all or
substantially all of the assets of Peoples Federal or the acquisition of 25%
or
more of the voting stock of Peoples Federal. The Deferred Fee
Agreement also permits hardship withdrawals of amounts credited to a director’s
account. Interest accrues on the amounts deferred and unpaid at the
rate payable on 10-year highly-rated corporate bonds. At present, Stephen R.
Olson is the only director who participates in the Deferred Fee
Agreement. On September 30, 2007, deferrals were no longer permitted
as a result of the merger of First Savings into Peoples Federal, but Mr. Olson’s
account continues to accrue interest and will be paid out as provided in the
Deferred Fee Agreement.
TRANSACTIONS
WITH CERTAIN RELATED
PERSONS
Peoples
Federal has followed the policy of offering loans to the Company’s and Peoples
Federal’s directors, officers, and employees for the financing of their
principal residences. These loans are made in the ordinary course of
business on substantially the same terms and collateral, including interest
rates, as those of comparable transactions prevailing at the time and do not
involve more than the normal risk of collectability or present other unfavorable
features. Peoples Federal grants consumer loans to directors,
officers, and employees at rates and terms applicable to its other
customers. All loans to executive officers and directors are subject
to Office of Thrift Supervision regulations restricting loans and other
transactions with affiliated persons of Peoples Federal.
The
Company has 11 executive officers and directors, and the aggregate total of
loans outstanding to these individuals as of September 30, 2007, was
$576,932.
During
the fiscal year ended September 30, 2007, the Company repurchased 5,728 shares
from Mr. Jeffrey Gatton, Peoples Federal’s Sr. Vice President and Chief
Operating Officer, acquired upon the exercise of his stock options for an
aggregate price of $111,753, or $19.51 per share.
PROPOSAL
3 - APPOINTMENT OF INDEPENDENT
PUBLIC ACCOUNTANTS
The
Board
of Directors has appointed the firm of BKD, LLP (“BKD”), independent Certified
Public Accountants, to audit the consolidated financial statements of the
Company for the fiscal year ending September 30, 2008. A proposal to
approve the appointment of BKD, will be presented to the Company’s shareholders
at the Annual Meeting. Representatives of BKD are expected to be
present at the meeting and to be available to respond to appropriate
questions. The representatives will also be provided an opportunity
to make a statement, if they desire.
THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE APPOINTMENT OF
BKD (WHICH IS PROPOSAL 2 UNDER “A. ISSUES” ON YOUR PROXY CARD).
Audit
Committee Report
Audit
Committee
Report
. The Audit Committee reports as follows with respect to
the Audit of the Company’s financial statements for the fiscal year ended
September 30, 2007, included in the Company’s Shareholder Annual Report
accompanying this Proxy Statement (“2007 Audited Financial
Statements”).
The
Committee has reviewed and discussed the Company’s 2007 Audited Financial
Statements with the Company’s management.
The
Committee has discussed with its Independent Auditors (BKD, LLP) the matters
required to be discussed by Statement on Auditing Standards 61, which include,
among other items, matters related to the conduct of the audit of the Holding
Company’s financial statements.
The
Committee has received written disclosures and the letter from the Independent
Auditors required by Independence Standards Board Standard No.1 (which related
to the auditor’s independence from the Company and its related entities) and has
discussed with the auditors the auditors’ independence from the
Company.
Based
on
review and discussions of the Company’s 2007 Audited Financial Statements with
management and with the Independent Auditors, the Audit Committee recommended
to
the Board of Directors the Company’s 2007 Audited Financial Statements be
included in the Company’s Annual Report on Form 10-K for the Fiscal Year ended
September 30, 2007.
This
Report respectfully submitted by the Audit Committee of the Company’s Board of
Directors.
Erica
D.
Dekko, Chairperson
Bruce
S.
