<PAGE>
As filed with the Securities and Exchange Commission on July 19, 1996
Registration No. 333-_____
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
Fulton Bancorp, Inc.
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(Exact name of registrant as specified in charter)
Delaware 6035 [applied for]
- ------------------ ------------------ -------------------
(State or other (Primary SICC No.) (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
410 Market Street
Fulton, Missouri 65251
(573) 642-6618
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(Address and telephone number of principal executive offices)
Paul M. Aguggia, Esquire
Aaron M. Kaslow, Esquire
BREYER & AGUGGIA
Suite 470 East
1300 I Street, N.W.
Washington, D.C. 20005
------------------------------
(Name and address of agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
Calculation of Registration Fee
<TABLE>
<CAPTION>
Title of Each Class Proposed Maximum Proposed Proposed Maximum Amount of
of Securities Amount Being Offering Aggregate Offering Registration
Being Registered Registered(1) Price (1) Price (1) Fee
- ---------------- ------------- --------- ------------- ------------
<S> <C> <C> <C> <C>
Common Stock, 1,719,250 $10.00 $17,192,500 $5,928.45
$0.01 Par Value
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee. As
described in the Prospectus, the actual number of shares to be issued and
sold is subject to adjustment based upon the estimated pro forma market value
of the registrant and market and financial conditions.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Cross Reference Sheet showing the location in the Prospectus
of the Items of Form S-1
<TABLE>
<CAPTION>
<S> <C> <C>
1. Forepart of the Registration Forepart of the Registration Statement;
Statement and Outside Front Outside Front Cover Page
Cover of Prospectus
2. Inside Front and Outside Back Inside Front Cover Page; Outside Back
Cover Pages of Prospectus Cover Page
3. Summary Information, Risk Factors Prospectus Summary; Risk Factors
and Ratio of Earnings
to Fixed Charges
4. Use of Proceeds Use of Proceeds; Capitalization
5. Determination of Offering Price Market for Common Stock
Offering Price
6. Dilution *
7. Selling Security Holders *
8. Plan of Distribution The Conversion
9. Description of Securities to be Description of Capital Stock
Registered
10. Interests of Named Experts and Legal and Tax Opinions; Experts
Counsel
11. Information with Respect to the
Registrant
(a) Description of Business Business of the Holding Company;
Business of the Savings Bank
(b) Description of Property Business of the Savings Bank - Properties
(c) Legal Proceedings Business of the Savings Bank - Legal
Proceedings
(d) Market Price of and Dividends Outside Front Cover Page; Market for
on the Registrant's Common Equity Common Stock; Dividend Policy
and Related Stockholder Matters
(e) Financial Statements Financial Statements; Pro Forma Data
(f) Selected Financial Data Selected Financial and Other Data
(g) Supplementary Financial *
Information
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
(h) Management's Discussion and Management's Discussion and Analysis of
Analysis of Financial Condition Financial Condition and Results of
and Results of Operations Operations
(i) Changes in and Disagreements *
with Accountants on Accounting
and Financial Disclosure
(j) Directors and Executive Management of the Holding Company; Management of
Officers the Savings Bank
(k) Executive Compensation Management of the Holding Company; Management of
the Savings Bank -- Benefits -- Executive Compensation
(l) Security Ownership of Certain *
Beneficial Owners and Management
(m) Certain Relationships and Management of the Savings Bank -- Transactions with
Related Transactions the Savings Bank
12. Disclosure of Commission Position Part II - Item 17
on Indemnification for Securities
Act Liabilities
</TABLE>
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*Item is omitted because answer is negative or item inapplicable.
<PAGE>
PROSPECTUS FULTON BANCORP, INC.
(Proposed Holding Company for Fulton Savings Bank, FSB)
Up to 1,495,000 Shares of Common Stock
Fulton Bancorp, Inc. (the "Holding Company"), a Delaware corporation, is
offering between 1,105,000 and 1,495,000 shares of its common stock, $.01 par
value per share (the "Common Stock"), in connection with the conversion of
Fulton Savings Bank, FSB (the "Savings Bank") from a federally chartered mutual
savings bank to a federally chartered capital stock savings bank and the
simultaneous issuance of the Savings Bank's capital stock to the Holding
Company. The simultaneous conversion of the Savings Bank to stock form, the
issuance of the Savings Bank's capital stock to the Holding Company and the
offer and sale of the Common Stock by the Holding Company are being undertaken
pursuant to a plan of conversion ("Plan" or "Plan of Conversion") and are
referred to herein as the "Conversion."
Pursuant to the Plan of Conversion, nontransferable rights to subscribe for
the Common Stock ("Subscription Rights") have been granted, in order of
priority, to (i) depositors with $50.00 or more on deposit at the Savings Bank
as of December 31, 1994 ("Eligible Account Holders"), (ii) the Savings Bank's
employee stock ownership plan ("ESOP"), a tax-qualified employee benefit plan,
(iii) depositors with $50.00 or more on deposit at the Savings Bank as of June
30, 1996 ("Supplemental Eligible Account Holders"), and (iv) depositors of the
Savings Bank as of __________, 1996 ("Voting Record Date") and borrowers of the
Savings Bank with loans outstanding as of April 15, 1995 which continue to be
outstanding as of the Voting Record Date ("Other Members"), subject to the
priorities and purchase limitations set forth in the Plan of Conversion
("Subscription Offering"). Subscription Rights are nontransferable. Persons
selling or otherwise transferring their rights to subscribe for Common Stock in
the Subscription Offering or subscribing for Common Stock on behalf of another
person will be subject to forfeiture of such rights and possible further
sanctions and penalties imposed by the Office of Thrift Supervision ("OTS") or
another agency of the U.S. Government. The Subscription Offering will expire at
4:30 p.m., Central Time, on ______, 1996 ("Expiration Date"), unless extended by
the Savings Bank and the Holding Company for up to __ days to ____________,
1996. Such extension may be granted without additional notice to subscribers.
See "THE CONVERSION -- The Subscription, Direct Community and Syndicated
Community Offerings" and "-- Limitations on Purchases of Shares."
FOR INFORMATION ON HOW TO SUBSCRIBE FOR SHARES OF COMMON STOCK, CALL THE
STOCK INFORMATION CENTER AT _______________.
FOR A DISCUSSION OF CERTAIN RISKS THAT SHOULD BE CONSIDERED BY EACH
PROSPECTIVE INVESTOR, SEE "RISK FACTORS" BEGINNING ON PAGE 1.
THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS OR ACCOUNTS AND WILL NOT BE
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC"), THE SAVINGS
ASSOCIATION INSURANCE FUND ("SAIF") OR ANY OTHER GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("SEC"), THE OTS, THE FDIC OR ANY OTHER FEDERAL AGENCY OR
ANY STATE SECURITIES COMMISSION, NOR HAS THE SEC, THE OTS, THE FDIC OR ANY OTHER
AGENCY OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
(cover continued on following page)
TRIDENT SECURITIES, INC.
The date of this Prospectus is , 1996.
----------- ----
<PAGE>
<TABLE>
<S> <C> <C> <C>
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Estimated Underwriting
Purchase Commissions and Estimated Net
Price(1) Other Fees and Expenses(2) Proceeds
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Minimum Price Per Share..................... $10.00 $0.49 $9.51
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Midpoint Price Per Share.................... $10.00 $0.42 $9.58
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Maximum Price Per Share..................... $10.00 $0.36 $9.64
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Maximum Price Per Share, as adjusted (3).... $10.00 $0.32 $9.68
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Minimum Total(4)............................ $11,050,000 $542,000 $10,508,000
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Midpoint Total(5)........................... $13,000,000 $542,000 $12,458,000
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Maximum Total(6)............................ $14,950,000 $542,000 $13,866,000
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Maximum Total, as adjusted (3)(7)........... $17,192,000 $542,000 $16,650,000
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</TABLE>
(1) Determined in accordance with an independent appraisal prepared by RP
Financial, LC. ("RP Financial") as of July 12, 1996, which states that
the estimated aggregate pro forma market value of the Holding Company
and the Savings Bank as converted ranged from $11,050,000 to
$14,950,000, with a midpoint of $13,000,000 ("Estimated Valuation
Range"). RP Financial's appraisal is based upon estimates and
projections that are subject to change, and the valuation must not be
construed as a recommendation as to the advisability of purchasing
such shares or that a purchaser will thereafter be able to sell such
shares at or above the Purchase Price. See "THE CONVERSION -- Stock
Pricing and Number of Shares to be Issued."
(2) Includes estimated costs to the Holding Company and the Savings Bank
arising from the Conversion, including fees to be paid to Trident
Securities in connection with the Offerings. Such fees may be deemed
to be underwriting fees and Trident Securities may be deemed to be an
underwriter. The Holding Company and the Savings Bank have agreed to
indemnify Trident Securities against certain liabilities, including
liabilities that may arise under the Securities Act of 1933, as
amended ("Securities Act"). See "USE OF PROCEEDS" and "THE CONVERSION
-- Plan of Distribution for the Subscription, Direct Community and
Syndicated Community Offerings."
(3) Gives effect to the sale of up to an additional 15% of the shares
offered, without the resolicitation of subscribers or any right of
cancellation, due to an increase in the pro forma market value of the
Holding Company and the Savings Bank as converted. The ESOP shall
have a first priority right to subscribe for such additional shares up
to an aggregate of 8% of the Common Stock issued in the Conversion.
See "THE CONVERSION -- Stock Pricing and Number of Shares to be
Issued."
(4) Assumes the issuance of 1,105,000 shares at $10.00 per share.
(5) Assumes the issuance of 1,300,000 shares at $10.00 per share.
(6) Assumes the issuance of 1,495,000 shares at $10.00 per share.
(7) Assumes the issuance of 1,719,250 shares at $10.00 per share.
Any shares of Common Stock not subscribed for in the Subscription
Offering may be offered for sale to members of the general public through a
direct community offering ("Direct Community Offering") with preference
being given to natural persons and trusts of natural persons who are
permanent residents of Boone or Callaway Counties of Missouri ("Local
Community"), subject to the right of the Holding Company to accept or
reject orders in the Direct Community Offering in whole or in part. The
Direct Community Offering, if one is held, is expected to begin immediately
after the Expiration Date, but may begin at any time during the
Subscription Offering. The Direct Community Offering may terminate on or
after the Expiration Date, but not later than __________________, 1996 (or
__________________, 1996 if the Subscription Offering is fully extended),
unless further extended with the consent of the OTS. It is anticipated
that shares of Common Stock not subscribed for or purchased in the
Subscription and Direct Community Offerings will be offered to eligible
members of the general public on a best efforts basis by a selling group of
broker-dealers managed by Trident Securities, Inc. ("Trident Securities")
in a syndicated offering ("Syndicated Community Offering") (the
Subscription Offering, Direct Community Offering and Syndicated Community
Offering are referred to collectively as the "Offerings").
With the exception of the ESOP, which is expected to purchase 8% of
the shares of Common Stock issued in the Conversion, no person or entity
may purchase shares with an aggregate purchase price of more than
<PAGE>
$150,000 (or 15,000 shares based on the Purchase Price); and no person or
entity, together with associates of and persons acting in concert with such
person or entity, may purchase in the aggregate shares with an aggregate
purchase price of more than $200,000 (or 20,000 shares based on the
Purchase Price). Under certain circumstances, the maximum purchase
limitation may be increased or decreased at the sole discretion of the
Savings Bank and the Holding Company subject to any required regulatory
approval. See "THE CONVERSION -- The Subscription, Direct Community and
Syndicated Community Offerings," "-- Limitations on Purchases of Shares"
and "-- Procedure for Purchasing Shares in the Subscription and Direct
Community Offerings" for other purchase and sale limitations. The minimum
order is 25 shares.
The Holding Company must receive a properly completed and signed stock
order form and certification ("Order Form") along with full payment (or
appropriate instructions authorizing a withdrawal of the full payment from
a deposit account at the Savings Bank) of $10.00 per share for all shares
subscribed for or ordered. Funds so received will be placed in a
segregated account created for this purpose at the Savings Bank, and
interest will be paid at the Savings Bank's passbook rate from the date
payment is received until the Conversion is consummated or terminated;
these funds will be otherwise unavailable to the depositor until such time.
Payments authorized by withdrawals from deposit accounts will continue to
earn interest at the contractual rate until the Conversion is consummated
or terminated, although such funds will be unavailable for withdrawal until
the Conversion is consummated or terminated. Shares of Common Stock issued
in the Conversion are not deposit liabilities, will not earn interest, and
will not be insured by the FDIC, the SAIF or any other government agency.
ONCE TENDERED, SUBSCRIPTION ORDERS CANNOT BE REVOKED OR MODIFIED WITHOUT
THE CONSENT OF THE SAVINGS BANK AND THE HOLDING COMPANY. The Holding
Company is not obligated to accept orders submitted on photocopied or
telecopied Order Forms. If the Conversion is not consummated within 45
days after the last day of the Subscription Offering (which date will be no
later than ________ __, 1996) and the OTS consents to an extension of time
to complete the Conversion, subscribers will be given the right to
increase, decrease or rescind their orders. Such extensions may not go
beyond ____________, 1998.
The Savings Bank and the Holding Company have engaged Trident
Securities as their financial advisor and sales agent to assist the Holding
Company in the sale of the Common Stock in the Offerings. In addition, in
the event the Common Stock is not fully subscribed for in the Subscription
and Direct Community Offerings, Trident Securities will manage the
Syndicated Community Offering. Neither Trident Securities nor any other
registered broker-dealer is obligated to take or purchase any shares of
Common Stock in the Offerings. The Holding Company and the Savings Bank
reserve the right, in their absolute discretion, to accept or reject, in
whole or in part, any or all orders in the Direct Community or Syndicated
Community Offerings either at the time of receipt of an order or as soon as
practicable following the termination of the Offerings. See "THE
CONVERSION -- Plan of Distribution for the Subscription, Direct Community
and Syndicated Community Offerings." Trident Securities is a registered
broker-dealer and a member of the National Association of Securities
Dealers, Inc. ("NASD").
Offering materials for the Subscription Offering initially will be
distributed to certain persons by mail, with copies also available by
request or at the Savings Bank's offices. The Savings Bank has established
a Stock Information Center for purposes of coordinating the Offerings,
including tabulating orders and answering questions about the Offerings by
telephone. All subscribers for or purchasers of the shares to be offered
must send payment directly to the Savings Bank, where such funds will be
held in a segregated account and not released until the Conversion is
consummated or terminated. See "THE CONVERSION."
Prior to the Offerings, the Holding Company has not issued any capital
stock and accordingly there has been no market for the shares offered
hereby. There can be no assurance that an active and liquid trading market
for the Common Stock will develop or, if developed, will be maintained.
The Holding Company has received conditional approval to have its Common
Stock listed on the Nasdaq SmallCap Market under the symbol "____."
Trident Securities has agreed to act as a market maker for the Common Stock
following consummation of the Conversion. See "RISK FACTORS -- Absence of
Prior Market for the Common Stock" and "MARKET FOR COMMON STOCK."
<PAGE>
FULTON SAVINGS BANK, FSB
FULTON, MISSOURI
[Insert Map Here]
THE CONVERSION IS CONTINGENT UPON APPROVAL OF THE SAVINGS BANK'S PLAN OF
CONVERSION BY ITS ELIGIBLE VOTING MEMBERS, THE SALE OF AT LEAST 1,105,000
SHARES OF COMMON STOCK PURSUANT TO THE PLAN OF CONVERSION, AND RECEIPT OF
ALL REGULATORY APPROVALS.
<PAGE>
---------------------------------------------------------------------------
THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS OR ACCOUNTS AND WILL NOT BE
INSURED OR GUARANTEED BY THE FDIC, THE SAIF OR ANY OTHER GOVERNMENT AGENCY.
---------------------------------------------------------------------------
PROSPECTUS SUMMARY
The information set forth below should be read in conjunction with and
is qualified in its entirety by the more detailed information and
Consolidated Financial Statements (including the Notes thereto) presented
elsewhere in this Prospectus. The purchase of Common Stock is subject to
certain risks. See "RISK FACTORS."
Fulton Bancorp, Inc.
The Holding Company is a Delaware corporation organized in May 1996 at
the direction of the Savings Bank to acquire all of the capital stock that
the Savings Bank will issue upon its conversion from the mutual to stock
form of ownership. The Holding Company has not engaged in any significant
business to date. The Holding Company has received the approval of the OTS
to become a savings and loan holding company and to acquire 100% of the
capital stock of the Savings Bank. Immediately following the Conversion,
the only significant assets of the Holding Company will be the capital
stock of the Savings Bank, that portion of the net proceeds of the
Offerings permitted by the OTS to be retained by the Holding Company and a
note receivable from the ESOP evidencing a loan from the Holding Company to
fund the Savings Bank's ESOP. The Holding Company has received approval
from the OTS to retain 50% of the net proceeds of the Offerings. Funds
retained by the Holding Company will be used for general business
activities, including a loan by the Holding Company directly to the ESOP to
enable the ESOP to purchase 8% of the Common Stock issued in the
Conversion. See "USE OF PROCEEDS." Upon Conversion, the Holding Company
will be classified as a unitary savings and loan holding company subject to
regulation by the OTS. See "REGULATION -- Savings and Loan Holding Company
Regulations." Management believes that the holding company structure and
retention of proceeds may facilitate the expansion and diversification of
its operations, should it decide to do so. The holding company structure
will also enable the Holding Company to repurchase its stock without
adverse tax consequences, subject to applicable regulatory restrictions and
waiting periods. There are no present plans, arrangements, agreements, or
understandings, written or oral, regarding any such activities or
repurchases. The main office of the Holding Company is located at 410
Market Street, Fulton, Missouri 65251, and its telephone number is (573)
642-6618.
Fulton Savings Bank, FSB
The Savings Bank, founded in 1912, is a federally chartered mutual
savings bank located in Fulton, Missouri. The Savings Bank amended its
charter from that of a state-chartered mutual savings bank to become a
federal mutual savings bank in April 1995. In connection with the
Conversion, the Savings Bank will convert to a federally chartered capital
stock savings bank and will become a subsidiary of the Holding Company.
The Savings Bank is regulated by the OTS, its primary federal regulator,
and the FDIC, the insurer of its deposits. The Savings Bank's deposits are
insured by the FDIC's Savings Association Insurance Fund ("SAIF") and have
been federally insured since 1965. The Savings Bank has been a member of
the Federal Home Loan Bank ("FHLB") System since 1942. At April 30, 1996,
the Savings Bank had total assets of $85.5 million, total deposits of $70.3
million and retained earnings of $9.1 million on a consolidated basis.
The Savings Bank is a community oriented financial institution that
engages primarily in the business of attracting deposits from the general
public and using those funds to originate residential and commercial
mortgage loans within the Savings Bank's market area. The Savings Bank
generally sells all of the fixed-rate and some of the adjustable-rate
residential mortgage loans that it originates while retaining the servicing
rights on such loans. At April 30, 1996, one- to four-family residential
mortgage loans totalled $46.7 million, or 59.6% of the Savings
(i)
<PAGE>
Bank's total gross loans. The Savings Bank also originates multi-family,
commercial real estate, construction, land and consumer and other loans.
The Savings Bank frequently sells participation interests in the non-
residential mortgage loans it originates. At April 30, 1996, multi-family
and commercial real estate loans accounted for 16.0% of the Savings Bank's
total gross loans, construction loans accounted for 9.8% of total gross
loans and consumer and other loans accounted for 12.7% of total gross
loans. The Savings Bank has a branch office located in Holts Summit,
Missouri. The main office of the Savings Bank is located at 410 Market
Street, Fulton, Missouri 65251, and its telephone number is (573) 642-6618.
The Conversion
The Savings Bank is in the process of converting from a federally
chartered mutual savings bank to a federally chartered capital stock
savings bank and, in connection with the Conversion, has formed the Holding
Company. As part of the Conversion, the Savings Bank will issue all of its
capital stock to the Holding Company in exchange for 50% of the net
proceeds of the Offerings. Simultaneously, the Holding Company will sell
its Common Stock in the Offerings. The Conversion is subject to the
approval of the OTS, as well as the Savings Bank's members at a special
meeting to be held on _______, 1996. After consummation of the Conversion,
depositors and borrowers of the Savings Bank will have no voting rights in
the Holding Company unless they become stockholders.
The Plan of Conversion requires that the aggregate purchase price of
the Common Stock to be issued in the Conversion be based upon an
independent appraisal of the estimated pro forma market value of the
Holding Company and the Savings Bank as converted. RP Financial has
advised the Savings Bank that in its opinion, at July 12, 1996, the
aggregate estimated pro forma market value of the Holding Company and the
Savings Bank as converted ranged from $11,050,000 to $14,950,000. The
appraisal of the pro forma market value of the Holding Company and the
Savings Bank as converted is based on a number of factors and should not be
considered a recommendation to buy shares of the Common Stock or any
assurance that after the Conversion shares of Common Stock will be able to
be resold at or above the Purchase Price. The appraisal will be updated or
confirmed prior to consummation of the Conversion.
The Board of Directors and management believe that the Conversion is
in the best interests of the Savings Bank's members and its communities.
The Conversion is intended: (i) to improve the competitive position of the
Savings Bank in its market area and support possible future expansion and
diversification of operations (currently, there are no specific plans,
arrangements or understandings, written or oral, regarding any such
activities); (ii) to afford members of the Savings Bank and others the
opportunity to become stockholders of the Holding Company and thereby
participate more directly in, and contribute to, any future growth of the
Holding Company and the Savings Bank; and (iii) to provide future access to
capital markets. See "THE CONVERSION."
The Subscription, Direct Community and Syndicated Community Offerings
The Holding Company is offering up to 1,495,000 shares of Common Stock
at $10.00 per share to holders of Subscription Rights in the following
order of priority: (i) Eligible Account Holders; (ii) the Savings Bank's
ESOP; (iii) Supplemental Eligible Account Holders; and (iv) Other Members.
In the event the number of shares offered in the Conversion is increased
above the maximum of the Estimated Valuation Range, the Savings Bank's ESOP
shall have a priority right to purchase any such shares exceeding the
maximum of the Estimated Valuation Range up to an aggregate of 8% of the
Common Stock issued in the Offerings. Once tendered, subscription orders
cannot be revoked or modified without the consent of the Savings Bank and
the Holding Company. Any shares of Common Stock not subscribed for in the
Subscription Offering may be offered in the Direct Community Offering to
the general public with preference being given to natural persons and
trusts of natural persons who are permanent residents of the Local
Community. The Savings Bank has engaged Trident Securities to consult with
and advise the Holding Company and the Savings Bank in the Offerings, and
Trident Securities has agreed to use its best efforts to assist the Holding
Company with the solicitation of subscriptions and purchase orders for
shares of Common Stock in the Offerings. Trident Securities is not
obligated to take or purchase any shares of Common Stock
(ii)
<PAGE>
in the Offerings. If all shares of Common Stock to be issued in the
Conversion are not sold through the Subscription and Direct Community
Offerings, then the Holding Company expects to offer the remaining shares
in a Syndicated Community Offering managed by Trident Securities, which
would occur as soon as practicable following the close of the Subscription
and Direct Community Offerings. All shares of Common Stock will be sold at
the same price per share in the Syndicated Community Offering as in the
Subscription and Direct Community Offerings. See "USE OF PROCEEDS," "PRO
FORMA DATA" and "THE CONVERSION -- Stock Pricing and Number of Shares to be
Issued." The Subscription Offering will expire at 4:30 p.m., Central Time,
on the Expiration Date, unless extended by the Savings Bank and the Holding
Company for up to ___ days. The Direct Community Offering and Syndicated
Community Offering, if any, may terminate on the Expiration Date or on any
date thereafter, however, in no event later than _________, 1996, unless
further extended with the consent of the OTS.
Benefits of the Conversion to Management
ESOP. In connection with the Conversion, the Savings Bank will adopt
the ESOP, a tax-qualified employee benefit plan for officers and employees
of the Holding Company and the Savings Bank, which intends to purchase 8%
of the shares of Common Stock issued in the Offerings (119,600 shares at
the maximum of the Estimated Valuation Range). In the event the number of
shares offered in the Conversion is increased above the maximum of the
Estimated Valuation Range, the Savings Bank's ESOP shall have a priority
right to purchase any such shares exceeding the maximum of the Estimated
Valuation Range up to an aggregate of 8% of the Common Stock issued in the
Offerings. In the event that the ESOP's subscription is not filled in its
entirety, the ESOP may purchase additional shares in the open market or may
purchase additional authorized but unissued shares with cash contributed to
it by the Savings Bank. For additional information concerning the ESOP,
see "MANAGEMENT OF THE SAVINGS BANK -- Benefits -- Employee Stock Ownership
Plan." As a result of the adoption of the ESOP, the Holding Company will
recognize compensation expense in an amount equal to the fair market value
of the ESOP shares when such shares are committed to be released to
participants' accounts. See "PRO FORMA DATA."
MRP. The Holding Company expects to seek approval of the Management
Recognition Plan and Trust ("MRP") at a meeting of stockholders occurring
no earlier than six months following consummation of the Conversion. The
MRP, which will be funded with a number of shares equal to 4% of the number
of shares issued in the Conversion, is a non-tax-qualified restricted stock
plan intended for the benefit of key employees and directors of the Holding
Company and the Savings Bank. If stockholder approval of the MRP is
obtained, it is expected that shares of Common Stock of the Holding Company
will be awarded pursuant to such plan to key employees and directors of the
Holding Company and the Savings Bank (which shares will be awarded at no
cost to such recipients). Subject to approval by stockholders and vesting
provisions, key employees and directors are initially intended to be
granted 59,800 restricted shares of Common Stock under the MRP (based on
the issuance of Common Stock at the maximum of the Estimated Valuation
Range), with an aggregate value of $598,000 based on the Purchase Price of
$10.00 per share. For additional information concerning the MRP, see
"MANAGEMENT OF THE SAVINGS BANK -- Benefits -- Management Recognition
Plan." As a result of the adoption of the MRP, the Holding Company will
recognize compensation expense in the amount of the fair market value of
the Common Stock at the date of the grant to the recipient during the years
in which the shares vest. See "PRO FORMA DATA."
Stock Option Plan. The Holding Company expects to seek approval of
the 1996 Stock Option Plan ("Stock Option Plan"), which will reserve a
number of shares equal to 10% of the number of shares issued in the
Conversion, at a meeting of stockholders occurring no earlier than six
months following consummation of the Conversion. If stockholder approval
of the Stock Option Plan is obtained, it is expected that options to
acquire up to 149,500 shares of Common Stock of the Holding Company will be
awarded to key employees and directors of the Holding Company and the
Savings Bank (based on the issuance of Common Stock at the maximum of the
Estimated Valuation Range). The exercise price of such options will be
100% of the fair market value of the Common Stock on the date the option is
granted. Options granted to officers and directors are valuable only to
the extent that such options are exercisable and the market price for the
underlying share of Common Stock is in excess of the exercise price. An
option effectively eliminates the market risk of holding the underlying
security since no consideration is paid for the option until it is
exercised. Therefore, the recipient may, within the limits of the term of
the option, wait to exercise
(iii)
<PAGE>
the option until the market price exceeds the exercise price. For
additional information concerning the Stock Option Plan, see "MANAGEMENT OF
THE SAVINGS BANK -- Benefits -- 1996 Stock Option Plan."
Employment Agreements. In connection with the Conversion, the Holding
Company and the Savings Bank have agreed to enter into employment
agreements with the Chief Executive Officer and certain members of
management that provide certain benefits in the event of their termination
following a change in control of the Holding Company or the Savings Bank.
Assuming a change of control occurred as of April 30, 1996, the aggregate
amount payable under these agreements would have been approximately
$632,000. See "MANAGEMENT OF THE SAVINGS BANK -- Executive Compensation --
Employment Agreements."
For information concerning the possible voting control of officers,
directors and employees following the Conversion, see "RISK FACTORS --
Anti-takeover Considerations -- Voting Control by Insiders."
Purchase Limitations
With the exception of the ESOP, which is expected to subscribe for 8%
of the shares of Common Stock issued in the Conversion, no person or entity
may purchase shares with an aggregate purchase price of more than $150,000
(or 15,000 shares based on the Purchase Price); and no person or entity,
together with associates of and persons acting in concert with such person
or entity, may purchase in the aggregate shares with an aggregate purchase
price of more than $200,000 (or 20,000 shares based on the Purchase Price).
This maximum purchase limitation may be increased or decreased as
consistent with OTS regulations in the sole discretion of the Holding
Company and the Savings Bank subject to any required regulatory approval.
The term "associate" of a person is defined in the Plan to mean: (i)
any corporation or organization (other than the Savings Bank or a majority-
owned subsidiary of the Savings Bank) of which such person is an officer or
partner or is, directly or indirectly, the beneficial owner of 10% or more
of any class of equity securities; (ii) any trust or other estate in which
such person has a substantial beneficial interest or as to which such
person serves as trustee or in a similar fiduciary capacity (excluding tax-
qualified employee plans); and (iii) any relative or spouse of such person,
or any relative of such spouse, who either has the same home as such person
or who is a director or officer of the Savings Bank or any of its parents
or subsidiaries. The term "acting in concert" is defined in the Plan to
mean: (i) knowing participation in a joint activity or interdependent
conscious parallel action towards a common goal whether or not pursuant to
an express agreement; or (ii) a combination or pooling of voting or other
interests in the securities of an issuer for a common purpose pursuant to
any contract, understanding, relationship, agreement or other arrangement,
whether written or otherwise. The Holding Company and the Savings Bank may
presume that certain persons are acting in concert based upon, among other
things, joint account relationships and the fact that such persons have
filed joint Schedules 13D with the SEC with respect to other companies.
The minimum purchase is 25 shares. In addition, stock orders received
either through the Direct Community Offering or the Syndicated Community
Offering, if held, may be accepted or rejected, in whole or in part, at the
discretion of the Holding Company and the Savings Bank. See "THE
CONVERSION -- Limitations on Purchases of Shares." If an order is rejected
in part, the purchaser does not have the right to cancel the remainder of
the order. In the event of an oversubscription, shares will be allocated
in accordance with the Plan of Conversion. See "THE CONVERSION -- The
Subscription, Direct Community and Syndicated Community Offerings."
Stock Pricing and Number of Shares to be Issued in the Conversion
The Purchase Price in the Subscription Offering is a uniform price for
all subscribers, including members of the Holding Company's and the Savings
Bank's Boards of Directors, their management and tax-qualified employee
plans, and was set by the Board of Directors. The number of shares to be
offered at the Purchase Price is based upon an independent appraisal of the
aggregate pro forma market value of the Holding Company and the Savings
Bank as converted. The aggregate pro forma market value was estimated by
RP Financial to range from $11,050,000 to $14,950,000 as of July 12, 1996.
See "THE CONVERSION -- Stock Pricing and Number of Shares to be Issued."
(iv)
<PAGE>
The appraisal of the pro forma value of the Holding Company and the Savings
Bank as converted will be updated or confirmed at the completion of the
Offerings. The maximum of the Estimated Valuation Range may be increased
by up to 15% and the number of shares of Common Stock to be issued in the
Conversion may be increased to 1,719,250 shares due to material changes in
the financial condition or performance of the Savings Bank or changes in
market conditions or general financial and economic conditions. No
resolicitation of subscribers will be made and subscribers will not be
permitted to modify or cancel their subscriptions unless the gross proceeds
from the sale of the Common Stock are less than the minimum or more than
15% above the maximum of the current Estimated Valuation Range. The
appraisal is not intended to be and should not be construed as a
recommendation of any kind as to the advisability of purchasing Common
Stock in the Offerings nor can assurance be given that purchasers of the
Common Stock in the Offerings will be able to sell such shares after
consummation of the Conversion at a price that is equal to or above the
Purchase Price. Furthermore, the pro forma stockholders' equity is not
intended to represent the fair market value of the Common Stock and may be
greater than amounts that would be available for distribution to
stockholders in the event of liquidation.
Use of Proceeds
The net proceeds from the sale of the Common Stock are estimated to
range from $10.5 million to $13.9 million, or to $16.7 million if the
Estimated Valuation Range is increased by 15%, depending upon the number of
shares sold and the expenses of the Conversion. The Holding Company has
received the approval of the OTS to purchase all of the capital stock of
the Savings Bank to be issued in the Conversion in exchange for 50% of the
net proceeds of the Offerings. This will result in the Holding Company
retaining approximately $5.3 million to $6.9 million of the net proceeds,
or up to $8.3 million if the Estimated Valuation Range is increased by 15%,
and the Savings Bank receiving an equal amount.
Receipt of 50% of the net proceeds of the sale of the Common Stock
will increase the Savings Bank's capital and will support the expansion of
the Savings Bank's existing business activities. The Savings Bank will use
the funds contributed to it for general corporate purposes, including
increased local lending. The Savings Bank may also use a portion of the
funds contributed to it to retire outstanding FHLB advances. Pending
deployment of funds, the Savings Bank plans initially to invest the net
proceeds in short- to intermediate-term U.S. Treasury and agency securities
with laddered maturities up to two years. Shares of Common Stock may be
purchased with funds on deposit at the Savings Bank, which will reduce
deposits by the amounts of such purchases. As a result, the net amount of
funds available to the Savings Bank for investment following receipt of the
Conversion proceeds will be reduced by the amount of deposit withdrawals
used to fund stock purchases.
A portion of the net proceeds retained by the Holding Company will be
used for a loan by the Holding Company to the Savings Bank's ESOP to enable
it to purchase 8% of the shares of Common Stock issued in the Conversion.
Such loan would fund the entire purchase price of the ESOP shares
($1,196,000 at the maximum of the Estimated Valuation Range) and would be
repaid principally from the Savings Bank's contributions to the ESOP and
from dividends payable on the Common Stock held by the ESOP. The Holding
Company expects to lend a portion of the net proceeds retained by it to the
Savings Bank to be utilized for general corporate purposes, including
increased local lending. The remaining proceeds retained by the Holding
Company initially will be invested in cash and equivalents and short- to
intermediate-term U.S. Government and agency securities with laddered
maturities up to two years. Such proceeds will be available for additional
contributions to the Savings Bank in the form of debt or equity, to support
future growth and diversification activities, as a source of dividends to
the stockholders of the Holding Company and for future repurchases of
Common Stock (including possible repurchases to fund the MRP or to provide
shares to be issued upon exercise of stock options) to the extent permitted
under Delaware law and OTS regulations. Currently, as discussed below
under "USE OF PROCEEDS," there are no specific plans, arrangements,
agreements or understandings, written or oral, regarding any of such
activities.
(v)
<PAGE>
Market for Common Stock
The Holding Company has never issued capital stock to the public and,
consequently, there is no existing market for the Common Stock. The
Holding Company has received conditional approval to have the Common Stock
listed on the Nasdaq SmallCap Market under the symbol "______." Trident
Securities has agreed to act as a market maker for the Holding Company's
Common Stock following consummation of the Conversion. No assurance can be
given that an active and liquid trading market for the Common Stock will
develop. Further, no assurance can be given that purchasers will be able
to sell their shares at or above the Purchase Price after the Conversion.
See "RISK FACTORS -- Absence of Prior Market for the Common Stock" and
"MARKET FOR COMMON STOCK."
Dividends
The Board of Directors of the Holding Company intends to adopt a
policy of paying regular cash dividends following consummation of the
Conversion. However, no decision has been made as to the amount or timing
of such dividends. Declarations and payments of dividends by the Board of
Directors will depend upon a number of factors, including the amount of the
net proceeds retained by the Holding Company, capital requirements,
regulatory limitations, the Savings Bank's and the Holding Company's
financial condition and results of operations, tax considerations and
general economic conditions. In order to pay such cash dividends, however,
the Holding Company must have available cash either from the net proceeds
raised in the Offerings and retained by the Holding Company, dividends
received from the Savings Bank or earnings on Holding Company assets. In
addition, from time to time in an effort to manage capital to a reasonable
level, the Board of Directors may determine to pay periodic special cash
dividends. Periodic special cash dividends, if paid, may be paid in
addition to, or in lieu of, regular cash dividends. As with regular cash
dividends, there can be no assurance that periodic special cash dividends
will be paid or that, if paid, will continue to be paid. There are certain
limitations on the payment of dividends from the Savings Bank to the
Holding Company. See "REGULATION -- Federal Regulation of Savings
Associations -- Limitations on Capital Distributions." No assurances can
be given that any dividends will be declared or, if declared, what the
amount of dividends will be or whether such dividends, once declared, will
continue. See "DIVIDEND POLICY."
Officers' and Directors' Common Stock Purchases and Beneficial Ownership
Officers and directors (including directors emeriti) of the Savings
Bank (11 persons) are expected to subscribe for an aggregate of
approximately 128,000 shares of Common Stock, or 11.6% and 8.6% of the
shares based on the minimum and the maximum of the Estimated Valuation
Range, respectively. See "SHARES TO BE PURCHASED BY MANAGEMENT PURSUANT TO
SUBSCRIPTION RIGHTS." In addition, purchases by the ESOP, allocations
under the MRP, and the exercise of stock options issued under the Stock
Option Plan, will increase the number of shares beneficially owned by
officers, directors and employees. Assuming (i) the receipt of stockholder
approval for the MRP and the Stock Option Plan, (ii) the open market
purchase of shares on behalf of the MRP, (iii) the purchase by the ESOP of
8% of the Common Stock sold in the Offerings, and (iv) the exercise of
stock options equal to 10% of the number of shares of Common Stock issued
in the Conversion, directors, officers and employees of the Holding Company
and the Savings Bank would have voting control, on a fully diluted basis,
of 30.5% and 27.8% of the Common Stock, based on the issuance of Common
Stock at the minimum and maximum of the Estimated Valuation Range,
respectively. See "RISK FACTORS -- Anti-takeover Considerations -- Voting
Control by Insiders." The MRP and Stock Option Plan are subject to
approval by the stockholders of the Holding Company at a meeting to be held
no earlier than six months following consummation of the Conversion.
Risk Factors
See "RISK FACTORS" beginning on page 1 for a discussion of certain
risks related to the Offerings that should be considered by all prospective
investors.
(vi)
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following tables set forth certain information concerning the
consolidated financial position and results of operations of the Savings
Bank and its subsidiaries at the dates and for the periods indicated. This
information is qualified in its entirety by reference to the detailed
information contained in the Consolidated Financial Statements and Notes
thereto presented elsewhere in this Prospectus.
<TABLE>
<CAPTION>
At April 30,
--------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(in Thousands)
FINANCIAL CONDITION DATA:
<S> <C> <C> <C> <C> <C>
Total assets....................................... $85,496 $79,351 $73,620 $73,622 $72,345
Cash............................................... 2,924 4,189 5,322 8,152 10,434
U.S. Government and federal agency
obligations available for sale.................... 3,216 4,201 -- -- --
U.S. Government and federal agency
obligations held to maturity...................... -- -- 4,260 4,840 2,703
Mortgage-backed securities available for sale..... -- 1 -- -- --
Mortgage-backed securities held to maturity........ -- -- 1,196 1,689 1,986
Loans receivable, net.............................. 73,893 67,805 60,282 56,323 54,104
Loans held for sale................................ 2,306 574 -- -- 434
Deposits........................................... 70,316 65,205 64,630 65,235 64,870
FHLB advances...................................... 5,000 4,500 -- -- --
Retained earnings, substantially restricted....... 9,117 8,484 7,933 7,052 6,055
</TABLE>
<TABLE>
<CAPTION>
Year Ended April 30,
--------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(in Thousands)
OPERATING DATA:
<S> <C> <C> <C> <C> <C>
Interest income.................................... $ 6,172 $ 5,355 $ 5,413 $ 5,997 $ 6,438
Interest expense................................... 3,781 2,944 2,671 3,345 4,066
------- ------- ------- ------- -------
Net interest income................................ 2,391 2,411 2,742 2,652 2,372
Provision for loan losses.......................... 44 118 48 160 201
------- ------- ------- ------- -------
Net interest income
after provision for loan losses.................. 2,347 2,293 2,694 2,492 2,171
Other income...................................... 485 360 413 426 393
Other expense..................................... 1,849 1,809 1,741 1,625 1,388
------- ------- ------- ------- -------
Income before income taxes........................ 983 844 1,366 1,293 1,176
Income taxes...................................... 363 301 485 505 457
------- ------- ------- ------- -------
Income before cumulative effect
of accounting change............................. 620 543 881 788 719
Cumulative effect of accounting change............ -- -- -- 209 --
------- ------- ------- ------- -------
Net income........................................ $ 620 $ 543 $ 881 $ 997 $ 719
======= ======= ======= ======= =======
</TABLE>
(vii)
<PAGE>
<TABLE>
<CAPTION>
At April 30,
--------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
OTHER DATA:
<S> <C> <C> <C> <C> <C>
Number of:
Real estate loans outstanding..................... 2,659 2,519 2,445 2,423 2,444
Deposit accounts.................................. 9,691 9,166 8,683 8,805 9,153
Full-service offices.............................. 2 2 2 2 2
</TABLE>
<TABLE>
<CAPTION>
At or For the Year Ended April 30,
--------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
KEY FINANCIAL RATIOS:
<S> <C> <C> <C> <C> <C>
Performance Ratios:
Return on assets(1)............................ 0.75% 0.72% 1.12% 1.07% 1.03%
Return on equity(2)............................ 7.00 6.55 11.92 12.13 12.58
Retained earnings to
assets(3)..................................... 10.70 10.93 10.06 8.82 8.21
Interest rate spread (4)....................... 2.60 2.96 3.58 3.39 3.18
Net interest margin(5)......................... 3.02 3.33 3.90 3.75 3.59
Average interest-earning assets
to average interest-bearing liabilities...... 108.84 109.15 108.64 107.71 106.64
Noninterest expense as a
percent of average total assets............... 2.23 2.39 2.37 2.21 2.00
Asset Quality Ratios:
Nonaccrual and 90 days or more
past due loans as a percent
of loans receivable, net..................... 0.43 0.23 1.53 0.44 1.72
Nonperforming assets as a
percent of total assets...................... 0.60 0.20 1.53 0.72 1.86
Allowance for losses as a
percent of gross loans receivable............ 1.05 1.11 1.09 1.26 1.17
Allowance for losses as a
percent of nonperforming loans............... 245.44 498.05 72.18 291.78 68.78
Net charge-offs to average
outstanding loans............................. 0.03 0.03 0.17 0.14 0.05
- ------------------
</TABLE>
(1) Net earnings divided by average total assets.
(2) Net earnings divided by average equity.
(3) Average retained earnings divided by average total assets.
(4) Difference between weighted average yield on interest-earning assets
and weighted average rate on interest-bearing liabilities.
(5) Net interest income as a percentage of average interest-earning assets.
(viii)
<PAGE>
RISK FACTORS
Before investing in shares of the Common Stock offered hereby,
prospective investors should carefully consider the matters presented
below, in addition to matters discussed elsewhere in this Prospectus.
Return on Equity After Conversion
Return on equity (net income for a given period divided by average
equity during that period) is a ratio used by many investors to compare the
performance of a particular financial institution to its peers. The
Holding Company's post-Conversion return on equity will be less than the
average return on equity for publicly traded thrift institutions and their
holding companies because of the increase in consolidated equity of the
Holding Company that will result from the net proceeds of the Offerings.
See "SELECTED CONSOLIDATED FINANCIAL INFORMATION" for numerical information
regarding the Savings Bank's historical return on equity and
"CAPITALIZATION" for a discussion of the Holding Company's estimated pro
forma consolidated capitalization as a result of the Conversion. In
addition, the expenses associated with the ESOP and the MRP (see "PRO FORMA
DATA"), along with increased expenses associated with operating as a public
company, are expected to contribute initially to reduced earnings levels.
The Savings Bank intends to deploy the net proceeds of the Offerings to
increase earnings per share, without assuming undue risk, with the goal of
achieving a return on equity comparable to the average for publicly traded
thrift institutions and their holding companies. This goal likely will
take a number of years to achieve and no assurances can be given that this
goal can be attained. Consequently, for the foreseeable future, investors
should not expect a return on equity that will meet or exceed the average
return on equity for publicly traded thrift institutions.
