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<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 12pt; FONT-FAMILY: Times New Roman">WASHINGTON, DC 20549</font></div>

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<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">CURRENT REPORT</font></div>

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<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">SECURITIES EXCHANGE ACT OF 1934</font></div>

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<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Date of report (Date of earliest event reported):&#160;&#160;<font style="DISPLAY: inline; FONT-WEIGHT: bold">September 15, 2011</font></font></div>

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<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 18pt; FONT-FAMILY: Times New Roman"><a name="fis_unidentified_table"><!--EFPlaceholder--></a>Community Bank Shares of Indiana, Inc.</font></div>

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<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">101 West Spring Street, New Albany, Indiana 47150</font></div>

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<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><a name="fis_results_of_operations"><!--EFPlaceholder--></a>ITEM 1.01.&#160;&#160;ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT</font></div>

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<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On September 15, 2011, Community Bank Shares of Indiana, Inc. (the &#8220;Company&#8221;) entered into a security purchase agreement (&#8220;Purchase Agreement&#8221;) with the United States Department of the Treasury (&#8220;Treasury&#8221;) as part of its Small Business Lending Fund program (&#8220;SBLF&#8221;), pursuant to which the Company sold 28,000 of its Senior Non-Cumulative Perpetual Preferred Stock, Series B to the Treasury for a purchase price of $28,000,000.&#160;&#160;&#160;The Purchase Agreement is attached hereto as Exhibit 10.1 and incorporated by reference.</font></div>

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<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Using the proceeds from the sale of the SBLF Preferred Stock, the Company redeemed its 19,468 outstanding shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the &#8220;TARP Preferred Stock&#8221;), which were issued to the United States Department of the Treasury in May 2009 in connection with the Company&#8217;s participation in the Troubled Asset Relief Program &#8211; Capital Purchase Program, plus the accrued dividends owed on the TARP Preferred Stock.&#160;&#160;The Company entered into a letter agreement with the United States Department of the Treasury, dated September 15, 2011 (the &#8220;Repurchase Letter Agreement&#8221;), with respect to the repurchase of the TARP Preferred Stock.&#160;&#160;A copy of the Repurchase Letter Agreement is attached hereto as Exhibit 10.2 and is incorporated herein by reference.</font></div>

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<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The SBLF Preferred Stock qualifies as Tier 1 capital and will accrue non-cumulative dividends, payable quarterly, on each January 1, April 1, July 1 and October 1.&#160;&#160;The dividend rate, as a percentage of the liquidation amount, can fluctuate on a quarterly basis during the first 10 quarters during which the preferred stock is outstanding, based upon changes in the level of &#8220;Qualified Small Business Lending&#8221; (&#8220;QSBL&#8221;), as defined in the Purchase Agreement, by the Company&#8217;s subsidiary banks, Your Community Bank and The Scott County State Bank (the &#8220;Banks&#8221;).&#160;&#160;The initial dividend rate through September 30, 2011 is 5%.&#160;&#160;&#160;&#160;The dividend rate for future dividend periods will be set based upon the percentage change in QSBL&#160;&#160;between each dividend period and the baseline QSBL level, as determined in accordance with the Purchase Agreement.&#160;&#160;Such dividend rate may vary from 1% per annum to 5% per annum for the second through tenth dividend periods, and will be fixed at a rate between 1% per annum to 7% per annum and remain unchanged up to four and one-half years following the funding date (the eleventh through the first half of the nineteenth dividend periods).&#160;&#160;If the SBLF Preferred Stock remains outstanding for more than four-and-one-half years, the dividend rate will be fixed at 9%.&#160;&#160;Prior to that time, in general, the dividend rate will decrease as the level of the Bank&#8217;s QSBL increases.&#160;&#160;Such dividends are not cumulative, but the Company may only declare and pay dividends on its common stock (or any other equity securities junior to the SBLF Preferred Stock) if it has declared and paid dividends for the current dividend period on the SBLF Preferred Stock, and will be subject to other restrictions on its ability to repurchase or redeem other securities.</font></div>

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<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">If the Company&#8217;s QSBL with respect to its ninth dividend period is less than or equal to its QSBL baseline, then, beginning on January&#160;1, 2014 and on all dividend payments thereafter ending on April&#160;1, 2015, the Company will pay the holders of its SBLF Preferred Stock a special lending incentive fee equal to 0.5% of the liquidation amount per share of SBLF Preferred Stock.</font></div>