Holwerda
Douglas
D. Marsh
Stephen
R. Olson
Accountant’s
Fees
Audit
Services
. The firm of BKD, LLP (“BKD”) served as our
Independent Public Accountants for each of our last two fiscal years ended
September 30, 2007 and 2006. The aggregate fees billed by BKD for the
audit of our financial statements included in our Annual Report on Form 10-K
and
for the review of our financial statements included in our quarterly reports
on
Form 10-Q for our fiscal years ended September 30, 2007 and 2006, were $87,500
and $83,500, respectively.
Audit-Related
Fees
. Audit related fees billed in fiscal 2007 totaled $10,700
and consisted of fees related to the audit of the Company’s employee benefit
plans.
Tax
Fees
. The
aggregate fees billed in each of fiscal 2007 and 2006 for professional services
rendered by BKD for tax compliance, tax advice or tax planning were $19,000
and
$17,075, respectively.
All
Other
Fees
. There were no fees billed in fiscal 2007 or 2006 for
professional services rendered by BKD except as disclosed above.
Pre-Approval
Policies and
Procedures
. The Audit Committee has established pre-approval
policies and procedures, pursuant to which the Audit Committee approved all
of
the foregoing audit services provided by BKD in 2007. Consistent with
the Audit Committee’s responsibility for engaging the Company’s independent
accountants, all audit and permitted non-audit services require pre-approval
by
the Audit Committee. The full Audit Committee approves proposed
services and fee estimates for these services. The Audit Committee
chairperson or its designee has been designated by the Audit Committee to
approve any services arising during the year that were not pre-approved by
the
Audit Committee. Services approved by the Audit Committee chairperson
are communicated to the full Audit Committee at its next regular meeting and
the
Audit Committee reviews services and fees for the fiscal year at each such
meeting. Pursuant to these procedures, the Audit Committee approved
the foregoing services provided by BKD.
PROPO
SAL
4 - ADJOURNMENT OF THE ANNUAL
MEETING
In
addition to the proposals to approve the split transaction and to elect
directors, the shareholders of the Company are also being asked to approve
a
proposal to adjourn or postpone the Annual Meeting to permit further
solicitation of proxies in the event that an insufficient number of shares
is
present in person or by proxy to approve the split transaction.
Pursuant
to Indiana law, the holders of a majority of the outstanding shares of common
stock of the Company are required to approve the split
transaction. It is rare for a company to achieve 100% (or even 90%)
shareholder participation at an annual or special meeting of shareholders,
and
the holders of a majority of the outstanding shares of common stock of the
Company are required to be represented at the meeting, in person or by proxy,
for a quorum to be present to allow the transaction of business. In
the event that shareholder participation at the annual meeting is lower than
expected, the Company would like the flexibility to postpone or adjourn the
meeting in order to attempt to secure broader shareholder participation in
the
decision to approve the split transaction.
Approval
of the proposal to adjourn or postpone the annual meeting to allow extra time
to
solicit proxies (Proposal 3 under “A. Issues” on your proxy card) requires a
vote of a majority of the shares voting on the proposal. Abstentions
and broker non-votes will not be treated as “No” votes and, therefore, will have
no impact on this proposal.
THE
BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR”
THIS PROPOSAL (WHICH IS PROPOSAL 3 UNDER “A. ISSUES” ON YOUR PROXY
CARD).
The
Company must receive all proposals of shareholders to be presented for
consideration at the next Annual Meeting and included in the proxy statement
in
writing a reasonable time before the Company begins to print the proxy materials
for the 2009 Annual Meeting. Send all proposal requests to the
Company’s Secretary, 212 W. 7
th
Street,
P. O. Box 231, Auburn, Indiana 46706.
Such
proposal must comply with SEC proxy rules, including Rule
14a-8. Shareholder proposals that are not intended to be included in
the proxy statement must be received by the Company at least twenty (20) days
before the date of the Annual Meeting (except if less than thirty days notice
of
the date of the Annual Meeting is given to shareholders, the proposal must
be
received no later than the close of business on the 10
th
day
preceding the meeting). If the Company does not receive notice of a
shareholder proposal by that date, then the persons named in the proxy will
have
the discretionary authority to vote on such matter at the 2009 Annual Meeting
of
shareholders. All proposals must comply with the requirements of the
Company’s Bylaws, a copy of which may be obtained upon written request to the
Company’s Secretary.