Dependence on Local Economy and Competition Within Market Area
The Savings Bank has been and intends to continue to operate as a
community-oriented financial institution, with a focus on servicing
customers in Callaway and Boone, and to a lesser extent, Cole and Audrain
Counties, Missouri. Callaway and Boone Counties have an estimated combined
population of 159,000, of which 35,000 live in Callaway County. Although
the Savings Bank has experienced strong loan demand in recent years,
because the Savings Bank operates in a market area with a small population
and limited growth prospects, the Savings Bank's ability to achieve loan
and deposit growth may be limited. Future growth opportunities for the
Savings Bank depend largely on market area growth and the Savings Bank's
ability to compete effectively within its market area. At April 30, 1996,
most of the Savings Bank's loan portfolio consisted of loans made to
borrowers and collateralized by properties located in its market area. As
a result of this concentration, a downturn in the economy of the Savings
Bank's market area could increase the risk of loss associated with the
Savings Bank's loan portfolio.
The Savings Bank faces intense competition both in originating loans
and attracting deposits. The Savings Bank's competition comes primarily
from commercial banks and other savings institutions in the Savings Bank's
market area and, to a lesser extent, from credit unions and other financial
institutions. In recent years, the Savings Bank has experienced an
increased level of competition for deposits from securities firms,
insurance companies and other investment vehicles, such as money market and
mutual funds. This competition could adversely affect the Savings Bank's
future growth prospects.
Certain Lending Risks
Multi-family and commercial real estate lending has been a constant
part of the Savings Bank's lending strategy in recent years. For the year
ended April 30, 1996, the Savings Bank originated $4.5 of multi-family real
estate loans and $4.4 million of commercial real estate loans. All of the
properties securing these loans are located in Missouri. At April 30,
1996, the Savings Bank's loan portfolio included multi-family real estate
loans totalling $3.8 million, or 4.9% of total loans, and commercial real
estate loans totalling $8.7 million, or 11.1% of total loans. Multi-family
and commercial real estate loans are generally viewed as exposing the
lender to greater credit risk than one- to four-family residential loans
and typically involve higher loan principal amounts. Repayment of multi-
family
1
<PAGE>
and commercial real estate loans is dependent, in large part, on sufficient
income from the property to cover operating expenses and debt service.
Economic events and government regulations, which are outside the control
of the borrower or lender, could impact the value of the security for such
loans or the future cash flow of the affected properties. To reduce the
risk associated with such loans and to provide funds for lending
activities, the Savings Bank frequently sells participation interests in
the larger multi-family and commercial loans that it originates. The
Savings Bank retains the servicing rights on such loans and generally
retains 10% or 20% of the loan balance. During the year ended April 30,
1996, the Savings Bank sold $1.6 million of multi-family and $5.9 million
of commercial real estate loans. See "BUSINESS OF THE SAVINGS BANK --
Lending Activities."
At April 30, 1996, consumer and other loans totalled $9.9 million, or
12.7% of total gross loans. Consumer loans entail greater risk than do
residential mortgage loans, particularly in the case of consumer loans that
are unsecured or secured by rapidly depreciating assets such as
automobiles. In such cases, any repossessed collateral for a defaulted
consumer loan may not provide an adequate source of repayment of the
outstanding loan balance as a result of the greater likelihood of damage,
loss or depreciation. The remaining deficiency often does not warrant
further substantial collection efforts against the borrower beyond
obtaining a deficiency judgment. In addition, consumer loan collections
are dependent on the borrower's continuing financial stability, and thus
are more likely to be adversely affected by job loss, divorce, illness or
personal bankruptcy. Furthermore, the application of various federal and
state laws, including federal and state bankruptcy and insolvency laws, may
limit the amount that can be recovered on such loans. At April 30, 1995,
the Savings Bank had no material delinquencies in its consumer loan
portfolio.
The Savings Bank also originates mortgage loans secured by non-owner-
occupied one- to four-family homes. At April 30, 1996, out of $46.7
million of loans secured by one- to four-family homes, loans secured by
non-owner-occupied residences totalled $19.5 million. Loans secured by
non-owner-occupied residences generally involve greater risks than loans
secured by owner-occupied residences. As with loans secured by multi-
family properties, payments on loans secured by non-owner-occupied
residences are often dependent on the successful operation or management of
the properties. Repayment of such loans may be subject to a greater extent
to adverse conditions in the local real estate market or the economy
generally.
Dependence on Key Personnel
Mr. Kermit D. Gohring, President of the Savings Bank has made
significant policy decisions and has been instrumental in implementing the
policies and procedures and directing the lending strategy of the Savings
Bank for over 32 years. The Board of Directors believes that the Savings
Bank's growth and profitability is dependent in large part upon the Savings
Bank's maintaining and furthering the lending relationships established by
management, especially Mr. Kermit Gohring. Although the Board of Directors
believes that the other officers of the Savings Bank are experienced and
fully capable, the loss of Mr. Kermit Gohring could have an adverse impact
on the operations of the Savings Bank. Neither the Savings Bank nor the
Holding Company has obtained, or expects to obtain, a "key man" life
insurance policy for Mr. Kermit Gohring. See "MANAGEMENT OF THE SAVINGS
BANK."
Anti-takeover Considerations
Provisions in the Holding Company's Governing Instruments and Delaware
and Federal Law. Certain provisions included in the Holding Company's
Certificate of Incorporation and in the Delaware General Corporation Law
("DGCL") might discourage potential proxy contests and other potential
takeover attempts, particularly those that have not been negotiated with
the Board of Directors. As a result, these provisions might preclude
takeover attempts that certain stockholders may deem to be in their best
interest and might tend to perpetuate existing management. These
provisions include, among other things, a provision limiting voting rights
of beneficial owners of more than 10% of the Common Stock, supermajority
voting requirements for certain business combinations, staggered terms for
directors, non-cumulative voting for directors, the removal of directors
without cause only upon the vote of holders of 80% of the outstanding
voting shares, limitations on the calling of special meetings, and specific
notice requirements for stockholder nominations and proposals. Certain
provisions of the Certificate of
2
<PAGE>
Incorporation of the Holding Company cannot be amended by stockholders
unless an 80% stockholder vote is obtained. The existence of these anti-
takeover provisions could result in the Holding Company being less
attractive to a potential acquiror and in stockholders receiving less for
their shares than otherwise might be available in the event of a takeover
attempt. Furthermore, federal regulations prohibit for three years after
consummation of the Conversion the ownership of more than 10% of the
Savings Bank or the Holding Company without prior OTS approval. Federal
law also requires OTS approval prior to the acquisition of "control" (as
defined in OTS regulations) of an insured institution. For a more detailed
discussion of these provisions, see "RESTRICTIONS ON ACQUISITION OF THE
HOLDING COMPANY."
Voting Control by Insiders. Directors (including directors emeriti)
and officers of the Savings Bank and the Holding Company expect to purchase
128,000 shares of Common Stock, or 11.6% and 8.6% of the shares issued in
the Offerings at the minimum and the maximum of the Estimated Valuation
Range, respectively. Directors and officers are also expected to control
indirectly the voting of approximately 8% of the shares of Common Stock
issued in the Conversion through the ESOP (assuming shares have been
allocated under the ESOP). Under the terms of the ESOP, the unallocated
shares will be voted by the ESOP trustees in the same proportion as the
votes cast by participants with respect to the allocated shares.
At a meeting of stockholders to be held no earlier than six months
following the consummation of the Conversion, the Holding Company expects
to seek approval of the Holding Company's MRP, which is a non-tax-qualified
restricted stock plan for the benefit of key employees and directors of the
Holding Company and the Savings Bank. Assuming the receipt of stockholder
approval, the Holding Company expects to acquire common stock of the
Holding Company on behalf of the MRP in an amount equal to 4% of the Common
Stock issued in the Conversion, or 44,200 and 59,800 shares at the minimum
and the maximum of the Estimated Valuation Range, respectively. These
shares will be acquired either through open market purchases or from
authorized but unissued shares of Common Stock. Under the terms of the
MRP, the MRP committee or the MRP trustees will have the power to vote
unallocated and unvested shares. The Holding Company also intends to seek
approval of the Stock Option Plan at a meeting of stockholders to be held
no earlier than six months following the consummation of the Conversion.
The Holding Company intends to reserve for future issuance pursuant to the
Stock Option Plan a number of authorized shares of Common Stock equal to
10% of the Common Stock issued in the Conversion (110,500 and 149,500
shares at the minimum and the maximum of the Estimated Valuation Range,
respectively).
Assuming (i) the receipt of stockholder approval for the MRP and the
Stock Option Plan, (ii) the open market purchase of shares on behalf of the
MRP, (iii) the purchase by the ESOP of 8% of the Common Stock sold in the
Offerings, and (iv) the exercise of stock options equal to 10% of the
number of shares of Common Stock issued in the Conversion, directors,
officers and employees of the Holding Company and the Savings Bank would
have voting control, on a fully diluted basis, of 30.5% and 27.8% of the
Common Stock, based on the issuance of Common Stock at the minimum and
maximum of the Estimated Valuation Range, respectively. Management's
potential voting control alone, as well as together with additional
stockholder support, might preclude or make more difficult takeover
attempts that certain stockholders deem to be in their best interest and
might tend to perpetuate existing management.
Provisions of Employment Agreements. The proposed employment
agreements with the Chief Executive Officer and certain members of
management provide for cash severance payments in the event of a change in
control of the Holding Company or the Savings Bank. Such agreements also
provide for the continuation of certain employee benefits for a three-year
period following the change in control. Assuming a change of control
occurred as of April 30, 1996, the aggregate amounts payable under these
agreements would have been approximately $632,000. These provisions may
have the effect of increasing the cost of acquiring the Holding Company,
thereby discouraging future attempts to take over the Holding Company or
the Savings Bank.
See "MANAGEMENT OF THE SAVINGS BANK -- Benefits," "DESCRIPTION OF
CAPITAL STOCK OF THE HOLDING COMPANY" and "RESTRICTIONS ON ACQUISITION OF
THE HOLDING COMPANY."
3
<PAGE>
Recapitalization of SAIF and its Impact on SAIF Premiums
Effective January 1, 1996, the FDIC substantially reduced deposit
insurance premiums for well-capitalized, well-managed financial
institutions that are members of the Bank Insurance Fund ("BIF"). Under
the new assessment schedule, approximately 92% of BIF members pay the
statutory minimum annual assessment of $2,000. With respect to SAIF member
institutions, the FDIC has retained the existing rate schedule of 23 to 31
basis points. The Savings Bank is, and after the Conversion will remain, a
member of the SAIF rather than the BIF. SAIF premiums may not be reduced
for several years because the SAIF has lower reserves than the BIF.
Because deposit insurance premiums are often a significant component of
noninterest expense for insured depository institutions, the reduction in
BIF premiums may place the Savings Bank at a competitive disadvantage since
BIF-insured institutions (such as most commercial banks) may be able to
offer more attractive loan rates, deposit rates, or both.
Proposed federal legislation would recapitalize the SAIF and resolve
the current premium disparity by requiring savings institutions like the
Savings Bank to pay a one-time assessment to increase SAIF's reserves to
$1.25 per $100 of deposits that is expected to be approximately 80 basis
points on the amount of deposits held by a SAIF-member institution. The
payment of a one-time fee would have the effect of immediately reducing the
capital and pre-tax earnings of SAIF-member institutions by the amount of
the fee. Based on the Savings Bank's assessable deposits of $68.6 million
at April 30, 1996, a one-time assessment of 80 basis points would equal
approximately $549,000. This charge, if incurred, would represent, on a
pro forma basis, a decrease in book value per share at April 30, 1996 of
$0.50 based upon the sale of shares at the minimum of the Estimated
Valuation Range and of $0.37 based upon the sale of shares at the maximum
of the Estimated Valuation Range. Management cannot predict whether any
legislation imposing such a fee will be enacted, or, if enacted, the amount
or timing of any one-time fee or whether ongoing SAIF premiums will be
reduced to a level equal to that of BIF premiums. See "REGULATION."
Potential Adverse Impact of Changes in Interest Rates
The financial condition and operations of the Savings Bank, and of
savings institutions in general, are influenced significantly by general
economic conditions, by the related monetary and fiscal policies of the
federal government and by the regulations of the OTS and the FDIC. The
Savings Bank's profitability, like that of most financial institutions, is
dependent to a large extent on its net interest income, which is the
difference between its interest income on interest-earning assets, such as
loans and investments, and its interest expense on interest-bearing
liabilities, such as deposits and borrowings. At April 30, 1996, 79.5% of
the Savings Bank's total gross loans were adjustable-rate loans and 78.8%
of the Savings Bank's deposits were certificate accounts. The interest
earned by the Savings Bank on such loans and paid by the Savings Bank on
such accounts are significantly impacted by market interest rates.
Accordingly, the Savings Bank's results of operations are significantly
influenced by movements in market interest rates and the Savings Bank's
ability to manage its assets and liabilities in response to such movements.
As a result of the prevailing interest rate environment, during its three
most recent fiscal years, the Savings Bank has experienced a decrease in
its interest rate spread and net interest margin. The Savings Bank's
interest rate spread, which is the difference between the weighted average
yield on interest-earning assets and the weighted average rate on interest-
bearing liabilities, decreased from 3.58% for the year ended April 30, 1994
to 2.96% for the year ended April 30, 1995 to 2.60% for the year ended
April 30, 1996. Further changes in interest rates could result in further
decreases in the Savings Bank's interest rate spread, which would have an
adverse effect on the Savings Bank's net interest income. The Savings
Bank's net interest margin, which is net interest income as a percentage of
average interest-earning assets, decreased from 3.90% for the year ended
April 30, 1994 to 3.33% for the year ended April 30, 1995 to 3.02% for the
year ended April 30, 1996.
The Savings Bank will continue to be affected by general changes in
levels of interest rates and other economic factors beyond its control. To
better control the impact of changes in interest rates, the Savings Bank
has sought to improve the match between asset and liability maturities or
repricing periods and rates by emphasizing the origination of adjustable-
rate mortgage ("ARM") loans and shorter term consumer loans, offering
certificates of deposit with terms of up to six years and maintaining an
investment portfolio with laddered maturities of up to two
4
<PAGE>
years. At April 30, 1996, out of total gross loans of $78.4 million, the
Savings Bank had $62.3 million of ARM loans in its loan portfolio. The
Savings Bank's ARM loans contain periodic and lifetime interest rate
adjustment limits which, in a rising interest rate environment, may prevent
such loans from repricing to market interest rates. While management
anticipates that the Savings Bank's ARM loans will better offset the
adverse effects of an increase in interest rates as compared to fixed-rate
mortgages, the increased mortgage payments required of ARM borrowers in a
rising interest rate environment could potentially cause an increase in
delinquencies and defaults. The Savings Bank has not historically had an
increase in such delinquencies and defaults on ARM loans, but no assurance
can be given that such delinquencies or defaults would not occur in the
future. The marketability of the underlying property also may be adversely
affected in a high interest rate environment. Moreover, the Savings Bank's
ability to originate ARM loans may be affected by changes in the level of
interest rates and by market acceptance of the terms of such loans. For
further information regarding the Savings Bank's asset and liability
management, see "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- Asset and Liability Management."
Changes in the level of interest rates also affect the amount of loans
originated by the Savings Bank and, thus, the amount of loan and commitment
fees, as well as the market value of the Savings Bank's investment
securities and other interest-earning assets. Changes in interest rates
also can affect the average life of loans. Decreases in interest rates may
result in increased prepayments of loans, as borrowers refinance to reduce
borrowing costs. Under these circumstances, the Savings Bank is subject to
reinvestment risk to the extent that it is not able to reinvest such
prepayments at rates that are comparable to the rates on the maturing loans
or securities. Moreover, volatility in interest rates also can result in
disintermediation, or the flow of funds away from savings institutions into
direct investments, such as U.S. Government and corporate securities and
other investment vehicles which, because of the absence of federal
insurance premiums and reserve requirements, generally pay higher rates of
return than savings institutions.
The Savings Bank's results of operations are also dependent on loan
servicing fees. At April 30, 1996, 1995 and 1994, the Savings Bank
serviced $84.4 million, $73.8 million and $71.9 million, respectively, of
loans for others. Loan servicing fees for the years ended April 30, 1996,
1995 and 1994 totalled $281,000, $255,000 and $262,000, respectively. A
decreasing interest rate environment may result in a higher volume of
prepayments as borrowers refinance their loans, which may reduce the size
and adversely impact the income received from the loan servicing portfolio.
See "BUSINESS OF THE SAVINGS BANK -- Lending Activities -- Loan Servicing."
Absence of Prior Market for the Common Stock
The Holding Company has never issued capital stock and, consequently,
there is no existing market for the Common Stock. Although the Holding
Company has received conditional approval to list the Common Stock on the
Nasdaq SmallCap Market under the symbol "____," there can be no assurance
that the Holding Company will meet Nasdaq SmallCap Market listing
requirements, which include a minimum market capitalization, at least two
market makers and a minimum number of holders of record. While Trident
Securities has agreed to act as a market maker and will use its best
efforts to assist the Holding Company in encouraging another market maker
to establish and maintain a market in the Common Stock, there can be
assurance that another market maker will make a market in the Common Stock.
Making a market in securities involves maintaining bid and ask quotations
and being able, as principal, to effect transactions in reasonable
quantities at those quoted prices, subject to various securities laws and
other regulatory requirements. The development of a public trading market
depends upon the existence of willing buyers and sellers, the presence of
which is not within the control of the Holding Company, the Savings Bank or
any market maker. Accordingly, there can be no assurance that an active
and liquid trading market for the Common Stock will develop, or once
developed, will continue. Furthermore, there can be no assurance that
purchasers will be able to sell their shares at or above the Purchase
Price. See "MARKET FOR COMMON STOCK."
5
<PAGE>
Possible Dilutive Effect of Benefit Programs
At a meeting to be held no earlier than six months following
consummation of the Conversion, the Holding Company intends to seek
stockholder approval of the MRP. If approved, the MRP intends to acquire
an amount of Common Stock of the Holding Company equal to 4% of the shares
issued in the Conversion. Such shares of Common Stock of the Holding
Company may be acquired by the Holding Company in the open market or from
authorized but unissued shares of Common Stock of the Holding Company. In
the event that the MRP acquires authorized but unissued shares of Common
Stock from the Holding Company, the voting interests of existing
stockholders will be diluted and net income per share and stockholders'
equity per share will be decreased. See "PRO FORMA DATA" and "MANAGEMENT
OF THE SAVINGS BANK -- Benefits -- Management Recognition Plan."
At a meeting to be held no earlier than six months following
consummation of the Conversion, the Holding Company intends to seek
stockholder approval of the Stock Option Plan. If approved, the Stock
Option Plan will provide for options for up to a number of shares of Common
Stock of the Holding Company equal to 10% of the shares issued in the
Conversion. Such shares may be authorized but unissued shares of Common
Stock of the Holding Company and, upon exercise of the options, will result
in the dilution of the voting interests of existing stockholders and may
decrease net income per share and stockholders' equity per share. See
"MANAGEMENT OF THE SAVINGS BANK -- Benefits -- 1996 Stock Option Plan."
If the ESOP is not able to purchase 8% of the shares of Common Stock
issued in the Offerings, the ESOP may purchase newly issued shares from the
Holding Company. In such event, the voting interests of existing
stockholders will be diluted and net income per share and stockholders'
equity per share will be decreased. See "MANAGEMENT OF THE SAVINGS BANK --
Benefits -- Employee Stock Ownership Plan."
Possible Adverse Income Tax Consequences of the Distribution of
Subscription Rights
If the Subscription Rights granted to Eligible Account Holders,
Supplemental Eligible Account Holders and Other Members of the Savings Bank
are deemed to have an ascertainable value, receipt of such rights may be a
taxable event (either as capital gain or ordinary income) to those Eligible
Account Holders, Supplemental Eligible Account Holders or Other Members who
receive and/or exercise the Subscription Rights in an amount equal to such
value. Additionally, the Savings Bank could be required to recognize a
gain for tax purposes on such distribution. Whether Subscription Rights
are considered to have ascertainable value is an inherently factual
determination. The Savings Bank has been advised by RP Financial that such
rights have no value; however, RP Financial's conclusion is not binding on
the Internal Revenue Service ("IRS"). See "THE CONVERSION -- Effects of
Conversion to Stock Form on Depositors and Borrowers of the Savings Bank --
Tax Effects."
Regulatory Oversight and Possible Legislation
The Savings Bank is subject to extensive regulation, supervision and
examination by the OTS, as its chartering authority and primary federal
regulator, and by the FDIC, which insures its deposits up to applicable
limits. The Savings Bank is a member of the FHLB System and is subject to
certain limited regulations promulgated by the Board of Governors of the
Federal Reserve System ("Federal Reserve"). As the holding company of the
Savings Bank, the Holding Company also will be subject to regulation and
oversight by the OTS. Such regulation and supervision govern the
activities in which an institution can engage and is intended primarily for
the protection of the insurance fund and depositors. Regulatory
authorities have been granted extensive discretion in connection with their
supervisory and enforcement activities which are intended to strengthen the
financial condition of the banking industry, including the imposition of
restrictions on the operation of an institution, the classification of
assets by the institution and the adequacy of an institution's allowance
for loan losses. Any change in such regulation and oversight, whether by
the OTS, the FDIC or Congress, could have a material impact on the Holding
Company, the Savings Bank and their respective operations. See
"REGULATION." Legislation proposing a comprehensive reform of the banking
and thrift industries has recently been discussed in the United States
Congress. Under such
6
<PAGE>
legislation, (i) the BIF and the SAIF would be merged, at which time
thrifts and banks would pay the same deposit insurance premiums, (ii)
federal savings associations would be required to convert to a national
bank or a state-chartered bank or thrift, (iii) thrifts' 8% bad-debt tax
deduction would be eliminated, (iv) all savings and loan holding companies
would become bank holding companies and (v) the OTS would be merged with
the Office of the Comptroller of the Currency. It is uncertain when or if
such legislation may be passed and, if passed, in what form such
legislation may be passed.
FULTON BANCORP, INC.
The Holding Company was organized as a Delaware corporation at the
direction of the Savings Bank in May 1996 to acquire all of the outstanding
capital stock of the Savings Bank to be issued in the Conversion. The
Holding Company has received the approval of the OTS to become a savings
and loan holding company and to acquire 100% of the capital stock of the
Savings Bank. Prior to the Conversion, the Holding Company will not engage
in any material operations. After the Conversion, the Holding Company will
be classified as a unitary savings and loan holding company subject to
regulation by the OTS, and its principal business will be the ownership of
the Savings Bank. Immediately following the Conversion, the only
significant assets of the Holding Company will be the capital stock of the
Savings Bank, that portion of the net proceeds of the Offerings to be
retained by the Holding Company and a note receivable from the ESOP
evidencing a loan from the Holding Company to fund the Savings Bank's ESOP.
See "BUSINESS OF THE HOLDING COMPANY."
The holding company structure will permit the Holding Company to
expand the financial services currently offered through the Savings Bank.
Management believes that the holding company structure and retention of a
portion of the proceeds of the Offerings will, should it decide to do so,
facilitate the expansion and diversification of its operations. The
holding company structure will also enable the Holding Company to
repurchase its stock without adverse tax consequences. There are no
present plans, arrangements, agreements, or understandings, written or
oral, regarding any such activities or repurchases. See "REGULATION --
Savings and Loan Holding Company Regulations."
FULTON SAVINGS BANK, FSB
The Savings Bank, founded in 1912, is a federally chartered mutual
savings bank located in Fulton, Missouri. The Savings Bank amended its
charter from that of a state-chartered mutual savings bank to become a
federal mutual savings bank in April 1995. In connection with the
Conversion, the Savings Bank will convert to a federally chartered capital
stock savings bank and will become a subsidiary of the Holding Company.
The Savings Bank is regulated by the OTS, its primary federal regulator,
and the FDIC, the insurer of its deposits. The Savings Bank's deposits are
insured by the SAIF and have been federally insured since 1965. The
Savings Bank has been a member of the FHLB System since 1942. At April 30,
1996, the Savings Bank had total assets of $85.5 million, total deposits of
$70.3 million and retained earnings of $9.1 million on a consolidated
basis.
The Savings Bank is a community oriented financial institution that
engages primarily in the business of attracting deposits from the general
public and using those funds to originate residential and commercial
mortgage loans within the Savings Bank's market area. The Savings Bank
generally sells all of the fixed-rate and some of the adjustable-rate
residential mortgage loans that it originates while retaining the servicing
rights on such loans. At April 30, 1996, one- to four-family residential
mortgage loans totalled $46.7 million, or 59.6% of the Savings Bank's total
gross loans. The Savings Bank also originates multi-family, commercial
real estate, construction, land and consumer and other loans. The Savings
Bank frequently sells participation interests in the non-residential
mortgage loans it originates. At April 30, 1996, multi-family and
commercial real estate loans accounted for 16.0% of the Savings Bank's
total gross loans, construction loans accounted for 9.8% of total gross
loans and consumer and other loans accounted for 12.7% of total gross
loans. The Savings Bank has a branch office located in Holts Summit,
Missouri.
7
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the Common Stock offered hereby are
estimated to range from $10.5 million to $13.9 million, or up to $16.7
million if the Estimated Valuation Range is increased by 15%. See "PRO
FORMA DATA" for the assumptions used to arrive at such amounts. The
Holding Company has received the approval of the OTS to purchase all of the
capital stock of the Savings Bank to be issued in the Conversion in
exchange for 50% of the net proceeds of the Offerings. This will result in
the Holding Company retaining approximately $5.3 million to $6.9 million of
net proceeds, or up to $8.3 million if the Estimated Valuation Range is
increased by 15%, and the Savings Bank receiving an equal amount.
Receipt of 50% of the net proceeds of the sale of the Common Stock
will increase the Savings Bank's capital and will support the expansion of
the Savings Bank's existing business activities. The Savings Bank will use
the funds contributed to it for general corporate purposes, including
increased local lending. The Savings Bank may also use a portion of the
funds contributed to it to retire outstanding FHLB advances. Pending
deployment of funds, the Savings Bank plans initially to invest the net
proceeds in short- to intermediate-term U.S. Treasury and agency securities
with laddered maturities up to two years. Shares of Common Stock may be
purchased with funds on deposit at the Savings Bank, which will reduce
deposits by the amount of such purchases. As a result, the net amount of
funds available to the Savings Bank for investment following receipt of the
Conversion proceeds will be reduced by the amount of deposit withdrawals
used to fund stock purchases.
In connection with the Conversion and the establishment of the ESOP,
the Holding Company intends to loan the ESOP the amount necessary to
purchase 8% of the shares of Common Stock sold in the Conversion. The
Holding Company's loan to fund the ESOP may range from $884,000 to
$1,196,000 based on the sale of 88,400 shares to the ESOP (at the minimum
of the Estimated Valuation Range) and 119,600 shares (at the maximum of the
Estimated Valuation Range), respectively, at $10.00 per share. If 15%
above the maximum of the Estimated Valuation Range, or 1,719,250 shares,
are sold in the Conversion, the Holding Company's loan to the ESOP would be
approximately $1.4 million. It is anticipated that the ESOP loan will have
a ten-year term with interest payable at the prime rate as published in The
Wall Street Journal on the closing date of the Conversion. The loan will
be repaid principally from the Savings Bank's contributions to the ESOP and
from any dividends paid on shares of Common Stock held by the ESOP.
The Holding Company expects to lend a portion of the net proceeds to
the Savings Bank to be utilized for general corporate purposes, including
increased local lending. The remaining proceeds retained by the Holding
Company initially will be invested in cash and equivalents and short- to
intermediate-term U.S. Government and agency securities with laddered
maturities up to two years. Such proceeds will be available for additional
contributions to the Savings Bank in the form of debt or equity, to support
future diversification or acquisition activities, as a source of dividends
to the stockholders of the Holding Company and for future repurchases of
Common Stock to the extent permitted under Delaware law and federal
regulations. Currently, there are no specific plans, arrangements,
agreements or understandings, written or oral, regarding any
diversification activities.
Following consummation of the Conversion, the Board of Directors will
have the authority to adopt plans for repurchases of Common Stock or other
returns of capital to stockholders, subject to statutory and regulatory
requirements. Since the Holding Company has not yet issued stock, there
currently is insufficient information upon which an intention to repurchase
stock could be based. The facts and circumstances upon which the Board of
Directors may determine to repurchase stock in the future may include but
are not limited to: (i) market and economic factors such as the price at
which the stock is trading in the market, the volume of trading, the
attractiveness of other investment alternatives in terms of the rate of
return and risk involved in the investment, the ability to increase the
book value and/or earnings per share of the remaining outstanding shares,
and the ability to improve the Holding Company's return on equity; (ii) the
avoidance of dilution to stockholders by not having to issue additional
shares to cover the exercise of stock options or to fund employee stock
benefit plans; and (iii) any other
8
<PAGE>
circumstances in which repurchases would be in the best interests of the
Holding Company and its stockholders. Any stock repurchases or return of
capital will be subject to a determination by the Board of Directors that
both the Holding Company and the Savings Bank will be capitalized in excess
of all applicable regulatory requirements after any such repurchases or
return of capital and that capital will be adequate, taking into account,
among other things, the level of nonperforming and classified assets, the
Holding Company's and the Savings Bank's current and projected results of
operations and asset/liability structure, the economic environment and tax
and other regulatory considerations. See "THE CONVERSION -- Restrictions
on Repurchase of Stock."
DIVIDEND POLICY
General
The Board of Directors of the Holding Company intends to adopt a
policy of paying regular cash dividends following consummation of the
Conversion. However, no decision has been made as to the amount or timing
of such dividends. Declarations or payments of dividends will be subject
to determination by the Holding Company's Board of Directors, which will
take into account the amount of the net proceeds retained by the Holding
Company, the Holding Company's financial condition, results of operations,
tax considerations, capital requirements, industry standards, economic
conditions and other factors, including the regulatory restrictions that
affect the payment of dividends by the Savings Bank to the Holding Company
discussed below. In addition, from time to time in an effort to manage
capital to a reasonable level, the Board of Directors may determine to pay
periodic special cash dividends. Periodic special cash dividends, if paid,
may be paid in addition to, or in lieu of, regular cash dividends. Under
Delaware law, the Holding Company will be permitted to pay cash dividends
after the Conversion either out of surplus or, if there is no surplus, out
of net profits for the fiscal year in which the dividend is declared and/or
the preceding fiscal year. In order to pay such cash dividends, however,
the Holding Company must have available cash either from the net proceeds
raised in the Offerings and retained by the Holding Company, dividends
received from the Savings Bank or earnings on Holding Company assets. No
assurances can be given that any dividends, either regular or special, will
be declared or, if declared, what the amount of dividends will be or
whether such dividends, once declared, will continue.
Current Regulatory Restrictions
Dividends from the Holding Company may depend, in part, upon receipt
of dividends from the Savings Bank because the Holding Company initially
will have no source of income other than dividends from the Savings Bank
and earnings from the investment of the net proceeds from the Offerings
retained by the Holding Company. OTS regulations require the Savings Bank
to give the OTS 30 days' advance notice of any proposed declaration of
dividends to the Holding Company, and the OTS has the authority under its
supervisory powers to prohibit the payment of dividends to the Holding
Company. The OTS imposes certain limitations on the payment of dividends
from the Savings Bank to the Holding Company which utilizes a three-tiered
approach that permits various levels of distributions based primarily upon
a savings association's capital level. In addition, the Savings Bank may
not declare or pay a cash dividend on its capital stock if the effect
thereof would be to reduce the regulatory capital of the Savings Bank below
the amount required for the liquidation account to be established pursuant
to the Savings Bank's Plan of Conversion. See "REGULATION -- Federal
Regulation of Savings Associations -- Limitations on Capital
Distributions," "THE CONVERSION -- Effects of Conversion to Stock Form on
Depositors and Borrowers of the Savings Bank -- Liquidation Account" and
Note O of Notes to the Consolidated Financial Statements included elsewhere
herein.
The Savings Bank currently meets the criteria to be designated a Tier
1 association, as hereinafter defined, and consequently could at its option
(after prior notice to and no objection made by the OTS) distribute up to
100% of its net income during the calendar year plus 50% of its surplus
capital ratio at the beginning of the calendar year less any distributions
previously paid during the year.
9
<PAGE>
Tax Considerations
In addition to the foregoing, retained earnings of the Savings Bank
appropriated to bad debt reserves and deducted for federal income tax purposes
cannot be used by the Savings Bank to pay cash dividends to the Holding Company
without the payment of federal income taxes by the Savings Bank at the then
current income tax rate on the amount deemed distributed, which would include
the amount of any federal income taxes attributable to the distribution. See
"TAXATION -- Federal Taxation" and Note G of Notes to the Consolidated Financial
Statements included elsewhere herein. The Holding Company does not contemplate
any distribution by the Savings Bank that would result in a recapture of the
Savings Bank's bad debt reserve or create the above-mentioned federal tax
liabilities.
MARKET FOR COMMON STOCK
The Holding Company has never issued capital stock and, consequently, there
is no existing market for the Common Stock. Although the Holding Company has
received conditional approval to list the Common Stock on the Nasdaq SmallCap
Market under the symbol "____," there can be no assurance that the Holding
Company will meet Nasdaq SmallCap Market listing requirements, which include a
minimum market capitalization, at least two market makers and a minimum number
of record holders. Trident Securities has agreed to make a market for the
Holding Company's Common Stock following consummation of the Conversion and will
assist the Holding Company in seeking to encourage at least one additional
market maker to establish and maintain a market in the Common Stock. Making a
market involves maintaining bid and ask quotations and being able, as principal,
to effect transactions in reasonable quantities at those quoted prices, subject
to various securities laws and other regulatory requirements. While the Holding
Company has attempted to obtain commitments from broker-dealers to act as market
makers, and anticipates that prior to the completion of the Conversion it will
be able to obtain the commitment from at least one additional broker-dealer to
act as market maker for the Common Stock, there can be no assurance there will
be two or more market makers for the Common Stock. Additionally, the development
of a liquid public market depends on the existence of willing buyers and
sellers, the presence of which is not within the control of the Holding Company,
the Savings Bank or any market maker. There can be no assurance that an active
and liquid trading market for the Common Stock will develop or that, if
developed, it will continue. The number of active buyers and sellers of the
Common Stock at any particular time may be limited. Under such circumstances,
investors in the Common Stock could have difficulty disposing of their shares on
short notice and should not view the Common Stock as a short-term investment.
Furthermore, there can be no assurance that purchasers will be able to sell
their shares at or above the Purchase Price or that quotations will be available
on the Nasdaq SmallCap Market as contemplated.
10
<PAGE>
CAPITALIZATION
The following table presents the historical capitalization of the Savings
Bank at April 30, 1996, and the pro forma consolidated capitalization of the
Holding Company after giving effect to the assumptions set forth under "PRO
FORMA DATA," based on the sale of the number of shares of Common Stock set forth
below in the Conversion at the minimum, midpoint and maximum of the Estimated
Valuation Range, and based on the sale of 1,719,250 shares (representing the
shares that would be issued in the Conversion after giving effect to an
additional 15% increase in the maximum valuation in the Estimated Valuation
Range, subject to receipt of an updated appraisal confirming such valuation and
OTS approval). A change in the number of shares to be issued in the Conversion
may materially affect pro forma consolidation capitalization.
<TABLE>
<CAPTION>
Holding Company
ProForma Consolidated Capitalization
Based Upon the Sale of
---------------------------------------------------------------
1,105,000 1,300,000 1,495,000 1,719,250
Capitalization Shares at Shares at Shares at Shares at
as of $10.00 $10.00 $10.00 $10.00
April 30, 1996 Per Share(1) Per Share(1) Per Share(1) Per Share(1)
-------------- ------------ ------------ ------------ ------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Deposits(3) $70,316 $70,316 $70,316 $70,316 $70,316
FHLB advances and other borrowings 5,000 5,000 5,000 5,000 5,000
------- ------- ------ ------ ------
Total deposits and
borrowed funds $75,316 $75,316 $75,316 $75,316 $75,316
======= ======= ======= ======= =======
Stockholders' equity:
Preferred stock:
1,000,000 shares, $.01
par value per share.
authorized; none issued
or outstanding $ -- $ -- $ -- $ -- $ --
Common Shock:
6,000,000 shares, $.01 par
value per share, authorized;
specified number of shares
assumed to be issued and
outstanding(4) -- 11 13 15 17
Additional paid-in-capital -- 10,497 12,445 14,393 16,633
Retained earnings(5) 9,117 9,117 9,117 9,117 9,117
Less:
Common Stock acquied
by ESOP(6) -- (884) (1,040) (1,196) (1,375)
Common Stock to be acquired
by MRP(7) -- (442) (520) (598) (688)
------- ------- ------- ------- -------
$ 9,117 $18,299 $20,015 $21,731 $23,704
======= ======= ======= ======= =======
</TABLE>
(footnotes on following page)
11
<PAGE>
- ----------------
(1) Does not reflect the possible increase in the Estimated Valuation Range to
reflect material changes in the financial condition or performance of the
Savings Bank or changes in market conditions or general financial and
economic conditions, or the issuance of additional shares under the Stock
Option Plan.
(2) This column represents the pro forma capitalization of the Holding Company
in the event the aggregate number of shares of Common Stock issued in the
Conversion is 15% above the maximum of the Estimated Valuation Range. See
"PRO FORMA DATA" and Footnote 1 thereto.
(3) Withdrawals from deposit accounts for the purchase of Common Stock are not
reflected. Such withdrawals will reduce pro forma deposits by the amounts
thereof.
(4) The Savings Bank's authorized capital will consist solely of 1,000 shares of
common stock, par value $1.00 per share, 1,000 shares of which will be
issued to the Holding Company, and 9,000 shares of preferred stock, no par
value per share, none of which will be issued in connection with the
Conversion.
(5) Retained earnings are substantially restricted by applicable regulatory
capital requirements. Additionally, the Savings Bank will be prohibited from
paying any dividend that would reduce its regulatory capital below the
amount in the liquidation account, which will be established for the benefit
of the Savings Bank's Eligible Account Holders and Supplemental Eligible
Account Holders at the time of the Conversion and adjusted downward
thereafter as such account holders reduce their balances or cease to be
depositors. See "THE CONVERSION -- Effects of Conversion to Stock Form on
Depositors and Borrowers of the Savings Bank -- Liquidation Account." Amount
shown does not reflect the possible payment of a one-time assessment to
recapitalize the SAIF. See "RISK FACTORS -- Recapitalization of SAIF and its
Impact on SAIF Premiums." Based on assessable deposits of $68.6 million at
April 30, 1996, the payment of a one-time assessment of 80 basis points
would reduce retained earnings by $549,000.
(6) Assumes that 8% of the Common Stock sold in the Conversion will be acquired
by the ESOP in the Conversion with funds borrowed from the Holding Company.
In accordance with generally accepted accounting principles ("GAAP"), the
amount of Common Stock to be purchased by the ESOP represents unearned
compensation and is, accordingly, reflected as a reduction of capital. As
shares are released to ESOP participants' accounts, a corresponding
reduction in the charge against capital will occur. Since the funds are
borrowed from the Holding Company, the borrowing will be eliminated in
consolidation and no liability will be reflected in the consolidated
financial statements of the Holding Company. See "MANAGEMENT OF THE SAVINGS
BANK -- Benefits -- Employee Stock Ownership Plan."
(7) Assumes the purchase in the open market at the Purchase Price, pursuant to
the proposed MRP, of a number of shares equal to 4% of the shares of Common
Stock issued in the Conversion at the minimum, midpoint, maximum and 15%
above the maximum of the Estimated Valuation Range. The issuance of an
additional 4% of the shares of Common Stock for the MRP from authorized but
unissued shares of Holding Company Common Stock would dilute the voting and
ownership interest of stockholders by 3.85%. The shares are reflected as a
reduction of stockholders' equity. See "RISK FACTORS -- Possible Dilutive
Effect of Benefit Programs." "PRO FORMA DATA" and "MANAGEMENT OF THE
SAVINGS BANK -- Benefits -- Management Recognition Plan." The MRP is subject
to stockholder approval, which is expected to be sought at a meeting to be
held no earlier than six months following consummation of the Conversion.
12
<PAGE>
HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE
The following table presents the Savings Bank's historical and pro forma
capital position relative to its capital requirements at April 30, 1996. The
amount of capital infused into the Savings Bank for purposes of the following
table is 50% of the net proceeds of the Offerings. For the purpose of the table
below, the amount expected to be borrowed by the ESOP and the cost of the shares
expected to be acquired by the MRP are deducted from pro forma regulatory
capital. For a discussion of the assumptions underlying the pro forma capital
calculations presented below, see "USE OF PROCEEDS," "CAPITALIZATION" and "PRO
FORMA DATA." The definitions of the terms used in the table are those provided
in the capital regulations issued by the OTS. For a discussion of the capital
standards applicable to the Savings Bank, see "REGULATION -- Federal Regulation
of Savings Associations -- Capital Requirements."
<TABLE>
<CAPTION>
April 30, 1996
-------------------
Percent of
Total
Amount Assets(1)
------ ---------
<S> <C> <C>
GAAP capital........................ $9,117 10.66%
Tangible capital.................... $9,096 10.64%
Tangible capital requirement........ 1,282 1.50
------ -----
Excess.............................. $7,814 9.14%
====== =====
Core capital........................ $9,096 10.64%
Core capital requirement(2)......... 2,564 3.00
------ -----
Excess.............................. $6,532 7.64%
====== =====
Total capital(3).................... $9,486 18.46%
Risk-based
capital requirement................ 4,111 8.00
------ -----
Excess.............................. $5,375 10.46%
====== =====
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA AT APRIL 30, 1996
------------------------------------------------------------------------------------------
15% above
Minimum of Estimated Midpoint of Estimated Maximum of Estimated Maximum of Estimated
Valuation Range Valuation Range Valuation Range Valuation Range
-------------------- --------------------- -------------------- --------------------
1,105,000 Shares 1,300,000 Shares 1,495,000 Shares 1,179,250 Shares
at $10.00 Per Share at $10.00 Per Share at $10.00 Per Share at $10.00 Per Share
-------------------- --------------------- -------------------- --------------------
Percent of Percent of Percent of Percent of
Total Total Total Total
Amount Assets(1) Amount Assets(1) Amount Assets(1) Amount Assets(1)
------ --------- ------ --------- ------ --------- ------ ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP capital........................ $13,045 14.45% $13,786 15.12% $14,527 15.77% $15,379 16.51%
Tangible capital.................... $13,024 14.43% $13,765 15.10% $14,506 15.75% $15,358 16.49%
Tangible capital requirement........ 1,354 1.50 1,368 1.50 1,381 1.50 1,397 1.50
------- ----- ------- ----- ------- ----- ------- -----
Excess.............................. $11,670 12.93% $12,397 13.60% $13,125 14.25% $13,961 14.99%
======= ===== ======= ===== ======= ===== ======= =====
Core capital........................ $13,024 14.43% $13,765 15.10% $14,506 15.75% $15,358 16.49%
Core capital requirement(2)......... 2,709 3.00 2,736 3.00 2,762 3.00 2,793 3.00
------- ----- ------- ----- ------- ----- ------- -----
Excess.............................. $10,315 11.43% $11,029 12.10% $11,744 12.75% $12,565 13.49%
======= ===== ======= ===== ======= ===== ======= =====
Total capital(3).................... $13,414 25.62% $14,155 26.95% $14,896 28.26% $15,748 29.76%
Risk-based
capital requirement................ 4,188 8.00 4,202 8.00 4,217 8.00 4,233 8.00
------- ----- ------- ----- ------- ----- ------- -----
Excess.............................. $ 9,226 17.62% $ 9,953 18.95% $10,679 20.26% $11,515 21.76%
======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
- -----------------------------------
(1) Tangible capital levels are shown as a percentage of tangible assets. Core
capital levels are shown as a percentage of total adjusted assets. Risk
based capital levels are shown as a percentage of risk-weighted assets.