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<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">As more completely described in the Company&#8217;s Articles of Amendment of the Amended and Restated Articles of Incorporation (attached as Exhibit 3.1 in the Company&#8217;s 8-K filed with the Securities and Exchange Commission on September 15, 2011, which is incorporated by reference herein), holders of the SBLF Preferred Stock have the right to vote as a separate class on certain matters relating to the rights of holders of SBLF Preferred Stock and on certain corporate transactions.&#160;&#160;Except with respect to such matters and, if applicable, the election of the additional directors describedbelow, the SBLF Preferred Stock does not have voting rights.&#160;&#160;If (i) the Company has not timely declared and paid dividends on the SBLF Preferred Stock for six dividend periods or more, whether or not consecutive, and (ii) shares of SBLF Preferred Stock with an aggregate liquidation preference of at least $25,000,000 are still outstanding, the Treasury (or any successor holder of SBLF Preferred Stock) may elect two additional directors to the Company&#8217;s Board of Directors.&#160;&#160;In the event that the Company misses five dividend payments, whether or not consecutive, the holder of the SBLF Preferred Stock will have the right, but not the obligation, to appoint a representative as an observer on the Company&#8217;s Board of Directors.</font></div>

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<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The Company may redeem the shares of SBLF Preferred Stock, in whole or in part, at any time at a redemption price equal to the sum of the liquidation amount per share ($1,000 per share) and the per-share amount of any unpaid dividends for the then-current period, subject to any required prior approval by the Company&#8217;s primary federal banking regulator.</font></div>

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<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The SBLF Preferred Stock was issued in a private placement exempt from registration under f the Securities Act of 1933, as amended. The Company has agreed to register the SBLF Preferred Stock under certain circumstances set forth in Annex E to the Purchase Agreement.&#160;&#160;</font></div>

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<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The above discussion is a summary only, and is qualified in all respects by the specific terms of the Purchase Agreement, the Certificate of Amendment and the Repurchase Letter Agreement.</font></div>

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<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">ITEM 3.02.&#160;&#160;UNREGISTERED SALES OF EQUITY SECURITIES</font></div>

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<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The information set forth under Item 1.01 of this Current Report on Form&#160;8-K is incorporated by reference into this Item&#160;3.02.&#160;&#160;The issuance and sale of the SBLF Preferred Stock was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.&#160;&#160;The Company has not engaged in a general solicitation or advertising with regard to the issuance and sale of such securities and has not offered securities to the public in connection with this issuance and sale.</font></div>

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<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">ITEM 3.03.&#160;&#160;MATERIAL MODIFICATION TO RIGHTS OF SECURITY HOLDERS</font></div>

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<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The terms of the SBLF Preferred Stock impose limits on the ability of the Company to pay dividends and repurchase shares of common stock.&#160;&#160;Under the terms of the SBLF Preferred Stock, no repurchases may be effected, and no dividends may be declared or paid on preferred shares ranking pari passu with the SBLF Preferred Stock, junior preferred shares, or other junior securities (including the common stock) during the current quarter and for the next three quarters following the failure to declare and pay dividends on the SBLF Preferred Stock, except that, in any such quarter in which the dividend is paid, dividend payments on shares ranking pari passu may be paid to the extent necessary to avoid any resulting material covenant breach.</font></div>

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<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Under the terms of the SBLF Preferred Stock, the Company may only declare and pay a dividend on the common stock or other stock junior to the SBLF Preferred Stock, or repurchase shares of any such class or series of stock, if, after payment of such dividend, the dollar amount of the Company&#8217;s Tier 1 Capital would be at least 90% of the&#160;&#160;Tier 1 Capital of the Company as of September 15, 2011, excluding any subsequent net charge-offs and any redemption of the SBLF Preferred Stock (the &#8220;Tier 1 Dividend Threshold&#8221;).&#160;&#160;Beginning on the first day of the eleventh dividend period, the amount of the Tier 1 Dividend Threshold will be reduced by 10% for each one percent increase in QSBL from the baseline level through the ninth dividend period.</font></div>