SHAREHOLDER
COMMUNICATIONS
Any
shareholder desiring to contact the Board of Directors, or any individual
director serving on the Board, may do so by written communication mailed
to: Board of Directors (Attention: (name of director(s), as
applicable), in care of the Corporate Secretary, Peoples Bancorp, 212 W. 7
th
Street,
P. O. Box 231, Auburn, Indiana 46706. Any proper communication so
received will be processed by the Corporate Secretary. Unless in the
judgment of the Corporate Secretary the matter is not intended or appropriate
for the Board (and subject to any applicable regulatory requirements), such
communication will be promptly delivered to the Chairman of the Board or, as
appropriate, to the members(s) of the Board named in the
communication.
OTHER
MA
TTERS
Forw
ard-Looking
Statements
Statements
contained herein that are not purely historical are forward-looking statements,
including, but not limited to, statements regarding our expectations, hopes,
beliefs, intentions or strategies regarding the future. Actual results could
differ materially from those projected in any forward-looking statements as
a
result of a number of factors, including those detailed in this proxy
statement. The forward-looking statements are made as of the date of
this proxy statement and we undertake no obligation to update or revise the
forward-looking statements, or to update the reasons why actual results could
differ materially from those projected in the forward-looking
statements.
We
caution you not to place undo reliance on any forward-looking statements made
by, or on behalf of, us in this proxy statement or in any of our filings with
the SEC or otherwise. Additional information with respect to factors
that may cause the results to differ materially from those contemplated by
forward-looking statements is included in our current and subsequent filings
with the SEC. See “—Where You Can Find More
Information.”
Where
You
Can Find More
Information
We
are
subject to the information requirements of the Securities Exchange Act of 1934,
as amended, and in accordance therewith we file reports, proxy statements and
other information with the SEC. Such reports, proxy statements and
other information can be inspected and copied at the public reference facilities
of the SEC at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington,
DC
20549. Copies of such materials can also be obtained at prescribed
rates by writing to the Public Reference Section of the SEC at 450 Fifth Street,
N.W., Judiciary Plaza, Washington, DC 20549. In addition, such
reports, proxy statements and other information are available from the EDGAR
filings obtained through the SEC’s Internet Website
(http://www.sec.gov).
Information
In
corporated
by Reference
In
our
filings with the SEC, information is sometimes incorporated by
reference. This means that we are referring you to information that
we have filed separately with the SEC. The information incorporated
by reference should be considered part of this proxy statement, except for
any
information superseded by information contained directly in this proxy
statement. The following documents are incorporated by reference
herein:
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our
Annual Report on Form 10-K for fiscal year ended September 30, 2007,
including audited financial information.
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We
are
also incorporating by reference all additional reports and other information
filed by us with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act between the date of this document and the date of
consummation of the split transaction.
We
have
supplied all information contained in or incorporated by reference in this
document relating to us, provided that any reference to any claim of reliance
on
the Private Securities Litigation Reform Act’s forward-looking statement safe
harbor contained in any such document is excluded, and is not incorporated
herein by reference. You may have been sent some of the reports and
other information incorporated by reference in this document by us, but you
can
also obtain any of them through the SEC at the locations described above, or
through us at the address below. We will provide to you, without
charge, by first class mail or other equally prompt means within one business
day of any written or oral request by you, a copy of any report or other
information incorporated by reference in this document by us. You
should direct your request to the following address: Peoples Bancorp,
212 West 7th Street, P. O. Box 231, Auburn, Indiana 46706-1723, Attention:
Cheryl L. Taylor.