(2) The current OTS core capital requirement for savings associations is 3% of
total adjusted assets. The OTS has proposed core capital requirements
which would require a core capital ratio of 3% of total adjusted assets for
thrifts that receive the highest supervisory rating for safety and
soundness and a core capital ratio of 4% to 5% for all other thrifts.
(3) Percentage represents total core and supplementary capital divided by total
risk-weighted assets. Assumes net proceeds are invested in assets that
carry a 20% risk-weighting.
13
<PAGE>
PRO FORMA DATA
Under the Plan of Conversion, the Common Stock must be sold at a price
equal to the estimated pro forma market value of the Holding Company and the
Savings Bank as converted, based upon an independent valuation. The Estimated
Valuation Range as of July 12, 1996 is from a minimum of $11,050,000 to a
maximum of $14,950,000 with midpoint of $13,000,000 or, at a price per share of
$10.00, a minimum number of shares of 1,105,000, a maximum number of shares of
1,495,000 and a midpoint number of shares of 1,300,000. The actual net proceeds
from the sale of the Common Stock cannot be determined until the Conversion is
completed. However, net proceeds set forth on the following table are based upon
the following assumptions: (i) Trident Securities will receive a management fee
of $157,500; (ii) all of the Common Stock will be sold in the Subscription and
Direct Community Offerings; and (iii) Conversion expenses, excluding the fees
paid to Trident Securities, will total approximately $384,500. Actual expenses
may vary from this estimate, and the fees paid will depend upon the percentages
and total number of shares sold in the Subscription, Direct Community and
Syndicated Community Offerings and other factors.
The pro forma consolidated net income of the Savings Bank for the year
ended April 30, 1996 has been calculated as if the Conversion has been
consummated at the beginning of the period and the estimated net proceeds
received by the Holding Company and the Savings Bank had been invested at 6.40%
at the beginning of the period, which represents the arithmetic average of the
Savings Bank's yield on interest-earning assets and interest-bearing deposits as
of April 30, 1996. As discussed under "USE OF PROCEEDS," the Holding Company
expects to retain 50% of the net proceeds of the Offerings from which it will
fund the ESOP loan. A pro forma after-tax return of 4.02% is used for both the
Holding Company and the Savings Bank for the period, after giving effect to an
incremental combined federal and state tax rate of 37.12%. Historical and pro
forma per share amounts have been calculated by dividing historical and pro
forma amounts by the number of shares of Common Stock indicated in the footnotes
to the table. Per share amounts have been computed as if the Common Stock had
been outstanding at the beginning of the period or at April 30, 1996, but
without any adjustment of per share historical or pro forma stockholders' equity
to reflect the earnings on the estimated net proceeds.
The following table summarizes the historical net income and retained
earnings of the Savings Bank and the pro forma consolidated net income and
stockholders' equity of the Holding Company for the period and at the date
indicated, based on the minimum, midpoint and maximum of the Estimated Valuation
Range and based on a 15% increase in the maximum of the Estimated Valuation
Range. No effect has been given to: (i) the shares to be reserved for the
issuance under the Holding Company's Stock Option Plan, which is expected to be
voted upon by stockholders at a meeting to be held no earlier than six months
following consummation of the Conversion; (ii) withdrawals from deposit accounts
for the purpose of purchasing Common Stock in the Conversion; (iii) the issuance
of shares from authorized but unissued shares to the MRP, which is expected to
be voted upon by stockholders at a meeting to be held no earlier than six months
following consummation of the Conversion; or (iv) the establishment of a
liquidation account for the benefit of Eligible Account Holders and Supplemental
Eligible Account Holders. See "MANAGEMENT OF THE SAVINGS BANK--Benefits--1996
Stock Option Plan" and "THE CONVERSION--Stock Pricing and Number of Shares
Issued." Shares of Common Stock may be purchased with funds on deposit at the
Savings Bank, which will reduce deposits by the amounts of such purchases.
Accordingly, the net amount of funds available for investment will be reduced by
the amount of deposit withdrawals used to fund stock purchases.
The following pro forma information may not be representative of the
financial effects of the Conversion at the date on which the Conversion actually
occurs and should not be taken as indicative of future results of operations.
Stockholders' equity represents the difference between the stated amounts of
consolidated assets and liabilities of the Holding Company computed in
accordance with GAAP. Stockholders' equity has not been increased or decreased
to reflect the difference between the carrying value of loans and other assets
and market value. Stockholders' equity is not intended to represent fair market
value nor does it represent amounts that would be available for distribution to
stockholders in the event of liquidation.
14
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended April 30, 1996
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Minimum of Midpoint of Maximum of 15% Above
Estimated Estimated Estimated Maximum of
Valuation Valuation Valuation Estimated
Range Range Range Valuation Range
--------- --------- --------- ---------------
1,105,000 1,300,000 1,495,000 1,719,250(1)
Shares Shares Shares Shares
at $10.00 at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share Per Share
--------- --------- --------- ---------
(In Thousands, Except Per Share Amounts)
Gross proceeds.................................. $11,050 $13,000 $14,950 $17,193
Less: estimated expenses........................ 542 542 542 542
------- ------- ------- -------
Estimated net proceeds.......................... 10,508 12,458 14,408 16,651
Less: Common Stock acquired by ESOP............ (884) (1,040) (1,196) (1,375)
Less: Common Stock to be acquired by MRP....... (442) (520) (598) (688)
------- ------- ------- -------
Net investable proceeds...................... $ 9,182 $10,898 $12,614 $14,587
======= ======= ======= =======
Consolidated net income:
Historical..................................... $ 620 $ 620 $ 620 $ 620
Pro forma income on net proceeds(2)............ 370 439 508 587
Pro forma ESOP adjustments(3).................. (56) (65) (75) (86)
Pro forma MRP adjustments(4)................... (56) (65) (75) (86)
------- ------- ------- -------
Pro forma net income......................... $ 878 $ 929 $ 978 $ 1,035
======= ======= ======= =======
Consolidated net income per share (5)(6):
Historical..................................... $ 0.60 $ 0.51 $ 0.45 $ 0.39
Pro forma income on net proceeds............... 0.36 0.36 0.37 0.37
Pro forma ESOP adjustments(3).................. (0.05) (0.05) (0.05) (0.05)
Pro forma MRP adjustments(4)................... (0.05) (0.05) (0.05) (0.05)
------- ------- ------- -------
Pro forma net income per share............... $ 0.86 $ 0.77 $ 0.72 $ 0.66
======= ======= ======= =======
Consolidated stockholders' equity (book value):
Historical..................................... $ 9,117 $ 9,117 $ 9,117 $ 9,117
Estimated net proceeds......................... 10,508 12,458 14,408 16,651
Less: Common Stock acquired by ESOP........... (884) (1,040) (1,196) (1,375)
Less: Common Stock to be acquired by MRP(4)... (442) (520) (598) (688)
------- ------- ------- -------
Pro forma stockholders' equity(7)............ $18,299 $20,015 $21,731 $23,704
======= ======= ======= =======
Consolidated stockholders' equity per share(6)(8):
Historical(6)................................. $ 8.25 $ 7.01 $ 6.10 $ 5.30
Estimated net proceeds........................ 9.51 9.58 9.64 9.68
Less: Common Stock acquired by ESOP.......... (0.80) (0.80) (0.80) (0.80)
Less: Common Stock to be acquired by MRP(4).. (0.40) (0.40) (0.40) (0.40)
------- ------- ------- -------
Pro forma stockholders' equity per share(9). $ 16.56 $ 15.39 $ 14.54 $ 13.78
======= ======= ======= =======
Purchase Price as a multiple of pro forma
net income per share.......................... 11.63x 12.99x 13.89x 15.15x
Purchase Price as a percentage of pro forma
stockholders' equity per share................. 60.39% 64.98% 68.78% 72.57%
</TABLE>
(footnotes on following page)
15
<PAGE>
- --------------
(1) Gives effect to the sale of an additional 224,250 shares in the Conversion,
which may be issued to cover an increase in the pro forma market value of
the Holding Company and the Savings Bank as converted, without the
resolicitation of subscribers or any right of cancellation. The issuance of
such additional shares will be conditioned on a determination of the
independent appraiser that such issuance is compatible with its
determination of the estimated pro forma market value of the Holding
Company and the Savings Bank as converted. See "THE CONVERSION - Stock
Pricing and Number of Shares to be Issued."
(2) No effect has been given to withdrawals from savings accounts for the
purpose of purchasing Common Stock in the Conversion.
(3) It is assumed that 8% of the shares of Common Stock offered in the
Conversion will be purchased by the ESOP. The funds used to acquire such
shares will be borrowed by the ESOP (at an interest rate equal to the prime
rate as published in The Wall Street Journal on the closing date of the
Conversion, which rate is currently ___%) from the net proceeds from the
Offerings retained by the Holding Company. The amount of this borrowing has
been reflected as a reduction from gross proceeds to determine estimated
net investable proceeds. The Savings Bank intends to make contributions to
the ESOP in amounts at least equal to the principal and interest
requirement of the debt. As the debt is paid down, stockholders' equity
will be increased. The Savings Bank's payment of the ESOP debt is based
upon equal installments of principal over a ten-year period, assuming a
combined federal and state tax rate of 37.12%. Shares purchased by the ESOP
with the proceeds of the loan will be held in a suspense account and
released on a pro rata basis as the loan is repaid. Interest income earned
by the Holding Company on the ESOP debt offsets the interest paid by the
Savings Bank on the ESOP loan. No reinvestment is assumed on proceeds
contributed to fund the ESOP. The ESOP expense reflects adoption of
Statement of Position ("SOP") 93-6, which will require recognition of
expense based upon shares committed to be released and the exclusion of
unallocated shares from earnings per share computations. The valuation of
shares committed to be released would be based upon the average market
value of the shares during the year, which, for purposes of this
calculation, was assumed to be equal to the $10.00 per share Purchase
Price. See "MANAGEMENT OF THE SAVINGS BANK - Benefits- Employee Stock
Ownership Plan."
(4) Gives effect to the MRP expected to be adopted by the Holding Company
following the Conversion. If the MRP is approved by stockholders, the MRP
intends to acquire an amount of Common Stock equal to 4% of the shares of
Common Stock issued in the Conversion either through open market purchases
or from authorized but unissued shares of Common Stock. In calculating the
pro forma effect of the MRP, it is assumed that the required stockholder
approval has been received, that the shares were acquired by the MRP at the
beginning of the period presented in open market purchases at the Purchase
Price and that 20% of the amount contributed was an amortized expense
during such period. The issuance of authorized but unissued shares of the
Common Stock instead of open market purchases would dilute the voting and
ownership interests of existing stockholders by approximately 3.85% and pro
forma net income per share would be $0.84, $0.75, $0.69 and $0.64 at the
minimum, midpoint, maximum and 15% above the maximum of the Estimated
Valuation Range for the year ended April 30, 1996, respectively, and pro
forma stockholders' equity per share would be $16.31, $15.19, $14.36 and
$13.64 at the minimum, midpoint, maximum and 15% above the maximum of the
Estimated Valuation Range at April 30, 1996. Shares issued under the MRP
vest over a five-year period at 20% per year and, for purposes of this
table, compensation expense is recognized on a straight-line basis over
each vesting period. In the event the fair market value per share is
greater than $10.00 per share on the date of stockholder approval of the
MRP, total MRP expense would increase. The total estimated MRP expense was
multiplied by 20% (the total percent of shares for which expense is
recognized in the first year) resulting in pre-tax MRP expense of $88,000,
$104,000, $120,000 and $138,000 at the minimum, midpoint, maximum and 15%
above the maximum of the Estimated Valuation Range for the year ended April
30, 1996, respectively. No effect has been given to the shares reserved
for issuance under the proposed Stock Option Plan. If stockholders approve
the Stock Option Plan following the Conversion, the Holding Company will
have reserved for issuance under the Stock Option Plan authorized but
unissued shares of Common Stock representing an amount of shares equal to
10% of the shares sold in the Conversion. If all of the options were to be
exercised utilizing these authorized but unissued shares rather than
treasury shares which could be acquired, the voting and ownership
16
<PAGE>
interests of existing stockholders would be diluted by approximately 9.1%.
Assuming stockholder approval of the Stock Option Plan and that all options
were exercised at the end of the period at an exercise price of $10.00 per
share, pro forma net earnings per share would be $0.77, $0.70, $0.64 and
$0.59, respectively, and pro forma stockholders' equity per share would be
$15.96, $14.91, $14.12 and $13.44, respectively, at the minimum, midpoint,
maximum and 15% above the maximum of the Estimated Valuation Range. See
"MANAGEMENT OF THE SAVINGS BANK --Benefits -- 1996 Stock Option Plan"
and "--Management Recognition Plan" and "RISK FACTORS --Possible Dilutive
Effect of Benefit Programs."
(5) Per share amounts are based upon shares outstanding of 1,025,440,
1,206,400, 1,387,360, 1,595,464 at the minimum, midpoint, maximum and 15%
above the maximum of the Estimated Valuation Range for the year ended April
30, 1996, respectively, which includes the shares of Common Stock sold in
the Conversion less the number of shares assumed to be held by the ESOP not
committed to be released within the first year following the Conversion.
(6) Historical per share amounts have been computed as if the shares of Common
Stock expected to be issued in the Conversion had been outstanding at the
beginning of the period or on the date shown, but without any adjustment of
historical net income or historical retained earnings to reflect the
investment of the estimated net proceeds of the sale of shares in the
Conversion, the additional ESOP expense or the proposed MRP expense, as
described above.
(7) "Book value" represents the difference between the stated amounts of the
Savings Bank's assets and liabilities. The amounts shown do not reflect
the liquidation account which will be established for the benefit of
Eligible Account Holders and Supplemental Eligible Account Holders in the
Conversion, or the federal income tax consequences of the restoration to
income of the Savings Bank's special bad debt reserves for income tax
purposes which would be required in the unlikely event of liquidation. See
"THE CONVERSION -- Effects of Conversion to Stock Form on Depositors and
Borrowers of the Savings Bank" and "TAXATION." The amounts shown for book
value do not represent fair market values or amounts distributable to
stockholders in the unlikely event of liquidation. Amounts shown do not
reflect the possible payment of a one-time assessment to recapitalize the
SAIF. See "RISK FACTORS --Recapitalization of SAIF and its Impact on SAIF
Premiums." Based on assessable deposits of $68.6 million at April 30,
1996, a one-time assessment of 30 basis points would reduce book value by
$549,000, or $0.37, $0.42, $0.50 and $0.32 per share, respectively, at the
minimum, midpoint, maximum, and 15% above the maximum of the Estimated
Valuation Range.
(8) Per share amounts are based upon shares outstanding of 1,105,000,
1,300,000, 1,495,000 and 1,719,250 at the minimum, midpoint, maximum and
15% above the maximum of the Estimated Valuation Range, respectively.
(9) Does not represent possible future price appreciation or depreciation of
the Common Stock.
17
<PAGE>
SHARES TO BE PURCHASED BY MANAGEMENT PURSUANT TO SUBSCRIPTION RIGHTS
The following table sets forth certain information as to the approximate
purchases of Common Stock by each director (and director emeritus) and executive
officer of the Savings Bank, including their associates, as defined by
applicable regulations. No individual has entered into a binding agreement with
respect to such intended purchases. Directors and officers of the Savings Bank
and their associates may not purchase in excess of 34% of the shares sold in the
Conversion and, therefore, actual purchases could be more or less than indicated
below. For purposes of the following table, it has been assumed that sufficient
shares will be available to satisfy subscriptions in all categories. Directors,
officers and employees will pay the same price for the shares for which they
subscribe as the price that will be paid by all other subscribers.
<TABLE>
<CAPTION>
Percent of Percent of
Shares at Shares at
Anticipated Anticipated Minimum of Maximum of
Number of Dollar Estimated Estimated
Name and Shares Amount Valuation Valuation
Position Purchased Purchased Range Range
---------- ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C>
Dennis J. Adrian 20,000 $ 200,000 1.81% 1.34
Director
Billy M. Conner 20,000 200,000 1.81 1.34
Director
Kermit D. Gohring 20,000 200,000 1.81 1.34
President, Chief
Executive
Officer and Director
Richard W. Gohring 7,500 75,000 0.68 0.50
Executive Vice President
and Director
Clifford E. Hamilton 20,000 200,000 1.81 1.34
Director
Bonnie K. Smith 10,000 100,000 0.90 0.67
Senior Vice President,
Secretary-
Treasurer and Director
David W. West 20,000 200,000 1.81 1.34
Director
Virgil A. Johnson 4,000 40,000 0.36 0.27
Director Emeritus
Millard F. Stewart 2,500 25,000 0.23 0.17
Director Emeritus
Cecil M. Stock 3,000 30,000 0.27 0.20
Director Emeritus
Marcia Lamons 1,000 10,000 0.09 0.07
Vice President ------- ---------- ----- ----
128,000 $1,280,000 11.58% 8.56%
======= ========== ===== ====
- --------------
</TABLE>
(1) Excludes any shares awarded pursuant to the ESOP and MRP and options to
acquire shares pursuant to the Stock Option Plan. For a description of the
number of shares to be purchased by the ESOP and intended awards under the
MRP and Stock Option Plan, see "MANAGEMENT OF THE SAVINGS BANK -- Benefits
-- Employee Stock Ownership Plan," "-- Benefits -- 1996 Stock Option Plan"
and "-- Benefits -- Management Recognition Plan."
18
<PAGE>
FULTON SAVINGS BANK, FSB AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
The following Consolidated Statements of Income of Fulton Savings
Bank, FSB and Subsidiary for the fiscal years ended April 30, 1996, 1995 and
1994 have been audited by Moore, Horton & Carlson, P.C., Mexico, Missouri,
independent auditors, whose report thereon appears elsewhere in this Prospectus.
These statements should be read in conjunction with the Consolidated Financial
Statements and related Notes included elsewhere herein.
<TABLE>
<CAPTION>
Year Ended April 30,
-------------------------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Interest Income:
Mortgage loans................... $4,914,438 $4,264,882 $4,351,093
Consumer and other loans......... 774,757 648,032 536,980
Investment securities............ 297,716 334,147 387,849
Interest-earning deposits........ 184,777 108,381 136,679
---------- ---------- ----------
6,171,688 5,355,442 5,412,601
Interest Expense:
Deposits......................... 3,463,533 2,746,790 2,670,677
Advances from Federal Home
Loan Bank of Des Moines......... 317,497 197,451 --
---------- ---------- ----------
3,781,030 2,944,241 2,670,677
---------- ---------- ----------
Net interest income............ 2,390,658 2,411,201 2,741,924
Provision for loan losses.......... 44,242 118,000 48,214
---------- ---------- ----------
Net interest income after
provision for loan losses..... 2,346,416 2,293,201 2,693,710
Other Income (Loss):
Loan servicing fees.............. 280,525 255,386 261,600
Service charges and other
fees............................ 129,588 117,469 117,586
Income from foreclosed assets 10,282 24,783 25,216
Loss on sale of investment -
Note B.......................... -- (55,290) (11,496)
Other............................ 65,113 17,260 20,100
---------- ---------- ----------
485,508 359,608 413,006
Other Expense:
Employee salaries and
benefits........................ 878,770 884,224 864,547
Occupancy costs.................. 222,514 197,101 184,824
Advertising...................... 31,751 78,403 42,739
Data processing.................. 152,755 178,193 145,743
Federal insurance premiums....... 153,182 148,711 149,810
Directors' fees.................. 87,223 56,875 49,200
Other............................ 322,653 265,067 304,304
---------- ---------- ----------
Total noninterest expense...... 1,848,848 1,808,574 1,741,167
---------- ---------- ----------
Income before income taxes..... 983,076 844,235 1,365,549
Income Taxes - Note G.............. 363,000 301,500 484,500
---------- ---------- ----------
Net income..................... $ 620,076 $ 542,735 $ 881,049
========== ========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
Management's discussion and analysis of financial condition and results of
operations is intended to assist in understanding the financial condition and
results of operations of the Savings Bank. The information contained in this
section should be read in conjunction with the Consolidated Financial Statements
and accompanying Notes thereto and the other sections contained in this
Prospectus.
Operating Strategy
The business of the Savings Bank consists principally of attracting
deposits from the general public and using such deposits to originate mortgage
loans secured primarily by one- to four-family residences. The Savings Bank
also originates multi-family, commercial real estate, and construction, land and
consumer and other loans. The Savings Bank plans to continue to fund its assets
primarily with deposits, although FHLB advances may continue to be used as a
supplemental source of funds.
The Savings Bank's profitability depends primarily on its net interest
income, which is the difference between the income it receives on its loan and
investment portfolio and its cost of funds, which consists of interest paid on
deposits. Net interest income is also affected by the relative amounts of
interest-earning assets and interest-bearing liabilities. When interest-earning
assets equal or exceed interest-bearing liabilities, any positive interest rate
spread will generate net interest income. The Savings Bank's profitability is
also affected by the level of other income and expenses. Other income consists
primarily of loan servicing fees and service charges and other fees. Other
expenses include employee salaries and benefits, occupancy costs, deposit
insurance premiums, data processing expenses and other operating costs. The
Savings Bank's results of operations are also significantly affected by general
economic and competitive conditions, particularly changes in market interest
rates, government legislation and policies concerning monetary and fiscal
affairs, housing and financial institutions and the attendant actions of the
regulatory authorities.
The Savings Bank strives to operate a conservative, well capitalized,
profitable thrift dedicated to providing quality service to its customers. The
Savings Bank believes that it has successfully implemented its strategy by: (i)
maintaining a strong capital level; (ii) maintaining a high level of asset
quality; (iii) limiting its exposure to fluctuations in market interest rates;
(iv) enhancing net income by developing a portfolio of loans serviced for others
as a means of generating current income through loan servicing fees; (v)
emphasizing local loan origination; and (vi) emphasizing high quality customer
service with a competitive fee structure. The Savings Bank has attempted to
limit its interest rate risk by matching the interest rate sensitivity of its
interest-earning assets with its funding sources. The Savings Bank has pursued
this objective by selling substantially all of the fixed-rate mortgage loans
that it originates, retaining ARM loans for portfolio, and promoting transaction
accounts and certificates of deposit with terms up to five years.
Results of Operations
The earnings of the Savings Bank depend primarily on its level of net
interest income, which is the difference between interest earned on the Savings
Bank's interest-earning assets and the interest paid on interest-bearing
liabilities. Net interest income is a function of the Savings Bank's interest
rate spread, which is the difference between the yield earned on interest-
earning assets and the rate paid on interest-bearing liabilities, as well as a
function of the average balance of interest-earning assets as compared to the
average balance of interest-bearing liabilities. The Savings Bank operates as a
community oriented financial institution, with a focus on servicing customers in
Boone and Callaway Counties in Missouri. Because the Savings Bank serves a
limited growth market area with a relatively small population base, the Savings
Bank's ability to achieve loan and deposit growth is limited. Moreover, a
downturn in the economy of the Savings Bank's market area could have an adverse
effect on the quality
20
<PAGE>
of the Savings Bank's loan portfolio. See "RISK FACTORS -- Dependence on Local
Economy and Competition Within Market Area" and "BUSINESS OF THE SAVINGS BANK --
Market Area."
Comparison of Financial Condition at April 30, 1996 and 1995
Total assets increased to $85.5 million at April 30, 1996 from $79.4
million at April 30, 1995. Cash, including interest-bearing deposits, decreased
to $2.9 million at April 30, 1996 from $4.2 million at April 30, 1995, and
investment securities decreased to $3.2 million from $4.2 million as these funds
were used to originate loans. Loans receivable increased to $73.9 million at
April 30, 1996 from $67.8 million at April 30, 1995, and loans held for sale
increased to $2.3 million from $573,000. Deposits increased to $70.3 million at
April 30, 1996 from $65.2 million at April 30, 1995. FHLB advances increased
slightly to $5.0 million from $4.5 million as the Savings Bank continued to use
FHLB advances as a supplemental source of lendable funds. Total equity
increased to $9.1 million at April 30, 1996 from $8.5 million at April 30, 1995
as a result of retained earnings.
Comparison of Operating Results for the Years Ended April 30, 1996 and 1995
Net Income. Net income increased $77,000, or 14.3%, to $620,000 for the
year ended April 30, 1996 from $543,000 for the year ended April 30, 1995.
Income before taxes increased $139,000, or 16.4%. Net interest income decreased
slightly between the periods as a result of a smaller interest rate margin as
the Savings Bank's yield on interest-earning assets increased less than its cost
of interest-bearing liabilities. A decrease in the provision for loan losses of
$74,000, an increase in other income of $126,000 and an increase in other
expenses of $40,000 accounted for the change in income before taxes. The
Savings Bank's return on equity for fiscal 1996 was 7.00% compared with 6.55%
for fiscal 1995.
Net Interest Income. Net interest income decreased $21,000 to $2.4 million
for the year ended April 30, 1996. Total interest income increased $816,000, or
15.2%, to $6.2 million for the year ended April 30, 1996 from $5.4 million for
the year ended April 30, 1995. Although total interest income increased from
fiscal 1995 to fiscal 1996, this increase was offset by a greater increase in
total interest expense as the Savings Bank's interest rate spread decreased to
2.60% for fiscal 1996 from 2.96% for fiscal 1995. Interest income on loans
receivable increased $776,000 between the periods primarily as a result of an
increase in the average balance of loans to $71.4 million in fiscal 1996 from
$64.9 million in fiscal 1996. An increase in the average yield on loans to
7.97% in fiscal 1996 from 7.57% in fiscal 1995, as interest rates moved up
slightly and adjustable-rate loans adjusted upwards, also contributed to the
increase in interest income on loans. Interest income on investment securities
decreased $36,000 primarily due to the elimination of the Savings Bank's
mortgage-backed securities portfolio. The Savings Bank began liquidating its
remaining mortgage-backed securities portfolio in fiscal 1995 after receiving
significant principal repayments in fiscal 1994 and 1993 so that the funds could
be invested in higher yielding loans. The decrease in interest income from
mortgage-backed securities was partially offset by an increase in interest
income on U.S. Government and federal agency obligations, which resulted from an
increase in the average yield on such securities despite a reduction in the
average balance from fiscal 1995 to fiscal 1996. Interest income on interest-
bearing deposits increased $76,000 between the periods as a result of an
increase in the average balance to $3.1 million in fiscal 1996 from $2.2 million
in fiscal 1995, as the Savings Bank increased its liquidity in connection with
increased loan originations and sales, and an increase in the average yield to
5.90% from 4.89%, which was due to higher market interest rates. Total interest
expense increased $837,000, or 28.4%, to $3.8 million for the year ended April
30, 1996 from $2.9 million for the year ended April 30, 1995. Interest paid on
deposits increased $717,000 between the periods while interest paid on FHLB
advances increased $120,000. Interest paid on deposits increased due to a
larger average balance of deposits in fiscal 1996 and an increase in the average
rate paid. Though the average balance of NOW, money market, and passbook
accounts decreased to $14.7 million in fiscal 1996 from $17.1 million in fiscal
1995, the average balance of certificates of deposit increased to $53.3 million
from $47.2 million. This shift from lower paying transaction accounts to higher
paying certificate accounts together with an increase in market interest rates
caused the average rate paid on deposits to increase to 5.09% in fiscal 1996
from 4.27% in fiscal 1995. Interest paid on FHLB advances increased primarily
as a result of higher average balances in fiscal 1996 despite a decrease in the
average rate paid on such advances.
21
<PAGE>
Provision for Loan Losses. Provisions for loan losses are charges to
earnings to bring the total allowance for loan losses to a level considered by
management to be adequate to provide for estimated loan losses based on
management's evaluation of the collectibility of the loan portfolio, including
the nature of the portfolio, credit concentrations, trends in historical loss
experience, specific impaired loans and economic conditions. The provision for
loan losses decreased to $44,000 for the year ended April 30, 1996 from $118,000
for the year ended April 30, 1995. The provision for loan losses was
significantly larger in fiscal 1995 as the allowance was increased in response
to increased delinquencies in the loan portfolio in fiscal 1994.
Other Income. Other income increased $126,000, or 35.0%, to $486,000 for
the year ended April 30, 1996 from $360,000 for the year ended April 30, 1995.
Loan servicing fees increased $25,000 to $280,000 as a result of an increase in
the amount of loans serviced for others. Service charges and fees increased
$12,000 as a result of a larger number of accounts. Income from foreclosed
assets decreased $15,000 as a result of the sale of such properties. In fiscal
1995, the Savings Bank incurred a loss of $55,000 on the sale of mortgage-backed
securities as the Savings Bank liquidated its mortgage-backed securities
portfolio. There were no comparable losses in fiscal 1996.In fiscal 1996, the
Savings Bank received a patronage dividend of $55,000 from the Savings Bank's
data processor.
Other Expense. Other expense increased $40,000 to $1.8 million for the
year ended April 30, 1996. Employee salaries and benefits were essentially
unchanged between fiscal 1996 and fiscal 1995. Occupancy costs increased
$25,000, or 12.9%, between the periods due in part to the expansion of the
Savings Bank's main office. Advertising costs decreased $47,000, or 59.5% due
to an effort to reduce expenses. Data processing costs decreased $25,000, or
14.3%, as a result of entering into a five-year contract. Directors' fees
increased $30,000 as three directors took emeritus status and three new
directors were appointed. The Savings Bank anticipates that other expense will
increase in fiscal 1997 as the result of increased costs associated with
operating as a public company and increased compensation expense as result of
adoption of the ESOP.
Income Taxes. The provision for income taxes increased to $363,000 in
fiscal 1996 from $302,000 in fiscal 1995 as a result of greater taxable income.
Comparison of Operating Results for the Years Ended April 30, 1995 and 1994
Net Income. Net income decreased $338,000, or 38.4%, to $543,000 for the
year ended April 30, 1995 from $881,000 for the year ended April 30, 1994.
Income before taxes decreased $521,000, or 38.2%. Operating results were
primarily influenced by the rise in short-term interest rates, which resulted in
a decrease in the Savings Bank's interest rate spread to 2.96% for the year
ended April 30, 1995 from 3.58% for the year ended April 30, 1994. An increase
in the provision for loan losses of $70,000, a decrease in other income of
$53,000 and an increase in other expenses of $67,000 also contributed to the
decrease in net income. The Savings Bank's return on equity for the year ended
April 30, 1995 was 6.55% compared to 11.92% for the year ended April 30, 1994.
Net Interest Income. Net interest income decreased $331,000, or 12.1%, to
$2.4 million for the year ended April 30, 1995, from $2.7 million for the year
ended April 30, 1994. The decrease in net income was primarily the result of
the decrease in the Savings Bank's interest rate spread to 2.96% in fiscal 1995
from 3.58% in fiscal 1994. Total interest income decreased $57,000 to $5.4
million for the year ended April 30, 1995. Interest income on loans receivable
decreased $25,000 between the periods as the increase in the average balance of
loans to $64.9 million in fiscal 1995 from $59.2 million in fiscal 1994 was
offset by the decrease in the average yield on loans receivable to 7.57% from
8.26%. The average yield on loans receivable decreased as a result of a decline
in the index used for the Savings Bank's ARM loans. Interest income on
investment securities decreased $54,000 primarily as a result of a decrease in
the average balance of mortgage-backed securities to $370,000 in fiscal 1995
from $1.5 million in fiscal 1994. The decrease in interest income from
mortgage-backed securities was partially offset by an increase in interest
income from U.S. Government and federal agency obligations, which increased due
to a higher average yield. Interest income on interest-bearing deposits
decreased $28,000 a result of a decrease in the average balance of such deposits
to $2.2 million in fiscal 1995 from $4.4 million in fiscal 1994 that was
partially offset by an
22
<PAGE>
increase in the average yield to 4.89% from 3.12%. Total interest expense
increased $274,000, or 10.2%, to $2.9 million for the year ended April 30, 1995
from $2.7 million for the year ended April 30, 1994. Interest expense on
deposits increased $76,000 between the periods as a result of an increase in the
average rate paid on deposits to 4.27% in fiscal 1995 from 4.13% in fiscal 1994,
which was partially offset by a decrease in the average balance of deposits. In
fiscal 1995, the Savings Bank had interest expense of $197,000 on FHLB advances
with no such expense in fiscal 1994. In fiscal 1995, the Savings Bank began
using FHLB advances as a supplemental source of lendable funds.
Provision of Loan Losses. The provision for loan losses was $118,000 in
the year ended April 30, 1995 compared to $48,000 in the year ended April 30,
1994. The provision for loan losses was larger in fiscal 1995 as the allowance
was increased in response to a larger amount of delinquencies in the loan
portfolio.
Other Income. Other income decreased $53,000, or 12.9%, to $360,000 for
the year ended April 30, 1995 from $413,000 for the year ended April 30, 1994.
The decrease was primarily due to an increase in the loss on sale of investments
to a loss of $55,000 in fiscal 1995 from a loss of $11,000 in fiscal 1994. Loan
servicing fees decreased $6,000 between the periods while service charges and
other fees and income from foreclosed assets were unchanged between the periods.
Other Expense. Other expense increased $67,000, or 3.9%, to $1.8 million
for the year ended April 30, 1995 from $1.7 million for the year ended April 30,
1994. Employee salaries and benefits increased $20,000, or 2.3%, between the
periods primarily due to ordinary salary increases. Occupancy costs increased
$12,000, or 6.6%. Advertising costs increased $36,000, or 83.4%, as the Savings
Bank sought to increase lending activity during a period of low interest rates.
Income Taxes. The provision for income taxes decreased to $302,000 for the
year ended April 30, 1995 from $485,000 for the year ended April 30, 1994 due to
a lower level of taxable earnings.
Average Balances, Interest and Average Yields/Cost
The following table sets forth certain information for the periods
indicated regarding average balances of assets and liabilities as well as the
total dollar amounts of interest income from average interest-earning assets and
interest expense on average interest-bearing liabilities and average yields and
costs. Such yields and costs for the periods indicated are derived by dividing
income or expense by the average monthly balance of assets or liabilities,
respectively, for the periods presented. Average balances are derived from
month-end balances. Management does not believe that the use of month-end
balances instead of daily balances has caused any material difference in the
information presented.
23
<PAGE>
<TABLE>
<CAPTION>
Year Ended April 30,
----------------------------------------------------------------------------------
1996 1995 1994
---------------------------- ------------------------- -------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
--------- -------- ------ ------- -------- ------ ------- -------- ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net (1)........... $71,380 $5,689 7.97% $64,942 $4,913 7.57% $59,206 $4,888 8.26%
Mortgage-backed securities
available for sale............... 1 -- 9.18 370 44 11.92 -- -- --
Mortgage-backed securities
held to maturity................. -- -- -- -- -- -- 1,530 121 7.87
U.S. Government and federal agency
securities available for sale.... 3,895 253 6.48 4,335 240 5.54 -- -- --
U.S. Government and federal agency
securities held to maturity...... -- -- -- -- -- -- 4,503 218 4.85
FHLB stock.......................... 628 45 7.17 616 50 8.07 622 49 7.92
Interest-bearing deposits........... 3,133 185 5.90 2,216 108 4.89 4,381 137 3.12
------- ------ ------- ------ ------- ------
Total interest-earning assets..... 79,037 6,172 7.81 72,479 5,355 7.39 70,242 5,413 7.71
Noninterest-earning assets............ 3,695 3,308 3,248
------- ------- -------
Total average assets.............. $82,732 $75,787 $73,490
======= ======= =======
Interest-bearing liabilities:
NOW, money market and passbook
accounts......................... $14,728 387 2.62 $17,090 485 2.84 $17,906 485 2.71
Certificates of deposit............. 53,273 3,077 5.78 47,237 2,262 4.79 46,752 2,186 4.68
------- ------ ------- ------ ------- ------
Total average deposits............ 68,001 3,464 5.09 64,327 2,747 4.27 64,658 2,671 4.13
FHLB advances....................... 4,616 317 6.88 2,077 197 9.51 -- -- --
------- ------ ------- ------ ------- ------
Total interest-bearing
liabilities...................... 72,617 3,781 5.21 66,404 2,944 4.43 64,658 2,671 4.13
------ ------ ------
Noninterest-bearing liabilities....... 1,261 1,097 1,442
------- ------- -------
Total average liabilities......... 73,878 67,501 66,100
Average retained earnings............. 8,854 8,286 7,390
------- ------- -------
Total liabilities and retained
earnings......................... $82,732 $75,787 $73,490
======= ======= =======
Net interest income................... $2,391 $2,411 $2,742
====== ====== ======
Interest rate spread.................. 2.60 2.96 3.58
Net interest margin................... 3.02% 3.33% 3.90%
Ratio of average interest-earning
assets to average interest-bearing
liabilities.......................... 108.84% 109.15% 108.64%
</TABLE>
- ------------------------
(1) Average loans receivable includes nonaccruing loans. Interest income does
not include interest on loans 90 days or more past due.
24
<PAGE>
Yields Earned and Rates Paid
The following table sets forth (on a consolidated basis) for the periods
and at the date indicated the weighted average yields earned on the Savings
Bank's assets and the weighted average interest rates paid on the Savings Bank's
liabilities, together with the net yield on interest-earning assets.
<TABLE>
<CAPTION>
Year Ended April 30,
At April 30, ----------------------------
1996 1996 1995 1994
------------ ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average yield on:
Loans receivable, net......... 7.76% 7.97% 7.57% 8.26%
Mortgage-backed securities
available for sale......... -- 9.18 11.92 --
Mortgage-backed securities
held to maturity........... -- -- -- 7.87
U.S. Government and federal
agency obligations available
for sale.................. 6.08 6.48 5.54 --
U.S. Government and federal
agency obligations held to
maturity.................. -- -- -- 4.85
FHLB stock.................... 6.71 7.17 8.07 7.92
Interest-bearing deposits..... 3.42 5.90 4.89 3.12
All interest-earning assets... 7.61 7.81 7.39 7.71
Weighted average rate paid on:
NOW, money market and
passbook accounts.......... 2.63 2.62 2.84 2.71
Certificate accounts.......... 5.80 5.78 4.79 4.68
FHLB advances................. 6.75 6.88 9.51 --
All interest-bearing
liabilities.................. 5.28 5.21 4.43 4.13
Interest rate spread (spread
between weighted average rate
on all interest-earning assets
and all interest-bearing
liabilities).................... 2.38 2.60 2.96 3.58
Net interest margin (net
interest income as a percentage
of average interest-earning
assets)......................... n/a 3.02 3.33 3.90
</TABLE>
25
<PAGE>
The following table sets forth the effects of changing rates and volumes on
the interest income and interest expense of the Savings Bank. Information is
provided with respect to: (i) effects attributable to changes in rate (changes
in rate multiplied by prior volume); (ii) effects attributable to changes in
volume (changes in volume multiplied by prior rate); and (iii) effects
attributable to changes in rate/volume (change in rate multiplied by change in
volume).
<TABLE>
<CAPTION>
Year Ended April 30, Year Ended April 30,
1996 Compared to Year 1995 Compared to Year
Ended April 30, 1995 Ended April 30, 1994
Increase (Decrease) Due to Increase (Decrease) Due to
--------------------------------------- ---------------------------------------
Rate/ Rate/
Rate Volume Volume Total Rate Volume Volume Total
------ ----------- ---------- ------ ------ ---------- ---------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Loans receivable, net.............. $263 $487 $ 26 $776 $(409) $474 $ (40) $ 25
Mortgage-backed securities......... (10) (44) 10 (44) 62 (91) (47) (76)
U.S. Government and federal
agency obligations.............. 41 (25) (4) 12 31 (8) (1) 22
FHLB stock......................... (5) 1 -- (4) 1 (1) -- --
Interest-bearing deposits.......... 22 45 9 76 78 (68) (38) (28)
---- ---- ---- ---- ----- ---- ----- -----
Total net change in income
on interest-earning assets....... 311 464 41 816 (237) 306 (126) (57)
Interest expense:
NOW, money market and
passbook accounts................ (36) (67) 5 (98) 23 (22) (1) --
Certificates of deposit............ 466 289 60 815 53 23 -- 76
FHLB advances...................... (54) 241 (67) 120 -- -- 198 198
---- ---- ---- ---- ----- ---- ----- -----
Total net change in expense
on interest-bearing liabilities 376 463 (2) 837 76 1 197 274
---- ---- ---- ---- ----- ---- ----- -----
Net change in net interest
income........................... $(65) $ 1 $ 43 $(21) $(313) $305 $(323) $(331)
==== ==== ==== ==== ===== ==== ===== =====
</TABLE>
Asset and Liability Management
The Savings Bank's principal financial objective is to achieve long-
term profitability while reducing its exposure to fluctuating interest rates.
The Savings Bank has sought to reduce exposure of its earnings to changes in
market interest rates by attempting to manage the mismatch between asset and
liability maturities and interest rates. The principal element in achieving
this objective is to increase the interest-rate sensitivity of the Savings
Bank's interest-earning assets by retaining for its portfolio loans with
interest rates subject to periodic adjustment to market conditions and selling
substantially all of its fixed-rate one- to four-family mortgage loans. The
Savings Bank relies on retail deposits as its primary source of funds.
Management believes retail deposits, compared to brokered deposits, reduce the
effects of interest rate fluctuations because they generally represent a more
stable source of funds. As part of its interest rate risk management strategy,
the Savings Bank promotes certificates of deposit with longer maturities (up to
five years) to reduce the interest sensitivity of its interest-bearing
liabilities.
In order to encourage institutions to reduce their interest rate risk,
the OTS adopted a rule incorporating an interest rate risk ("IRR") component
into the risk-based capital rules. Using data from the Savings Bank's quarterly
reports to the OTS, the Savings Bank receives a report which measures interest
rate risk by modeling the change in Net Portfolio Value ("NPV") over a variety
of interest rate scenarios. This procedure for measuring interest rate risk was
developed by the OTS to replace the "gap" analysis (the difference between
interest-earning assets and interest-
26
<PAGE>
bearing liabilities that mature or reprice within a specific time period). NPV
is the present value of expected cash flows from assets, liabilities and off-
balance sheet contracts. The calculation is intended to illustrate the change
in NPV that will occur in the event of an immediate change in interest rates of
at least 200 basis points with no effect given to any steps that management
might take to counter the effect of that interest rate movement. Under proposed
OTS regulations, an institution with a greater than "normal" level of interest
rate risk will be subject to a deduction from total capital for purposes of
calculating its risk-based capital. An institution with a "normal" level of
interest rate risk is defined as one whose "measured interest rate risk" is less
than 2.0%. Institutions with assets of less than $300 million and a risk-based
capital ratio of more than 12.0% are exempt. The Savings Bank meets these
qualifications and therefore is exempt. Assuming this proposed rule was in
effect at April 30, 1996 and the Savings Bank was not exempt from the rule, the
Savings Bank's level of interest rate risk would not have caused it to be
treated as an institution with greater than "normal" interest rate risk.
The following table is provided by the OTS and illustrates the change
in NPV at March 31, 1996, based on OTS assumptions, that would occur in the
event of an immediate change in interest rate, with no effect given to any steps
that management might take to counter the effect of that interest rate movement.
<TABLE>
<CAPTION>
Net Portfolio as % of
Net Portfolio Value Portfolio Value of Assets
------------------------------------ -------------------------------
Basis Point ("bp")
Change in Rates $ Amount $ Change(1) % Change NPV Ratio(2) Change(3)
--------------- -------- ----------- --------- ------------ ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
400 $ 8,925 $(2,611) (23)% 10.77% (234) bp
300 9,795 (1,742) (15) 11.61 (150) bp
200 10,572 (964) (8) 12.33 (78) bp
100 11,189 (347) (3) 12.86 (25) bp
0 11,537 -- -- 13.11 --
(100) 11,566 30 -- 13.04 (7) bp
(200) 11,385 (152) (1) 12.77 (34) bp
(300) 11,211 (325) (3) 12.50 (61) bp
(400) 11,241 (296) (3) 12.43 (68) bp
</TABLE>
- --------------------
(1) Represents the increase (decrease) of the estimated NPV at the indicated
change in interest rates compared to the NPV assuming no change in interest
rates.
(2) Calculated as the estimated NPV divided by the portfolio value of total
assets ("PV").