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{"company-data": {"conformed-name": "COMMUNITY BANK SHARES OF INDIANA INC", "cik": "0000933590", "assigned-sic": "6022", "irs-number": "351938254", "state-of-incorporation": "IN", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "8-K", "act": "34", "file-number": "000-25766", "film-number": "111096011"}, "business-address": {"street1": "101 W SPRING ST", "street2": "P O BOX 939", "city": "NEW ALBANY", "state": "IN", "zip": "47150", "phone": "8129496844"}, "mail-address": {"street1": "101 W SPRING STREET", "city": "NEW ALBANY", "state": "IN", "zip": "47150"}}
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported):
September 15, 2011
Community Bank Shares of Indiana, Inc.
(Exact Name of Registrant as Specified in Charter)
Indiana
0-25766
35-1938254
(State or Other Jurisdiction
(Commission
(IRS Employer
of Incorporation)
File Number)
Identification No.)
101 West Spring Street, New Albany, Indiana 47150
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number including area code (812) 944-2224
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
ITEM 1.01.  ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT
On September 15, 2011, Community Bank Shares of Indiana, Inc. (the "Company") entered into a security purchase agreement ("Purchase Agreement") with the United States Department of the Treasury ("Treasury") as part of its Small Business Lending Fund program ("SBLF"), pursuant to which the Company sold 28,000 of its Senior Non-Cumulative Perpetual Preferred Stock, Series B to the Treasury for a purchase price of $28,000,000.   The Purchase Agreement is attached hereto as Exhibit 10.1 and incorporated by reference.
Using the proceeds from the sale of the SBLF Preferred Stock, the Company redeemed its 19,468 outstanding shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the "TARP Preferred Stock"), which were issued to the United States Department of the Treasury in May 2009 in connection with the Company's participation in the Troubled Asset Relief Program – Capital Purchase Program, plus the accrued dividends owed on the TARP Preferred Stock.  The Company entered into a letter agreement with the United States Department of the Treasury, dated September 15, 2011 (the "Repurchase Letter Agreement"), with respect to the repurchase of the TARP Preferred Stock.  A copy of the Repurchase Letter Agreement is attached hereto as Exhibit 10.2 and is incorporated herein by reference.
The SBLF Preferred Stock qualifies as Tier 1 capital and will accrue non-cumulative dividends, payable quarterly, on each January 1, April 1, July 1 and October 1.  The dividend rate, as a percentage of the liquidation amount, can fluctuate on a quarterly basis during the first 10 quarters during which the preferred stock is outstanding, based upon changes in the level of "Qualified Small Business Lending" ("QSBL"), as defined in the Purchase Agreement, by the Company's subsidiary banks, Your Community Bank and The Scott County State Bank (the "Banks").  The initial dividend rate through September 30, 2011 is 5%.    The dividend rate for future dividend periods will be set based upon the percentage change in QSBL  between each dividend period and the baseline QSBL level, as determined in accordance with the Purchase Agreement.  Such dividend rate may vary from 1% per annum to 5% per annum for the second through tenth dividend periods, and will be fixed at a rate between 1% per annum to 7% per annum and remain unchanged up to four and one-half years following the funding date (the eleventh through the first half of the nineteenth dividend periods).  If the SBLF Preferred Stock remains outstanding for more than four-and-one-half years, the dividend rate will be fixed at 9%.  Prior to that time, in general, the dividend rate will decrease as the level of the Bank's QSBL increases.  Such dividends are not cumulative, but the Company may only declare and pay dividends on its common stock (or any other equity securities junior to the SBLF Preferred Stock) if it has declared and paid dividends for the current dividend period on the SBLF Preferred Stock, and will be subject to other restrictions on its ability to repurchase or redeem other securities.
If the Company's QSBL with respect to its ninth dividend period is less than or equal to its QSBL baseline, then, beginning on January 1, 2014 and on all dividend payments thereafter ending on April 1, 2015, the Company will pay the holders of its SBLF Preferred Stock a special lending incentive fee equal to 0.5% of the liquidation amount per share of SBLF Preferred Stock.