FORM
10-K ANNUAL
REPORT
THE
COMPANY WILL PROVIDE (WITHOUT CHARGE) TO ANY SHAREHOLDER SOLICITED HEREBY A
COPY
OF ITS 2007 ANNUAL REPORT ON FORM 10-K FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION UPON THE WRITTEN REQUEST OF SUCH SHAREHOLDER. REQUESTS
SHOULD BE DIRECTED TO THE COMPANY’S SECRETARY, 212 WEST 7TH STREET, P. O. BOX
231, AUBURN, INDIANA 46706-1723.
HOUSEHOLDING
We
have
adopted a new procedure approved by the SEC called
“householding.” Under this procedure, multiple shareholders who share
the same last name and address and do not participate in electronic delivery
will receive only one copy of the proxy materials, unless they notify us that
they wish to continue receiving multiple copies. We have undertaken
householding to reduce our printing costs and postage fees.
If
you
wish to continue to receive multiple copies of the proxy materials at the same
address, additional copies will be provided to you upon request. You
may request multiple copies by notifying us in writing at 212 West 7
th
Street,
P. O. Box 231, Auburn, Indiana 46706-1723 or by telephone
260-925-2500. You may opt-out of householding at any time prior to
thirty days before the mailing of proxy materials in December of each year
by
notifying us at the address above.
If
you
share an address with another shareholder and currently are receiving multiple
copies of the proxy materials, you may request householding by notifying us
at
the above-referenced address or telephone number.
APPENDIX
A-1
PROPOSED
FORM OF AMENDMENT TO
ARTICLES
OF INCORPORATION
TO
EFFECT REVERSE STOCK SPLIT
The
first
paragraph of Article 4 of the Articles of Incorporation of Peoples Bancorp
is
hereby amended by deleting that paragraph in its entirety and replacing it
with
the following paragraphs:
“
Capital
Stock
. The total number of shares of capital stock which the
Corporation has the authority to issue is 12,000,000, of which 5,000,000 shall
be series preferred stock, $1.00 par value per share (hereinafter the “Preferred
Stock”) and 7,000,000 shall be common stock, $1.00 par value per share
(hereinafter the “Common Stock”).”
Without
regard to any other provision of these Articles of Incorporation, each one
(1)
share of Common Stock, either issued and outstanding or held by the Corporation
as treasury stock, immediately prior to the time this amendment becomes
effective shall be and is hereby automatically reclassified and changed (without
any further act) into one-seven hundred sixtieth (1/760th) of a fully-paid
and
nonassessable share of Common Stock, provided that no fractional shares shall
be
issued to any registered holder of fewer than 760 shares of Common Stock
immediately prior to the time this amendment becomes effective, and that instead
of issuing such fractional shares, the Corporation shall pay in cash equal
to
$16.75 for each share of Common Stock held by any registered holder of fewer
than 760 shares of Common Stock immediately before the time this amendment
becomes effective.
Except
to
the extent required by governing law, rule or regulation, the shares of capital
stock may be issued from time to time by the Board of Directors without further
approval of shareholders. The Corporation shall have the authority to
purchase its capital stock out of funds lawfully available therefore, which
funds shall include, without limitation, the Corporation’s unreserved and
unrestricted capital surplus.”
APPENDIX
A-2
PROPOSED
FORM OF AMENDMENT TO
CERTIFICATE
OF INCORPORATION
TO
EFFECT FORWARD STOCK SPLIT
The
first
paragraph of Article 4 of the Articles of Incorporation of Peoples Bancorp
is
hereby amended by deleting that paragraph in its entirety and replacing it
with
the following paragraphs:
“
Capital
Stock
. The total number of shares of capital stock which the
Corporation has the authority to issue is 12,000,000, of which 5,000,000 shall
be series preferred stock, $1.00 par value per share (hereinafter the “Preferred
Stock”) and 7,000,000 shall be common stock, $1.00 par value per share
(hereinafter the “Common Stock”).”