(3) Calculated as the increase (decrease) of the NPV ratio assuming the
indicated change in interest rates over the estimated NPV ratio assuming no
change in interest rates.
27
<PAGE>
The following table is provided by the OTS and is based on the calculations
in the above table. It sets forth the IRR capital component that will be
deducted from risk-based capital in determining the level of risk-based capital.
At March 31, 1996, the change in NPV as a percentage of portfolio value of total
assets is negative 1.10%, which is less than negative 2.0%, indicating that the
Savings Bank has a "normal" level of interest rate risk.
<TABLE>
<CAPTION>
At At At
March 31, December 31, March 31,
1996 1995 1995
---------- ------------- ----------
<S> <C> <C> <C>
RISK MEASURES: 200 BP RATE SHOCK:
Pre-Shock NPV Ratio: NPV as % of PV of
Assets................................. 13.11% 12.41% 13.03%
Exposure Measure: Post-Shock NPV Ratio. 12.33 11.95 11.90
Sensitivity Measure: Change in NPV
Ratio.................................. (78)bp (45)bp (113)bp
CALCULATION OF CAPITAL COMPONENT:
Change in NPV as % of PV of Assets...... (1.10)% (0.72)% (1.49)%
Interest Rate Risk Capital Component (1) -- -- --
- ------------------------
</TABLE>
(1) No amounts are shown on the IRR capital component line because the Savings
Bank is exempt from the IRR capital component.
As with any method of measuring interest rate risk, certain shortcomings
are inherent in the method of analysis presented in the foregoing tables. For
example, although certain assets and liabilities may have similar maturities or
periods to repricing, they may react in different degrees to changes in market
interest rates. Also, the interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while
interest rates on other types may lag behind changes in market rates.
Additionally, certain assets, such as ARM loans, have features which restrict
changes in interest rates on a short-term basis and over the life of the asset.
Further, in the event of a change in interest rates, expected rates of
prepayments on loans and early withdrawals from certificates could likely
deviate significantly from those assumed in calculating the table.
Liquidity and Capital Resources
The Savings Bank's primary sources of funds are customer deposits, proceeds
from principal and interest payments on loans, proceeds from sales of loans and
loan participations, maturing securities and FHLB advances. While maturities
and scheduled amortization of loans are a predictable source of funds, deposit
flows and mortgage prepayments are greatly influenced by general interest rates,
economic conditions and competition.
The Savings Bank must maintain an adequate level of liquidity to ensure the
availability of sufficient funds to support loan growth and deposit withdrawals,
to satisfy financial commitments and to take advantage of investment
opportunities. The Savings Bank generally maintains sufficient cash and short-
term investments to meet short-term liquidity needs. At April 30, 1996, cash
(including interest-bearing deposits) totalled $2.9 million, or 3.4% of total
assets, and investment securities that matured in one year or less totalled $2.5
million, or 2.9% of total assets. All of the Savings Bank's investment
securities are classified as available for sale. In addition, the Savings Bank
maintains a credit facility with the FHLB-Des Moines, which provides for
immediately available advances. Advances under this credit facility totalled
$5.0 million at April 30, 1996.
The OTS requires a savings institution to maintain an average daily balance
of liquid assets (cash and eligible investments) equal to at least 5.0% of the
average daily balance of its net withdrawable deposits and short-
28
<PAGE>
term borrowings. In addition, short-term liquid assets currently must
constitute 1.0% of the sum of net withdrawable deposit accounts plus short-term
borrowings. The Savings Bank's actual short- and long-term liquidity ratios at
April 30, 1996 were 5.08% and 6.60%, respectively. The Savings Bank
consistently maintains liquidity levels in excess of regulatory requirements,
and believes this is an appropriate strategy for proper asset and liability
management.
The primary investing activity of the Savings Bank is the origination of
mortgage loans. During years ended April 30, 1996, 1995 and 1994, the Savings
Bank originated loans in the amounts of $51.3 million, $36.0 million, and $43.1
million, respectively. At April 30, 1996, the Savings Bank had loan commitments
and undisbursed equity lines of credit totalling $4.1 million and undisbursed
loans in process totalling $3.7 million. The Savings Bank anticipates that it
will have sufficient funds available to meet its current loan origination
commitments. Certificates of deposit that are scheduled to mature in less than
one year from April 30, 1996 totalled $34.0 million. Historically, the Savings
Bank has been able to retain a significant amount of its deposits as they
mature.
Proposed federal legislation to recapitalize the SAIF would require savings
associations like the Savings Bank to pay a one-time assessment to increase the
SAIF's reserves to $1.25 per $100 of deposits. Such assessment is expected to
be approximately 80 basis points on the amount of deposits held by a SAIF-member
institution. Based on the Savings Bank's assessable deposits of $68.6 million
April 30, 1996, a one-time assessment of 80 basis points would equal
approximately $549,000 million. The Savings Bank believes that it has adequate
resources to pay such assessment from cash and other liquid investments,
including short-term investment securities.
The Savings Bank is required to maintain specific amounts of capital
pursuant to OTS requirements. As of April 30, 1996, the Savings Bank was in
compliance with all regulatory capital requirements which were effective as of
such date with tangible, core and risk-based capital ratios of 10.64%, 10.64%
and 18.46%, respectively. For a detailed discussion of regulatory capital
requirements, see "REGULATION -- Federal Regulation of Savings Associations --
Capital Requirements." See also "HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE."
Impact of New Accounting Pronouncements and Regulatory Policies
Accounting by Creditors for Impairment of a Loan. In May 1993, the
Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment
of a Loan," which became effective for the Savings Bank for the fiscal year
beginning May 1, 1995. This statement requires a lender to consider a loan to
be impaired if the lender believes it is probable that it will be unable to
collect all principal and interest due according to the contractual terms of the
loan. If a loan is impaired, the lender will be required to record a loan
valuation allowance equal to the present value of the estimated future cash
flows discounted at the loan's effective rate or at the loan's observable market
price or fair value of the collateral. This accounting change will
significantly change the accounting by lenders presently allowed under SFAS No.
15. In October 1994, FASB issued SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures," which amends SFAS
No. 114 to allow a creditor to use existing methods for recognizing interest
income on impaired loans and eliminates the income recognition provisions in
SFAS No. 114. SFAS No. 118 also requires disclosure of certain information
about the recorded investment in impaired loans and how the creditor recognizes
interest income related to impaired loans. SFAS No. 118 became effective for
the Savings Bank for the fiscal year beginning May 1, 1995. The adoption of
these statements did not have a material effect on the Savings Bank's financial
condition or results of operations at April 30, 1996.
Accounting for Employee Stock Ownership Plans. In November 1993, the
American Institute of Certified Public Accountants issued SOP 93-6, which
requires an employer to record compensation expense in an amount equal to the
fair value of shares committed to be released to employees from an employee
stock ownership plan and to exclude unallocated shares from earnings per share
computations. The effect of SOP 93-6 on net income and book value per share in
1996 and future periods cannot be predicted due to the uncertainty of the fair
value of the shares at the time they will be committed to be released.
29
<PAGE>
Disclosure of Certain Significant Risks and Uncertainties. In December
1994, the Accounting Standards Executive Committee issued SOP 94-6, "Disclosure
of Certain Significant Risks and Uncertainties." This SOP applies to financial
statements prepared in conformity with GAAP by all nongovernmental entities.
The disclosure requirements in SOP 94-6 focus primarily on risks and
uncertainties that could significantly affect the amounts reported in the
financial statements in the near-term functioning of the reporting entity. The
risks and uncertainties discussed in SOP 94-6 stem from the nature of the
entity's operations, from the necessary use of estimates in the preparation of
the entity's financial statements and from significant concentrations in certain
aspects of the entity's operations. SOP 94-6 is effective for financial
statements issued for fiscal years ending after December 15, 1995 and did not
have a material impact on the financial condition or results of operations of
the Savings Bank.
Accounting for the Impairment of Long-Lived Assets. In March 1995, the
FASB issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." SFAS No. 121 establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets to be held and
used and for long-lived assets and certain identifiable intangibles to be
disposed of. The statement does not apply to financial instruments, long-term
customer relationships of a financial institution (core deposits), mortgage and
other servicing rights and deferred tax assets. SFAS No. 121 requires the
review of long-lived assets and certain identifiable intangibles for impairment
whenever events or changes in circumstances include, for example, a significant
decrease in market value of an asset, a significant change in use of an asset,
or an adverse change in a legal factor that could effect the value of an asset.
If such an event occurs and it is determined that the carrying value of the
asset may not be recoverable, an impairment loss should be recognized as
measured by the amount by which the carrying amount of the asset exceeds the
fair value of the asset. Fair value can be determined by a current transaction,
quoted market prices or present value of estimated expected future cash flows
discounted at the appropriate rate. The statement is effective for fiscal years
beginning after December 15, 1995. The Holding Company does not anticipate that
implementation of SFAS No. 121 will have a material impact on its results of
operations or financial position.
Accounting for Mortgage Servicing Rights. In May 1995, the FASB issued
SFAS No. 122, "Accounting for Mortgage Servicing Rights." SFAS No. 122
eliminates distinctions between servicing rights that were purchased and those
that were retained upon the sale of loans. The statement requires mortgage
servicers to recognize as separate assets rights to service loans, no matter how
the rights were acquired. Institutions who sell loans and retain the servicing
rights will be required to allocate the total cost of the loans to servicing
rights and loans based on their relative fair values if that value can be
estimated. SFAS No. 122 is effective for fiscal years beginning after December
15, 1995. Furthermore, SFAS No. 122 requires that all capitalized mortgage
servicing rights be periodically evaluated for impairment based upon the current
fair value of these rights. The Holding Company anticipates that adoption of
this statement beginning May 1, 1996 will not have a material impact on its
results of operations or financial position.
Accounting for Stock-Based Compensation. In October 1995, the FASB issued
SFAS No. 123, "Accounting for Stock-Based Compensation," establishing financial
accounting and reporting standards for stock-based employee compensation plans.
This statement encourages all entities to adopt a new method of accounting to
measure compensation cost of all employee stock compensation plans based on the
estimated fair value of the award at the date it is granted. Companies are,
however, allowed to continue to measure compensation cost for those plans using
the intrinsic value based method of accounting, which generally does not result
in compensation expense recognition for most plans. Companies that elect to
remain with the existing accounting method are required to disclose in a
footnote to the financial statements pro forma net income and, if presented,
earnings per share, as if this statement had been adopted. The accounting
requirements of this statement are effective for transactions entered into in
fiscal years that begin after December 15, 1995; however, companies are required
to disclose information for awards granted in their first fiscal year beginning
after December 15, 1994. Management of the Savings Bank has not completed an
analysis of the potential effects of this statement on its financial condition
or results of operations.
30
<PAGE>
Effect of Inflation and Changing Prices
The consolidated financial statements and related financial data presented
herein have been prepared in accordance with GAAP, which require the measurement
of financial position and operating results in terms of historical dollars
without considering the change in the relative purchasing power of money over
time due to inflation. The primary impact of inflation is reflected in the
increased cost of the Savings Bank's operations. Unlike most industrial
companies, virtually all the assets and liabilities of a financial institution
are monetary in nature. As a result, interest rates generally have a more
significant impact on a financial institution's performance than do general
levels of inflation. Interest rates do not necessarily move in the same
direction or to the same extent as the prices of goods and services.
BUSINESS OF THE HOLDING COMPANY
General
The Holding Company was organized as a Delaware business corporation at the
direction of the Savings Bank in May 1996 for the purpose of becoming a holding
company for the Savings Bank upon completion of the Conversion. Upon completion
of the Conversion, the Savings Bank will be a wholly-owned subsidiary of the
Holding Company.
Business
Prior to the Conversion, the Holding Company will not engage in any
significant operations. Upon completion of the Conversion, the Holding
Company's sole business activity will be the ownership of the stock of the
Savings Bank. In the future, the Holding Company may acquire or organize other
operating subsidiaries, although there are no current plans, arrangements,
agreements or understandings, written or oral, to do so.
Initially, the Holding Company will neither own nor lease any property but
will instead use the premises, equipment and furniture of the Savings Bank with
the payment of appropriate rental fees, as required by applicable law.
Since the Holding Company will only hold the capital stock of the Savings
Bank, the competitive conditions applicable to the Holding Company will be the
same as those confronting the Savings Bank. See "BUSINESS OF THE SAVINGS BANK -
- - Competition."
BUSINESS OF THE SAVINGS BANK
General
The Savings Bank operates as a community oriented financial institution and
is committed to serving the needs of its customers in its market area. The
Savings Bank's business consists primarily of attracting deposits from the
general public and using those funds to originate and purchase real estate
loans.
Market Area
The Savings Bank conducts operations in central Missouri through its main
office in Fulton, Missouri and its branch office in Holts Summit, Missouri, both
of which are in Callaway County. The Savings Bank also serves Boone County and,
to a lesser extent, Cole and Audrian Counties. Fulton, which is the county
seat, serves as the economic and employment center of Callaway County.
Additional employment is available in the nearby metropolitan areas of Columbia
(in Boone County) and Jefferson City (in Cole County). Columbia is the location
31
<PAGE>
of the University of Missouri and provides significant employment in education
and medicine. Jefferson City is the state capital of Missouri, resulting in a
significant concentration of government employment and an historically stable
economy. Callaway County represents the Savings Bank's primary market area for
deposit generation as most of its depositors live in this county, particularly
in the areas surrounding the Savings Bank's offices. The Savings Bank's lending
activities have been concentrated in Callaway County and the city of Columbia.
While Callaway County is a more rural county with a much lower population
base and overall smaller economy than Cole and Boone Counties, the economy has
been stable historically due to the economies in the contiguous counties. The
Callaway County economy, which had been based on agriculture, has diversified in
recent years to include employment in health care, education, manufacturing and
local/state government. A large electrical generation plant is located in the
county. The economy of Columbia and Boone County has historically been very
stable due to the presence of the University of Missouri. Callaway and Boone
Counties have an estimated combined population of 159,000, with Callaway County
having an estimated population of only 35,000. Unemployment is currently low,
with unemployment rates of 3.5% in Callaway County and 1.1% in Boone County in
March 1996.
The Savings Bank faces competition from many financial institutions for
deposits and loan originations. See "-- Competition" and "RISK FACTORS --
Dependence on Local Economy and Competition Within Market Area."
Lending Activities
General. The principal lending activity of the Savings Bank is the
origination and purchase of conventional mortgage loans for the purpose of
purchasing or refinancing owner-occupied, one- to four-family residential
property. The Savings Bank also originates multi-family, commercial real
estate, construction, land and consumer and other loans. The Savings Bank's net
loans receivable totalled $73.9 million at April 30, 1996, representing 86.4% of
consolidated total assets.
Loan Portfolio Analysis. The following table sets forth the
composition of the Savings Bank's loan portfolio by type of loan at the dates
indicated. The Savings Bank had no concentration of loans exceeding 10% of total
gross loans other than as disclosed below.
<TABLE>
<CAPTION>
At April 30,
-------------------------------------------------------
1996 1995 1994
----------------- -------------- -----------------
Amount Percent Amount Percent Amount Percent
------- -------- ------- -------- ------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One- to four-family........ $46,741 59.61% $46,244 65.37% $42,088 66.46%
Multi-family............... 3,845 4.90 3,588 5.07 3,379 5.34
Commercial................. 8,706 11.10 6,560 9.27 5,877 9.28
Construction............... 7,686 9.80 5,142 7.27 3,938 6.22
Land....................... 1,518 1.94 1,188 1.68 1,129 1.78
------- ------ ------- ------ ------- ------
Total mortgage loans..... 68,496 87.35 62,722 88.66 56,411 89.08
Consumer and other loans.... 9,922 12.65 8,020 11.34 6,917 10.92
------- ------ ------- ------ ------- ------
Total loans.............. 78,418 100.00% 70,742 100.00% 63,328 100.00%
====== ====== ======
Less:
Undisbursed loan funds..... 3,743 2,175 2,381
Allowance for loan losses.. 782 762 665
------- ------- -------
Loan receivable, net..... $73,893 $67,805 $60,282
======= ======= =======
</TABLE>
32
<PAGE>
Residential Real Estate Lending. The primary lending activity of the
Savings Bank is the origination of mortgage loans to enable borrowers to
purchase existing one- to four-family homes. At April 30, 1996, $46.7 million,
or 59.6% of the Savings Bank's total gross loan portfolio, consisted of loans
secured by one- to four-family residences. The Savings Bank presently
originates both ARM loans and fixed-rate mortgage loans. The Savings Bank's
loans are generally underwritten and documented in accordance with the
guidelines established by the Federal Home Loan Mortgage Corporation ("FHLMC").
The Savings Bank generally sells to FHLMC or Fannie Mae (formerly known as the
Federal National Mortgage Association) all of the fixed-rate mortgage loans that
it originates. Generally, the Savings Bank sells whole loans to FHLMC and
Fannie Mae on a servicing-retained basis. All loans are sold without recourse.
The Savings Bank also sells a portion of the ARM loans that it originates to
other financial institutions. Such loans generally are sold on a servicing-
retained basis and the Savings Bank occasionally retains a participation
interest in the loan. The Savings Bank's decision to hold or sell loans is
based on its asset/liability management policies and goals and the market
conditions for mortgages. See "-- Lending Activities -- Loan Originations,
Sales and Purchases." At April 30, 1996 $62.3 million, or 79.5% of the Savings
Bank's total gross loans, were subject to periodic interest rate adjustments.
The Savings Bank offers ARM loans at rates and terms competitive with
market conditions. Substantially all of the ARM loans originated by the Savings
Bank meet the underwriting standards of FHLMC. The Savings Bank offers ARM
products that adjust either annually or every three years. These ARM products
utilize the national quarterly cost of funds index as published by the OTS plus
a margin of 3.0%. The initial interest rate on the Savings Bank's ARM loans is
generally at or near the fully indexed rate. Until recently, the Savings Bank's
ARM loans utilized the 8th District Cost of Funds Index. Accordingly, most of
the Savings Bank's ARM portfolio is based on this index. The Savings Bank
switched from the 8th District to the national cost of funds index because it
believes that the national cost of funds index is more stable and cannot easily
be influenced by the deposit pricing and borrowing costs of a few institutions.
Both the 8th District and the national cost of funds indices are lagging market
indices, which means that upward adjustments in these indices may occur more
slowly than changes in the Savings Bank's cost of interest-bearing liabilities,
especially during periods of rapidly increasing interest rates. ARM loans held
in the Savings Bank's portfolio do not permit negative amortization of principal
and carry no prepayment restrictions. The periodic interest rate cap (the
maximum amount by which the interest rate may be increased or decreased in a
given period) on the Savings Bank's ARM loans is generally 1.0% to 1.5% per
adjustment period and the lifetime interest rate cap is generally 4.5% to 6.0%
over the initial interest rate of the loan. The terms and conditions of the ARM
loans offered by the Savings Bank, including the index for interest rates, may
vary from time to time. Borrower demand for ARM loans versus fixed-rate
mortgage loans is a function of the level of interest rates, the expectations of
changes in the level of interest rates and the difference between the initial
interest rates and fees charged for each type of loan. The relative amount of
fixed-rate mortgage loans and ARM loans that can be originated at any time is
largely determined by the demand for each in a competitive environment.
The Savings Bank also offers ARM loans for non-owner-occupied one- to four-
family homes. The rates on such loans are generally slightly higher than for a
comparable loan for an owner-occupied residence. Loans secured by non-owner-
occupied residences generally involve greater risks than loans secured by owner-
occupied residences. Payments on loans secured by such properties are often
dependent on the successful operation or management of the properties. In
addition, repayment of such loans may be subject to a greater extent to adverse
conditions in the real estate market or the economy. The Savings Bank requires
that borrowers with loans secured by non-owner-occupied homes submit annual
financial statements. See "RISK FACTORS -- Certain Lending Risks."
The retention of ARM loans in the Savings Bank's loan portfolio helps
reduce the Savings Bank's exposure to changes in interest rates. There are,
however, unquantifiable credit risks resulting from the potential of increased
costs due to increased rates to be paid by the customer. It is possible that
during periods of rising interest rates the risk of default on ARM loans may
increase as a result of repricing and the increased payments required by the
borrower. See "RISK FACTORS -- Potential Adverse Impact of Changes in Interest
Rates." Another consideration is that although ARM loans allow the Savings Bank
to increase the sensitivity of its asset base to changes in the interest rates,
the extent of this interest sensitivity is limited by the periodic and lifetime
interest rate adjustment
33
<PAGE>
limits. Because of these considerations, the Savings Bank has no assurance that
yields on ARM loans will be sufficient to offset increases in the Savings Bank's
cost of funds.
While one- to four-family residential real estate loans are normally
originated with 15 to 30 year terms, such loans typically remain outstanding for
substantially shorter periods. This is because borrowers often prepay their
loans in full upon sale of the property pledged as security or upon refinancing
the original loan. In addition, substantially all mortgage loans in the Savings
Bank's loan portfolio contain due-on-sale clauses providing that the Savings
Bank may declare the unpaid amount due and payable upon the sale of the property
securing the loan. Typically, the Savings Bank enforces these due-on-sale
clauses to the extent permitted by law and as business judgment dictates. Thus,
average loan maturity is a function of, among other factors, the level of
purchase and sale activity in the real estate market, prevailing interest rates
and the interest rates payable on outstanding loans.
The Savings Bank generally requires title insurance insuring the status of
its lien or a title abstract and acceptable attorney's opinion on all loans
where real estate is the primary source of security. The Savings Bank also
requires that fire and casualty insurance (and, if appropriate, flood insurance)
be maintained in an amount at least equal to the outstanding loan balance.
The Savings Bank's lending policies generally limit the maximum loan-to-
value ratio on mortgage loans secured by owner-occupied properties to 95% of the
lesser of the appraised value or the purchase price, with the condition that
private mortgage insurance is generally required on loans with loan-to-value
ratios greater than 80%. The maximum loan-to-value ratio on mortgage loans
secured by non-owner-occupied properties is generally 80%.
Multi-Family Residential and Commercial Real Estate Lending. Multi-family
residential and commercial real estate lending has been a constant part of the
Savings Bank's lending strategy in recent years. At April 30, 1996, the Savings
Bank's loan portfolio included $3.8 million in multi-family real estate loans
and $8.7 million in commercial real estate loans. The Savings Bank frequently
sells participation interests in the larger multi-family and commercial real
estate loans that it originates. The Savings Bank retains the servicing rights
on such loans and generally retains 10% or 20% of the loan balance.
Multi-family and commercial real estate loans originated by the Savings
Bank are predominately adjustable rate loans and are generally for terms of up
to 20 years. The maximum loan-to-value ratio for multi-family and commercial
real estate loans is generally 75%. Multi-family loans typically are secured by
small to medium sized projects. The Savings Bank's commercial real estate loan
portfolio consists predominantly of loans secured by residential care
facilities, nursing homes, medical buildings, small shopping centers, small
office buildings and churches, most of which are located in the Savings Bank's
market area. Appraisals on properties that secure multi-family and commercial
real estate loans are performed by an independent appraiser engaged by the
Savings Bank before the loan is made. Underwriting of multi-family loans
includes a thorough analysis of the cash flows generated by the real estate to
support the debt service and the financial resources, experience, and income
level of the borrowers. Annual operating statements on each multi-family and
commercial real estate loan are required and reviewed by management.
Multi-family and commercial real estate lending affords the Savings Bank an
opportunity to receive interest at rates higher than those generally available
from one- to four-family residential lending. However, loans secured by such
properties usually are greater in amount, more difficult to evaluate and monitor
and, therefore, involve a greater degree of risk than one- to four-family
residential mortgage loans. Because payments on loans secured by multi-family
and commercial properties are often dependent on the successful operation and
management of the properties, repayment of such loans may be affected by adverse
conditions in the real estate market or the economy. The Savings Bank seeks to
minimize these risks by limiting the maximum loan-to-value ratio to 75% and
strictly scrutinizing the financial condition of the borrower, the quality of
the collateral and the management of the property securing the loan. The
Savings Bank also obtains loan guarantees from financially capable parties based
on a review of personal financial statements.
34
<PAGE>
Construction Lending. The Savings Bank originates residential construction
loans to individuals and, occasionally, to builders, to construct one- to four-
family homes. In addition, the Savings Bank occasionally originates
construction loans for multi-family or commercial properties. In addition, the
Savings Bank occasionally originates speculative construction loans, i.e, where
purchasers for the finished homes may be identified either during or following
the construction period. The Savings Bank limits the number of speculative
loans to a single builder in order to limit risk. At April 30, 1996, the
Savings Bank's construction loan portfolio totalled $7.7 million, or 9.8% of
total gross loans. At such date, the Savings Bank's construction loan portfolio
consisted of 56 residential construction loans totalling $6.3 million and four
commercial real estate construction loans totalling $1.4 million.
Construction loans are generally made in connection with permanent
financing. Construction loans that are not made in connection with the granting
of permanent financing on the property are for terms of six months.
Construction lending is considered to involve a higher level of risk as
compared to one- to four-family residential lending because of the inherent
difficulty in estimating both a property's value at completion of the project
and the estimated cost of the project. The nature of these loans is such that
they are more difficult to evaluate and monitor. If the estimate of value
proves to be inaccurate, the Savings Bank may be confronted at, or prior to, the
maturity of the loan, with a project the value of which is insufficient to
assure full repayment. The Savings Bank attempts to minimize these risks by
limiting the maximum loan-to-value ratio on construction loans to 85% for
residential construction loans and 80% for non-residential construction loans
and by conditioning disbursements on the presentation of itemized bills and an
inspection of the construction site. For non-residential construction loans,
the Savings Bank generally obtains personal guarantees and requires borrowers to
submit annual financial statements.
Land Lending. The Savings Bank occasionally originates loans for the
acquisition of land upon which the purchaser can then build or make improvements
necessary to build or to sell as improved lots. At April 30, 1996, the Savings
Bank's land loan portfolio totalled $1.5 million and consisted of 30 loans.
Land loans originated by the Savings Bank are generally adjustable-rate loans
and have maturities of ten to 20 years.
Loans secured by undeveloped land or improved lots involve greater risks
than one- to four-family residential mortgage loans because such loans are more
difficult to evaluate. If the estimate of value proves to be inaccurate, in the
event of default and foreclosure the Savings Bank may be confronted with a
property the value of which is insufficient to assure full repayment. The
Savings Bank attempts to minimize this risk by limiting the maximum loan-to-
value ratio on land loans to 65%.
Consumer and Other Lending. The Savings Bank originates a variety of
consumer and other non-mortgage loans. Consumer loans generally have shorter
terms to maturity and higher interest rates than mortgage loans. The Savings
Bank's consumer and other loans consist primarily of secured consumer loans,
automobile loans, home improvement loans, deposit account loans and student
loans. The Savings Bank also engages in a small amount of commercial business
lending. Such loans include asset-based loans secured by inventory and short-
term working capital loans. At April 30, 1996, the Savings Bank's consumer and
other loans totalled approximately $9.9 million, or 12.6%, of the Savings Bank's
total gross loans.
Consumer loans entail greater risk than do residential mortgage loans,
particularly in the case of consumer loans that are unsecured or secured by
rapidly depreciating assets such as automobiles. In such cases, any repossessed
collateral for a defaulted consumer loan may not provide an adequate source of
repayment of the outstanding loan balance as a result of the greater likelihood
of damage, loss or depreciation. The remaining deficiency often does not warrant
further substantial collection efforts against the borrower beyond obtaining a
deficiency judgment. In addition, consumer loan collections are dependent on the
borrower's continuing financial stability, and thus are more likely to be
adversely affected by job loss, divorce, illness or personal bankruptcy.
Furthermore, the application of various federal and state laws, including
federal and state bankruptcy and insolvency laws, may limit the amount that can
be recovered on such loans. At April 30, 1996, the Savings Bank had no material
delinquencies in its consumer loan portfolio.
35
<PAGE>
Maturity of Loan Portfolio. The following table sets forth certain
information at April 30, 1996 regarding the dollar amount of principal
repayments becoming due during the periods indicated for loans. All loans are
included in the period in which the final contractual payment is due. Demand
loans, loans having no stated schedule of repayments and no stated maturity, and
overdrafts are reported as becoming due within one year. The table does not
include any estimate of prepayments which significantly shorten the average life
of all loans and may cause the Savings Bank's actual repayment experience to
differ from that shown below.
<TABLE>
<CAPTION>
After After After
One Year 3 Years 5 Years
Within Through Through Through Beyond
One Year 3 Years 5 Years 10 Years 10 Years Total
----------- ------- ------- -------- -------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One- to four-family..... $ 307 $1,142 $1,194 $4,837 $39,261 $46,741
Multi-family............ 4 55 49 266 3,471 3,845
Commercial.............. -- 285 444 613 7,364 8,706
Construction............ 7,686(1) -- -- -- -- 7,686
Land.................... 347 56 27 79 1,009 1,518
Consumer and other loans.. 3,556 3,478 1,566 974 348 9,922
------- ------ ------ ------ ------- -------
Total gross loans..... $11,900 $5,016 $3,280 $6,769 $51,453 $78,418
======= ====== ====== ====== ======= =======
- --------------
</TABLE>
(1) Includes 32 loans totalling $4.5 million that will convert to permanent
loans.
The following table sets forth the dollar amount of all loans due after April
30, 1997, which have fixed interest rates and have floating or adjustable
interest rates.
<TABLE>
<CAPTION>
Fixed- Floating- or
Rates Adjustable-Rates
------- ----------------
(In Thousands)
<S> <C> <C>
Mortgage loans:
One- to four-family...... $ 4,677 $41,757
Multi-family............. -- 3,841
Commercial............... 1,301 7,405
Construction............. -- --
Land..................... 57 1,114
Consumer and other loans.. 5,835 531
------- -------
Total gross loans $11,870 $54,648
======= =======
</TABLE>
36
<PAGE>
Scheduled contractual principal repayments of loans do not reflect the
actual life of such assets. The average life of a loan is substantially less
than its contractual terms because of prepayments. In addition, due-on-sale
clauses on loans generally give the Savings Bank the right to declare loans
immediately due and payable in the event, among other things, that the borrower
sells the real property subject to the mortgage and the loan is not repaid. The
average life of mortgage loans tends to increase, however, when current mortgage
loan market rates are substantially higher than rates on existing mortgage loans
and, conversely, decrease when rates on existing mortgage loans are
substantially higher than current mortgage loan market rates.
Loan Solicitation and Processing. Loan applicants come primarily through
existing customers, referrals by realtors, homebuilders and existing customers,
and walk-ins. The Savings Bank also uses radio and newspaper advertising to
create awareness of its loan products. Upon receipt of a loan application from
a prospective borrower, a credit report and other data are obtained to verify
specific information relating to the loan applicant's employment, income and
credit standing. An appraisal of the real estate offered as collateral
generally is undertaken by an independent fee appraiser certified by the State
of Missouri.
Real estate loans up to $250,000 must be approved by the Loan Committee,
which consists of the President and three non-employee Directors. Loans
exceeding $250,000 must be approved by the entire Board of Directors. The
Savings Bank's loan approval process allows mortgage loans to be approved in
approximately five days and closed in 20 days. Consumer loans may be approved
by any loan officer. Non-mortgage loans exceeding $100,000 must be approved by
the entire Board of Directors.
Loan Originations, Sales and Purchases. While the Savings Bank originates
both adjustable-rate and fixed-rate loans, its ability to generate each type of
loan is dependent upon relative customer demand for loans in its market. For
the years ended April 30, 1996, 1995 and 1994, the Savings Bank originated $51.3
million, $35.7 million and $43.1 million of loans, respectively. Of the $51.3
million of loans originated during the year ended April 30, 1996, 81.2% were
adjustable-rate loans and 18.8% were fixed-rate loans.
The Savings Bank generally sells all of its fixed-rate single-family
residential mortgage loans to the FHLMC or Fannie Mae and a portion of its
residential ARM loans to other financial institutions. Sales are made on a non-
recourse basis with servicing retained. Sales of loans to FHLMC and Fannie Mae
are whole loans, whereas the Savings Bank frequently retains a participation
interest in residential ARM loans sold to other financial institutions. The
Savings Bank also sells participation interests to other financial institutions
in the larger multi-family, commercial real estate and construction loans that
it originates. Such sales are also made on a non-recourse basis with servicing
retained. The Savings Bank has obtained commitments from several financial
institutions to purchase loans up to a specified aggregate amount. Sales of
loans and loan participations for the years ended April 30, 1996, 1995, and 1994
totalled $22.6 million, $11.8 million and $20.3 million, respectively. Sales of
loans generally are beneficial to the Savings Bank since these sales increase
the size of the Savings Bank's loan servicing portfolio. See "-- Lending
Activities -- Loan Servicing." Loan sales also provide funds for additional
lending and other investments and increase liquidity. In addition, sales of
participation interests in non-residential mortgage loans help to reduce the
risks associated with this type of lending. At April 30, 1996, the Savings Bank
had $2.3 million in loans held for sale.
37
<PAGE>
The following table shows total loans originated, purchased, sold and
repaid during the periods indicated.
<TABLE>
<CAPTION>
Year Ended April 30,
-------------------------
1996 1995 1994
------- ------- -------
(In Thousands)
<S> <C> <C> <C>
Loans originated:
Mortgage loans:
One- to four-family............ $25,263 $19,150 $28,856
Multi-family................... 4,519 545 308
Commercial..................... 4,415 1,167 2,242
Construction................... 8,365 7,683 5,355
Land........................... 655 108 110
Consumer and other loans......... 8,079 7,002 6,249
------- ------- -------
Total loans originated....... 51,296 35,655 43,120
Loans purchased:
Mortgage loans:
One- to four-family............ -- 669 --
Construction................... 484 277 --
------- ------- -------
Total loans purchased........ 484 946 --
Loans sold:
Whole loans.................... 3,812 1,617 13,311
Participations................. 18,820 10,191 7,032
------- ------- -------
Total loans sold.............. 22,632 11,808 20,343
Less:
Principal repayments........... 20,463 16,507 18,823
Transfer to real estate owned.. 271 93 49
Loans held for sale............ 2,306 573 --
------- ------- -------
23,040 17,173 18,872
------- ------- -------
Net increase in loans
receivable, net................. $6,108 $7,620 $3,905
======= ======= =======
</TABLE>
Loan Commitments. The Savings Bank occasionally issues commitments to
originate loans conditioned upon the occurrence of certain events. Such
commitments are made on specified terms and conditions and are honored for up to
45 days from the date of loan approval. The Savings Bank had outstanding net
loan commitments of approximately $7.8 million at April 30, 1996.
Loan Origination and Other Fees. The Savings Bank, in some instances,
receives loan origination fees. Loan fees are a fixed dollar amount or a
percentage of the principal amount of the mortgage loan which is charged to the
borrower for funding the loan. The amount of fees charged by the Savings Bank
is currently $300 for loans secured by owner-occupied, single-family homes and
$500 for most larger loans. Current accounting standards require fees received
(net of certain loan origination costs) for originating loans to be deferred and
amortized into interest income over the contractual life of the loan. Net
deferred fees or costs associated with loans that are prepaid are recognized as
income at the time of prepayment.
Loan Servicing. The Savings Bank sells loans to FHLMC, Fannie Mae and other
financial institutions on a servicing-retained basis and receives fees in return
for performing the traditional services of collecting individual payments and
managing the loans. At April 30, 1996, the Bank was servicing $84.4 million of
loans for others. Loan servicing includes processing payments, accounting for
loan funds and collecting and paying real estate taxes,
38
<PAGE>
hazard insurance and other loan-related items such as private mortgage
insurance. When the Savings Bank receives the gross mortgage payment from
individual borrowers, it remits to the investor in the mortgage a predetermined
net amount based on the yield on that mortgage. The difference between the
coupon on the underlying mortgage and the predetermined net amount paid to the
investor is the gross loan servicing fee. For the year ended April 30, 1996,
loan servicing fees totalled $281,000. In addition, the Savings Bank retains
certain amounts in escrow for the benefit of the investor for which the Savings
Bank incurs no interest expense but is able to invest. At April 30, 1996, the
Savings Bank held $213,000 in escrow for its portfolio of loans serviced for
others.
Nonperforming Assets and Delinquencies. When a mortgage loan borrower fails
to make a required payment when due, the Savings Bank institutes collection
procedures. The first notice is mailed to the borrower approximately ten days
after the payment is due in order to permit the borrower to make the payment
before the imposition of a late fee. A second notice is generated when a
payment becomes 20 days past due. Attempts to contact the borrower by telephone
or letter generally begin when a payment becomes 30 days past due. If a
satisfactory response is not obtained, continuous follow-up contacts are
attempted until the loan has been brought current. Before the 90th day of
delinquency, attempts to interview the borrower, preferably in person, are made
to establish (i) the cause of the delinquency, (ii) whether the cause is
temporary, (iii) the attitude of the borrower toward the debt, and (iv) a
mutually satisfactory arrangement for curing the default.
In most cases, delinquencies are cured promptly; however, if by the 91st day
of delinquency, or sooner if the borrower is chronically delinquent and all
reasonable means of obtaining payment on time have been exhausted, foreclosure,
according to the terms of the security instrument and applicable law, is
initiated. Interest income on loans is reduced by the full amount of accrued
and uncollected interest.
The Savings Bank's Board of Directors is informed on a monthly basis as to
the status of all loans that are delinquent more than 60 days, the status on all
loans currently in foreclosure, and the status of all foreclosed and repossessed
property owned by the Savings Bank.
39
<PAGE>
The following table sets forth information with respect to the Savings
Bank's nonperforming assets and restructured loans within the meaning of SFAS
No. 15 at the dates indicated. It is the policy of the Savings Bank to cease
accruing interest on loans 90 days or more past due.
<TABLE>
<CAPTION>
At April 30,
-------------------------
1996 1995 1994
------- ------ --------
(Dollars in Thousands)
<S> <C> <C> <C>
Loans accounted for on
a nonaccrual basis:
Mortgage loans:
One- to four-family.......................... $ 175 $ 135 $ 247
Commercial................................... 69 -- 642
Consumer and other loans...................... 75 18 32
----- ----- ------
Total................................... 319 153 921
Accruing loans which are
contractually past due 90 days or more........ -- -- --
----- ----- ------
Total of nonaccrual and
90 days past due loans........................ 319 153 921
Real estate owned, net......................... 197 5 203
----- ----- ------
Total nonperforming assets................ $ 516 $ 158 $1,124
===== ===== ======
Restructured loans............................. $ 271 $ 273 $ 260
Nonaccrual and 90 days or more past due loans
as a percentage of loans receivable, net...... 0.43% 0.23% 1.53%
Nonaccrual and 90 days or more past due loans
as a percentage of total assets............... 0.37 0.19 1.25
Nonperforming assets as a percentage of
total assets.................................. 0.60 0.20 1.53
</TABLE>
Interest income that would have been recorded for the year ended April
30, 1996 had nonaccruing loans been current in accordance with their original
terms amounted to approximately $10,000. The amount of interest included in
interest income on such loans for the year ended April 30, 1996 amounted to
approximately $6,000.
Real Estate Owned and Held for Investment. Real estate acquired by
the Savings Bank as a result of foreclosure or by deed-in-lieu of foreclosure is
classified as real estate owned ("REO") until it is sold. When property is
acquired it is recorded at the lower of its cost, which is the unpaid principal
balance of the related loan plus foreclosure costs, or fair market value.
Subsequent to foreclosure, REO is carried at the lower of the foreclosed amount
or fair value, less estimated selling costs. At April 30, 1996, the Savings
Bank had $197,000 of REO, which consisted of one commercial building lot.
Real estate held for investment ("REI") is carried at the lower of
cost or net realizable value. All costs of anticipated disposition are
considered in the determination of net realizable value. At April 30, 1996, the
Savings Bank's REI totalled $253,000 and consisted of seven condominium units
and additional building lots, all of which
40
<PAGE>
are part of a single development consisting of ten units. The Savings Bank
acquired five units and the additional building lots through foreclosure and
purchased two additional units. The Savings Bank has subsequently purchased the
remaining three units, which it believes will facilitate the sale of the entire
development.
Asset Classification. The OTS has adopted various regulations regarding
problem assets of savings institutions. The regulations require that each
insured institution review and classify its assets on a regular basis. In
addition, in connection with examinations of insured institutions, OTS examiners
have authority to identify problem assets and, if appropriate, require them to
be classified. There are three classifications for problem assets: substandard,
doubtful and loss. Substandard assets have one or more defined weaknesses and
are characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. Doubtful assets have
the weaknesses of substandard assets with the additional characteristic that the
weaknesses make collection or liquidation in full on the basis of currently
existing facts, conditions and values questionable, and there is a high
possibility of loss. An asset classified as loss is considered uncollectible and
of such little value that continuance as an asset of the institution is not
warranted. If an asset or portion thereof is classified as loss, the insured
institution establishes specific allowances for loan losses for the full amount
of the portion of the asset classified as loss. All or a portion of general loan
loss allowances established to cover possible losses related to assets
classified substandard or doubtful may be included in determining an
institution's regulatory capital, while specific valuation allowances for loan
losses generally do not qualify as regulatory capital. Assets that do not
currently expose the insured institution to sufficient risk to warrant
classification in one of the aforementioned categories but possess weaknesses
are classified as special mention and monitored by the Savings Bank.
At April 30, 1996, assets classified as substandard or special mention
totalled $1.5 million and included 30 substandard loans, which consisted of 15
one- to four-family mortgage loans totalling $664,000, 5 commercial real estate
loans totalling $84,000 and 10 consumer loans totalling $50,000, and 27 special
mention loans, which consisted of 20 one- to four-family mortgage loans
totalling $667,000 and 7 consumer loans totalling $41,000. The aggregate
amounts of the Savings Bank's classified assets at the dates indicated were as
follows:
<TABLE>
<CAPTION>
At April 30,
-----------
1996 1995
---- ----
(In Thousands)
<S> <C> <C>
Loss...................... $ -- $ --
Doubtful.................. -- --
Substandard............... 798 1,135
Special mention........... 708 201
------ ------
Total classified assets.. $1,506 $1,336
====== ======
</TABLE>
Allowance for Loan Losses. The Savings Bank has established a systematic
methodology for the determination of provisions for loan losses. The methodology
is set forth in a formal policy and takes into consideration the need for an
overall general valuation allowance as well as specific allowances that are tied
to individual loans.
In originating loans, the Savings Bank recognizes that losses will be
experienced and that the risk of loss will vary with, among other things, the
type of loan being made, the creditworthiness of the borrower over the term of
the loan, general economic conditions and, in the case of a secured loan, the
quality of the security for the loan. The Savings Bank increases its allowance
for loan losses by charging provisions for loan losses against income.
The general valuation allowance is maintained to cover losses inherent
in the portfolio of performing loans. Management's periodic evaluation of the
adequacy of the allowance is based on management's evaluation of the
collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations, trends in historical loss experience, specific impaired
loans and economic conditions. Specific valuation allowances are established to
absorb
41
<PAGE>
losses on loans for which full collectibility may not be reasonably assured.
The amount of the allowance is based on the estimated value of the collateral
securing the loan and other analyses pertinent to each situation. Generally, a
provision for losses is charged against income on a quarterly basis to maintain
the allowances.
At April 30, 1996, the Savings Bank had an allowance for loan losses
of $782,000. The allowance for loan losses is maintained at an amount
management considers adequate to absorb losses inherent in the portfolio.
Although management believes that it uses the best information available to make
such determinations, future adjustments to the allowance for loan losses may be
necessary and results of operations could be significantly and adversely
affected if circumstances differ substantially from the assumptions used in
making the determinations.
While the Savings Bank believes it has established its existing allowance
for loan losses in accordance with GAAP, there can be no assurance that
regulators, in reviewing the Savings Bank's loan portfolio, will not request the
Savings Bank to increase significantly its allowance for loan losses. In
addition, because future events affecting borrowers and collateral cannot be
predicted with certainty, there can be no assurance that the existing allowance
for loan losses is adequate or that substantial increases will not be necessary
should the quality of any loans deteriorate as a result of the factors discussed
above. Any material increase in the allowance for loan losses may adversely
affect the Savings Bank's financial condition and results of operations.