As more completely described in the Company's Articles of Amendment of the Amended and Restated Articles of Incorporation (attached as Exhibit 3.1 in the Company's 8-K filed with the Securities and Exchange Commission on September 15, 2011, which is incorporated by reference herein), holders of the SBLF Preferred Stock have the right to vote as a separate class on certain matters relating to the rights of holders of SBLF Preferred Stock and on certain corporate transactions.  Except with respect to such matters and, if applicable, the election of the additional directors describedbelow, the SBLF Preferred Stock does not have voting rights.  If (i) the Company has not timely declared and paid dividends on the SBLF Preferred Stock for six dividend periods or more, whether or not consecutive, and (ii) shares of SBLF Preferred Stock with an aggregate liquidation preference of at least $25,000,000 are still outstanding, the Treasury (or any successor holder of SBLF Preferred Stock) may elect two additional directors to the Company's Board of Directors.  In the event that the Company misses five dividend payments, whether or not consecutive, the holder of the SBLF Preferred Stock will have the right, but not the obligation, to appoint a representative as an observer on the Company's Board of Directors.
The Company may redeem the shares of SBLF Preferred Stock, in whole or in part, at any time at a redemption price equal to the sum of the liquidation amount per share ($1,000 per share) and the per-share amount of any unpaid dividends for the then-current period, subject to any required prior approval by the Company's primary federal banking regulator.
The SBLF Preferred Stock was issued in a private placement exempt from registration under f the Securities Act of 1933, as amended. The Company has agreed to register the SBLF Preferred Stock under certain circumstances set forth in Annex E to the Purchase Agreement.
The above discussion is a summary only, and is qualified in all respects by the specific terms of the Purchase Agreement, the Certificate of Amendment and the Repurchase Letter Agreement.
ITEM 3.02.  UNREGISTERED SALES OF EQUITY SECURITIES
The information set forth under Item 1.01 of this Current Report on Form 8-K is incorporated by reference into this Item 3.02.  The issuance and sale of the SBLF Preferred Stock was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.  The Company has not engaged in a general solicitation or advertising with regard to the issuance and sale of such securities and has not offered securities to the public in connection with this issuance and sale.
ITEM 3.03.  MATERIAL MODIFICATION TO RIGHTS OF SECURITY HOLDERS
The terms of the SBLF Preferred Stock impose limits on the ability of the Company to pay dividends and repurchase shares of common stock.  Under the terms of the SBLF Preferred Stock, no repurchases may be effected, and no dividends may be declared or paid on preferred shares ranking pari passu with the SBLF Preferred Stock, junior preferred shares, or other junior securities (including the common stock) during the current quarter and for the next three quarters following the failure to declare and pay dividends on the SBLF Preferred Stock, except that, in any such quarter in which the dividend is paid, dividend payments on shares ranking pari passu may be paid to the extent necessary to avoid any resulting material covenant breach.
Under the terms of the SBLF Preferred Stock, the Company may only declare and pay a dividend on the common stock or other stock junior to the SBLF Preferred Stock, or repurchase shares of any such class or series of stock, if, after payment of such dividend, the dollar amount of the Company's Tier 1 Capital would be at least 90% of the  Tier 1 Capital of the Company as of September 15, 2011, excluding any subsequent net charge-offs and any redemption of the SBLF Preferred Stock (the "Tier 1 Dividend Threshold").  Beginning on the first day of the eleventh dividend period, the amount of the Tier 1 Dividend Threshold will be reduced by 10% for each one percent increase in QSBL from the baseline level through the ninth dividend period.
ITEM 5.02.  DEPARTURE OF DIRECTORS OR CERTAIN OFFICERS; ELECTION OF DIRECTORS; APPOINTMENT OF CERTAIN OFFICERS; COMPENSATORY ARRANGEMENTS OF CERTAIN OFFICERS
As a result of the redemption of the TARP Preferred Stock, the Company is no longer subject to the TARP executive compensation requirements.
ITEM 9.01.  FINANCIAL STATEMENTS AND EXHIBITS
(d)  Exhibits
Exhibit No. and Description
4.1
Form of Certificate for the SBLF Preferred Stock
10.1
Securities Purchase Agreement, dated September 15, 2011, between Community Bank Shares of Indiana, Inc. and the Secretary of the Treasury, with respect to the issuance and sale of the SBLF Preferred Stock.
10.2
Repurchase Letter Agreement dated September 15, 2011, between Community Bank Shares of Indiana, Inc. and the United States Department of the Treasury, with respect to the repurchase and redemption of the TARP Preferred Stock.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
COMMUNITY BANK SHARES OF INDIANA, INC.
Date:  September 16, 2011
By:
/s/ Paul A. Chrisco
Name:  Paul A. Chrisco
Title: Chief Financial Officer