Without
regard to any other provision of these Articles of Incorporation, each one
(1)
share of Common Stock, either issued and outstanding and any fractional share
held by any shareholder (including the Corporation) who holds one (1)
or more shares immediately prior to the time this amendment becomes effective
shall be and is hereby automatically reclassified and changed (without any
further act) into seven hundred sixty (760) fully-paid and nonassessable shares
of Common Stock (or, with respect to fractional shares, such lesser number
of
shares as may be applicable upon such 760 for one ratio), provided that no
fractional shares of Common Stock shall be issued.
Except
to
the extent required by governing law, rule or regulation, the shares of capital
stock may be issued from time to time by the Board of Directors without further
approval of shareholders. The Corporation shall have the authority to
purchase its capital stock out of funds lawfully available therefor, which
funds
shall include, without limitation, the Corporation’s unreserved and unrestricted
capital surplus.”
APPENDIX
B
DRAFT
FAIRNESS
OPINION
The
Board
of Directors
Peoples
Bancorp
212
West
Seventh Street
Auburn,
IN 46706
The
Board
of Directors:
You
have
requested our opinion as to the fairness, from a financial point of view, of
the
cash consideration of $16.75 to be received by certain shareholders of Peoples
Bancorp (the “Company”) in a “going private” transaction (the
“Transaction”). In the proposed Transaction, a one for 760 reverse
stock split followed immediately by a 760 for one stock split is to be effected
pursuant to and in accordance with the terms more fully set forth in the draft
Amendments to the Articles of Incorporation provided to us, as part of the
Company’s plan to de-register the common stock of the Company under the
Securities Exchange Act of 1934, as amended. It is anticipated that
the number of registered shareholders of the Company will be reduced to fewer
than 300, as required for termination of registration.
Commerce
Street Capital, LLC (“CSC”), as part of its investment banking business, is
regularly engaged in the valuation of bank holding companies and banks, thrift
holding companies and thrifts and their securities in connection with mergers
and acquisitions, negotiated underwritings, private placements, competitive
bidding processes, market making as a NASD market maker, secondary distributions
of listed securities and valuations for corporate, estate and other
purposes. CSC does not have any relationship involving the Company or
its subsidiaries that compromises its objectivity in preparing this
opinion.
In
arriving at our opinion, we have reviewed the draft Amendments to the Articles
of Incorporation. We have also reviewed publicly available business,
financial and shareholder information related to the Company and its
subsidiaries.
In
connection with the foregoing, we have (i) reviewed the Company’s Annual Reports
on Form 10-K and related financial information for the four fiscal years ended
September 30, 2007; (ii) reviewed certain internal financial information and
financial forecasts, relating to the business, earnings, cash flows, assets
and
prospects of the Company furnished to CSC by the Company (iii) held discussions
with members of senior management of the Company concerning the past, current
and expected results of operations of the Company and its current financial
condition; (iv) considered the current state of and future prospects for the
economy in Indiana generally and the relevant market areas for the Company
in
particular; (v) reviewed the reported financial terms of selected comparable
transactions; (vi) reviewed the historical record of reported prices, trading
volume and dividend payments for the Company; and (vii) performed such other
studies and analyses as CSC considered appropriate under the circumstances
associated with this particular transaction.
In
the
course of our review and analysis we considered, among other things, such topics
as the historical and projected future earnings of the Company. In
the conduct of our review and analysis we have relied upon and assumed, without
independent verification, the accuracy and completeness of the financial
information provided to us by the Company or otherwise publicly
obtainable. In reaching our opinion we have not assumed any
responsibility for the independent verification of such information or any
independent valuation or appraisal of any of the assets or the liabilities
of
the Company, nor have we obtained from any other source, any current appraisals
of the assets or liabilities of the Company. We have also relied on
the management of the Company as to the reasonableness of various financial
and
operating forecasts and of the assumptions on which they are based, which were
provided to us for use in our analyses.