42
<PAGE>
The following table sets forth an analysis of the Savings Bank's allowance
for loan losses for the periods indicated. Where specific loan loss reserves
have been established, any differences between the loss allowances and the
amount of loss realized has been charged or credited to current income.
<TABLE>
<CAPTION>
Year Ended April 30,
-----------------------------------
1996 1995 1994
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Allowance at beginning of period................... $762 $665 $719
Provision for loan losses.......................... 44 118 48
Recoveries:
Mortgage loans:
One- to four-family.............................. 1 -- --
Multi-family..................................... -- -- --
Commercial....................................... -- -- --
Construction..................................... -- -- --
Land............................................. -- 2 4
Consumer and other loans.......................... 2 26 6
----- ---- ----
Total recoveries............................... 3 28 10
Charge-offs:
Mortgage loans:
One- to four-family.............................. 1 -- --
Multi-family..................................... -- -- --
Commercial....................................... -- -- --
Construction..................................... -- -- --
Land............................................. 10 22 61
Consumer and other loans.......................... 16 27 51
----- ---- ----
Total charge-offs.............................. 27 49 112
----- ---- ----
Net charge-offs................................ 24 21 102
----- ---- ----
Balance at end of period....................... $782 $762 $665
===== ==== ====
Allowance for loan losses as a percentage of
total loans outstanding at the end of the period.. 0.97% 1.07% 1.05%
Net charge-offs as a percentage of average
loans outstanding during the period............... 0.03 0.03 0.17
Allowance for loan losses as a percentage of
nonperforming loans at end of period.............. 245.44 498.05 72.18
</TABLE>
43
<PAGE>
The following table sets forth the breakdown of the allowance for loan
losses by loan category for the periods indicated. Management believes that the
allowance can be allocated by category only on an approximate basis. The
allocation of the allowance to each category is not necessarily indicative of
future losses and does not restrict the use of the allowance to absorb losses in
any other category.
<TABLE>
<CAPTION>
At April 30,
----------------------------------------------------------------
1996 1995 1994
--------------------- --------------- ---------------------
% of % of % of
Loans Loans Loans
in Each in Each in Each
Category Category Category
to Total to Total to Total
Amount Loans Amount Loans Amount Loans
------ -------- ------ ------ ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One- to four-family..... $ 322 59.61% $ 319 65.37% $251 66.46%
Multi-family............ 38 4.90 36 5.07 34 5.34
Commercial.............. 78 11.10 118 9.27 211 9.28
Construction............ 83 9.80 41 7.27 25 6.22
Land.................... 15 1.94 12 1.68 11 1.78
Consumer and other loans.. 104 12.65 78 11.34 79 10.92
Unallocated............... 142 N/A 158 N/A 54 N/A
----- ---- ----
Total allowance for
loan losses.......... $ 782 $ 762 $665
===== ===== ====
</TABLE>
Investment Activities
- ---------------------
The Savings Bank is permitted under federal and state law to invest in
various types of liquid assets, including U.S. Treasury obligations, securities
of various federal agencies and of state and municipal governments, deposits at
the FHLB-Des Moines, certificates of deposit of federally insured institutions,
certain bankers' acceptances and federal funds. Subject to various
restrictions, the Savings Bank may also invest a portion of its assets in
commercial paper and corporate debt securities. Savings institutions like the
Savings Bank are also required to maintain an investment in FHLB stock. The
Savings Bank is required under federal regulations to maintain a minimum amount
of liquid assets. See "REGULATION" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Liquidity and Capital
Resources."
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," requires the investments be categorized as "held to maturity,"
"trading securities" or "available for sale," based on management's intent as to
the ultimate disposition of each security. SFAS No. 115 allows debt securities
to be classified as "held to maturity" and reported in financial statements at
amortized cost only if the reporting entity has the positive intent and ability
to hold those securities to maturity. Securities that might be sold in response
to changes in market interest rates, changes in the security's prepayment risk,
increases in loan demand, or other similar factors cannot be classified as "held
to maturity." Debt and equity securities held for current resale are classified
as "trading securities." Such securities are reported at fair value, and
unrealized gains and losses on such securities would be included in earnings.
Debt and equity securities not classified as either "held to maturity" or
"trading securities" are classified as "available for sale." Such securities
are reported at fair value, and unrealized gains and losses on such securities
are excluded from earnings and reported as a net amount in a separate component
of equity. It is currently the intention of management to classify all
securities in the Savings Bank's investment portfolio as available for sale.
44
<PAGE>
A committee consisting of the Chief Executive Officer, the Chief Financial
Officer and three outside Directors determines appropriate investments in
accordance with the Board of Directors' approved investment policies and
procedures. The Savings Bank's investment policies generally limit investments
to U.S. Government and agency securities, municipal bonds, certificates of
deposits, marketable corporate debt obligations, mortgage-backed securities and
certain types of mutual funds. The Savings Bank's investment policy does not
permit engaging directly in hedging activities or purchasing high risk mortgage
derivative products or corporate bonds rated less than BBB. Investments are
made based on certain considerations, which include the interest rate, yield,
settlement date and maturity of the investment, the Savings Bank's liquidity
position, and anticipated cash needs and sources (which in turn include
outstanding commitments, upcoming maturities, estimated deposits and anticipated
loan amortization and repayments). The effect that the proposed investment
would have on the Savings Bank's credit and interest rate risk, and risk-based
capital is also given consideration during the evaluation.
The following table sets forth the composition of the Savings Bank's
investment and mortgage-backed securities portfolios at the dates indicated.
<TABLE>
<CAPTION>
At April 30,
---------------------------------------------------------------------------------
1996 1995 1994
------------------------- ------------------------ --------------------------
Carrying Percent of Carrying Percent of Carrying Percent of
Value Portfolio Value Portfolio Value Portfolio
---- ---------- ----- --------- ----- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Available for sale:
Investment securities:
U.S. Government and federal
agency obligations.......... $3,216 100.00% $4,201 99.98% $ -- --%
Mortgage-backed securities.... -- -- 1 .02 -- --
------ ------ ------ ------ ------ ------
Total available for sale.. 3,216 100.00 4,202 100.00 -- --
Held to maturity:
Investment securities:
U.S. Government and federal
agency obligations.......... -- -- -- -- 4,260 78.08
Mortgage-backed securities.... -- -- -- -- 1,196 21.92
------ ------ ------ ------ ------ ------
Total held to maturity... -- -- -- -- 5,456 100.00
------ ------ ------ ------ ------ ------
Total $3,126 100.00% $4,202 100.00% $5,456 100.00%
====== ====== ====== ====== ====== ======
</TABLE>
45
<PAGE>
The table below sets forth certain information regarding the carrying value,
weighted average yields and maturities or periods to repricing of the Savings
Bank's investment and mortgage-backed securities at April 30, 1996.
<TABLE>
<CAPTION>
At April 30, 1996
----------------------------------------------------------------
Amount Due or Repricing within:
Over One to
One Year or Less Five Years Totals
------------------- ---------------------- -------------------
Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield
-------- --------- -------- ------------ -------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. Government and
federal agency
obligations........ $2,511 5.92% $705 6.65% $3,216 6.08%
</TABLE>
Deposit Activities and Other Sources of Funds
General. Deposits and loan repayments are the major sources of the Savings
Bank's funds for lending and other investment purposes. Scheduled loan
repayments are a relatively stable source of funds, while deposit inflows and
outflows and loan prepayments are influenced significantly by general interest
rates and money market conditions. Borrowings through the FHLB-Des Moines are
used to compensate for reductions in the availability of funds from other
sources. Presently, the Savings Bank has no other borrowing arrangements.
Deposit Accounts. Savings deposits are the primary source of funds for the
Savings Bank's lending and investment activities and for its general business
purposes. Substantially all of the Savings Bank's depositors are residents of
the State of Missouri. Deposits are attracted from within the Savings Bank's
market area through the offering of a broad selection of deposit instruments,
including NOW accounts, money market deposit accounts, regular savings accounts,
certificates of deposit and retirement savings plans. Deposit account terms
vary, according to the minimum balance required, the time periods the funds must
remain on deposit and the interest rate, among other factors. In determining
the terms of its deposit accounts, the Savings Bank considers current market
interest rates, profitability to the Savings Bank, matching deposit and loan
products and its customer preferences and concerns. The Savings Bank reviews
its deposit mix and pricing weekly. The Savings Bank does not accept brokered
deposits, nor has it aggressively sought jumbo certificates of deposit.
The Savings Bank currently offers certificates of deposit for terms not
exceeding 60 months. As a result, the Savings Bank believes that it is better
able to match the repricing of its liabilities to the repricing of its loan
portfolio. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- Asset and Liability Management."
In the unlikely event the Savings Bank is liquidated after the Conversion,
depositors will be entitled to full payment of their deposit accounts prior to
any payment being made to the Holding Company, as the sole stockholder of the
Savings Bank.
46
<PAGE>
The following table sets forth information concerning the Savings Bank's
time deposits and other interest-bearing deposits at April 30, 1996.
<TABLE>
<CAPTION>
Weighted Percentage
Average Minimum of Total
Interest Rate Term Checking and Savings Deposits Amount Balance Deposits
- ------------- ---- ----------------------------- ------ ------- ----------
(In Thousands)
<S> <C> <C> <C> <C> <C>
--% None Non-interest bearing $ 200 $ 1,710 2.43%
2.62 None NOW 400 4,259 6.06
3.43 None Money Market Deposit 1,500 3,040 4.32
3.03 None Passbook none 5,910 8.41
Certificates of Deposit
-----------------------
3.70 91 Day Fixed term, fixed rate 1,000 105 0.15
5.21 6 Mo. Fixed term, fixed rate 1,000 6,858 9.75
4.95 9 Mo. Fixed term, fixed rate 1,000 51 0.07
5.62 12 Mo. Fixed term, fixed rate 1,000 14,654 20.84
6.05 18 Mo. Fixed term, fixed rate 1,000 724 1.03
6.75 20 Mo. Fixed term, fixed rate 1,000 100 0.14
6.11 24 Mo. Fixed term, fixed rate 1,000 13,746 19.55
6.18 30 Mo. Fixed term, fixed rate 1,000 2,211 3.15
5.66 36 Mo. Fixed term, fixed rate 1,000 6,078 8.64
5.17 42 Mo. Fixed term, fixed rate 1,000 185 0.26
5.96 48 Mo. Fixed term, fixed rate 1,000 4,793 6.82
6.04 60 Mo. Fixed term, fixed rate 1,000 5,871 8.35
7.59 96 Mo. Fixed term, fixed rate 1,000 21 0.03
------- ------
Total $70,316 100.00%
======= ======
</TABLE>
The following table indicates the amount of the Savings Bank's jumbo
certificates of deposit by time remaining until maturity as of April 30, 1996.
Jumbo certificates of deposit are certificates in amounts of $100,000 or more.
<TABLE>
<CAPTION>
Maturity Period Amount
--------------- --------------
(In Thousands)
<S> <C>
Three months or less................ $ 418
Over three through six months....... 1,123
Over six through 12 months.......... 2,221
Over 12 months...................... 2,117
------
Total jumbo certificates
of deposit.................... $5,879
======
</TABLE>
47
<PAGE>
Deposit Flow. The following table sets forth the balances (inclusive of
interest credited) and changes in dollar amounts of deposits in the various
types of accounts offered by the Savings Bank between the dates indicated.
<TABLE>
<CAPTION>
At April 30,
-------------------------------------------------------------------------------
1996 1995 1994
---------------------------- --------------------------- -----------------
Percent Percent Percent
of Increase of Increase of
Amount Total (Decrease) Amount Total (Decrease) Amount Total
------- -------- ---------- ------- -------- ---------- ------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Passbook............................. $ 5,910 8.41% $ 417 $ 5,493 8.42% $ (995) $ 6,488 10.04%
NOW accounts......................... 4,259 6.06 379 3,880 5.95 (583) 4,463 6.90
Money market deposit................. 3,040 4.32 (1,526) 4,566 7.00 (2,871) 7,437 11.51
Fixed-rate certificates which
mature:
Within 1 year...................... 33,966 48.30 5,286 28,680 43.99 896 27,784 42.99
After 1 year, but within 2 years... 13,322 18.95 940 12,382 18.99 4,097 8,285 12.82
After 2 years, but within 4 years.. 7,662 10.90 (1,017) 8,679 13.31 750 7,929 12.27
After 4 years...................... 447 0.63 (590) 1,037 1.59 (808) 1,845 2.85
Other................................ 1,710 2.43 1,222 488 0.75 89 399 0.62
------- ------ ------- ------- ------ ------- ------- ------
Total.............................. $70,316 100.00% $ 5,111 $65,205 100.00% $ 575 $64,630 100.00%
======= ====== ======= ======= ====== ======= ======= ======
</TABLE>
48
<PAGE>
Time Deposits by Rates. The following table sets forth the time deposits in
the Savings Bank categorized by rates at the dates indicated.
<TABLE>
<CAPTION>
At April 30,
--------------------------------------
1996 1995 1994
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
2.00 - 2.99%........... $ -- $ 8 $ 77
3.00 - 3.99%........... 105 451 14,348
4.00 - 4.99%........... 6,119 12,879 18,785
5.00 - 5.99%........... 26,144 16,993 8,148
6.00 - 6.99%........... 20,261 17,539 3,005
7.00 - 7.99%........... 2,751 2,862 1,424
8.00 - 8.99%........... 17 45 55
9.00 - 9.99%........... -- -- --
10.00 - 10.99%......... -- 1 1
------- ------- -------
Total.................. $55,397 $50,778 $45,843
======= ======= =======
</TABLE>
The following table sets forth the amount and maturities of time deposits at
April 30, 1996.
<TABLE>
<CAPTION>
Amount Due
-----------------------------------------------------------------------
Less Than 1-2 2-3 3-4 After
One Year Years Years Years 4 Years Total
-------- ----- ----- ----- ------- -----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
3.00 - 3.99%..... $ 105 $ -- $ -- $ -- $ -- $ 105
4.00 - 4.99%..... 5,962 157 -- -- -- 6,119
5.00 - 5.99%..... 17,458 6,404 2,130 140 12 26,144
6.00 - 6.99%..... 8,674 6,628 2,117 2,506 336 20,261
7.00 - 7.99%..... 1,767 133 505 261 85 2,751
8.00 - 8.99%..... -- -- 3 -- 14 17
------- ------- ------ ------ ---- -------
Total............ $33,966 $13,322 $4,755 $2,907 $ 447 $55,397
======= ======= ====== ====== ==== =======
</TABLE>
Deposit Activity. The following table sets forth the deposit activities of
the Savings Bank for the periods indicated.
<TABLE>
<CAPTION>
Year Ended April 30,
---------------------------
1996 1995 1994
------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Beginning balance................. $65,205 $64,630 $65,235
------- ------- -------
Net deposits (withdrawals)
before interest credited......... 2,941 (1,037) (2,149)
Interest credited................. 2,170 1,612 1,544
------- ------- -------
Net increase (decrease) in
deposits......................... 5,111 575 (605)
------- ------- -------
Ending balance.................... $70,316 $65,205 $64,630
======= ======= =======
</TABLE>
49
<PAGE>
Borrowings. The Savings Bank utilizes advances from the FHLB-Des
Moines to supplement its supply of lendable funds and to meet deposit withdrawal
requirements. The FHLB-Des Moines functions as a central reserve bank providing
credit for savings associations and certain other member financial institutions.
As a member of the FHLB-Des Moines, the Savings Bank is required to own capital
stock in the FHLB-Des Moines and is authorized to apply for advances on the
security of such stock and certain of its mortgage loans and other assets
(principally securities that are obligations of, or guaranteed by, the U.S.
Government) provided certain creditworthiness standards have been met. Advances
are made pursuant to several different credit programs. Each credit program has
its own interest rate and range of maturities. Depending on the program,
limitations on the amount of advances are based on the financial condition of
the member institution and the adequacy of collateral pledged to secure the
credit.
The following tables sets forth certain information regarding short-
term borrowings by the Bank at the dates and for the periods indicated:
<TABLE>
<CAPTION>
At of For the
Year Ended April 30,
----------------------------
1996 1995 1994
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Maximum amount of FHLB advances outstanding
at any month end during the period ......... $5,500 $4,500 --
Approximate average FHLB advances
outstanding................................. 4,555 3,093 --
Approximate weighted average rate paid on
FHLB advances during the period............. 6.62% 7.23% --
Balance of FHLB advances outstanding
at end of period............................ $5,000 $4,500 --
Weighted average rate paid on
FHLB advances at end of period.............. 6.75% 6.84% --
</TABLE>
Competition
The Savings Bank operates in a competitive market for the attraction of
savings deposits (its primary source of lendable funds) and in the origination
of loans. Its most direct competition for savings deposits has historically
come from local commercial banks and other thrifts operating in its market area.
As of April 30, 1996, there were five commercial banks and two other thrifts
operating in Callaway County, Missouri, of which only one commercial bank was
larger in terms of deposits than the Savings Bank. All of the other financial
institutions in Callaway County are locally owned. A portion of the Callaway
County residents commute to work in either Columbia or Jefferson City and, thus,
there is strong competition from other financial institutions in these larger
metropolitan areas. Particularly in times of high interest rates, the Savings
Bank has faced additional significant competition for investors' funds from
short-term money market securities and other corporate and government
securities. The Savings Bank's competition for loans also comes from mortgage
bankers. Such competition for deposits and the origination of loans may limit
the Savings Bank's growth in the future.
Subsidiary Activities
The Savings Bank has one subsidiary, Multi-Purpose Service Agency, Inc.
("Service Corporation"), whose activities consist primarily of selling credit
life insurance to the Savings Bank's customers. At April 30, 1996, the Savings
Bank's equity investment in its subsidiary was a deficit of $68,000.
50
<PAGE>
Federal savings associations generally may invest up to 3% of their assets
in service corporations, provided that at least one-half of any amount in excess
of 1% is used primarily for community, inner-city and community development
projects. The Savings Bank's investment in its subsidiary did not exceed these
limits at April 30, 1996.
Properties
The Savings Bank operates two full service facilities, both of which it
owns. At April 30, 1996, the net book value of the property (including land and
building) and the Savings Bank's fixtures, furniture and equipment was $1.3
million.
Personnel
As of April 30, 1996, the Savings Bank had 33 full-time and five part-time
employees. The employees are not represented by a collective bargaining unit
and the Savings Bank believes its relationship with its employees to be good.
Legal Proceedings
Periodically, there have been various claims and lawsuits involving the
Savings Bank, such as claims to enforce liens, condemnation proceedings on
properties in which the Savings Bank holds security interests, claims involving
the making and servicing of real property loans and other issues incident to the
Savings Bank's business. In September 1994, a former employee of the Savings
Bank filed a charge of race discrimination against the Savings Bank with the
Missouri Commission on Human Rights and the Equal Employment Opportunity
Commission based on the termination of her employment. The charge is being
investigated by the Missouri Commission on Human Rights. The Savings Bank has
vigorously contested the charge and believes the charge is without merit. No
lawsuit based on this charge has been filed against the Savings Bank. In the
opinion of management, the Savings Bank is not a party to any pending legal
proceedings that it believes would have a material adverse effect on the
financial condition or operations of the Savings Bank.
51
<PAGE>
MANAGEMENT OF THE HOLDING COMPANY
The Board of Directors of the Holding Company consists of seven persons
divided into three classes, each of which contains approximately one third of
the Board. The Directors shall be elected by the stockholders of the Holding
Company for staggered three-year terms, or until their successors are elected
and qualified. One class of Directors, consisting of Messrs. Richard W. Gohring
and Dennis J. Adrian, has a term of office expiring at the first annual meeting
of stockholders, a second class, consisting of Mrs. Bonnie K. Smith and Mr.
David W. West, has a term of office expiring at the second annual meeting of
stockholders, and a third class, consisting of Messrs. Kermit D. Gohring,
Clifford E. Hamilton and Billy M. Conner has a term of office expiring at the
third annual meeting of stockholders. The executive officers of the Holding
Company are elected annually and hold office until their respective successors
have been elected and qualified or until death, resignation or removal by the
Board of Directors.
The following individuals hold the offices set forth opposite their names
below.
Name Position held with Holding Company
---- ----------------------------------
Kermit D. Gohring President and Chief Executive Officer
Richard W. Gohring Vice-President
Bonnie K. Smith Secretary-Treasurer
Since the formation of the Holding Company, none of the executive officers,
directors or other personnel has received remuneration from the Holding Company.
Information concerning the principal occupations, employment and compensation of
the directors and executive officers of the Holding Company during the past five
years is set forth under "MANAGEMENT OF THE SAVINGS BANK -- Biographical
Information."
MANAGEMENT OF THE SAVINGS BANK
Directors and Executive Officers
The Board of Directors of the Savings Bank is presently composed of seven
members who are elected for terms of three years, approximately one third of
whom are elected annually in accordance with the Bylaws of the Savings Bank.
The Savings Bank also has three emeritus directors, Millard F. Stewart, Virgil
A. Johnston and Cecil M. Stock. The executive officers of the Savings Bank are
elected annually by the Board of Directors and serve at the Board's discretion.
The following table sets forth information with respect to the Directors and
executive officers of the Savings Bank.
52
<PAGE>
<TABLE>
<CAPTION>
Current
Director Term
Name Age (1) Position with Savings Bank Since Expires
- ---- ------- -------------------------- -------- -------
<S> <C> <C> <C> <C>
Dennis J. Adrian 47 Director 1995 1999
Billy M. Conner 65 Director 1995 1997
Kermit D. Gohring 60 Chief Executive Officer, President 1967 1998
and Director
Richard W. Gohring 41 Executive Vice President 1989 1998
and Director
Clifford E. Hamilton, Jr. 53 Director 1989 1997
Bonnie K. Smith 51 Senior Vice President, Secretary- 1985 1998
Treasurer and Director
David W. West 58 Director 1995 1999
</TABLE>
- -------------------
(1) As of April 30, 1996.
Biographical Information
Set forth below is certain information regarding the Directors and
executive officers of the Savings Bank. Unless otherwise stated, each Director
and executive officer has held his or her current occupation for the last five
years.
Dennis J. Adrian is the sole owner of Vandelicht Trucking, Inc., a
local trucking company. He is also the President and majority owner of Mo-Con,
Inc., a local concrete mixing and delivery firm with which he has been
associated since 1968.
Billy M. Conner is the co-owner and operator of BCGC, Inc., a local
family farming operation.
Kermit D. Gohring is the President and Chief Executive Officer and a
Director of the Holding Company and the Savings Bank. He has been associated
with the Savings Bank since 1964 and President since 1974.
Richard W. Gohring is Executive Vice President and a Director of the
Savings Bank and Vice-President and a Director of the Holding Company. He has
been associated with the Savings Bank since 1985.
Clifford E. Hamilton, Jr. is a Circuit Judge in Columbia, Missouri and
presently serves as a general jurisdiction judge in the Thirteenth Judicial
Circuit of Missouri, which includes Fulton and Columbia. He currently serves as
the Vice Chairman of the Board.
Bonnie K. Smith is Senior Vice President, Secretary-Treasurer and a
Director of the Savings Bank and Secretary-Treasurer of the Holding Company.
She has been associated with the Savings Bank since 1971.
David W. West is the co-owner and operator of a local family farming
operation.
Meetings and Committees of the Board of Directors
The business of the Savings Bank is conducted through meetings and
activities of the Board of Directors and its committees. During the fiscal year
ended April 30, 1996, the Board of Directors held 15 meetings. No
53
<PAGE>
director attended fewer than 75% of the total meetings of the Board of Directors
and of committees on which such director served.
The Audit Committee, consisting of Directors Hamilton (Chairman),
Conner and West, meets with the Savings Bank's outside auditor to discuss the
results of the annual audit. The Audit Committee met one time during the fiscal
year ended April 30, 1996.
The Salary Committee, consisting of Directors Kermit Gohring
(Chairman), Conner and Hamilton, is responsible for determining compensation for
all employees. The Salary Committee met one time during the fiscal year ended
April 30, 1996.
The Savings Bank also maintains standing Loan, Interest Rate Risk,
Community Reinvestment Act, Nominating and Compliance Committees.
Directors' Compensation
Non-employee Directors receive a fee of $1,000 per month. Employee
Directors receive a fee of $500 per month. It is currently anticipated that,
after completion of the Conversion, directors' fees will continue to be paid by
the Savings Bank and no separate fees will be paid for service on the Board of
Directors of the Holding Company.
Executive Compensation
Summary Compensation Table. The following information is furnished
for the President of the Savings Bank for the year ended April 30, 1996. No
other executive officers of the Savings Bank received salary and bonus in excess
of $100,000 during the year ended April 30, 1996.
<TABLE>
<CAPTION>
Annual Compensation(1)
-------------------------
Name and Other Annual All Other
Position Year Salary($) Bonus($) Compensation($)(2) Compensation($)(3)
- ------------------- ---- ------- -------- -------------------- ------------------
<S> <C> <C> <C> <C> <C>
Kermit D. Gohring 1996 $58,015 $51,029 $6,000 $3,271
President
</TABLE>
- ---------------------------------------
(1) Compensation information for fiscal years ended April 30, 1995 and 1994
has been omitted as the Savings Bank was not a public company nor a
subsidiary thereof at such time.
(2) Consists of directors' fees. The aggregate amount of perquisites and
other personal benefits was less than 10% of the total annual salary and
bonus reported.
(3) Amount contributed by the Savings Bank to 410(k) plan.
Employment Agreements. In connection with the Conversion, the Holding
Company and the Savings Bank (collectively, the "Employers") will enter into a
three-year employment agreement with Mr. Kermit Gohring. The Savings Bank has
eliminated its bonus program, and under the agreement the initial salary level
for Mr. Gohring will be $96,000, which amount will be paid by the Savings Bank
and may be increased at the discretion of the Board of Directors or an
authorized committee of the Board. On each anniversary of the commencement date
of the agreement, the term of the agreement may be extended for an additional
year. The agreement is terminable by the Employers at any time or upon the
occurrence of certain events specified by federal regulations.
The employment agreement provides for severance payments and other benefits
in the event of involuntary termination of employment in connection with any
change in control of the Employers. Severance payments also will be provided on
a similar basis in connection with a voluntary termination of employment where,
subsequent to
54
<PAGE>
a change in control, Mr. Gohring is assigned duties inconsistent with his
position, duties, responsibilities and status immediately prior to such change
in control. The term "change in control" is defined in the agreements as having
occurred when, among other things, (a) a person other than the Holding Company
purchases shares of Common Stock pursuant to a tender or exchange offer for such
shares, (b) any person (as such term is used in Sections 13(d) and 14(d)(2) of
the Securities Exchange Act of 1934, as amended ("Exchange Act")) is or becomes
the beneficial owner, directly or indirectly, of securities of the Holding
Company representing 25% or more of the combined voting power of the Holding
Company's then outstanding securities, (c) the membership of the Board of
Directors changes as the result of a contested election, or (d) shareholders of
the Holding Company approve a merger, consolidation, sale or disposition of all
or substantially all of the Holding Company's assets, or a plan of partial or
complete liquidation.
The severance payment from the Employers will equal 2.99 times Mr. Gohring's
average annual compensation during the five-year period preceding the change in
control. Such amount will be paid in a lump sum within ten business days
following the termination of employment. Assuming that a change in control had
occurred at April 30, 1996, Mr. Gohring would be entitled to a severance
payments of approximately $271,500. Section 280G of the Internal Revenue Code
of 1986, as amended ("Code"), states that severance payments which equal or
exceed three times the base compensation of the individual are deemed to be
"excess parachute payments" if they are contingent upon a change in control.
Individuals receiving excess parachute payments are subject to a 20% excise tax
on the amount of such excess payments, and the Employers would not be entitled
to deduct the amount of such excess payments.
The agreement restricts Mr. Gohring's right to compete against the Employers
for a period of one year from the date of termination of the agreement if he
voluntarily terminates employment, except in the event of a change in control.
Th Holding Company and the Savings Bank intend to enter into similar
employment agreements with Mr. Richard Gohring and Mrs. Bonnie Smith. The Board
of Directors of the Holding Company or the Savings Bank may, from time to time,
also enter into employment agreements with other senior executive officers.
Benefits
General. The Savings Bank currently pays the premiums for medical, dental,
life and disability insurance benefits for full-time employees, subject to
certain deductibles.
401(k) Plan. The Savings Bank maintains the Fulton Savings Bank 401(k) Plan
(the "401(k) Plan") for the benefit of eligible employees of the Savings Bank.
The 401(k) Plan is intended to be a tax-qualified plan under Sections 401(a) and
401(k) of the Code. Employees of the Savings Bank who have completed 1,000
hours of service during 12 consecutive months and who have attained age 19 are
eligible to participate in the 401(k) Plan. Participants may contribute a
portion of their annual compensation to the 401(k) Plan through a salary
reduction election in an amount not in excess of applicable Code limits. The
limit for 1996 is $9,500. The Savings Bank matches participant contributions on
a discretionary basis. In addition to employer matching contributions, the
Savings Bank may contribute a discretionary amount to the 401(k) Plan in any
plan year which is allocated to individual participants in the proportion that
their annual compensation (excluding commissions) bears to the total
compensation of all participants during the plan year. To be eligible to
receive a discretionary employer contribution, the participant must complete
1,000 hours of service during the plan year and remain employed by the Savings
Bank on the last day of the plan year. Participants are at all times 100%
vested in salary reduction contributions. With respect to employer matching and
discretionary employer contributions, participants vest in such contributions at
the rate of 20% per year beginning with the completion of their third year of
service with full vesting occurring after seven years of service. For the
fiscal year ended April 30, 1996, the Savings Bank incurred total contribution-
related expenses of $19,000 in connection with the 401(k) Plan.
55
<PAGE>
In general, the investment of 401(k) Plan assets is directed by an
investment committee authorized by the Board of Directors of the Savings Bank.
However, in connection with the Conversion, the 401(k) Plan has been amended to
provide participants with the opportunity to direct the investment of up to ___%
of their vested account balance to purchase shares of the Common Stock. A
participant in the 401(k) Plan who elects to purchase Common Stock in the
Conversion through the 401(k) Plan will receive the same subscription priority
and be subject to the same individual purchase limitations as if the participant
had elected to make such purchase using other funds. See "THE CONVERSION --
Limitations on Purchases of Shares."
Employee Stock Ownership Plan. The Board of Directors has authorized the
adoption by the Savings Bank of an ESOP for employees of the Savings Bank to
become effective upon the completion of the Conversion. The ESOP is intended to
satisfy the requirements for an employee stock ownership plan under the Code and
the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
Full-time employees of the Holding Company and the Savings Bank who have been
credited with at least 1,000 hours of service during a 12-month period and who
have attained age 19 will be eligible to participate in the ESOP.
In order to fund the purchase of up to 8% of the Common Stock to be issued
in the Conversion, it is anticipated that the ESOP will borrow funds from the
Holding Company. Such loan will equal 100% of the aggregate purchase price of
the Common Stock. The loan to the ESOP will be repaid principally from the
Savings Bank's contributions to the ESOP and dividends payable on Common Stock
held by the ESOP over the anticipated ten-year term of the loan. The interest
rate for the ESOP loan is expected to be the prime rate as published in The Wall
Street Journal on the closing date of the Conversion. See "PRO FORMA DATA." In
any plan year, the Savings Bank may make additional discretionary contributions
to the ESOP for the benefit of plan participants in either cash or shares of
Common Stock, which may be acquired through the purchase of outstanding shares
in the market or from individual stockholders or which constitute authorized but
unissued shares or shares held in treasury by the Holding Company. The timing,
amount, and manner of such discretionary contributions will be affected by
several factors, including applicable regulatory policies, the requirements of
applicable laws and regulations, and market conditions.
Shares purchased by the ESOP with the proceeds of the loan will be held in a
suspense account and released on a pro rata basis as the loan is repaid.
Discretionary contributions to the ESOP and shares released from the suspense
account will be allocated among participants on the basis of each participant's
proportional share of total compensation. Forfeitures will be reallocated among
the remaining plan participants.
Participants will vest in their accrued benefits under the ESOP upon the
completion of five years of service. Benefits may be payable upon a
participant's retirement, early retirement, death, disability, or termination of
employment. The Savings Bank's contributions to the ESOP are not fixed, so
benefits payable under the ESOP cannot be estimated.
It is anticipated that Messrs. ______, _____ and ________ will be appointed
by the Board of Directors of the Savings Bank to serve as trustees of the ESOP.
Under the ESOP, the trustees must vote all allocated shares held in the ESOP in
accordance with the instructions of plan participants and allocated shares for
which no instructions are received must be voted in the same ratio on any matter
as those shares for which instructions are given.
Pursuant to SOP 93-6, the Savings Bank will recognize compensation expense
in an amount equal to the fair market value of the ESOP shares when such shares
are committed to be released to participants' accounts.
If the ESOP purchases newly issued shares from the Holding Company, total
stockholders' equity would neither increase nor decrease. However, on a per
share basis, stockholders' equity and per share net earnings would decrease
because of the increase in the number of outstanding shares.
56
<PAGE>
The ESOP will be subject to the requirements of ERISA and the regulations of
the IRS and the Department of Labor issued thereunder. The Savings Bank intends
to request a determination letter from the IRS regarding the tax-qualified
status of the ESOP. Although no assurance can be given that a favorable
determination letter will be issued, the Savings Bank expects that a favorable
determination letter will be received by the ESOP.
1996 Stock Option Plan. The Board of Directors of the Holding Company
intends to adopt the Stock Option Plan and to submit the Stock Option Plan to
the stockholders for approval at a meeting held no earlier than six months
following consummation of the Conversion. The approval of a majority vote of
the Holding Company's outstanding shares is required prior to the implementation
of the Stock Option Plan within one year of the consummation of the Conversion.
The Stock Option Plan will comply with all applicable regulatory requirements.
However, the Stock Option Plan will not be approved or endorsed by the OTS.
The Stock Option Plan will be designed to attract and retain qualified
management personnel and nonemployee directors, to provide such officers, key
employees and nonemployee directors with a proprietary interest in the Holding
Company as a incentive to contribute to the success of the Holding Company and
the Savings Bank, and to reward officers and key employees for outstanding
performance. The Stock Option Plan will provide for the grant of incentive
stock options ("ISOs") intended to comply with the requirements of Section 422
of the Code and for nonqualified stock options ("NQOs"). Upon receipt of
stockholder approval of the Stock Option Plan, stock options may be granted to
key employees of the Holding Company and its subsidiaries, including the Savings
Bank. Unless sooner terminated, the Stock Option Plan will continue in effect
for a period of ten years from the date the Stock Option Plan is approved by
stockholders.
A number of authorized shares of Common Stock equal to 10% of the number of
shares of Common Stock issued in connection with the Conversion will be reserved
for future issuance under the Stock Option Plan (149,500 shares based on the
issuance of 1,495,000 shares at the maximum of the Estimated Valuation Range).
Shares acquired upon exercise of options will be authorized but unissued shares
or treasury shares. In the event of a stock split, reverse stock split, stock
dividend, or similar event, the number of shares of Common Stock under the Stock
Option Plan, the number of shares to which any award relates and the exercise
price per share under any option may be adjusted by the Committee to reflect the
increase or decrease in the total number of shares of Common Stock outstanding.
The Stock Option Plan will be administered and interpreted by a committee of
the Board of Directors ("Committee"). Under the Stock Option Plan, the
Committee will determine which officers and key employees will be granted
options, whether such options will be ISOs or NQOs, the number of shares subject
to each option, and the exercisability of such options. The per share exercise
price of an option will equal at least 100% of the fair market value of a share
of Common Stock on the date the option is granted. All options granted to
nonemployee directors will be NQOs and such options will be granted at an
exercise price equal to 100% of the fair market value of the Common Stock on the
date the option is granted. Options granted upon the effective date of the
Stock Option Plan will become exercisable ratably over a five-year period
following the date of grant. However, unvested options will be immediately
exercisable in the event of the recipient's death or disability. Unvested
options will also be exercisable following a change in control (as defined in
the Stock Option Plan) of the Holding Company or the Savings Bank to the extent
authorized or not prohibited by applicable law or regulations.
Each stock option that is awarded to an officer or key employee will remain
exercisable at any time on or after the date it vests through the earlier to
occur of the tenth anniversary of the date of grant or three months after the
date on which the optionee terminates employment (one year in the event of the
optionee's termination by reason of death or disability), unless such period is
extended by the Committee. Each stock option that is awarded to a nonemployee
director will remain exercisable through the earlier to occur of the tenth
anniversary of the date of grant or one year (two years in the event of a
nonemployee director's death or disability) following the termination of a
nonemployee director's service on the Board. All stock options are generally
nontransferable except by will or the laws of descent or distribution.
57
<PAGE>
The Stock Option Plan will also provide that upon the payment of an
"extraordinary dividend" by the Holding Company, each optionee will receive a
cash payment equivalent to the dividends that would have been payable to such
optionee had the options been exercised on or before the record date of such
dividend. For purposes of the Stock Option Plan, an "extraordinary dividend" is
a dividend payable at a rate in excess of the Savings Bank's weighted average
cost of funds on interest-bearing liabilities for the 12-month period preceding
the record date of the dividend.
Under current provisions of the Code, the federal tax treatment of ISOs and
NQOs is different. With respect to ISOs, an optionee who satisfies certain
holding period requirements will not recognize income at the time the option is
granted or at the time the option is exercised. If the holding period
requirements are satisfied, the optionee will generally recognize capital gain
or loss upon a subsequent disposition of the shares of Common Stock received
upon the exercise of a stock option. If the holding period requirements are not
satisfied, the difference between the fair market value of the Common Stock on
the date of grant and the option exercise price, if any, will be taxable to the
optionee at ordinary income tax rates. A federal income tax deduction generally
will not be available to the Holding Company as a result of the grant or
exercise of an ISO, unless the optionee fails to satisfy the holding period
requirements. With respect to NQOs, the grant of an NQO generally is not a
taxable event for the optionee and no tax deduction will be available to the
Holding Company. However, upon the exercise of an NQO, the difference between
the fair market value of the Common Stock on the date of exercise and the option
exercise price generally will be treated as compensation to the optionee upon
exercise, and the Holding Company will be entitled to a compensation expense
deduction in the amount of income realized by the optionee.
Although no specific award determinations have been made, the Savings Bank
anticipates that if stockholder approval is obtained it would provide awards to
its directors, officers and employees to the extent permitted by applicable
regulations. OTS regulations currently provide that no individual officer or
employee may receive more than 25% of the shares reserved for issuance under any
stock compensation plan and that non-employee directors may not receive more
than 5% of such shares individually or 30% in the aggregate for all non-employee
directors.
Management Recognition Plan. Following the Conversion, the Board of
Directors of the Holding Company intends to adopt an MRP for officers,
employees, and nonemployee directors of the Holding Company and the Savings
Bank. The MRP will enable the Holding Company and the Savings Bank to provide
participants with a proprietary interest in the Holding Company as an incentive
to contribute to the success of the Holding Company and the Savings Bank.
The MRP will be submitted to stockholders for approval at a meeting to be
held no earlier than six months following consummation of the Conversion. The
approval of a majority vote of the Holding Company's stockholders is required
prior to implementation of the MRP within one year of the consummation of the
Conversion. The MRP will comply with all applicable regulatory requirements.
However, the OTS will not approve or endorse the MRP. The MRP expects to
acquire a number of shares of Common Stock equal to 4% of the Common Stock
issued in connection with the Conversion (59,800 shares based on the issuance of
1,495,000 shares in the Conversion at the maximum of the Estimated Valuation
Range). Such shares will be acquired on the open market, if available, with
funds contributed by the Holding Company to a trust which the Holding Company
may establish in conjunction with the MRP ("MRP Trust") or from authorized but
unissued shares or treasury shares of the Holding Company.
A committee of the Board of Directors of the Holding Company will administer
the MRP, the members of which will also serve as trustees of the MRP Trust, if
formed. The trustees will be responsible for the investment of all funds
contributed by the Holding Company to the MRP Trust.
Shares of Common Stock granted pursuant to the MRP will be in the form of
restricted stock vesting ratably over a five-year period following the date of
grant. During the period of restriction, all shares will be held in escrow by
the Holding Company or by the MRP Trust. If a recipient terminates employment
for reasons other than death or disability, the recipient will forfeit all
rights to allocated shares that are then subject to restriction. In the event
of the recipient's death or disability, all restrictions will expire and all
allocated shares will become unrestricted.
58
<PAGE>
In addition, all allocated shares will become unrestricted in the event of a
change in control (as defined in the MRP) of the Holding Company or the Savings
Bank to the extent authorized or not prohibited by applicable law or
regulations. Compensation expense in the amount of the fair market value of the
Common Stock at the date of the grant to the recipient will be recognized during
the years in which the shares vest.
The Board of Directors of the Holding Company may terminate the MRP at any
time and, upon termination, all unallocated shares of Common Stock will revert
to the Holding Company.
A recipient of an MRP award in the form of restricted stock generally will
not recognize income upon an award of shares of Common Stock, and the Holding
Company will not be entitled to a federal income tax deduction, until the
termination of the restrictions. Upon such termination, the recipient will
recognize ordinary income in an amount equal to the fair market value of the
Common Stock at the time and the Holding Company will be entitled to a deduction
in the same amount after satisfying federal income tax withholding requirements.
However, the recipient may elect to recognize ordinary income in the year the
restricted stock is granted in an amount equal to the fair market value of the
shares at that time, determined without regard to the restrictions. In that
event, the Holding Company will be entitled to a deduction in such year and in
the same amount. Any gain or loss recognized by the recipient upon subsequent
disposition of the stock will be either a capital gain or capital loss.
Although no specific award determinations have been made, the Savings Bank
anticipates that if stockholder approval is obtained it would provide awards to
its directors, officers and employees to the extent permitted by applicable
regulations. OTS regulations currently provide that no individual officer or
employee may receive more than 25% of the shares reserved for issuance under any
stock compensation plan.
Transactions with the Savings Bank
Federal regulations require that all loans or extensions of credit to
executive officers and directors must be made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons and must not involve more than the
normal risk of repayment or present other unfavorable features. The Savings
Bank is therefore prohibited from making any new loans or extensions of credit
to the Savings Bank's executive officers and directors at different rates or
terms than those offered to the general public and has adopted a policy to this
effect. In addition, loans made to a director or executive officer in an amount
that, when aggregated with the amount of all other loans to such person and his
or her related interests, are in excess of the greater of $25,000 or 5% of the
Savings Bank's capital and surplus (up to a maximum of $500,000) must be
approved in advance by a majority of the disinterested members of the Board of
Directors. See "REGULATION -- Federal Regulation of Savings Associations --
Transactions with Affiliates." The aggregate amount of loans by the Savings
Bank to its executive officers and directors was $357,000 at April 30, 1996, or
approximately 1.6% of pro forma stockholders' equity (based on the issuance of
the maximum of the Estimated Valuation Range).
REGULATION
General
The Savings Bank is subject to extensive regulation, examination and
supervision by the OTS as its chartering agency, and the FDIC, as the insurer of
its deposits. The activities of federal savings institutions are governed by
the Home Owners' Loan Act, as amended (the "HOLA") and, in certain respects, the
Federal Deposit Insurance Act ("FDIA") and the regulations issued by the OTS and
the FDIC to implement these statutes. These laws and regulations delineate the
nature and extent of the activities in which federal savings associations may
engage. Lending activities and other investments must comply with various
statutory and regulatory capital requirements. In addition, the Savings Bank's
relationship with its depositors and borrowers is also regulated to a great
extent, especially in such matters as the ownership of deposit accounts and the
form and content of the Savings
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Bank's mortgage documents. The Savings Bank must file reports with the OTS and
the FDIC concerning its activities and financial condition in addition to
obtaining regulatory approvals prior to entering into certain transactions such
as mergers with, or acquisitions of, other financial institutions. There are
periodic examinations by the OTS and the FDIC to review the Savings Bank's
compliance with various regulatory requirements. The regulatory structure also
gives the regulatory authorities extensive discretion in connection with their
supervisory and enforcement activities and examination policies, including
policies with respect to the classification of assets and the establishment of
adequate loan loss reserves for regulatory purposes. Any change in such
policies, whether by the OTS, the FDIC or Congress, could have a material
adverse impact on the Holding Company, the Savings Bank and their operations.
The Holding Company, as a savings and loan holding company, will also be
required to file certain reports with, and otherwise comply with the rules and
regulations of, the OTS.
Federal Regulation of Savings Associations
Office of Thrift Supervision. The OTS is an office in the Department of the
Treasury subject to the general oversight of the Secretary of the Treasury. The
OTS generally possesses the supervisory and regulatory duties and
responsibilities formerly vested in the Federal Home Loan Bank Board. Among
other functions, the OTS issues and enforces regulations affecting federally
insured savings associations and regularly examines these institutions.
Federal Home Loan Bank System. The FHLB System, consisting of 12 FHLBs, is
under the jurisdiction of the Federal Housing Finance Board ("FHFB"). The
designated duties of the FHFB are to supervise the FHLBs, to ensure that the
FHLBs carry out their housing finance mission, to ensure that the FHLBs remain
adequately capitalized and able to raise funds in the capital markets, and to
ensure that the FHLBs operate in a safe and sound manner.
The Savings Bank, as a member of the FHLB-Des Moines, is required to acquire
and hold shares of capital stock in the FHLB-Des Moines in an amount equal to
the greater of (i) 1.0% of the aggregate outstanding principal amount of
residential mortgage loans, home purchase contracts and similar obligations at
the beginning of each year, or (ii) 1/20 of its advances (borrowings) from the
FHLB-Des Moines. The Savings Bank is in compliance with this requirement with
an investment in FHLB-Des Moines stock of $637,000 at April 30, 1996.
Among other benefits, the FHLB provides a central credit facility primarily
for member institutions. It is funded primarily from proceeds derived from the
sale of consolidated obligations of the FHLB System. It makes advances to
members in accordance with policies and procedures established by the FHFB and
the Board of Directors of the FHLB-Des Moines.
Federal Deposit Insurance Corporation. The FDIC is an independent federal
agency established originally to insure the deposits, up to prescribed statutory
limits, of federally insured banks and to preserve the safety and soundness of
the banking industry. In 1989 the FDIC also became the insurer, up to the
prescribed limits, of the deposit accounts held at federally insured savings
associations and established two separate insurance funds: the BIF and the SAIF.
As insurer of deposits, the FDIC has examination, supervisory and enforcement
authority over all savings associations.
The Savings Bank's accounts are insured by the SAIF. The FDIC insures
deposits at the Savings Bank to the maximum extent permitted by law. The
Savings Bank currently pays deposit insurance premiums to the FDIC based on a
risk-based assessment system established by the FDIC for all SAIF-member
institutions. Under applicable regulations, institutions are assigned to one of
three capital groups that are based solely on the level of an institution's
capital -- "well capitalized," "adequately capitalized," and "undercapitalized"
- -- which are defined in the same manner as the regulations establishing the
prompt corrective action system, as discussed below. These three groups are
then divided into three subgroups which reflect varying levels of supervisory
concern, from those which are considered to be healthy to those which are
considered to be of substantial supervisory concern. The matrix so created
results in nine assessment risk classifications, with rates currently ranging
from .23% for well capitalized,
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financially sound institutions with only a few minor weaknesses to .31% for
undercapitalized institutions that pose a substantial risk of loss to the SAIF
unless effective corrective action is taken. Until the second half of 1995, the
same matrix applied to BIF-member institutions. The FDIC is authorized to raise
assessment rates in certain circumstances. The Savings Bank's assessments
expensed for the year ended April 30, 1996, totalled $153,000.
Effective January 1, 1996, the FDIC substantially reduced deposit insurance
premiums for well-capitalized, well-managed financial institutions that are
members of the BIF. Under the new assessment schedule, rates were reduced to a
range of 0 to 27 basis points, with approximately 92% of BIF members paying the
statutory minimum annual assessment rate of $2,000. With respect to SAIF member
institutions, the FDIC has retained the existing rate schedule of 23 to 31 basis
points. The Savings Bank is, and after the Conversion will remain, a member of
the SAIF rather than the BIF. See "RISK FACTORS -- Recapitalization of SAIF and
Its Impact on SAIF Premiums."
The FDIC may terminate the deposit insurance of any insured depository
institution if it determines after a hearing that the institution has engaged or
is engaging in unsafe or unsound practices, is in an unsafe or unsound condition
to continue operations, or has violated any applicable law, regulation, order or
any condition imposed by an agreement with the FDIC. It also may suspend
deposit insurance temporarily during the hearing process for the permanent
termination of insurance, if the institution has no tangible capital. If
insurance of accounts is terminated, the accounts at the institution at the time
of termination, less subsequent withdrawals, shall continue to be insured for a
period of six months to two years, as determined by the FDIC. Management is
aware of no existing circumstances that could result in termination of the
deposit insurance of the Savings Bank.
Liquidity Requirements. Under OTS regulations, each savings institution is
required to maintain an average daily balance of liquid assets (cash, certain
time deposits and savings accounts, bankers' acceptances, and specified U.S.
Government, state or federal agency obligations and certain other investments)
equal to a monthly average of not less than a specified percentage (currently
5.0%) of its net withdrawable accounts plus short-term borrowings. OTS
regulations also require each savings institution to maintain an average daily
balance of short-term liquid assets at a specified percentage (currently 1.0%)
of the total of its net withdrawable savings accounts and borrowings payable in
one year or less. Monetary penalties may be imposed for failure to meet
liquidity requirements. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- Liquidity and Capital Resources."
Prompt Corrective Action. Under the FDIA, each federal banking agency is
required to implement a system of prompt corrective action for institutions that
it regulates. The federal banking agencies have promulgated substantially
similar regulations to implement this system of prompt corrective action. Under
the regulations, an institution shall be deemed to be (i) "well capitalized" if
it has a total risk-based capital ratio of 10.0% or more, has a Tier I risk-
based capital ratio of 6.0% or more, has a leverage ratio of 5.0% or more and is
not subject to specified requirements to meet and maintain a specific capital
level for any capital measure; (ii) "adequately capitalized" if it has a total
risk-based capital ratio of 8.0% or more, a Tier I risk-based capital ratio of
4.0% or more and a leverage ratio of 4.0% or more (3.0% under certain
circumstances) and does not meet the definition of "well capitalized;" (iii)
"undercapitalized" if it has a total risk-based capital ratio that is less than
8.0%, a Tier I risk-based capital ratio that is less than 4.0% or a leverage
ratio that is less than 4.0% (3.0% under certain circumstances); (iv)
"significantly undercapitalized" if it has a total risk-based capital ratio that
is less than 6.0%, a Tier I risk-based capital ratio that is less than 3.0% or a
leverage ratio that is less than 3.0%; and (v) "critically undercapitalized" if
it has a ratio of tangible equity to total assets that is equal to or less than
2.0%.
A federal banking agency may, after notice and an opportunity for a hearing,
reclassify a well capitalized institution as adequately capitalized and may
require an adequately capitalized institution or an undercapitalized institution
to comply with supervisory actions as if it were in the next lower category if
the institution is in an unsafe or unsound condition or has received in its most
recent examination, and has not corrected, a less than satisfactory rating for
asset quality, management, earnings or liquidity. (The OTS may not, however,
reclassify a significantly undercapitalized institution as critically
undercapitalized.)
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An institution generally must file a written capital restoration plan that
meets specified requirements, as well as a performance guaranty by each company
that controls the institution, with the appropriate federal banking agency
within 45 days of the date that the institution receives notice or is deemed to
have notice that it is undercapitalized, significantly undercapitalized or
critically undercapitalized. Immediately upon becoming undercapitalized, an
institution shall become subject to various mandatory and discretionary
restrictions on its operations.
At April 30, 1996, the Savings Bank was categorized as "well capitalized"
under the prompt corrective action regulations of the OTS.
Standards for Safety and Soundness. The FDIA requires the federal banking
regulatory agencies to prescribe, by regulation, standards for all insured
depository institutions relating to: (i) internal controls, information systems
and internal audit systems; (ii) loan documentation; (iii) credit underwriting;
(iv) interest rate risk exposure; (v) asset growth; and (vi) compensation, fees
and benefits. The federal banking agencies adopted regulations and Interagency
Guidelines Prescribing Standards for Safety and Soundness ("Guidelines") to
implement safety and soundness standards required by the FDIA. The Guidelines
set forth the safety and soundness standards that the federal banking agencies
use to identify and address problems at insured depository institutions before
capital becomes impaired. The agencies also proposed asset quality and earnings
standards which, if adopted in final, would be added to the Guidelines. If the
OTS determines that the Savings Bank fails to meet any standard prescribed by
the Guidelines, the agency may require the Savings Bank to submit to the agency
an acceptable plan to achieve compliance with the standard, as required by the
FDIA. OTS regulations establish deadlines for the submission and review of such
safety and soundness compliance plans.
Qualified Thrift Lender Test. All savings associations are required to meet
a qualified thrift lender ("QTL") test to avoid certain restrictions on their
operations. A savings institution that fails to become or remain a QTL shall
either become a national bank or be subject to the following restrictions on its
operations: (i) the association may not make any new investment or engage in
activities that would not be permissible for national banks; (ii) the
association may not establish any new branch office where a national bank
located in the savings institution's home state would not be able to establish a
branch office; (iii) the association shall be ineligible to obtain new advances
from any FHLB; and (iv) the payment of dividends by the association shall be
subject to the rules regarding the statutory and regulatory dividend
restrictions applicable to national banks. Also, beginning three years after
the date on which the savings institution ceases to be a QTL, the savings
institution would be prohibited from retaining any investment or engaging in any
activity not permissible for a national bank and would be required to repay any
outstanding advances to any FHLB. In addition, within one year of the date on
which a savings association controlled by a company ceases to be a QTL, the
company must register as a bank holding company and become subject to the rules
applicable to such companies. A savings institution may requalify as a QTL if
it thereafter complies with the QTL test.
Currently, the QTL test requires that 65% of an institution's "portfolio
assets" (as defined) consist of certain housing and consumer-related assets on a
monthly average basis in nine out of every 12 months. Assets that qualify
without limit for inclusion as part of the 65% requirement are loans made to
purchase, refinance, construct, improve or repair domestic residential housing
and manufactured housing; home equity loans; mortgage-backed securities (where
the mortgages are secured by domestic residential housing or manufactured
housing); FHLB stock; and direct or indirect obligations of the FDIC. In
addition, the following assets, among others, may be included in meeting the
test subject to an overall limit of 20% of the savings institution's portfolio
assets: 50% of residential mortgage loans originated and sold within 90 days of
origination; 100% of consumer and educational loans (limited to 10% of total
portfolio assets); and stock issued by the FHLMC or Fannie Mae. Portfolio
assets consist of total assets minus the sum of (i) goodwill and other
intangible assets, (ii) property used by the savings institution to conduct its
business, and (iii) liquid assets up to 20% of the institution's total assets.
At April 30, 1996, the qualified thrift investments of the Savings Bank were
approximately 84.1% of its portfolio assets.
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Capital Requirements. Under OTS regulations a savings association must
satisfy three minimum capital requirements: core capital, tangible capital and
risk-based capital. Savings associations must meet all of the standards in
order to comply with the capital requirements. The Holding Company is not
subject to any minimum capital requirements.
OTS capital regulations establish a 3% core capital or leverage ratio
(defined as the ratio of core capital to adjusted total assets). Core capital
is defined to include common stockholders' equity, noncumulative perpetual
preferred stock and any related surplus, and minority interests in equity
accounts of consolidated subsidiaries, less (i) any intangible assets, except
for certain qualifying intangible assets; (ii) certain mortgage servicing
rights; and (iii) equity and debt investments in subsidiaries that are not
"includable subsidiaries," which is defined as subsidiaries engaged solely in
activities not impermissible for a national bank, engaged in activities
impermissible for a national bank but only as an agent for its customers, or
engaged solely in mortgage-banking activities. In calculating adjusted total
assets, adjustments are made to total assets to give effect to the exclusion of
certain assets from capital and to account appropriately for the investments in
and assets of both includable and nonincludable subsidiaries. Institutions that
fail to meet the core capital requirement would be required to file with the OTS
a capital plan that details the steps they will take to reach compliance. In
addition, the OTS's prompt corrective action regulation provides that a savings
institution that has a leverage ratio of less than 4% (3% for institutions
receiving the highest CAMEL examination rating) will be deemed to be
"undercapitalized" and may be subject to certain restrictions. See "--Federal
Regulation of Savings Associations -- Prompt Corrective Action."
As required by federal law, the OTS has proposed a rule revising its minimum
core capital requirement to be no less stringent than that imposed on national
banks. The OTS has proposed that only those savings associations rated a
composite one (the highest rating) under the CAMEL rating system for savings
associations will be permitted to operate at or near the regulatory minimum
leverage ratio of 3%. All other savings associations will be required to
maintain a minimum leverage ratio of 4% to 5%. The OTS will assess each
individual savings association through the supervisory process on a case-by-case
basis to determine the applicable requirement. No assurance can be given as to
the final form of any such regulation, the date of its effectiveness or the
requirement applicable to the Savings Bank.
Savings associations also must maintain "tangible capital" not less than
1.5% of the Savings Bank's adjusted total assets. "Tangible capital" is defined,
generally, as core capital minus any "intangible assets" other than purchased
mortgage servicing rights.
Each savings institution must maintain total risk-based capital equal to at
least 8% of risk-weighted assets. Total risk-based capital consists of the sum
of core and supplementary capital, provided that supplementary capital cannot
exceed core capital, as previously defined. Supplementary capital includes (i)
permanent capital instruments such as cumulative perpetual preferred stock,
perpetual subordinated debt and mandatory convertible subordinated debt, (ii)
maturing capital instruments such as subordinated debt, intermediate-term
preferred stock and mandatory convertible subordinated debt, subject to an
amortization schedule, and (iii) general valuation loan and lease loss
allowances up to 1.25% of risk-weighted assets.
The risk-based capital regulation assigns each balance sheet asset held by a
savings institution to one of four risk categories based on the amount of credit
risk associated with that particular class of assets. Assets not included for
purposes of calculating capital are not included in calculating risk-weighted
assets. The categories range from 0% for cash and securities that are backed by
the full faith and credit of the U.S. Government to 100% for repossessed assets
or assets more than 90 days past due. Qualifying residential mortgage loans
(including multi-family mortgage loans) are assigned a 50% risk weight.
Consumer, commercial, home equity and residential construction loans are
assigned a 100% risk weight, as are nonqualifying residential mortgage loans and
that portion of land loans and nonresidential construction loans that do not
exceed an 80% loan-to-value ratio. The book value of assets in each category is
multiplied by the weighing factor (from 0% to 100%) assigned to that category.
These products are then totalled to arrive at total risk-weighted assets. Off-
balance sheet items are included in risk-weighted assets by converting them to
an approximate balance sheet "credit equivalent amount" based on a
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conversion schedule. These credit equivalent amounts are then assigned to risk
categories in the same manner as balance sheet assets and included risk-weighted
assets.
The OTS has incorporated an interest rate risk component into its regulatory
capital rule. Under the rule, savings associations with "above normal" interest
rate risk exposure would be subject to a deduction from total capital for
purposes of calculating their risk-based capital requirements. A savings
association's interest rate risk is measured by the decline in the net portfolio
value of its assets (i.e., the difference between incoming and outgoing
----
discounted cash flows from assets, liabilities and off-balance sheet contracts)
that would result from a hypothetical 200 basis point increase or decrease in
market interest rates divided by the estimated economic value of the
association's assets, as calculated in accordance with guidelines set forth by
the OTS. A savings association whose measured interest rate risk exposure
exceeds 2% must deduct an interest rate risk component in calculating its total
capital under the risk-based capital rule. The interest rate risk component is
an amount equal to one-half of the difference between the institution's measured
interest rate risk and 2%, multiplied by the estimated economic value of the
association's assets. That dollar amount is deducted from an association's
total capital in calculating compliance with its risk-based capital requirement.
Under the rule, there is a two quarter lag between the reporting date of an
institution's financial data and the effective date for the new capital
requirement based on that data. A savings association with assets of less than
$300 million and risk-based capital ratios in excess of 12% is not subject to
the interest rate risk component, unless the OTS determines otherwise. The rule
also provides that the Director of the OTS may waive or defer an association's
interest rate risk component on a case-by-case basis. Under certain
circumstances, a savings association may request an adjustment to its interest
rate risk component if it believes that the OTS-calculated interest rate risk
component overstates its interest rate risk exposure. In addition, certain
"well-capitalized" institutions may obtain authorization to use their own
interest rate risk model to calculate their interest rate risk component in lieu
of the OTS-calculated amount. The OTS has postponed the date that the component
will first be deducted from an institution's total capital until savings
associations become familiar with the process for requesting an adjustment to
its interest rate risk component.
See "HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE" for a table that sets
forth in terms of dollars and percentages the OTS tangible, core and risk-based
capital requirements, the Savings Bank's historical amounts and percentages at
April 30, 1996 and pro forma amounts and percentages based upon the assumptions
stated therein.
Limitations on Capital Distributions. OTS regulations impose uniform
limitations on the ability of all savings associations to engage in various
distributions of capital such as dividends, stock repurchases and cash-out
mergers. In addition, OTS regulations require the Savings Bank to give the OTS
30 days' advance notice of any proposed declaration of dividends, and the OTS
has the authority under its supervisory powers to prohibit the payment of
dividends. The regulation utilizes a three-tiered approach which permits
various levels of distributions based primarily upon a savings association's
capital level.
A Tier 1 savings association has capital in excess of its fully phased-in
capital requirement (both before and after the proposed capital distribution).
Tier 1 savings association may make (without application but upon prior notice
to, and no objection made by, the OTS) capital distributions during a calendar
year up to 100% of its net income to date during the calendar year plus one-half
its surplus capital ratio (i.e., the amount of capital in excess of its fully
----
phased-in requirement) at the beginning of the calendar year or the amount
authorized for a Tier 2 association. Capital distributions in excess of such
amount require advance notice to the OTS. A Tier 2 savings association has
capital equal to or in excess of its minimum capital requirement but below its
fully phased-in capital requirement (both before and after the proposed capital
distribution). Such an association may make (without application) capital
distributions up to an amount equal to 75% of its net income during the previous
four quarters depending on how close the association is to meeting its fully
phased-in capital requirement. Capital distributions exceeding this amount
require prior OTS approval. Tier 3 associations are savings associations with
capital below the minimum capital requirement (either before or after the
proposed capital distribution). Tier 3 associations may not make any capital
distributions without prior approval from the OTS.
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The Savings Bank is currently meeting the criteria to be designated a Tier 1
association and, consequently, could at its option (after prior notice to, and
no objection made by, the OTS) distribute up to 100% of its net income during
the calendar year plus 50% of its surplus capital ratio at the beginning of the
calendar year less any distributions previously paid during the year.
Loans to One Borrower. Under the HOLA, savings institutions are generally
subject to the national bank limit on loans to one borrower. Generally, this
limit is 15% of the Savings Bank's unimpaired capital and surplus, plus an
additional 10% of unimpaired capital and surplus, if such loan is secured by
readily-marketable collateral, which is defined to include certain financial
instruments and bullion. The OTS by regulation has amended the loans to one
borrower rule to permit savings associations meeting certain requirements,
including capital requirements, to extend loans to one borrower in additional
amounts under circumstances limited essentially to loans to develop or complete
residential housing units. At April 30, 1996, the Savings Bank's limit on loans
to one borrower was $1.4 million. At April 30, 1996, the Savings Bank's largest
aggregate amount of loans to one borrower was $977,000.
Activities of Associations and Their Subsidiaries. When a savings
association establishes or acquires a subsidiary or elects to conduct any new
activity through a subsidiary that the association controls, the savings
association must notify the FDIC and the OTS 30 days in advance and provide the
information each agency may, by regulation, require. Savings associations also
must conduct the activities of subsidiaries in accordance with existing
regulations and orders.
The OTS may determine that the continuation by a savings association of its
ownership control of, or its relationship to, the subsidiary constitutes a
serious risk to the safety, soundness or stability of the association or is
inconsistent with sound banking practices or with the purposes of the FDIA.
Based upon that determination, the FDIC or the OTS has the authority to order
the savings association to divest itself of control of the subsidiary. The FDIC
also may determine by regulation or order that any specific activity poses a
serious threat to the SAIF. If so, it may require that no SAIF member engage in
that activity directly.
Transactions with Affiliates. Savings associations must comply with
Sections 23A and 23B of the Federal Reserve Act ("Sections 23A and 23B")
relative to transactions with affiliates in the same manner and to the same
extent as if the savings association were a Federal Reserve member bank. A
savings and loan holding company, its subsidiaries and any other company under
common control are considered affiliates of the subsidiary savings association
under the HOLA. Generally, Sections 23A and 23B: (i) limit the extent to which
the insured association or its subsidiaries may engage in certain covered
transactions with an affiliate to an amount equal to 10% of such institution's
capital and surplus and place an aggregate limit on all such transactions with
affiliates to an amount equal to 20% of such capital and surplus, and (ii)
require that all such transactions be on terms substantially the same, or at
least as favorable to the institution or subsidiary, as those provided to a non-
affiliate. The term "covered transaction" includes the making of loans, the
purchase of assets, the issuance of a guarantee and similar types of
transactions.
Three additional rules apply to savings associations: (i) a savings
association may not make any loan or other extension of credit to an affiliate
unless that affiliate is engaged only in activities permissible for bank holding
companies; (ii) a savings association may not purchase or invest in securities
issued by an affiliate (other than securities of a subsidiary); and (iii) the
OTS may, for reasons of safety and soundness, impose more stringent restrictions
on savings associations but may not exempt transactions from or otherwise
abridge Section 23A or 23B. Exemptions from Section 23A or 23B may be granted
only by the Federal Reserve Board, as is currently the case with respect to all
FDIC-insured banks. The Savings Bank has not been significantly affected by the
rules regarding transactions with affiliates.
The Savings Bank's authority to extend credit to executive officers,
directors and 10% shareholders, as well as entities controlled by such persons,
is currently governed by Sections 22(g) and 22(h) of the Federal Reserve Act,
and Regulation O thereunder. Among other things, these regulations require that
such loans be made on terms and conditions substantially the same as those
offered to unaffiliated individuals and not involve more than the normal
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risk of repayment. Regulation O also places individual and aggregate limits on
the amount of loans the Savings Bank may make to such persons based, in part, on
the Savings Bank's capital position, and requires certain board approval
procedures to be followed. The OTS regulations, with certain minor variances,
apply Regulation O to savings institutions.
Savings and Loan Holding Company Regulations
Holding Company Acquisitions. The HOLA and OTS regulations issued
thereunder generally prohibit a savings and loan holding company, without prior
OTS approval, from acquiring more than 5% of the voting stock of any other
savings association or savings and loan holding company or controlling the
assets thereof. They also prohibit, among other things, any director or officer
of a savings and loan holding company, or any individual who owns or controls
more than 25% of the voting shares of such holding company, from acquiring
control of any savings association not a subsidiary of such savings and loan
holding company, unless the acquisition is approved by the OTS.
Holding Company Activities. As a unitary savings and loan holding company,
the Holding Company generally is not subject to activity restrictions. If the
Holding Company acquires control of another savings association as a separate
subsidiary other than in a supervisory acquisition, it would become a multiple
savings and loan holding company. There generally are more restrictions on the
activities of a multiple savings and loan holding company than on those of a
unitary savings and loan holding company. The HOLA provides that, among other
things, no multiple savings and loan holding company or subsidiary thereof which
is not an insured association shall commence or continue for more than two years
after becoming a multiple savings and loan association holding company or
subsidiary thereof, any business activity other than: (i) furnishing or
performing management services for a subsidiary insured institution, (ii)
conducting an insurance agency or escrow business, (iii) holding, managing, or
liquidating assets owned by or acquired from a subsidiary insured institution,
(iv) holding or managing properties used or occupied by a subsidiary insured
institution, (v) acting as trustee under deeds of trust, (vi) those activities
previously directly authorized by regulation as of March 5, 1987 to be engaged
in by multiple holding companies or (vii) those activities authorized by the
Federal Reserve Board as permissible for bank holding companies, unless the OTS
by regulation, prohibits or limits such activities for savings and loan holding
companies. Those activities described in (vii) above also must be approved by
the OTS prior to being engaged in by a multiple holding company.
Qualified Thrift Lender Test. The HOLA requires any savings and loan
holding company that controls a savings association that fails the QTL test, as
explained under "-- Federal Regulation of Savings Associations --Qualified
Thrift Lender Test," must, within one year after the date on which the
association ceases to be a QTL, register as and be deemed a bank holding company
subject to all applicable laws and regulations.
TAXATION
Federal Taxation
General. The Holding Company and the Savings Bank will report their income
on a fiscal year basis using the accrual method of accounting and will be
subject to federal income taxation in the same manner as other corporations with
some exceptions, including particularly the Savings Bank's reserve for bad debts
discussed below. The following discussion of tax matters is intended only as a
summary and does not purport to be a comprehensive description of the tax rules
applicable to the Savings Bank or the Holding Company.
Tax Bad Debt Reserves. Savings institutions such as the Savings Bank which
meet certain definitional tests primarily relating to their assets and the
nature of their business ("qualifying thrifts") are permitted to establish a
reserve for bad debts and to make annual additions thereto, which additions may,
within specified formula limits, be deducted in arriving at their taxable
income. The Savings Bank's deduction with respect to "qualifying loans," which
are generally loans secured by certain interests in real property, may be
computed using an amount based on
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the Savings Bank's actual loss experience, or a percentage equal to 8% of the
Savings Bank's taxable income, computed with certain modifications and reduced
by the amount of any permitted additions to the nonqualifying reserve. The
Savings Bank's deduction with respect to nonqualifying loans must be computed
under the experience method which essentially allows a deduction based on the
Savings Bank's actual loss experience over a period of several years. Each year
the Savings Bank selects the most favorable way to calculate the deduction
attributable to an addition to the tax bad debt reserve. The Savings Bank used
the percentage method bad debt deduction for the years ended April 30, 1996,
1995 and 1994.
The Savings Bank currently satisfies the qualifying thrift definitional
tests. If the Savings Bank failed to satisfy such tests in any taxable year, it
would be unable to make additions to its bad debt reserve. Instead, the Savings
Bank would be required to deduct bad debts as they occur and would additionally
be required to recapture its bad debt reserve deductions ratably over a multi-
year period. Among other things, the qualifying thrift definitional tests
require the Savings Bank to hold at least 60% of its assets as "qualifying
assets." Qualifying assets generally include cash, obligations of the United
States or any agency or instrumentality thereof, certain obligations of a state
or political subdivision thereof, loans secured by interests in improved
residential real property or by savings accounts, student loans and property
used by the Savings Bank in the conduct of its banking business. The Savings
Bank's ratio of qualifying assets to total assets exceeded 60% through April 30,
1996. Although there can be no assurance that the Savings Bank will continue to
satisfy the 60% test, management believes that this level of qualifying assets
can be maintained by the Savings Bank.
The amount of the addition to the reserve for losses on qualifying real
property loans under the percentage-of-taxable-income method cannot exceed the
amount necessary to increase the balance of the reserve for losses on qualifying
real property loans at the close of the taxable year to 6% of the balance of the
qualifying real property loans outstanding. Also, if the qualifying thrift uses
the percentage of taxable income method, then the qualifying thrift's aggregate
addition to its reserve for losses on qualifying real property loans cannot,
when added to the addition to the reserve for losses on nonqualifying loans,
exceed the amount by which: (i) 12% of the amount that the total deposits or
withdrawable accounts of depositors of the qualifying thrift at the close of the
taxable year exceeds (ii) the sum of the qualifying thrift's surplus, undivided
profits and reserves at the beginning of such year. For the taxable year of the
Savings Bank ended December 31, 1995, the foregoing limitation resulted in a
reduction in Savings Bank's otherwise allowable addition to the bad debt reserve
for tax purposes. At April 30, 1996, the Savings Bank's total bad debt reserve
for tax purposes was approximately $1.9 million.
Proposed legislation would eliminate future bad debt deductions and would
require thrifts to recapture into income over a six-year period their post-1987
additions to their bad debt tax reserves, thereby generating additional tax
liability. Under this proposal, the bad debt recapture would be suspended for
up to two years if, during those years, the institution satisfies a residential
loan requirement. At April 30, 1996, the Savings Bank's post-1987 reserves
totalled approximately $174,000. It is uncertain when or if the proposed
legislation will be passed, and, if passed, in what form the legislation would
be passed.
Distributions. To the extent that the Savings Bank makes "nondividend
distributions" to the Holding Company that are considered as made: (i) from the
reserve for losses on qualifying real property loans, to the extent the reserve
for such losses exceeds the amount that would have been allowed under the
experience method; or (ii) from the supplemental reserve for losses on loans
("Excess Distributions"), then an amount based on the amount distributed will be
included in the Savings Bank's taxable income. Nondividend distributions
include distributions in excess of the Savings Bank's current and accumulated
earnings and profits, distributions in redemption of stock, and distributions in
partial or complete liquidation. However, dividends paid out of the Savings
Bank's current or accumulated earnings and profits, as calculated for federal
income tax purposes, will not be considered to result in a distribution from the
Savings Bank's bad debt reserve. Thus, any dividends to the Holding Company
that would reduce amounts appropriated to the Savings Bank's bad debt reserve
and deducted for federal income tax purposes would create a tax liability for
the Savings Bank. The amount of additional taxable income attributable to an
Excess Distribution is an amount that, when reduced by the tax attributable to
the income, is equal to the amount of the distribution. Thus, if, after the
Conversion, the Savings Bank makes a "nondividend distribution," then
approximately
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one and one-half times the amount so used would be includable in gross income
for federal income tax purposes, assuming a 35% corporate income tax rate
(exclusive of state and local taxes). See "REGULATION" and "DIVIDEND POLICY"
for limits on the payment of dividends by the Savings Bank. The Savings Bank
does not intend to pay dividends that would result in a recapture of any portion
of its tax bad debt reserve.
Corporate Alternative Minimum Tax. The Code imposes a tax on alternative
minimum taxable income ("AMTI") at a rate of 20%. The excess of the tax bad
debt reserve deduction using the percentage of taxable income method over the
deduction that would have been allowable under the experience method is treated
as a preference item for purposes of computing the AMTI. In addition, only 90%
of AMTI can be offset by net operating loss carryovers. AMTI is increased by an
amount equal to 75% of the amount by which the Savings Bank's adjusted current
earnings exceeds its AMTI (determined without regard to this preference and
prior to reduction for net operating losses). For taxable years beginning after
December 31, 1986, and before January 1, 1996, an environmental tax of .12% of
the excess of AMTI (with certain modification) over $2.0 million is imposed on
corporations, including the Savings Bank, whether or not an Alternative Minimum
Tax ("AMT") is paid.
Dividends-Received Deduction and Other Matters. The Holding Company may
exclude from its income 100% of dividends received from the Savings Bank as a
member of the same affiliated group of corporations. The corporate dividends-
received deduction is generally 70% in the case of dividends received from
unaffiliated corporations with which the Holding Company and the Savings Bank
will not file a consolidated tax return, except that if the Holding Company or
the Savings Bank owns more than 20% of the stock of a corporation distributing a
dividend, then 80% of any dividends received may be deducted.
There have not been any IRS audits of the Savings Bank's federal income tax
returns during the past five years.
State Taxation
Missouri. Missouri-based thrift institutions, such as the Savings Bank, are
subject to a special financial institutions tax, based on net income without
regard to net operating loss carryforwards, at the rate of 7% of net income.
This tax is in lieu of certain other state taxes on thrift institutions, on
their property, capital or income, except taxes on tangible personal property
owned by the Savings Bank and held for lease or rental to others and on real
estate, contributions paid pursuant to the Unemployment Compensation Law of
Missouri, social security taxes, sales taxes and use taxes. In addition, the
Savings Bank is entitled to credit against this tax all taxes paid to the State
of Missouri or any political subdivision, except taxes on tangible personal
property owned by the Savings Bank and held for lease or rental to others and on
real estate, contributions paid pursuant to the Unemployment Compensation Law of
Missouri, social security taxes, sales and use taxes, and taxes imposed by the
Missouri Financial Institutions Tax Law. Missouri thrift institutions are not
subject to the regular corporate income tax.
Delaware. As a Delaware holding company not earning income in Delaware, the
Holding Company is exempted from Delaware corporate income tax, but is required
to file an annual report with and pay an annual franchise tax to the State of
Delaware.
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THE CONVERSION
The OTS has given approval to the Plan subject to the Plan's approval by
the members of the Savings Bank entitled to vote on the matter and subject to
the satisfaction of certain other conditions imposed by the OTS in its approval.
OTS approval, however, does not constitute a recommendation or endorsement of
the Plan.
General
On January 9, 1996, the Board of Directors of the Savings Bank unanimously
adopted the Plan of Conversion, pursuant to which the Savings Bank will be
converted from a federally chartered mutual savings bank to a federally
chartered stock savings bank to be held as a wholly-owned subsidiary of the
Holding Company, a newly formed Delaware corporation. The following discussion
of the Plan of Conversion is qualified in its entirety by reference to the Plan
of Conversion, which is attached as Exhibit A to the Savings Bank's Proxy
Statement and is available from the Savings Bank upon request. The OTS has
approved the Plan of Conversion subject to the Plan's approval by the members of
the Savings Bank entitled to vote on the matter at a Special Meeting called for
that purpose to be held on ________, 1996, and subject to the satisfaction of
certain other conditions imposed by the OTS in its approval.
The Conversion will be accomplished through adoption of a Federal Stock
Charter and Bylaws to authorize the issuance of capital stock by the Savings
Bank. Under the Plan, 1,105,000 to 1,495,000 shares of Common Stock are being
offered for sale by the Holding Company at the Purchase Price of $10.00 per
share. As part of the Conversion, the Savings Bank will issue all of its newly
issued common stock (1,000 shares) to the Holding Company in exchange for 50% of
the net proceeds from the sale of Common Stock by the Holding Company.
The Plan of Conversion provides generally that: (i) the Savings Bank will
convert from a federally chartered mutual savings bank to a federally chartered
stock savings bank; (ii) the Common Stock will be offered by the Holding Company
in the Subscription Offering to persons having Subscription Rights, subject to
certain limitations; (iii) if necessary, shares of Common Stock not subscribed
for in the Subscription Offering will be offered in a Direct Community Offering
to certain members of the general public, with preference given to natural
persons and trusts of natural persons residing in the Local Community, and then
to certain members of the general public in a Syndicated Community Offering
through a syndicate of registered broker-dealers pursuant to selected dealers
agreements; and (iv) the Holding Company will purchase all of the capital stock
of the Savings Bank to be issued in connection with the Conversion. The
Conversion will be effected only upon completion of the sale of at least
$11,050,000 of Common Stock to be issued pursuant to the Plan of Conversion.
As part of the Conversion, the Holding Company is making a Subscription
Offering of its Common Stock to holders of Subscription Rights in the following
order of priority: (i) Eligible Account Holders (depositors with $50.00 or more
on deposit as of December 31, 1994); (ii) the Savings Bank's ESOP; (iii)
Supplemental Eligible Account Holders (depositors with $50.00 or more on deposit
as of June 30, 1996); and (iv) Other Members (depositors of the Savings Bank as
of _____, 1996 and borrowers of the Savings Bank with loans outstanding as of
April 15, 1995 which continue to be outstanding as of April 24, 1996).
Shares of Common Stock not subscribed for in the Subscription Offering may
be offered for sale in the Direct Community Offering to members of the general
public, with priority being given to natural persons and trusts of natural
persons residing in the Local Community. The Direct Community Offering, if one
is held, is expected to begin immediately after the Expiration Date, but may
begin at anytime during the Subscription Offering. Shares of Common Stock not
sold in the Subscription and Direct Community Offerings may be offered in the
Syndicated Community Offering. Regulations require that the Direct Community
and Syndicated Community Offerings be completed within 45 days after completion
of the Subscription Offering unless extended by the Savings Bank or the Holding
Company with the approval of the regulatory authorities. If the Syndicated
Community Offering is determined not to be feasible, the Board of Directors of
the Savings Bank will consult with the regulatory authorities
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to determine an appropriate alternative method for selling the unsubscribed
shares of Common Stock. The Plan of Conversion provides that the Conversion
must be completed within 24 months after the date of the approval of the Plan of
Conversion by the members of the Savings Bank.
No sales of Common Stock may be completed, either in the Subscription,
Direct Community or Syndicated Community Offerings, unless the Plan of
Conversion is approved by the members of the Savings Bank.
The completion of the Offerings, however, is subject to market conditions
and other factors beyond the Savings Bank's control. No assurance can be given
as to the length of time after approval of the Plan of Conversion at the Special
Meeting that will be required to complete the Direct Community or Syndicated
Community Offerings or other sale of the Common Stock. If delays are
experienced, significant changes may occur in the estimated pro forma market
value of the Holding Company and the Savings Bank as converted, together with
corresponding changes in the net proceeds realized by the Holding Company from
the sale of the Common Stock. In the event the Conversion is terminated, the
Savings Bank would be required to charge all Conversion expenses against current
income.
Orders for shares of Common Stock will not be filled until at least
1,105,000 shares of Common Stock have been subscribed for or sold and the OTS
approves the final valuation and the Conversion closes. If the Conversion is
not completed within 45 days after the last day of the fully extended
Subscription Offering and the OTS consents to an extension of time to complete
the Conversion, subscribers will be given the right to increase, decrease or
rescind their subscriptions. Unless an affirmative indication is received from
subscribers that they wish to continue to subscribe for shares, the funds will
be returned promptly, together with accrued interest at the Savings Bank's
passbook rate from the date payment is received until the funds are returned to
the subscriber. If such period is not extended, or, in any event, if the
Conversion is not completed, all withdrawal authorizations will be terminated
and all funds held will be promptly returned together with accrued interest at
the Savings Bank's passbook rate from the date payment is received until the
Conversion is terminated.
Purposes of Conversion
The Savings Bank's Board of Directors has formed the Holding Company to
serve upon consummation of the Conversion as a holding company with the Savings
Bank as its subsidiary. The Savings Bank, as a mutual savings association, does
not have stockholders and has no authority to issue capital stock. By
converting to the stock form of organization, the Holding Company and the
Savings Bank will be structured in the form used by holding companies of
commercial banks and by a large number of savings institutions. Management of
the Savings Bank believes that the Conversion offers a number of advantages
which will be important to the future growth and performance of the Savings Bank
in that it is intended: (i) to improve the overall competitive position of the
Savings Bank in its market area and to support possible future expansion and
diversification of operations (currently there are no specific plans,
arrangements or understandings, written or oral, regarding any such activities);
(ii) to afford members of the Savings Bank and others the opportunity to become
stockholders of the Holding Company and thereby participate more directly in,
and contribute to, any future growth of the Holding Company and the Savings
Bank; and (iii) to provide future access to capital markets.
Effects of Conversion to Stock Form on Depositors and Borrowers of the Savings
Bank
Voting Rights. Savings members and borrowers will have no voting rights in
the converted Savings Bank or the Holding Company and therefore will not be able
to elect directors of the Savings Bank or the Holding Company or to control
their affairs. Currently, these rights are accorded to savings members of the
Savings Bank. Subsequent to the Conversion, voting rights will be vested
exclusively in the Holding Company with respect to the Savings Bank and the
holders of the Common Stock as to matters pertaining to the Holding Company.
Each holder of Common Stock shall be entitled to vote on any matter to be
considered by the stockholders of the Holding Company. A stockholder will be
entitled to one vote for each share of Common Stock owned.
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Savings Accounts and Loans. The Savings Bank's savings accounts, account
balances and existing FDIC insurance coverage of savings accounts will not be
affected by the Conversion. Furthermore, the Conversion will not affect the
loan accounts, loan balances or obligations of borrowers under their individual
contractual arrangements with the Savings Bank.
Tax Effects. The Savings Bank has received an opinion from Breyer &
Aguggia, Washington, D.C., that the Conversion will constitute a nontaxable
reorganization under Section 368(a)(1)(F) of the Code. Among other things, the
opinion states that: (i) no gain or loss will be recognized to the Savings Bank
in its mutual or stock form by reason of its Conversion; (ii) no gain or loss
will be recognized to its account holders upon the issuance to them of accounts
in the Savings Bank immediately after the Conversion, in the same dollar amounts
and on the same terms and conditions as their accounts at the Savings Bank in
its mutual form plus interest in the liquidation account; (iii) the tax basis of
account holders' accounts in the Savings Bank immediately after the Conversion
will be the same as the tax basis of their accounts immediately prior to
Conversion; (iv) the tax basis of each account holder's interest in the
liquidation account will be zero; (v) the tax basis of the Common Stock
purchased in the Conversion will be the amount paid and the holding period for
such stock will commence at the date of purchase; and (vi) no gain or loss will
be recognized to account holders upon the receipt or exercise of Subscription
Rights in the Conversion, except to the extent Subscription Rights are deemed to
have value as discussed below. Unlike a private letter ruling issued by the
IRS, an opinion of counsel is not binding on the IRS and the IRS could disagree
with the conclusions reached therein. In the event of such disagreement, no
assurance can be given that the conclusions reached in an opinion of counsel
would be sustained by a court if contested by the IRS.
Based upon past rulings issued by the IRS, the opinion provides that the
receipt of Subscription Rights by Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members under the Plan will be taxable to the
extent, if any, that the Subscription Rights are deemed to have a fair market
value. RP Financial, a financial consulting firm retained by the Savings Bank,
whose findings are not binding on the IRS, has indicated that the Subscription
Rights do not have any value, based on the fact that such rights are acquired by
the recipients without cost, are nontransferable and of short duration and
afford the recipients the right only to purchase shares of the Common Stock at a
price equal to its estimated fair market value, which will be the same price
paid by purchasers in the Direct Community Offering for unsubscribed shares of
Common Stock. If the Subscription Rights are deemed to have a fair market
value, the receipt of such rights may only be taxable to those Eligible Account
Holders, Supplemental Eligible Account Holders and Other Members who exercise
their Subscription Rights. The Savings Bank could also recognize a gain on the
distribution of such Subscription Rights. Eligible Account Holders,
Supplemental Eligible Account Holders and Other Members are encouraged to
consult with their own tax advisors as to the tax consequences in the event the
Subscription Rights are deemed to have a fair market value.
The Savings Bank has also received an opinion from Moore, Horton & Carlson,
P.C., Mexico, Missouri, that, assuming the Conversion does not result in any
federal income tax liability to the Savings Bank, its account holders, or the
Holding Company, implementation of the Plan of Conversion will not result in any
Missouri income tax liability to such entities or persons.
The opinions of Breyer & Aguggia and Moore, Horton & Carlson, P.C. and the
letter from RP Financial are filed as exhibits to the Registration Statement.
See "ADDITIONAL INFORMATION."
PROSPECTIVE INVESTORS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS
REGARDING THE TAX CONSEQUENCES OF THE CONVERSION PARTICULAR TO THEM.
Liquidation Account. In the unlikely event of a complete liquidation of
the Savings Bank in its present mutual form, each depositor in the Savings Bank
would receive a pro rata share of any assets of the Savings Bank remaining after
payment of claims of all creditors (including the claims of all depositors up to
the withdrawal value of their accounts). Each depositor's pro rata share of
such remaining assets would be in the same proportion as the value of his
deposit account to the total value of all deposit accounts in the Savings Bank
at the time of liquidation.
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After the Conversion, holders of withdrawable deposit(s) in the Savings
Bank, including certificates of deposit ("Savings Account(s)"), shall not be
entitled to share in any residual assets in the event of liquidation of the
Savings Bank. However, pursuant to OTS regulations, the Savings Bank shall, at
the time of the Conversion, establish a liquidation account in an amount equal
to its total equity as of the date of the latest statement of financial
condition contained herein.
The liquidation account shall be maintained by the Savings Bank subsequent
to the Conversion for the benefit of Eligible Account Holders and Supplemental
Eligible Account Holders who retain their Savings Accounts in the Savings Bank.