In
our
analyses, we have made numerous assumptions with respect to industry
performance, business and economic conditions, other matters, many of which
are
beyond the control of the Company. Any estimates contained in our
analyses are not necessarily indicative of future results or value, which may
be
significantly more or less favorable than such estimates. Estimates
of values of companies do not purport to be appraisals or to necessarily reflect
the prices at which companies or their securities actually may be
sold. No comparable company utilized in our analyses was identical to
the Company. Accordingly, such analyses are not based solely
arithmetic calculations; rather, they involve complex considerations and
judgments concerning differences in financial and operating characteristics
of
the relevant companies, as well as other factors that could affect the public
trading markets of the Company or companies to which it is being
compared. None of the analyses performed by us was assigned a greater
significance than any other.
Based
upon and subject to the foregoing, it is our opinion, that as of the date of
this letter, the cash consideration of $16.75 per share to be received by
certain shareholders of the Company in the Transaction is fair, from a financial
point of view, to the shareholders of the Company.
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Very
truly yours,
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**
DRAFT **
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Commerce
Street Capital, LLC
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Peoples
Bancorp
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¨
Mark
this box with
an X if you have made changes to your name or address details
above
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Annual
Meeting Proxy Card
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IF
YOU HAVE NOT VOTED VIA THE INTERNET
OR
TELEPHONE,
FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION
IN THE
ENCLOSED ENVELOPE.
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A. Issues
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1.
APPROVAL of two amendments to the Company’s articles of incorporation to
effect a reverse 1-for-760 stock split followed immediately by
a forward
760-for-1 stock split of common shares. Each registered
shareholder owning fewer than 760 shares of common stock immediately
prior
to the reverse stock split will, instead of participating in the
forward
stock split, receive a cash payment equal to $16.75 per share on
a
pre-split basis.
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For
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Against
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Abstain
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2.
PROPOSAL to ratify the appointment of BKD LLP, certified public
accountants, as the Company’s independent auditors for the fiscal year
ending September 30, 2008.
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For
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Against
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Abstain
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3.
APPROVAL of an adjournment of the meeting, if necessary, to solicit
additional proxies.
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For
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Against
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Abstain
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B. Election
of Directors
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The
Board of Directors recommends a vote “FOR” the listed
nominees.
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1.
Election of Directors
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For
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Withhold
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01
- John C. Thrapp - two year term
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02
- G. Richard Gatton - three year term
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03
- Douglas D. Marsh - three year term
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(Continued
and to be signed on reverse side.)
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C.
Authorized Signatures - Sign Here - This section must be completed
for
your instructions to be executed.
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Note:
Please sign your name(s) EXACTLY as your name(s) appear(s) on this
proxy.
All joint holders must sign. When signing as attorney, trustee,
executor,
administrator, guardian or corporate officer, please provide your
FULL
title.
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Signature
1 - Please keep signature within the box
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Signature
2 - Please keep signature within the box
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Date
(mm/dd/yyyy)
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¨¨
/
¨¨
/
¨¨¨¨
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This
proxy is solicited on behalf of the Board of Directors for the
Annual
Meeting of Shareholders to be held __________, March ___,
2008.
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The
undersigned hereby appoints the Board of Directors (with the power
of
substitution), proxy for the undersigned to represent and to vote,
as
designated on the reverse side, all shares of Common Stock of Peoples
Bancorp, which the undersigned would be entitled to vote if personally
present at the Annual Meeting of Shareholders to be held on March
___,
2008, and at any adjournment thereof.
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This
proxy when properly executed, will be voted in the manner directed
herein
by the undersigned shareholder. If no direction is made, this proxy
will
be voted FOR proposals 1, 2 and 3 in Part A. Issues and FOR the
director
nominees. In addition, this proxy will be voted at the discretion
of the
proxy holder(s) upon any other matter which may properly come before
the
Annual Meeting.
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Peoples Bancorp (MM) (NASDAQ:PFDC)
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부터 5월(5) 2024 으로 6월(6) 2024
Peoples Bancorp (MM) (NASDAQ:PFDC)
과거 데이터 주식 차트
부터 6월(6) 2023 으로 6월(6) 2024