Each Eligible Account Holder and Supplemental Eligible Account Holder shall,
with respect to each Savings Account held, have a related inchoate interest in a
portion of the liquidation account balance ("subaccount").
The initial subaccount balance for a Savings Account held by an Eligible
Account Holder or a Supplemental Eligible Account Holder shall be determined by
multiplying the opening balance in the liquidation account by a fraction of
which the numerator is the amount of such holder's "qualifying deposit" in the
Savings Account and the denominator is the total amount of the "qualifying
deposits" of all such holders. Such initial subaccount balance shall not be
increased, and it shall be subject to downward adjustment as provided below.
If the deposit balance in any Savings Account of an Eligible Account Holder
or Supplemental Eligible Account Holder at the close of business on any annual
closing day of the Savings Bank subsequent to December 31, 1994 is less than the
lesser of (i) the deposit balance in such Savings Account at the close of
business on any other annual closing date subsequent to December 31, 1994 or
June 30, 1996 or (ii) the amount of the "qualifying deposit" in such Savings
Account on December 31, 1994 or June 30, 1996, then the subaccount balance for
such Savings Account shall be adjusted by reducing such subaccount balance in an
amount proportionate to the reduction in such deposit balance. In the event of
a downward adjustment, such subaccount balance shall not be subsequently
increased, notwithstanding any increase in the deposit balance of the related
Savings Account. If any such Savings Account is closed, the related subaccount
balance shall be reduced to zero.
In the event of a complete liquidation of the Savings Bank (and only in
such event) each Eligible Account Holder and Supplemental Eligible Account
Holder shall be entitled to receive a liquidation distribution from the
liquidation account in the amount of the then current adjusted subaccount
balance(s) for Savings Account(s) then held by such holder before any
liquidation distribution may be made to stockholders. No merger, consolidation,
bulk purchase of assets with assumptions of Savings Accounts and other
liabilities or similar transactions with another federally insured institution
in which the Savings Bank is not the surviving institution shall be considered
to be a complete liquidation. In any such transaction the liquidation account
shall be assumed by the surviving institution.
The Subscription, Direct Community and Syndicated Community Offerings
The Subscription Offering is expected to expire at 4:30 p.m., Central Time,
on the Expiration Date, unless extended or continued as described on the cover
page of this Prospectus.
Subscription Offering. In accordance with the Plan, nontransferable
Subscription Rights to purchase the Common Stock have been issued to all persons
and entities entitled to purchase the Common Stock in the Subscription Offering.
The amount of the Common Stock which these parties may purchase will be subject
to the availability of the Common Stock for purchase under the categories set
forth in the Plan. Subscription priorities have been established for the
allocation of stock to the extent that the Common Stock is available. These
priorities are as follows:
Category 1: Eligible Account Holders. Each depositor with $50.00 or more
on deposit at the Savings Bank as of December 31, 1994 will receive
nontransferable Subscription Rights to subscribe for up to the greater of
$150,000 of Common Stock, one-tenth of one percent of the total offering of
Common Stock or 15 times the product (rounded down to the next whole number)
obtained by multiplying the total number of shares of Common Stock to
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be issued by a fraction of which the numerator is the amount of qualifying
deposit of the Eligible Account Holder and the denominator is the total amount
of qualifying deposits of all Eligible Account Holders. If the exercise of
Subscription Rights in this category results in an oversubscription, shares of
Common Stock will be allocated among subscribing Eligible Account Holders so as
to permit each Eligible Account Holder, to the extent possible, to purchase a
number of shares sufficient to make such person's total allocation equal 100
shares or the number of shares actually subscribed for, whichever is less.
Thereafter, unallocated shares will be allocated among subscribing Eligible
Account Holders proportionately, based on the amount of their respective
qualifying deposits as compared to total qualifying deposits of all Eligible
Account Holders. Subscription Rights received by officers and directors in this
category based on their increased deposits in the Savings Bank in the one year
period preceding December 31, 1994 are subordinated to the Subscription Rights
of other Eligible Account Holders.
Category 2: ESOP. The Plan of Conversion provides that the ESOP shall
receive nontransferable Subscription Rights to purchase up to 8% of the shares
of Common Stock issued in the Conversion. The ESOP intends to purchase 8% of
the shares of Common Stock issued in the Conversion. In the event the number of
shares offered in the Conversion is increased above the maximum of the Estimated
Valuation Range, the ESOP shall have a priority right to purchase any such
shares exceeding the maximum of the Estimated Valuation Range up to an aggregate
of 8% of the Common Stock.
Category 3: Supplemental Eligible Account Holders. Each depositor with
$50.00 or more on deposit as of June 30, 1996 will receive nontransferable
Subscription Rights to subscribe for up to the greater of $150,000 of Common
Stock, one-tenth of one percent of the total offering of Common Stock or 15
times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Common Stock to be issued by a
fraction of which the numerator is the amount of qualifying deposits of the
Supplemental Eligible Account Holder and the denominator is the total amount of
qualifying deposits of all Supplemental Eligible Account Holders. If the
exercise of Subscription Rights in this category results in an oversubscription,
shares of Common Stock will be allocated among subscribing Supplemental Eligible
Account Holders so as to permit each Supplemental Eligible Account Holder, to
the extent possible, to purchase a number of shares sufficient to make such
person's total allocation equal 100 shares or the number of shares actually
subscribed for, whichever is less. Thereafter, unallocated shares will be
allocated among subscribing Supplemental Eligible Account Holders
proportionately, based on the amount of their respective qualifying deposits as
compared to total qualifying deposits of all Supplemental Eligible Account
Holders.
Category 4: Other Members. Each depositor of the Savings Bank as of the
Voting Record Date and each borrower with a loan outstanding on April 15, 1995
which continues to be outstanding as of the Voting Record Date will receive
nontransferable Subscription Rights to purchase up to $150,000 of Common Stock
in the Conversion to the extent shares are available following subscriptions by
Eligible Account Holders, the Savings Bank's ESOP and Supplemental Eligible
Account Holders. In the event of an oversubscription in this category, the
available shares will be allocated proportionately based on the amount of the
respective subscriptions.
Subscription Rights are nontransferable. Persons selling or otherwise
transferring their rights to subscribe for Common Stock in the Subscription
Offering or subscribing for Common Stock on behalf of another person will be
subject to forfeiture of such rights and possible further sanctions and
penalties imposed by the OTS or another agency of the U.S. Government. Each
person exercising Subscription Rights will be required to certify that he or she
is purchasing such shares solely for his or her own account and that he or she
has no agreement or understanding with any other person for the sale or transfer
of such shares. ONCE TENDERED, SUBSCRIPTION ORDERS CANNOT BE REVOKED OR
MODIFIED WITHOUT THE CONSENT OF THE SAVINGS BANK AND THE HOLDING COMPANY.
The Subscription Offering and all Subscription Rights under the Plan will
expire at 4:30 p.m., Central Time, on the Expiration Date, whether or not the
Savings Bank has been able to locate each person entitled to such Subscription
Rights. The Subscription Offering may be extended by the Holding Company and
the Savings Bank up to _______, 1996 without the OTS's approval. OTS
regulations require that the Holding Company complete the
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sale of Common Stock within 45 days after the close of the Subscription
Offering. If the sale of Common Stock is not completed within such period, all
funds received will be promptly returned with interest at the Savings Bank's
passbook rate and all withdrawal authorizations will be canceled. If regulatory
approval of an extension of the time period has been granted, all subscribers
will be notified of such extension and of the duration of any extension that has
been granted, and will be given the right to increase, decrease or rescind their
orders. If an affirmative response to any resolicitation is not received by the
Holding Company from a subscriber, the subscriber's order will be rescinded and
all funds received will be promptly returned with interest (or withdrawal
authorizations will be canceled). No single extension can exceed 90 days.
Direct Community Offering. Any shares of Common Stock which remain
unsubscribed for in the Subscription Offering may be offered by the Holding
Company to certain members of the general public in a Direct Community Offering,
with preference given to natural persons and trusts of natural persons residing
in the Local Community. Purchasers in the Direct Community Offering are
eligible to purchase up to $150,000 of Common Stock in the Conversion (or 15,000
shares based on the Purchase Price). No person or entity, together with
associates of and persons acting in concert with such person or entity, may
purchase in the aggregate shares with an aggregate purchase price of more than
$200,000 (or 20,000 shares based on the Purchase Price). In the event an
insufficient number of shares are available to fill orders in the Direct
Community Offering, the available shares will be allocated on a pro rata basis
determined by the amount of the respective orders. The Direct Community
Offering, if held, is expected to commence immediately subsequent to the
Expiration Date, but may begin at anytime during the Subscription Offering. The
Direct Community Offering may terminate on or at any time subsequent to the
Expiration Date, but no later than 45 days after the close of the Subscription
Offering, unless extended by the Holding Company and the Savings Bank with
approval of the OTS. Any extensions beyond 45 days after the close of the
Subscription Offering would require a resolicitation of orders, wherein
subscribers would be given the opportunity to continue their orders, in which
case they will need to affirmatively reconfirm their subscriptions prior to the
expiration of the resolicitation offering or their subscription funds will be
promptly refunded with interest at the Savings Bank's passbook rate, or be
permitted to modify or cancel their orders. The right of any person to purchase
shares in the Direct Community Offering is subject to the absolute right of the
Holding Company and the Savings Bank to accept or reject such purchases in whole
or in part. If an order is rejected in part, the purchaser does not have the
right to cancel the remainder of the order. The Holding Company presently
intends to terminate the Direct Community Offering as soon as it has received
orders for all shares available for purchase in the Conversion.
If all of the Common Stock offered in the Subscription Offering is
subscribed for, no Common Stock will be available for purchase in the Direct
Community Offering.
Syndicated Community Offering. The Plan provides that, if necessary, all
shares of Common Stock not purchased in the Subscription and Direct Community
Offering, if any, may be offered for sale to certain members of the general
public in a Syndicated Community Offering through a syndicate of registered
broker-dealers to be managed by Trident Securities acting as agent of the
Holding Company. The Holding Company and the Savings Bank have the right to
reject orders, in whole or part, in their sole discretion in the Syndicated
Community Offering. Neither Trident Securities nor any registered broker-dealer
shall have any obligation to take or purchase any shares of the Common Stock in
the Syndicated Community Offering; however, Trident Securities has agreed to use
its best efforts in the sale of shares in the Syndicated Community Offering.
Stock sold in the Syndicated Community Offering will be sold at the $10.00
Purchase Price, the same price as all other shares in the Offering. See "--
Stock Pricing and Number of Shares to be Issued." No person will be permitted
to subscribe in the Syndicated Community Offering for shares of Common Stock
with an aggregate purchase price of more than $150,000. See "-- Plan of
Distribution for the Subscription, Community and Syndicated Community Offerings"
for a description of the commission to be paid to the selected dealers and to
Trident Securities.
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Trident Securities may enter into agreements with selected dealers to
assist in the sale of shares in the Syndicated Community Offering. During the
Syndicated Community Offering, selected dealers may only solicit indications of
interest from their customers to place orders with the Holding Company as of a
certain date ("Order Date") for the purchase of shares of Conversion Stock.
When and if Trident Securities and the Holding Company believe that enough
indications of interest and orders have been received in the Subscription
Offering, the Direct Community Offering and the Syndicated Community Offering to
consummate the Conversion, Trident Securities will request, as of the Order
Date, selected dealers to submit orders to purchase shares for which they have
received indications of interest from their customers. Selected dealers will
send confirmations to such customers on the next business day after the Order
Date. Selected dealers may debit the accounts of their customers on a date
which will be three business days from the Order Date ("Settlement Date").
Customers who authorize selected dealers to debit their brokerage accounts are
required to have the funds for payment in their account on but not before the
Settlement Date. On the Settlement Date, selected dealers will remit funds to
the account that the Holding Company established for each selected dealer. Each
customer's funds so forwarded to the Holding Company, along with all other
accounts held in the same title, will be insured by the FDIC up to the
applicable $100,000 legal limit. After payment has been received by the Holding
Company from selected dealers, funds will earn interest at the Savings Bank's
passbook rate until the completion of the Offerings. At the completion of the
Conversion, the funds received in the Offerings will be used to purchase the
shares of Common Stock ordered. The shares issued in the Conversion cannot and
will not be insured by the FDIC or any other government agency. In the event
the Conversion is not consummated as described above, funds with interest will
be returned promptly to the selected dealers, who, in turn, will promptly credit
their customers' brokerage accounts.
The Syndicated Community Offering may terminate no more than 45 days
following the Expiration Date, unless extended by the Holding Company with the
approval of the OTS.
In the event the Savings Bank is unable to find purchasers from the general
public for all unsubscribed shares, other purchase arrangements will be made by
the Board of Directors of the Savings Bank, if feasible. Such other
arrangements will be subject to the approval of the OTS. The OTS may grant one
or more extensions of the offering period, provided that (i) no single extension
exceeds 90 days, (ii) subscribers are given the right to increase, decrease or
rescind their subscriptions during the extension period, and (iii) the
extensions do not go more than two years beyond the date on which the members
approved the Plan. If the Conversion is not completed within 45 days after the
close of the Subscription Offering, either all funds received will be returned
with interest (and withdrawal authorizations canceled) or, if the OTS has
granted an extension of time, all subscribers will be given the right to
increase, decrease or rescind their subscriptions at any time prior to 20 days
before the end of the extension period. If an extension of time is obtained,
all subscribers will be notified of such extension and of their rights to modify
their orders. If an affirmative response to any resolicitation is not received
by the Holding Company from a subscriber, the subscriber's order will be
rescinded and all funds received will be promptly returned with interest (or
withdrawal authorizations will be canceled).
Persons in Non-Qualified States. The Holding Company and the Savings Bank
will make reasonable efforts to comply with the securities laws of all states in
the United States in which persons entitled to subscribe for stock pursuant to
the Plan reside. However, the Holding Company and the Savings Bank are not
required to offer stock in the Subscription Offering to any person who resides
in a foreign country or resides in a state of the United States with respect to
which: (i) a small number of persons otherwise eligible to subscribe for shares
of Common Stock reside in such state; (ii) the granting of Subscription Rights
or offer or sale of shares of Common Stock to such persons would require the
Holding Company to register, under the securities laws of such state, as a
broker or dealer or to register or otherwise qualify the Common Stock for sale
in such state; or (iii) such registration or qualification would be impractical
for reasons of cost or otherwise. Where the number of persons eligible to
subscribe for shares in one state is small, the Holding Company and the Savings
Bank will base their decision as to whether or not to offer the Common stock in
such state on a number of factors, including the size of accounts held by
account holders in the state and the cost of registering or qualifying the
shares.
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Plan of Distribution for the Subscription, Direct Community and Syndicated
Community Offerings
The Savings Bank and the Holding Company have retained Trident Securities
to consult with and advise the Savings Bank and to assist the Savings Bank and
the Holding Company, on a best efforts basis, in the distribution of shares in
the Offerings. Trident Securities is a broker-dealer registered with the SEC
and a member of the NASD. Trident Securities will assist the Savings Bank in
the Conversion as follows: (i) it will act as marketing advisor with respect to
the Subscription Offering and will represent the Savings Bank as placement agent
on a best efforts basis in the sale of the Common Stock in the Direct Community
Offering if one is held; (ii) it will conduct training sessions to ensure that
directors, officers and employees of the Savings Bank are knowledgeable
regarding the Conversion process; and (iii) it will provide assistance in the
establishment and supervision of the Stock Information Center and will train the
Savings Bank's staff to record properly and tabulate orders for the purchase of
Common Stock and to respond appropriately to customer inquiries.
Based upon negotiations between Trident Securities on the one hand and the
Holding Company and the Savings Bank on the other hand concerning fee structure,
Trident Securities will receive a management fee in the amount of $157,500.
Trident and selected dealers participating in the Syndicated Community Offering
shall receive a commission in an amount to be agreed upon jointly by Trident
Securities and the Savings Bank for shares sold by them in the Syndicated
Community Offering. Fees and commissions paid to Trident Securities and to any
selected dealers may be deemed to be underwriting fees, and Trident Securities
and such selected dealers may be deemed to be underwriters. Trident Securities
will also be reimbursed for its reasonable out-of-pocket expenses, including
legal fees, not to exceed $38,500 in the aggregate. Trident Securities has
received an advance of $10,000 towards its reimbursable expenses. For
additional information, see "-- Stock Pricing and Number of Shares to be Issued"
and "USE OF PROCEEDS."
The Holding Company and the Savings Bank have also agreed to indemnify
Trident Securities against liabilities and expenses (including legal fees)
incurred in connection with certain claims or litigation arising out of or based
upon untrue statements or omissions contained in the offering material for the
Common Stock or with regard to allocations of shares (in the event of
oversubscription) or determinations of eligibility to purchase shares.
Description of Sales Activities
The Common Stock will be offered in the Subscription and Direct Community
Offerings principally by the distribution of this Prospectus and through
activities conducted at the Savings Bank's Stock Information Center at its main
office facility. The Stock Information Center is expected to operate during
normal business hours throughout the Subscription and Direct Community
Offerings. It is expected that at any particular time, one or more Trident
Securities employees will be working at the Stock Information Center. Such
employees of Trident Securities will be responsible for mailing materials
relating to the Subscription and Direct Community Offerings, responding to
questions regarding the Conversion and the Subscription and Direct Community
Offerings and processing stock orders.
Sales of Common Stock will be made by registered representatives affiliated
with Trident Securities or by the selected dealers managed by Trident
Securities. The management and employees of the Savings Bank may participate in
the Offerings in clerical capacities, providing administrative support in
effecting sales transactions or, when permitted by state securities laws,
answering questions of a mechanical nature relating to the proper execution of
the Order Form. Management of the Savings Bank may answer questions regarding
the business of the Savings Bank when permitted by state securities laws. Other
questions of prospective purchasers, including questions as to the advisability
or nature of the investment, will be directed to registered representatives.
The management and employees of the Holding Company and the Savings Bank have
been instructed not to solicit offers to purchase Common Stock or provide advice
regarding the purchase of Common Stock.
No officer, director or employee of the Savings Bank or the Holding Company
will be compensated, directly or indirectly, for any activities in connection
with the offer or sale of securities issued in the Conversion.
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None of the Savings Bank's personnel participating in the Subscription and
Direct Community Offering is registered or licensed as a broker or dealer or an
agent of a broker or dealer. The Savings Bank's personnel will assist in the
above-described sales activities pursuant to an exemption from registration as a
broker or dealer provided by Rule 3a4-1 ("Rule 3a4-1") promulgated under the
Exchange Act. Rule 3a4-1 generally provides that an "associated person of an
issuer" of securities shall not be deemed a broker solely by reason of
participation in the sale of securities of such issuer if the associated person
meets certain conditions. Such conditions include, but are not limited to, that
the associated person participating in the sale of an issuer's securities not be
compensated in connection therewith at the time of participation, that such
person not be associated with a broker or dealer and that such person observe
certain limitations on his participation in the sale of securities. For
purposes of this exemption, "associated person of an issuer" is defined to
include any person who is a director, officer or employee of the issuer or a
company that controls, is controlled by or is under common control with the
issuer.
Procedure for Purchasing Shares in the Subscription and Direct Community
Offerings
To ensure that each purchaser receives a prospectus at least 48 hours prior
to the Expiration Date in accordance with Rule 15c2-8 under the Exchange Act, no
Prospectus will be mailed any later than five days prior to such date or hand
delivered any later than two days prior to such date. Execution of the Order
Form will confirm receipt or delivery in accordance with Rule 15c2-8. Order
Forms will only be distributed with a Prospectus. The Savings Bank will accept
for processing only orders submitted on Order Forms.
To purchase shares in the Subscription Offering, an executed Order Form
with the required full payment for each share subscribed for, or with
appropriate authorization for withdrawal of full payment from the subscriber's
deposit account with the Savings Bank (which may be given by completing the
appropriate blanks in the Order Form), must be received by the Savings Bank by
4:30 p.m., Central Time, on the Expiration Date. Order Forms which are not
received by such time or are executed defectively or are received without full
payment (or without appropriate withdrawal instructions) are not required to be
accepted. In addition, the Savings Bank is not obligated to accept orders
submitted on photocopied or telecopied Order Forms. The Holding Company and the
Savings Bank have the right to waive or permit the correction of incomplete or
improperly executed Order Forms, but do not represent that they will do so.
Pursuant to the Plan of Conversion, the interpretation by the Holding Company
and the Savings Bank of the terms and conditions of the Plan of Conversion and
of the Order Form will be final. In order to purchase shares in the Direct
Community Offering, the Stock Order Form, accompanied by the required payment
for each share subscribed for, must be received by the Savings Bank prior to the
time the Direct Community Offering terminates, which may be at any time
subsequent to the Expiration Date. Once received, an executed Order Form may
not be modified, amended or rescinded without the consent of the Savings Bank
unless the Conversion has not been completed within 45 days after the end of the
Subscription Offering, unless such period has been extended.
In order to ensure that Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members are properly identified as to their stock
purchase priorities, depositors as of the Eligibility Record Date (December 31,
1994) and/or the Supplemental Eligibility Record Date (June 30, 1996) and/or the
Voting Record Date (______________, 1996) must list all accounts on the Order
Form giving all names in each account, the account number and the approximate
account balance as of such date.
Full payment for subscriptions may be made (i) in cash if delivered in
person at the Savings Bank, (ii) by check, bank draft, or money order, or (iii)
by authorization of withdrawal from deposit accounts maintained with the Savings
Bank. Appropriate means by which such withdrawals may be authorized are
provided on the Order Form. No wire transfers will be accepted. Interest will
be paid on payments made by cash, check, bank draft or money order at the
Savings Bank's passbook rate from the date payment is received until the
completion or termination of the Conversion. If payment is made by
authorization of withdrawal from deposit accounts, the funds authorized to be
withdrawn from a deposit account will continue to accrue interest at the
contractual rates until completion or termination of the Conversion (unless the
certificate matures after the date of receipt of the Order Form but prior to
closing, in which case funds will earn interest at the passbook rate from the
date of maturity until consummation
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of the Conversion), but a hold will be placed on such funds, thereby making them
unavailable to the depositor until completion or termination of the Conversion.
At the completion of the Conversion, the funds received in the Offerings will be
used to purchase the shares of Common Stock ordered. The shares issued in the
Conversion cannot and will not be insured by the FDIC or any other government
agency. In the event that the Conversion is not consummated for any reason, all
funds submitted will be promptly refunded with interest as described above.
If a subscriber authorizes the Savings Bank to withdraw the amount of the
aggregate Purchase Price from his deposit account, the Savings Bank will do so
as of the effective date of Conversion, though the account must contain the full
amount necessary for payment at the time the subscription order is received.
The Savings Bank will waive any applicable penalties for early withdrawal from
certificate accounts. If the remaining balance in a certificate account is
reduced below the applicable minimum balance requirement at the time that the
funds actually are transferred under the authorization the certificate will be
canceled at the time of the withdrawal, without penalty, and the remaining
balance will earn interest at the Savings Bank's passbook rate.
If the ESOP subscribes for shares during the Subscription Offering, the
ESOP will not be required to pay for the shares subscribed for at the time it
subscribes, but rather may pay for such shares of Common Stock subscribed for at
the Purchase Price upon consummation of the Conversion, provided that there is
in force from the time of its subscription until such time, a loan commitment
from an unrelated financial institution or the Holding Company to lend to the
ESOP, at such time, the aggregate Purchase Price of the shares for which it
subscribed.
Individual Retirement Accounts ("IRAs") maintained in the Savings Bank do
not permit investment in the Common Stock. A depositor interested in using his
or her IRA funds to purchase Common Stock must do so through a self-directed
IRA. Since the Savings Bank does not offer such accounts, it will allow such a
depositor to make a trustee-to-trustee transfer of the IRA funds to a trustee
offering a self-directed IRA program with the agreement that such funds will be
used to purchase the Holding Company's Common Stock in the Offerings. There
will be no early withdrawal or IRS interest penalties for such transfers. The
new trustee would hold the Common Stock in a self-directed account in the same
manner as the Savings Bank now holds the depositor's IRA funds. An annual
administrative fee may be payable to the new trustee. Depositors interested in
using funds in a Savings Bank IRA to purchase Common Stock should contact the
Stock Information Center at the Savings Bank so that the necessary forms may be
forwarded for execution and returned prior to the Expiration Date. In addition,
the provisions of ERISA and IRS regulations require that officers, directors and
10% shareholders who use self-directed IRA funds to purchase shares of Common
Stock in the Subscription Offering, make such purchases for the exclusive
benefit of IRAs.
Certificates representing shares of Common Stock purchased, and any refund
due, will be mailed to purchasers at such address as may be specified in
properly completed Order Forms or to the last address of such persons appearing
on the records of the Savings Bank as soon as practicable following consummation
of the sale of all shares of Common Stock. Any certificates returned as
undeliverable will be disposed of in accordance with applicable law. Until
certificates for the Common Stock are available and delivered to purchasers,
purchasers may not be able to sell the shares of Common Stock which they
purchased, even though trading of the Common Stock may have commenced.
Stock Pricing and Number of Shares to be Issued
Federal regulations require that the aggregate purchase price of the
securities sold in connection with the Conversion be based upon an estimated pro
forma value of the Holding Company and the Savings Bank as converted (i.e.,
----
taking into account the expected receipt of proceeds from the sale of securities
in the Conversion), as determined by an independent appraisal. The Savings Bank
and the Holding Company have retained RP Financial to prepare an appraisal of
the pro forma market value of the Holding Company and the Savings Bank as
converted, as well as a business plan. RP Financial will receive a fee expected
to total approximately $27,500 for its appraisal services and preparation of a
business plan, plus reasonable out-of-pocket expenses incurred in connection
with the
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appraisal. The Savings Bank has agreed to indemnify RP Financial under certain
circumstances against liabilities and expenses (including legal fees) arising
out of, related to, or based upon the Conversion.
RP Financial has prepared an appraisal of the estimated pro forma market
value of the Holding Company and the Savings Bank as converted taking into
account the formation of the Holding Company as the holding company for the
Savings Bank. For its analysis, RP Financial undertook substantial
investigations to learn about the Savings Bank's business and operations.
Management supplied financial information, including annual financial
statements, information on the composition of assets and liabilities, and other
financial schedules. In addition to this information, RP Financial reviewed the
Savings Bank's Form AC Application for Approval of Conversion and the Holding
Company's Form S-1 Registration Statement. Furthermore, RP Financial visited
the Savings Bank's facilities and had discussions with the Savings Bank's
management and its special conversion legal counsel, Breyer & Aguggia. No
detailed individual analysis of the separate components of the Holding Company's
or the Savings Bank's assets and liabilities was performed in connection with
the evaluation.
In estimating the pro forma market value of the Holding Company and the
Savings Bank as converted, as required by applicable regulatory guidelines, RP
Financial's analysis utilized three selected valuation procedures, the
Price/Book ("P/B") method, the Price/Earnings ("P/E") method, and Price/Assets
("P/A") method, all of which are described in its report. RP Financial placed
the greatest emphasis on the P/E and P/B methods in estimating pro forma market
value. In applying these procedures, RP Financial reviewed, among other
factors, the economic make-up of the Savings Bank's primary market area, the
Savings Bank's financial performance and condition in relation to publicly-
traded institutions that RP Financial deemed comparable to the Savings Bank, the
specific terms of the offering of the Holding Company's Common Stock, the pro
forma impact of the additional capital raised in the Conversion, conditions of
securities markets in general, and the market for thrift institution common
stock in particular. RP Financial's analysis provides an approximation of the
pro forma market value of the Holding Company and the Savings Bank as converted
based on the valuation methods applied and the assumptions outlined in its
report. Included in its report were certain assumptions as to the pro forma
earnings of the Holding Company after the Conversion that were utilized in
determining the appraised value. These assumptions included expenses of
$542,000, an assumed after-tax rate of return on the net Conversion proceeds of
4.02%, purchases by the ESOP of 8% of the stock sold in the Conversion and
purchases in the open market by the MRP of a number of shares equal to 4% of the
stock sold in the Conversion at the Purchase Price. See "PRO FORMA DATA" for
additional information concerning these assumptions. The use of different
assumptions may yield somewhat different results.
On the basis of the foregoing, RP Financial has advised the Holding Company
and the Savings Bank that, in its opinion, as of July 12, 1996, the aggregate
estimated pro forma market value of the Holding Company and the Savings Bank as
converted and, therefore, the Common Stock was within the valuation range of
$11,050,000 to $14,950,000 with a midpoint of $13,000,000. After reviewing the
methodology and the assumptions used by RP Financial in the preparation of the
appraisal, the Board of Directors established the Estimated Valuation Range
which is equal to the valuation range of $11,050,000 to $14,950,000 with a
midpoint of $13,000,000. Assuming that the shares are sold at $10.00 per share
in the Conversion, the estimated number of shares would be between 1,105,000 and
1,495,000 with a midpoint of 1,300,000. The Purchase Price of $10.00 was
determined by discussion among the Boards of Directors of the Savings Bank and
the Holding Company and Trident Securities, taking into account, among other
factors (i) the requirement under OTS regulations that the Common Stock be
offered in a manner that will achieve the widest distribution of the stock and
(ii) desired liquidity in the Common Stock subsequent to the Conversion. Since
the outcome of the Offerings relate in large measure to market conditions at the
time of sale, it is not possible to determine the exact number of shares that
will be issued by the Holding Company at this time. The Estimated Valuation
Range may be amended, with the approval of the OTS, if necessitated by
developments following the date of such appraisal in, among other things, market
conditions, the financial condition or operating results of the Savings Bank,
regulatory guidelines or national or local economic conditions.
RP Financial's appraisal report is filed as an exhibit to the Registration
Statement. See "ADDITIONAL INFORMATION."
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If, upon completion of the Subscription Offering, at least the minimum
number of shares are subscribed for, RP Financial, after taking into account
factors similar to those involved in its prior appraisal, will determine its
estimate of the pro forma market value of the Holding Company and the Savings
Bank as converted, as of the close of the Subscription Offering.
No sale of the shares will take place unless prior thereto RP Financial
confirms to the OTS that, to the best of RP Financial's knowledge and judgment,
nothing of a material nature has occurred that would cause it to conclude that
the actual total purchase price on an aggregate basis was incompatible with its
estimate of the total pro forma market value of the Holding Company and the
Savings Bank as converted at the time of the sale. If, however, the facts do
not justify such a statement, the Offerings or other sale may be canceled, a new
Estimated Valuation Range and price per share set and new Subscription, Direct
Community and Syndicated Community Offerings held. Under such circumstances,
subscribers would have the right to modify or rescind their subscriptions and to
have their subscription funds returned promptly with interest and holds on funds
authorized for withdrawal from deposit accounts would be released or reduced.
Depending upon market and financial conditions, the number of shares issued
may be more or less than the range in number of shares shown above. In the
event the total amount of shares issued is less than 1,105,000 or more than
1,719,250 (15% above the maximum of the Estimated Valuation Range), for
aggregate gross proceeds of less than $11,050,000 or more than $17,192,500,
subscription funds will be returned promptly with interest to each subscriber
unless he indicates otherwise. In the event a new valuation range is
established by RP Financial, such new range will be subject to approval by the
OTS.
If purchasers cannot be found for an insignificant residue of unsubscribed
shares from the general public, other purchase arrangements will be made by the
Boards of Directors of the Savings Bank and the Holding Company, if possible.
Such other purchase arrangements will be subject to the approval of the OTS and
may provide for purchases for investment purposes by directors, officers, their
associates and other persons in excess of the limitations provided in the Plan
of Conversion and in excess of the proposed director purchases set forth herein,
although no such purchases are currently intended. If such other purchase
arrangements cannot be made, the Plan will terminate.
In formulating its appraisal, RP Financial relied upon the truthfulness,
accuracy and completeness of all documents the Savings Bank furnished it. RP
Financial also considered financial and other information from regulatory
agencies, other financial institutions, and other public sources, as
appropriate. While RP Financial believes this information to be reliable, RP
Financial does not guarantee the accuracy or completeness of such information
and did not independently verify the financial statements and other data
provided by the Savings Bank and the Holding Company or independently value the
assets or liabilities of the Holding Company and the Savings Bank. The
appraisal by RP Financial is not intended to be, and must not be interpreted as,
a recommendation of any kind as to the advisability of voting to approve the
Conversion or of purchasing shares of Common Stock. Moreover, because the
appraisal is necessarily based on many factors which change from time to time,
there is no assurance that persons who purchase such shares in the Conversion
will later be able to sell shares thereafter at prices at or above the Purchase
Price.
Limitations on Purchases of Shares
The Plan of Conversion provides for certain limitations to be placed upon
the purchase of Common Stock by eligible subscribers and others in the
Conversion. Each subscriber must subscribe for a minimum of 25 shares. With
the exception of the ESOP, which is expected to purchase 8% of the shares of
Common Stock issued in the Conversion, no person or entity may purchase shares
with an aggregate purchase price of more than $150,000 (or 15,000 shares based
on the Purchase Price); and no person or entity, together with associates of and
persons acting in concert with such person or entity, may purchase in the
aggregate shares with an aggregate purchase price of more than $200,000 (or
20,000 shares based on the Purchase Price). Officers, directors and their
associates may not purchase, in the aggregate, more than 34% of the shares of
Common Stock offered in the Conversion. For purposes
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of the Plan, the directors are not deemed to be acting in concert solely by
reason of their Board membership. Pro rata reductions within each Subscription
Rights category will be made in allocating shares to the extent that the maximum
purchase limitations are exceeded.
The Savings Bank's and the Holding Company's Boards of Directors may, in
their sole discretion, increase the maximum purchase limitation set forth above
up to 9.99% of the shares of Common Stock sold in the Conversion, provided that
orders for shares which exceed 5% of the shares of Common Stock sold in the
Conversion may not exceed, in the aggregate, 10% of the shares sold in the
Conversion. The Savings Bank and the Holding Company do not intend to increase
the maximum purchase limitation unless market conditions are such that an
increase in the maximum purchase limitation is necessary to sell a number of
shares in excess of the minimum of the Estimated Valuation Range. If the Boards
of Directors decide to increase the purchase limitation, all persons who
subscribed for the maximum number of shares will be given the opportunity to
increase their subscriptions accordingly, subject to the rights and preferences
of any person who has priority Subscription Rights.
The term "acting in concert" is defined in the Plan to mean (i) knowing
participation in a joint activity or interdependent conscious parallel action
towards a common goal whether or not pursuant to an express agreement; or (ii) a
combination or pooling of voting or other interests in the securities of an
issuer for a common purpose pursuant to any contract, understanding,
relationship, agreement or other arrangement, whether written or otherwise. In
general, a person who acts in concert with another other party shall also be
deemed to be acting in concert with any person who is also acting in concert
with that other party.
The term "associate" of a person is defined in the Plan to mean (i) any
corporation or organization (other than the Savings Bank or a majority-owned
subsidiary of the Savings Bank) of which such person is an officer or partner or
is, directly or indirectly, the beneficial owner of 10% or more of any class of
equity securities; (ii) any trust or other estate in which such person has a
substantial beneficial interest or as to which such person serves as trustee or
in a similar fiduciary capacity (excluding tax-qualified employee plans); and
(iii) any relative or spouse of such person, or any relative of such spouse, who
either has the same home as such person or who is a director or officer of the
Savings Bank or any of its parents or subsidiaries. For example, a corporation
of which a person serves as an officer would be an associate of such person,
and, therefore, all shares purchased by such corporation would be included with
the number of shares which such person could purchase individually under the
above limitations.
The term "officer" is defined in the Plan to mean an executive officer of
the Savings Bank, including its Chairman of the Board, President, Executive Vice
Presidents, Senior Vice Presidents, Vice Presidents in charge of principal
business functions, Secretary and Treasurer.
Common Stock purchased pursuant to the Conversion will be freely
transferable, except for shares purchased by directors and officers of the
Savings Bank and the Holding Company and by NASD members. See "--Restrictions
on Transferability by Directors and Officers and NASD Members."
Restrictions on Repurchase of Stock
Pursuant to OTS regulations, OTS-regulated savings associations (and their
holding companies) may not for a period of three years from the date of an
institution's mutual-to-stock conversion repurchase any of its common stock from
any person, except in the event of (i) an offer made to all of its stockholders
to repurchase the common stock on a pro rata basis, approved by the OTS; or (ii)
the repurchase of qualifying shares of a director; or (iii) a purchase in the
open market by a tax-qualified or non-tax-qualified employee stock benefit plan
in an amount reasonable and appropriate to fund the plan. Furthermore,
repurchases any of its common stock are prohibited if the effect thereof would
cause the association's regulatory capital to be reduced below (a) the amount
required for the liquidation account or (b) the regulatory capital requirements
imposed by the OTS. Repurchases are generally prohibited during the first year
following conversion. However, recent OTS policy has relaxed this restriction,
particularly during the second six months after conversion. While an applicant
needs to demonstrate the existence
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of "exceptional circumstances" during the first six months after conversion, the
OTS has indicated that it would analyze repurchases during months six through 12
after conversion on a case-by-case basis. Upon ten days' written notice to the
OTS, and if the OTS does not object, an institution may make open market
repurchases of its outstanding common stock during years two and three following
the conversion, provided that (x) no more than 5% of the outstanding common
stock is to be purchased during any 12-month period, (y) the repurchases do not
cause the association to become undercapitalized as defined under the OTS prompt
corrective action regulations and (z) the repurchase would not adversely affect
the financial condition of the association. No assurances, however, can be
given that the OTS will approve a repurchase program under current policy or
that such policy will not change or become more restrictive.
Restrictions on Transferability by Directors and Officers and NASD Members
Shares of Common Stock purchased in the Offerings by directors and officers
of the Holding Company may not be sold for a period of one year following
consummation of the Conversion, except in the event of the death of the
stockholder or in any exchange of the Common Stock in connection with a merger
or acquisition of the Holding Company. Shares of Common Stock received by
directors or officers through the ESOP or the MRP or upon exercise of options
issued pursuant to the Stock Option Plan or purchased subsequent to the
Conversion are not subject to this restriction. Accordingly, shares of Common
Stock issued by the Holding Company to directors and officers shall bear a
legend giving appropriate notice of the restriction, and, in addition, the
Holding Company will give appropriate instructions to the transfer agent for the
Holding Company's Common Stock with respect to the restriction on transfers.
Any shares issued to directors and officers as a stock dividend, stock split or
otherwise with respect to restricted Common Stock shall be subject to the same
restrictions.
Purchases of outstanding shares of Common Stock of the Holding Company by
directors, executive officers (or any person who was an executive officer or
director of the Savings Bank after adoption of the Plan of Conversion) and their
associates during the three-year period following Conversion may be made only
through a broker or dealer registered with the SEC, except with the prior
written approval of the OTS. This restriction does not apply, however, to
negotiated transactions involving more than 1% of the Holding Company's
outstanding Common Stock or to the purchase of stock pursuant to the Stock
Option Plan.
The Holding Company has filed with the SEC a registration statement under
the Securities Act for the registration of the Common Stock to be issued
pursuant to the Conversion. The registration under the Securities Act of shares
of the Common Stock to be issued in the Conversion does not cover the resale of
such shares. Shares of Common Stock purchased by persons who are not affiliates
of the Holding Company may be resold without registration. Shares purchased by
an affiliate of the Holding Company will be subject to the resale restrictions
of Rule 144 under the Securities Act. If the Holding Company meets the current
public information requirements of Rule 144 under the Securities Act, each
affiliate of the Holding Company who complies with the other conditions of Rule
144 (including those that require the affiliate's sale to be aggregated with
those of certain other persons) would be able to sell in the public market,
without registration, a number of shares not to exceed, in any three-month
period, the greater of (i) 1% of the outstanding shares of the Holding Company
or (ii) the average weekly volume of trading in such shares during the preceding
four calendar weeks. Provision may be made in the future by the Holding Company
to permit affiliates to have their shares registered for sale under the
Securities Act under certain circumstances.
In addition, under guidelines of the NASD, members of the NASD and their
associates are subject to certain restrictions on the transfer of securities
purchased in accordance with Subscription Rights and to certain reporting
requirements upon purchase of such securities.
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RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY
The following discussion is a summary of certain provisions of federal law
and regulations and Delaware corporate law, as well as the Certificate of
Incorporation and Bylaws of the Holding Company, relating to stock ownership and
transfers, the Board of Directors and business combinations, all of which may be
deemed to have "anti-takeover" effects. The description of these provisions is
necessarily general and reference should be made to the actual law and
regulations and to the Certificate of Incorporation and Bylaws of the Holding
Company. See "ADDITIONAL INFORMATION" as to how to obtain a copy of these
documents.
Conversion Regulations
OTS regulations prohibit any person from making an offer, announcing an
intent to make an offer or participating in any other arrangement to purchase
stock or acquiring stock or subscription rights in a converting institution (or
its holding company) from another person prior to completion of its conversion.
Further, without the prior written approval of the OTS, no person may make such
an offer or announcement of an offer to purchase shares or actually acquire
shares in the converting institution (or its holding company) for a period of
three years from the date of the completion of the conversion if, upon the
completion of such offer, announcement or acquisition, that person would become
the beneficial owner of more than 10% of the outstanding stock of the
institution (or its holding company). The OTS has defined "person" to include
any individual, group acting in concert, corporation, partnership, association,
joint stock company, trust, unincorporated organization or similar company, a
syndicate or any other group formed for the purpose of acquiring, holding or
disposing of securities of an insured institution. However, offers made
exclusively to an association (or its holding company) or an underwriter or
member of a selling group acting on the converting institution's (or its holding
company's) behalf for resale to the general public are excepted. The regulation
also provides civil penalties for willful violation or assistance in any such
violation of the regulation by any person connected with the management of the
converting institution (or its holding company) or who controls more than 10% of
the outstanding shares or voting rights of a converting or converted institution
(or its holding company).
Change of Control Regulations
Under the Change in Bank Control Act, no person may acquire control of an
insured federal savings association or its parent holding company unless the OTS
has been given 60 days' prior written notice and has not issued a notice
disapproving the proposed acquisition. In addition, OTS regulations provide
that no company may acquire control of a savings association without the prior
approval of the OTS. Any company that acquires such control becomes a "savings
and loan holding company" subject to registration, examination and regulation by
the OTS.
Control, as defined under federal law, means ownership, control of or
holding irrevocable proxies representing more than 25% of any class of voting
stock, control in any manner of the election of a majority of the savings
association's directors, or a determination by the OTS that the acquiror has the
power to direct, or directly or indirectly to exercise a controlling influence
over, the management or policies of the institution. Acquisition of more than
10% of any class of a savings association's voting stock, if the acquiror also
is subject to any one of eight "control factors," constitutes a rebuttable
determination of control under the regulations. Such control factors include
the acquiror being one of the two largest stockholders. The determination of
control may be rebutted by submission to the OTS, prior to the acquisition of
stock or the occurrence of any other circumstances giving rise to such
determination, of a statement setting forth facts and circumstances which would
support a finding that no control relationship will exist and containing certain
undertakings. The regulations provide that persons or companies that acquire
beneficial ownership exceeding 10% or more of any class of a savings
association's stock must file with the OTS a certification form that the holder
is not in control of such institution, is not subject to a rebuttable
determination of control and will take no action which would result in a
determination or rebuttable determination of control without prior notice to or
approval of the OTS, as applicable. There are also rebuttable presumptions in
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the regulations concerning whether a group "acting in concert" exists, including
presumed action in concert among members of an "immediate family."
The OTS may prohibit an acquisition of control if it finds, among other
things, that (i) the acquisition would result in a monopoly or substantially
lessen competition, (ii) the financial condition of the acquiring person might
jeopardize the financial stability of the institution, or (iii) the competence,
experience or integrity of the acquiring person indicates that it would not be
in the interest of the depositors or the public to permit the acquisition of
control by such person.
Anti-takeover Provisions in the Holding Company's Certificate of Incorporation
and Bylaws and Delaware Law
A number of provisions of the Holding Company's Certificate of
Incorporation and Bylaws deal with matters of corporate governance and certain
rights of stockholders. The following discussion is a general summary of
certain provisions of the Holding Company's Certificate of Incorporation and
Bylaws and regulatory provisions relating to stock ownership and transfers, the
Board of Directors and business combinations, which might be deemed to have a
potential "anti-takeover" effect. These provisions may have the effect of
discouraging a future takeover attempt which is not approved by the Board of
Directors but which individual Holding Company stockholders may deem to be in
their best interests or in which stockholders may receive a substantial premium
for their shares over then current market prices. As a result, stockholders who
might desire to participate in such a transaction may not have an opportunity to
do so. Such provisions will also render the removal of the incumbent Board of
Directors or management of the Holding Company more difficult. The following
description of certain of the provisions of the Certificate of Incorporation and
Bylaws of the Holding Company is necessarily general and reference should be
made in each case to such Certificate of Incorporation and Bylaws, which are
incorporated herein by reference. See "ADDITIONAL INFORMATION" as to how to
obtain a copy of these documents.
Limitation on Voting Rights. The Certificate of Incorporation of the
Holding Company provides that in no event shall any record owner of any
outstanding Common Stock which is beneficially owned, directly or indirectly, by
a person who beneficially owns in excess of 10% of the then outstanding shares
of common stock (the "Limit") be entitled or permitted to any vote in respect of
the shares held in excess of the Limit, unless permitted by a resolution adopted
by a majority of the board of directors. Beneficial ownership is determined
pursuant to Rule 13d-3 of the General Rules and Regulations of the Exchange Act
and includes shares beneficially owned by such person or any of such person's
affiliates (as defined in the Certificate of Incorporation), shares which such
person or such person's affiliates have the right to acquire upon the exercise
of conversion rights or options and shares as to which such person and such
person's affiliates have or share investment or voting power, but shall not
include shares beneficially owned by the ESOP or directors, officers and
employees of the Savings Bank or Holding Company or shares that are subject to a
revocable proxy and that are not otherwise beneficially, or deemed by the
Holding Company to be beneficially, owned by such person and his affiliates.
Board of Directors. The Board of Directors of the Holding Company is
divided into three classes, each of which shall contain approximately one-third
of the whole number of the members of the Board. The members of each class
shall be elected for a term of three years, with the terms of office of all
members of one class expiring each year so that approximately one-third of the
total number of directors are elected each year. The Holding Company's
Certificate of Incorporation provides that the size of the Board shall be as set
forth in the Bylaws. The Bylaws currently set the number of directors at seven.
The Certificate of Incorporation provides that any vacancy occurring in the
Board, including a vacancy created by an increase in the number of directors,
shall be filled by a vote of two-thirds of the directors then in office and any
director so chosen shall hold office for a term expiring at the annual meeting
of stockholders at which the term of the class to which the director has been
chosen expires. The classified Board is intended to provide for continuity of
the Board of Directors and to make it more difficult and time consuming for a
stockholder group to fully use its voting power to gain control of the Board of
Directors without the consent of the incumbent Board of Directors of the Holding
Company. The Certificate of Incorporation of the Holding Company provides that
a director may be removed from the Board of Directors prior to the expiration
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of his or her term only for cause and only upon the vote of 80% of the
outstanding shares of voting stock. In the absence of this provision, the vote
of the holders of a majority of the shares could remove the entire Board, but
only with cause, and replace it with persons of such holders' choice.
Cumulative Voting, Special Meetings and Action by Written Consent. The
Certificate of Incorporation does not provide for cumulative voting for any
purpose. Moreover, the Certificate of Incorporation provides that special
meetings of stockholders of the Holding Company may be called only by the Board
of Directors of the Holding Company and that stockholders may take action only
at a meeting and not by written consent.
Authorized Shares. The Certificate of Incorporation authorizes the
issuance of 6,000,000 shares of Common Stock and 1,000,000 shares of preferred
stock. The shares of Common Stock and preferred stock were authorized in an
amount greater than that to be issued in the Conversion to provide the Holding
Company's Board of Directors with as much flexibility as possible to effect,
among other transactions, financings, acquisitions, stock dividends, stock
splits, restricted stock grants and the exercise of stock options. However,
these additional authorized shares may also be used by the Board of Directors,
consistent with fiduciary duties, to deter future attempts to gain control of
the Holding Company. The Board of Directors also has sole authority to
determine the terms of any one or more series of preferred stock, including
voting rights, conversion rates, and liquidation preferences. As a result of
the ability to fix voting rights for a series of preferred stock, the Board has
the power, to the extent consistent with its fiduciary duty, to issue a series
of preferred stock to persons friendly to management in order to attempt to
block a tender offer, merger or other transaction by which a third party seeks
control of the Holding Company, and thereby assist members of management to
retain their positions. The Holding Company's Board currently has no plans for
the issuance of additional shares, other than the issuance of shares of Common
Stock upon exercise of stock options and in connection with the MRP.
Stockholder Vote Required to Approve Business Combinations with Principal
Stockholders. The Certificate of Incorporation requires the approval of the
holders of at least 80% of the Holding Company's outstanding shares of voting
stock to approve certain "Business Combinations" (as defined therein) involving
a "Related Person" (as defined therein) except in cases where the proposed
transaction has been approved in advance by a majority of those members of the
Holding Company's Board of Directors who are unaffiliated with the Related
Person and were directors prior to the time when the Related Person became a
Related Person. The term "Related Person" is defined to include any individual,
corporation, partnership or other entity (other than the Holding Company or its
subsidiary) which owns beneficially or controls, directly or indirectly, 10% or
more of the outstanding shares of voting stock of the Holding Company or an
affiliate of such person or entity. This provision of the Certificate of
Incorporation applies to any "Business Combination," which is defined to
include: (i) any merger or consolidation of the Holding Company with or into
any Related Person; (ii) any sale, lease, exchange, mortgage, transfer, or other
disposition of 25% or more of the assets of the Holding Company or combined
assets of the Holding Company and its subsidiaries to a Related Person; (iii)
any merger or consolidation of a Related Person with or into the Holding Company
or a subsidiary of the Holding Company; (iv) any sale, lease, exchange,
transfer, or other disposition of 25% or more of the assets of a Related Person
to the Holding Company or a subsidiary of the Holding Company; (v) the issuance
of any securities of the Holding Company or a subsidiary of the Holding Company
to a Related Person; (vi) the acquisition by the Holding Company or a subsidiary
of the Holding Company of any securities of a Related Person; (vii) any
reclassification of common stock of the Holding Company or any recapitalization
involving the common stock of the Holding Company; or (viii) any agreement or
other arrangement providing for any of the foregoing.
Under Delaware law, absent this provision, business combinations, including
mergers, consolidations and sales of substantially all of the assets of a
corporation must, subject to certain exceptions, be approved by the vote of the
holders of a majority of the outstanding shares of common stock of the Holding
Company and any other affected class of stock. One exception under Delaware law
to the majority approval requirement applies to stockholders owning 15% or more
of the common stock of a corporation for a period of less than three years.
Such 15% stockholder, in order to obtain approval of a business combination,
must obtain the approval of two-thirds of the outstanding stock, excluding the
stock owned by such 15% stockholder, or satisfy other requirements under
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Delaware law relating to board of director approval of his or her acquisition of
the shares of the Holding Company. The increased stockholder vote required to
approve a business combination may have the effect of foreclosing mergers and
other business combinations which a majority of stockholders deem desirable and
place the power to prevent such a merger or combination in the hands of a
minority of stockholders.
Amendment of Certificate of Incorporation and Bylaws. Amendments to the
Holding Company's Certificate of Incorporation must be approved by a majority
vote of its Board of Directors and also by a majority of the outstanding shares
of its voting stock, provided, however, that an affirmative vote of at least 80%
of the outstanding voting stock entitled to vote (after giving effect to the
provision limiting voting rights) is required to amend or repeal certain
provisions of the Certificate of Incorporation, including the provision limiting
voting rights, the provisions relating to approval of certain business
combinations, calling special meetings, the number and classification of
directors, director and officer indemnification by the Holding Company and
amendment of the Holding Company's Bylaws and Certificate of Incorporation. The
Holding Company's Bylaws may be amended by its Board of Directors, or by a vote
of 80% of the total votes eligible to be voted at a duly constituted meeting of
stockholders.
Stockholder Nominations and Proposals. The Certificate of Incorporation of
the Holding Company requires a stockholder who intends to nominate a candidate
for election to the Board of Directors, or to raise new business at a
stockholder meeting to give not less than 30 nor more than 60 days' advance
notice to the Secretary of the Holding Company. The notice provision requires a
stockholder who desires to raise new business to provide certain information to
the Holding Company concerning the nature of the new business, the stockholder
and the stockholder's interest in the business matter. Similarly, a stockholder
wishing to nominate any person for election as a director must provide the
Holding Company with certain information concerning the nominee and the
proposing stockholder.
Purpose and Takeover Defensive Effects of the Holding Company's Certificate
of Incorporation and Bylaws. The Board of Directors of the Savings Bank
believes that the provisions described above are prudent and will reduce the
Holding Company's vulnerability to takeover attempts and certain other
transactions that have not been negotiated with and approved by its Board of
Directors. These provisions will also assist the Savings Bank in the orderly
deployment of the Conversion proceeds into productive assets during the initial
period after the Conversion. The Board of Directors believes these provisions
are in the best interest of the Savings Bank and Holding Company and its
stockholders. In the judgment of the Board of Directors, the Holding Company's
Board will be in the best position to determine the true value of the Holding
Company and to negotiate more effectively for what may be in the best interests
of its stockholders. Accordingly, the Board of Directors believes that it is in
the best interest of the Holding Company and its stockholders to encourage
potential acquirors to negotiate directly with the Board of Directors of the
Holding Company and that these provisions will encourage such negotiations and
discourage hostile takeover attempts. It is also the view of the Board of
Directors that these provisions should not discourage persons from proposing a
merger or other transaction at a price reflective of the true value of the
Holding Company and that is in the best interest of all stockholders.
Attempts to acquire control of financial institutions and their holding
companies have recently become increasingly common. Takeover attempts that have
not been negotiated with and approved by the Board of Directors present to
stockholders the risk of a takeover on terms that may be less favorable than
might otherwise be available. A transaction that is negotiated and approved by
the Board of Directors, on the other hand, can be carefully planned and
undertaken at an opportune time in order to obtain maximum value of the Holding
Company for its stockholders, with due consideration given to matters such as
the management and business of the acquiring corporation and maximum strategic
development of the Holding Company's assets.
An unsolicited takeover proposal can seriously disrupt the business and
management of a corporation and cause it great expense. Although a tender offer
or other takeover attempt may be made at a price substantially above the current
market prices, such offers are sometimes made for less than all of the
outstanding shares of a target company. As a result, stockholders may be
presented with the alternative of partially liquidating their investment
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at a time that may be disadvantageous, or retaining their investment in an
enterprise that is under different management and whose objectives may not be
similar to those of the remaining stockholders. The concentration of control,
which could result from a tender offer or other takeover attempt, could also
deprive the Holding Company's remaining stockholders of benefits of certain
protective provisions of the Exchange Act, if the number of beneficial owners
became less than 300, thereby allowing for Exchange Act deregistration.
Despite the belief of the Savings Bank and the Holding Company as to the
benefits to stockholders of these provisions of the Holding Company's
Certificate of Incorporation and Bylaws, these provisions may also have the
effect of discouraging a future takeover attempt that would not be approved by
the Holding Company's Board, but pursuant to which stockholders may receive a
substantial premium for their shares over then current market prices. As a
result, stockholders who might desire to participate in such a transaction may
not have any opportunity to do so. Such provisions will also render the removal
of the Holding Company's Board of Directors and of management more difficult.
The Board of Directors of the Savings Bank and the Holding Company, however,
have concluded that the potential benefits outweigh the possible disadvantages.
Pursuant to applicable law, at any annual or special meeting of its
stockholders after the Conversion, the Holding Company may adopt additional
charter provisions regarding the acquisition of its equity securities that would
be permitted for a Delaware business corporation. The Holding Company and the
Savings Bank do not presently intend to propose the adoption of further
restrictions on the acquisition of the Holding Company's equity securities.
The cumulative effect of the restriction on acquisition of the Holding
Company contained in the Certificate of Incorporation and Bylaws of the Holding
Company and in Federal and Delaware law may be to discourage potential takeover
attempts and perpetuate incumbent management, even though certain stockholders
of the Holding Company may deem a potential acquisition to be in their best
interests, or deem existing management not to be acting in their best interests.
DESCRIPTION OF CAPITAL STOCK
OF THE HOLDING COMPANY
General
The Holding Company is authorized to issue 6,000,000 shares of Common Stock
having a par value of $.01 per share and 1,000,000 shares of preferred stock
having a par value of $.01 per share. The Holding Company currently expects to
issue up to 1,495,000 shares of Common Stock and no shares of preferred stock in
the Conversion. Each share of the Holding Company's Common Stock will have the
same relative rights as, and will be identical in all respects with, each other
share of Common Stock. Upon payment of the Purchase Price for the Common Stock,
in accordance with the Plan of Conversion, all such stock will be duly
authorized, fully paid and nonassessable.
The Common Stock of the Holding Company will represent nonwithdrawable
capital, will not be an account of any type, and will not be insured by the FDIC
or any other government agency.
Common Stock
Dividends. The Holding Company can pay dividends out of statutory surplus
or from certain net profits if, as and when declared by its Board of Directors.
The payment of dividends by the Holding Company is subject to limitations which
are imposed by law and applicable regulation. See "DIVIDEND POLICY" and
"REGULATION." The holders of Common Stock of the Holding Company will be
entitled to receive and share equally in such dividends as may be declared by
the Board of Directors of the Holding Company out of funds legally available
therefor. If the Holding Company issues preferred stock, the holders thereof
may have a priority over the holders of the Common Stock with respect to
dividends.
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Stock Repurchases. The Plan and OTS regulations place certain limitations
on the repurchase of the Holding Company's capital stock. See "THE CONVERSION -
- - Restrictions on Repurchase of Stock" and "USE OF PROCEEDS."
Voting Rights. Upon Conversion, the holders of Common Stock of the Holding
Company will possess exclusive voting rights in the Holding Company. They will
elect the Holding Company's Board of Directors and act on such other matters as
are required to be presented to them under Delaware law or as are otherwise
presented to them by the Board of Directors. Except as discussed in
"RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY," each holder of Common
Stock will be entitled to one vote per share and will not have any right to
cumulate votes in the election of directors. If the Holding Company issues
preferred stock, holders of the Holding Company preferred stock may also possess
voting rights. Certain matters require a vote of 80% of the outstanding shares
entitled to vote thereon. See "RESTRICTIONS ON ACQUISITION OF THE HOLDING
COMPANY."
As a federal mutual savings bank, corporate powers and control of the
Savings Bank are vested in its Board of Directors, who elect the officers of the
Savings Bank and who fill any vacancies on the Board of Directors as it exists
upon Conversion. Subsequent to Conversion, voting rights will be vested
exclusively in the owners of the shares of capital stock of the Savings Bank,
all of which will be owned by the Holding Company, and voted at the direction of
the Holding Company's Board of Directors. Consequently, the holders of the
Common Stock will not have direct control of the Savings Bank.
Liquidation. In the event of any liquidation, dissolution or winding up of
the Savings Bank, the Holding Company, as holder of the Savings Bank's capital
stock would be entitled to receive, after payment or provision for payment of
all debts and liabilities of the Savings Bank (including all deposit accounts
and accrued interest thereon) and after distribution of the balance in the
special liquidation account to Eligible Account Holders and Supplemental
Eligible Account Holders (see "THE CONVERSION"), all assets of the Savings Bank
available for distribution. In the event of liquidation, dissolution or winding
up of the Holding Company, the holders of its common stock would be entitled to
receive, after payment or provision for payment of all its debts and
liabilities, all of the assets of the Holding Company available for
distribution. If Holding Company preferred stock is issued, the holders thereof
may have a priority over the holders of the Common Stock in the event of
liquidation or dissolution.
Preemptive Rights. Holders of the Common Stock of the Holding Company will
not be entitled to preemptive rights with respect to any shares that may be
issued. The Common Stock is not subject to redemption.
Preferred Stock
None of the shares of the authorized Holding Company preferred stock will
be issued in the Conversion and there are no plans to issue the preferred stock.
Such stock may be issued with such designations, powers, preferences and rights
as the Board of Directors may from time to time determine. The Board of
Directors can, without stockholder approval, issue preferred stock with voting,
dividend, liquidation and conversion rights that could dilute the voting
strength of the holders of the Common Stock and may assist management in
impeding an unfriendly takeover or attempted change in control.
Restrictions on Acquisition
Acquisitions of the Holding Company are restricted by provisions in its
Certificate of Incorporation and Bylaws and by the rules and regulations of
various regulatory agencies. See "REGULATION" and "RESTRICTIONS ON ACQUISITION
OF THE HOLDING COMPANY."
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REGISTRATION REQUIREMENTS
The Holding Company will register the Common Stock with the SEC pursuant to
Section 12(g) of the Exchange Act upon the completion of the Conversion and will
not deregister its Common Stock for a period of at least three years following
the completion of the Conversion. Upon such registration, the proxy and tender
offer rules, insider trading reporting and restrictions, annual and periodic
reporting and other requirements of the Exchange Act will be applicable.
LEGAL AND TAX OPINIONS
The legality of the Common Stock has been passed upon for the Holding
Company by Breyer & Aguggia, Washington, D.C. The federal tax consequences of
the Offerings have been opined upon by Breyer & Aguggia and the Missouri tax
consequences of the Offerings have been opined upon by Moore, Horton & Carlson,
P.C., Mexico, Missouri. Breyer & Aguggia and Moore, Horton & Carlson, P.C. have
consented to the references herein to their opinions. Certain legal matters
will be passed upon for Trident Securities by Malizia, Spidi, Sloane & Fisch,
P.C., Washington, D.C.
EXPERTS
The consolidated financial statements of the Savings Bank as of April 30,
1996 and 1995 and for each of the three years in the period ended April 30, 1996
included in this Prospectus have been audited by Moore, Horton & Carlson, P.C.,
independent auditors, as stated in its report appearing herein, and have been so
included in reliance upon the report of such firm given upon its authority as
experts in accounting and auditing.
RP Financial has consented to the publication herein of the summary of its
report to the Savings Bank setting forth its opinion as to the estimated pro
forma market value of the Holding Company and the Savings Bank as converted and
its letter with respect to subscription rights and to the use of its name and
statements with respect to it appearing herein.
ADDITIONAL INFORMATION
The Holding Company has filed with the SEC a Registration Statement on Form
S-1 (File No. 333-_____) under the Securities Act with respect to the Common
Stock offered in the Conversion. This Prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the SEC. Such
information may be inspected at the public reference facilities maintained by
the SEC at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at its
regional offices at 500 West Madison Street, Suite 1400, Chicago, Illinois
60661; and 7 World Trade Center, Suite 1300, New York, New York 10048. Copies
may be obtained at prescribed rates from the Public Reference Section of the SEC
at 450 Fifth Street, N.W., Washington, D.C. 20549.
The Savings Bank has filed with the OTS an Application for Approval of
Conversion, which includes proxy materials for the Savings Bank's Special
Meeting and certain other information. This Prospectus omits certain
information contained in such Application. The Application, including the proxy
materials, exhibits and certain other information that are a part thereof, may
be inspected, without charge, at the offices of the OTS, 1700 G Street, N.W.,
Washington, D.C. 20552 and at the office of the Regional Director of the OTS at
the Midwest Regional Office of the OTS, 122 W. John Carpenter Freeway, Suite
600, Irving, Texas 75039.
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Index To Consolidated Financial Statements
Fulton Savings Bank, FSB
<TABLE>
<CAPTION>
Pages
<S> <C>
Independent Auditors' Report................................ F-1
Consolidated Statements of Financial Condition as of
April 30, 1996 and 1995.................................... F-2
Consolidated Statements of Changes in Equity for the Years
Ended April 30, 1996, 1995 and 1994........................ F-3
Consolidated Statements of Income for the Years Ended
April 30, 1996, 1995 and 1994.............................. 19
Consolidated Statements of Cash Flows for the Years
Ended April 30, 1996, 1995 and 1994........................ F-4
Notes to Consolidated Financial Statements.................. F-5
</TABLE>
* * *
All schedules are omitted as the required information either is not
applicable or is included in the Consolidated Financial Statements or related
Notes.
Separate financial statements on the Holding Company have not been included
since it will not engage in material transactions, if any, until after the
Conversion. The Holding Company, which has been inactive to date, has no
significant assets, liabilities, revenues, expenses or contingent liabilities.
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[LETTERHEAD OF MOORE, HORTON & CARLSON, P.C. APPEARS HERE]
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors
Fulton Savings Bank, FSB and Subsidiary
Fulton, Missouri
We have audited the accompanying consolidated statements of financial condition
of Fulton Savings Bank, FSB and Subsidiary ("Bank") as of April 30, 1996 and
1995, and the related consolidated statements of income, changes in equity, and
cash flows for each of the three years in the period ended April 30, 1996.
These consolidated financial statements are the responsibility of the Bank's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Fulton Savings Bank,
FSB and Subsidiary as of April 30, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
April 30, 1996, in conformity with generally accepted accounting principles.
As described in Note A to the consolidated financial statements, the Bank
changed its method of accounting for investment securities to conform with
Statement of Financial Accounting Standards No. 115 effective May 1, 1994 and
accounting for impaired loans to conform with Statements of Financial Accounting
Standards Nos. 114 and 118 effective May 1, 1995.
/s/ Moore, Horton & Carlson, P.C.
Mexico, Missouri
June 14, 1996
F-1
<PAGE>
Fulton Savings Bank, FSB and Subsidiary
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
April 30
1996 1995
------------------------
<S> <C> <C> <C>
ASSETS
Cash (includes interest-bearing deposits of $1,081,064 and
$1,795,987, respectively) $ 2,923,739 $ 4,188,434
Investment securities, available-for-sale--Note B 3,216,157 4,202,298
Stock in Federal Home Loan Bank of Des Moines 637,200 624,700
Loans held for sale 2,306,090 573,434
Loans receivable--Note C 73,893,045 67,805,044
Accrued interest receivable--Note D 607,572 493,053
Premises and equipment--Note E 1,307,144 1,120,410
Foreclosed real estate--Note C 197,525 4,815
Other assets 407,516 338,419
----------- -----------
TOTAL ASSETS $85,495,988 $79,350,607
=========== ===========
LIABILITIES AND EQUITY
Liabilities
Deposits--Note F $70,315,921 $65,204,680
Advances from Federal Home Loan Bank of
Des Moines--Note H 5,000,000 4,500,000
Advances from borrowers for property taxes and
insurance 619,539 666,932
Accrued interest payable 299,514 271,642
Other liabilities 144,271 223,202
----------- -----------
TOTAL LIABILITIES 76,379,245 70,866,456
Commitments and contingencies--Notes M and N
Equity
Retained earnings - substantially restricted--Note I 9,095,894 8,475,818
Unrealized gain on securities available-for-sale,
net of taxes--Note G 20,849 8,333
----------- -----------
TOTAL EQUITY 9,116,743 8,484,151
----------- -----------
TOTAL LIABILITIES AND EQUITY $85,495,988 $79,350,607
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
Fulton Savings Bank, FSB and Subsidiary
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Years ended April 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Unrealized
Gain (Loss)
on
Securities
Available-
For-Sale,
Retained Net of
Earnings Taxes Equity
---------------------------------
<S> <C> <C> <C> <C>
Balance at April 30, 1993 $7,052,034 $ --- $7,052,034
Net income 881,049 --- 881,049
---------- ------- ----------
BALANCE AT APRIL 30, 1994 7,933,083 --- 7,933,083
Adoption of accounting change to record
net unrealized gain on securities
available-for-sale at May 1, 1994,
net of taxes --- (4,490) (4,490)
Net income 542,735 --- 542,735
Change in unrealized gain (loss) on
securities available-for-sale, net
of taxes --- 12,823 12,823
---------- ------- ----------
BALANCE AT APRIL 30, 1995 8,475,818 8,333 8,484,151
Net income 620,076 --- 620,076
Change in unrealized gain (loss) on
securities available-for-sale, net
of taxes --- 12,516 12,516
---------- ------- ----------
BALANCE AT APRIL 30, 1996 $9,095,894 $20,849 $9,116,743
========== ======= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
Fulton Savings Bank, FSB and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended April 30
1996 1995 1994
--------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 620,076 $ 542,735 $ 881,049
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 126,863 119,185 106,702
Amortization of premiums and discounts (1,167) 20,796 49,013
Provisions for loan losses 44,242 118,000 48,214
Deferred income taxes 5,000 8,000 (21,000)
Proceeds from sales of loans held for sale 22,632,003 11,808,305 20,343,296
Originations of loans held for sale (24,364,659) (12,381,739) (20,343,296)
Stock and patronage dividends (44,421) --- (12,200)
Change to assets and liabilities
increasing (decreasing) cash flows
Accrued interest receivable (114,519) (33,641) 51,516
Other assets (43,591) (38,656) 3,099
Accrued interest payable 27,872 68,186 (21,889)
Other liabilities (91,319) (21,191) (208,575)
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (1,203,620) 209,980 875,929
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of available-for-sale securities (193,687) (1,978,521) (1,475,703)
Proceeds from maturities and sales of investment securities:
Held-to-maturity --- --- 2,499,307
Available-for-sale 1,200,899 3,224,483 ---
Loans originated, net of repayments (5,837,654) (6,678,253) (4,007,122)
Purchase of mortgage loans (484,200) (946,148) ---
Purchase of premises and equipment (307,182) (85,076) (167,849)
Net expenditures on foreclosed real estate
(3,099) --- 77,516
------------ ------------ ------------
NET CASH USED IN
INVESTING ACTIVITIES (5,624,923) (6,463,515) (3,073,851)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits 5,111,241 574,591 (604,792)
Net increase in advances from Federal
Home Loan Bank of Des Moines 500,000 4,500,000 ---
Net increase (decrease) in advance payments
by borrowers for taxes and insurance
(47,393) 44,954 (27,257)
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 5,563,848 5,119,545 (632,049)
------------ ------------ ------------
NET DECREASE IN CASH (1,264,695) (1,133,990) (2,829,971)
Cash, beginning of period 4,188,434 5,322,424 8,152,395
------------ ------------ ------------
CASH, END OF PERIOD $ 2,923,739 $ 4,188,434 $ 5,322,424
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
Fulton Savings Bank, FSB and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1996, 1995 and 1994
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations: The Fulton Savings Bank, FSB and Subsidiary (the "Bank")
- --------------------
provides a variety of financial services to individuals and corporate customers
through its headquarters located in Fulton, Missouri and its branch located in
Holts Summit, Missouri. The Bank's primary deposit products are interest-
bearing checking accounts and certificates of deposit. Its primary lending
products are one-to four-family residential loans.
The Bank was formerly known as Fulton Savings and Loan Association prior to its
conversion from a state to a federal charter on April 15, 1995.
Principles of Consolidation: The consolidated financial statements include the
- ---------------------------
accounts of Fulton Savings Bank, FSB and its wholly-owned subsidiary, Multi-
Purpose Service Agency, Inc. Multi-Purpose Service Agency, Inc. principally
provides insurance products for the Bank's customers. All significant
intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates: The preparation of financial statements in conformity with
- ----------------
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for losses on loans and the
valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the allowances
for losses on loans and foreclosed real estate, management obtains independent
appraisals for significant properties.
A majority of the Bank's loan portfolio consist of one-to four-family
residential loans in the central Missouri area. The central Missouri economy is
primarily dependent upon state government, light manufacturing and agriculture.
Accordingly, the ultimate collectibility of a substantial portion of the Bank's
portfolio is susceptible to changes in local market conditions.
While management uses available information to recognize losses on loans and
foreclosed real estate, future additions to the allowances may be necessary
based on changes in local economic conditions. In addition, regulatory
agencies, as an integral part of their examination process, periodically review
the Bank's allowances for losses on loans and foreclosed real estate. Such
agencies may require the Bank to recognize additions to the allowances based on
their judgements about information available to them at the time of their
examination. Because of these factors, in management's judgement the allowances
for loan losses reflected in the consolidated financial statements is adequate
to absorb estimated losses that may exist in the current portfolio.
F-5
<PAGE>
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Cont'd
Liquidity Requirement: Regulations require the Bank to maintain an amount equal
- ---------------------
to 5% of deposits (net of loans on deposits) plus short-term borrowings in cash
and U.S. Government and other approved securities.
Investment Securities: Effective May 1, 1994, the Bank adopted Statement of
- ---------------------
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities", which established three
classifications of investment securities: trading, held-to-maturity and
available-for-sale. Trading securities are acquired principally for the purpose
of near-term sales. Such securities are reported at fair value and unrealized
gains and losses are included in income. Securities which are designated as
held-to-maturity are designated as such because the investor has the ability and
the intent to hold these securities to maturity. Such securities are reported
at amortized cost.
All other securities are designated as available-for-sale, a designation which
provides the investor with certain flexibility in managing its investment
portfolio. Such securities are reported at fair value; net unrealized gains and
losses are excluded from income and reported net of applicable income taxes as
a separate component of equity.
Gains or losses on sales of securities are recognized in operations at the time
of sale and are determined by the difference between the net sales proceeds and
the cost of the securities using the specific identification method, adjusted
for any unamortized premiums or discounts. Premiums or discounts are amortized
or accreted to income using the interest method over the period to maturity.
In adopting SFAS No. 115, the Bank modified its accounting policies and
designated its securities in accordance with the three classifications. The
Bank's adoption of SFAS No. 115 resulted in the classification of all securities
as available-for-sale. At April 30, 1996 and 1995 the Bank had no securities
designated as trading or held-to-maturity.
Mortgage-backed Securities: Mortgage-backed securities represent participating
- --------------------------
interests in pools of long-term first mortgage loans originated and serviced by
issuers of the securities. Mortgage-backed securities are reported at fair
value; net unrealized gains and losses are excluded from income and reported net
of applicable income taxes as a separate component of equity. Gains or losses
on sales of securities are recognized in operations at the time of sale and are
determined by the difference between the net sales proceeds and the cost of the
securities using the specific identification method, adjusted for any
unamortized premiums or discounts. Premiums or discounts are amortized or
accreted to income using the interest method over the period to maturity.
Stock in Federal Home Loan Bank of Des Moines: Stock in the Federal Home Loan
- ---------------------------------------------
Bank of Des Moines is stated at cost and the amount of stock held is determined
by regulation. No ready market exists for such stock and it has no quoted
market value.
Loans Held for Sale: Mortgage loans originated and held for sale in the
- -------------------
secondary market are carried at the lower of cost or market value determined on
an aggregate basis. Gains and losses, if any, on the sale of these loans are
determined using the specific identification method.
Loans Receivable: Loans are stated at unpaid principal balances, less the
- ----------------
allowance for loan losses and net deferred loan fees.
Loan origination and commitment fees, as well as certain direct origination
costs, are deferred and amortized as a yield adjustment over the contractual
maturity of the related loans using the interest method. Amortization of
deferred loan fees is discontinued when a loan is placed on nonaccrual status.
F-6
<PAGE>
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Cont'd
Loans are placed on nonaccrual status when principal or interest is delinquent
for 90 days or more. Any unpaid interest previously accrued on those loans is
reversed from income. Interest payments received on such loans are applied as a
reduction of the loan principal balance. Interest income on other nonaccrual
loans is recognized only to the extent of interest payments received.
The allowance for loan losses is maintained at a level which, in management's
judgment, is adequate to absorb credit losses inherent in the loan portfolio.
The amount of the allowance is based on management's evaluation of the
collectibility of the loan portfolio, including the nature of the
portfolio, credit concentrations, trends in historical loss experience, specific
impaired loans and economic conditions. Allowances for impaired loans are
generally determined based on collateral values or the present value of
estimated cash flows. The allowance is increased by a provision for loan
losses, which is charged to expense, and reduced by charge-offs, net of
recoveries.
The Bank adopted SFAS No. 114, "Accounting by Creditors for Impairment of a
Loan" and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures, an amendment of SFAS No. 114", effective May
1, 1995. These statements address the accounting by creditors for impairment of
certain loans. They apply to all creditors and to all loans, uncollateralized
as well as collateralized, except for large groups of small-balance homogeneous
loans that are collectively evaluated for impairment, loans measured at fair
value or at lower of cost or fair value, leases, and debt securities. The Bank
considers all one-to four-family residential mortgage loans, construction loans,
and all consumer and other loans to be smaller homogeneous loans.
These statements apply to all loans that are restructured involving a
modification of terms. Loans within the scope of these statements are
considered impaired when, based on current information and events, it is
probable that all principal and interest will not be collected in accordance
with the contractual terms of the loans. Management determines the impairment
of loans based on knowledge of the borrower's ability to repay the loan
according to the contractual agreement and the borrower's repayment history.
Management applies its normal loan review procedures in determining when a loan
is impaired. The Bank applies SFAS No. 114 on a loan by loan basis. All
nonaccrual loans are considered impaired. Impaired loans are measured based on
present value of expected cash flows, the loan's observable market price or the
fair value of the underlying collateral. If the value computed is less than the
recorded value, a valuation allowance is recorded for the difference as a
component of the provision for loan loss expense. Management has elected to
continue to use its existing nonaccrual methods for recognizing interest income
on impaired loans.
Premises and Equipment: Premises and equipment are stated at cost less
- ----------------------
accumulated depreciation and amortization. Depreciation and amortization are
computed on a straight-line basis over the estimated useful lives of the
respective assets.
Foreclosed Real Estate: Real estate acquired in settlement of loans or in lieu
- ----------------------
of loan foreclosure is carried at the lower of the balance of the related loan
at the time of foreclosure or fair value less the estimated costs to sell the
asset. Costs of holding foreclosed property are charged to expense in the
current period, except for significant property improvements which are
capitalized to the extent that carrying value does not exceed estimated fair
market value, less estimated cost to sell.
Income Taxes: Deferred tax assets and liabilities are recognized for the future
- ------------
tax consequences, attributable to differences between the financial statement
carrying amounts of existing assets and labilities and their respective income
tax bases. As changes in tax law or rates are enacted, deferred tax assets and
liabilities are adjusted through the provision for income taxes.
F-7
<PAGE>
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Cont'd
Statements of Cash Flows: For purposes of the cash flows, cash and amounts due
- ------------------------
from depository institutions and interest-bearing deposits in other banks with a
maturity of three months or less at date of purchase are considered cash
equivalents.
Interest Rate Risk: The Bank's asset base is exposed to risk including the risk
- ------------------
resulting from changes in interest rates in timing of cash flows. The Bank
monitors the effect of such risks by considering the mismatch of the maturities
of its assets and liabilities in the current interest rate environment and the
sensitivity of assets and liabilities to changes in interest rates. The Bank's
management has considered the effect of significant increases and decreases in
interest rates and believes such changes, if they occurred, would be manageable
and would not affect the ability of the Bank to hold its assets as planned.
However, the Bank is exposed to significant market risk in the event of
significant and prolonged interest rate changes.
New Accounting Standards:
- ------------------------
Accounting for Impairment of Long-Lived Assets
In March 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-
Lived Assets to be Disposed of" and is effective for years beginning after
December 15, 1995. The statement is effective for and will be adopted by
the Bank beginning May 1, 1996. The statement generally addresses required
disclosures for long-lived impaired assets and long-lived impaired assets
to be disposed of. The impact of the adoption of the new accounting
standard on the Bank's consolidated financial statements is not expected to
be material.
Accounting for Loan Servicing Rights
In May 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage
Servicing Rights" and is effective for years beginning after December 15,
1995. The statement is effective for and will be adopted by the Bank
beginning May 1, 1996. The statement generally requires entities that sell
or securitize loans and retain the mortgage servicing rights to allocate
the total cost of the mortgage loans to the mortgage servicing right and
the loan based on their relative fair value. Costs allocated to mortgage
servicing rights should be recognized as a separate asset and amortized
over the period of estimated net servicing income and evaluated for
impairment based on fair value. The impact of the adoption of the new
accounting standard on the Bank's consolidated financial statements is not
expected to be material.
Accounting for Stock-Based Compensation
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation". The statement encourages all entities to adopt a new method
of accounting to measure compensation cost of all employee stock
compensation plans based on the estimated fair value of the award at the
date it is granted. Companies are, however, allowed to continue to measure
compensation cost for those plans using the intrinsic value based method of
accounting, which generally does not result in compensation expense
recognition for most plans. Companies that elect to remain with the
existing accounting are required to disclose in a footnote to the financial
statements pro forma net income and, if presented, earnings per share, as
if SFAS No. 123 had been adopted. The accounting requirements of SFAS No.
123 are effective for transactions entered into in fiscal years that begin
after December 15, 1995; however, companies are required to disclose
information for awards granted in their first fiscal year beginning after
December 15, 1994. Currently, the Bank does not have any stock-based
compensation plans. However, in the future, such plans may be offered and
the provisions of SFAS No. 123 would apply.
Reclassification: Certain amounts in the 1995 and 1994 consolidated financial
- ----------------
statements have been reclassified to conform with the 1996 presentation.
F-8
<PAGE>
NOTE B--INVESTMENT SECURITIES, AVAILABLE-FOR-SALE
<TABLE>
<CAPTION>
Gross Unrealized
Amortized -------------------- Fair
Cost Gains Losses Value
-------------- ------------- -------- ----------
<S> <C> <C> <C> <C>
April 30, 1996
U.S. Government obligations $3,182,778 $34,524 $1,396 $3,215,906
Mortgage-backed securities 222 29 --- 251
---------- ------- ------ ----------
$3,183,000 $34,553 $1,396 $3,216,157
========== ======= ====== ==========
April 30, 1995
U.S. Government obligations $4,187,924 $13,139 $ --- $4,201,063
Mortgage-backed securities 1,120 115 --- 1,235
---------- ------- ------ ----------
$4,189,044 $13,254 $ --- $4,202,298
========== ======= ====== ==========
</TABLE>
The scheduled maturities of debt securities at April 30, 1996 by contractual
maturity, are shown below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
---------- ----------
<S> <C> <C>
Amounts maturing:
One year or less $2,488,365 $2,510,625
After one through five years 694,413 705,281
Mortgage-backed securities 222 251
---------- ----------
$3,183,000 $3,216,157
========== ==========
</TABLE>
The Bank has investment securities pledged to secure deposits as required or
permitted by law, with a carrying value of $1,319,280 and $1,113,739 at April
30, 1996 and 1995, respectively.
The Bank sold available-for-sale securities in 1995 and held-to-maturity
securities in 1994 for total gross proceeds of $3,136,791 and $1,195,430 which
resulted in gross realized losses of $55,290 and $11,496 for the year ended
April 30, 1995 and 1994, respectively.
NOTE C--LOANS RECEIVABLE
Loans receivable consist of the following at April 30:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Mortgage loans:
One-to four-family residences $46,740,611 $46,243,774
Multi-family 3,844,456 3,587,641
Commercial 8,706,428 6,559,633
Construction 7,686,681 5,141,697
Land 1,518,202 1,188,597
----------- -----------
68,496,378 62,721,342
Less undisbursed portion of mortgage loans 3,742,642 2,174,494
----------- -----------
64,753,736 60,546,848
</TABLE>
F-9
<PAGE>
NOTE C--LOANS RECEIVABLE - Cont'd
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Consumer and other loans:
Consumer $ 6,683,299 $ 5,184,140
Automobile 2,080,708 1,912,348
Savings 345,399 335,578
Commercial 295,759 160,052
Equity line of credit 325,941 309,310
Education 187,796 116,108
Other 2,477 2,557
----------- -----------
9,921,379 8,020,093
----------- -----------
74,675,115 68,566,941
Less allowance for loan losses 782,070 761,897
----------- -----------
$73,893,045 $67,805,044
=========== ===========
</TABLE>
The Bank originates and maintains loans receivable which are substantially
concentrated in its lending area including Fulton, Missouri, Callaway County and
its contiguous counties. The Bank's principal market area consist of rural
communities and substantially all of the Bank's loans are to residents of or
secured by properties located in its principal lending area. Accordingly, the
ultimate collectibility of the Bank's loan portfolio is dependent upon market
conditions in that area. This geographic concentration is considered in
management's establishment of the allowance for loan losses.
In the normal course of business, the Bank has made loans to its directors and
officers. In the opinion of management, related party loans are made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with unrelated persons and do
not involve more than the normal risk of collectibility. The aggregate dollar
amount of loans outstanding to directors and officers total approximately
$357,000 and $383,000 at April 30, 1996 and 1995, respectively.
At April 30, 1996, 1995 and 1994, the Bank serviced loans amounting to
$84,363,839, $73,802,855 and $71,940,941 respectively, for the benefit of
others. Also, the Bank had loans serviced by others amounting to $2,654,213,
$2,304,318 and $2,280,402 at April 30, 1996, 1995 and 1994, respectively.
Allowance for loan losses is as follows:
<TABLE>
<CAPTION>
Year Ended April 30
1996 1995 1994
--------- --------- ----------
<S> <C> <C> <C>
Balance beginning of period $761,897 $665,068 $ 718,950
Provision for loan losses 44,242 118,000 47,599
Charge-offs (27,391) (49,071) (111,303)
Recoveries 3,322 27,900 9,822
-------- -------- ---------
BALANCE, END OF PERIOD $782,070 $761,897 $ 665,068
======== ======== =========
</TABLE>
At April 30, 1996 the recorded investment in impaired loans, for which there is
no need for a valuation allowance based upon the measure of the loan's fair
value of the underlying collateral, was $69,229.
The allowance for losses on foreclosed real estate is $-0- at April 30, 1996 and
$6,051 at April 30, 1995, 1994 and May 1, 1993.
F-10
<PAGE>
NOTE D--ACCRUED INTEREST RECEIVABLE
Accrued interest receivable consist of the following at April 30:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Loans $552,739 $426,064
Investments securities 54,833 66,989
-------- --------
$607,572 $493,053
======== ========
</TABLE>
NOTE E--PREMISES AND EQUIPMENT
Premises and equipment consist of the following at April 30:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Land $ 129,705 $ 129,705
Building and improvements 1,012,549 889,907
Furniture and equipment 1,120,859 953,568
---------- ----------
2,263,113 1,973,180
Less accumulated depreciation and amortization 955,969 852,770
---------- ----------
$1,307,144 $1,120,410
========== ==========
</TABLE>
NOTE F--DEPOSITS
Deposit account balances are summarized as follows at April 30:
<TABLE>
<CAPTION>
Weighted
Average Rate 1996 1995
at April 30, ------------------ --------------------
1996 Amount % Amount %
------------ ----------------------------------------
<S> <C> <C> <C> <C> <C>
Non-interest-bearing ---% $ 1,709,399 2.4% $ 488,208 .8%
NOW 2.62 4,259,355 6.1 3,880,085 5.9
Money Market 3.43 3,040,067 4.3 4,565,323 7.0
Passbook savings 3.03 5,909,969 8.4 5,492,922 8.4
----------- ----- ----------- -----
14,918,790 21.2 14,426,538 22.1
Certificates of deposit:
2.00 to 2.99% --- --- --- 8,104 ---
3.00 to 3.99% 3.70 105,056 .1 450,804 .7
4.00 to 4.99% 4.81 6,118,806 8.7 12,878,849 19.7
5.00 to 5.99% 5.49 26,144,168 37.2 16,992,651 26.1
6.00 to 6.99% 6.31 20,260,958 28.9 17,538,780 26.9
7.00 to 7.99% 7.14 2,751,036 3.9 2,862,390 4.4
8.00 to 8.99% 8.00 17,107 --- 45,564 .1
9.00 to 9.99% --- --- --- --- ---
10.00% and over --- --- --- 1,000 ---
----------- ----- ----------- -----
5.79 55,397,131 78.8 50,778,142 77.9
----------- ----- ----------- -----
5.13 $70,315,921 100.0% $65,204,680 100.0%
=========== ===== =========== =====
</TABLE>
F-11
<PAGE>
NOTE F--DEPOSITS - Cont'd
The aggregate amount of certificates of deposit with a minimum denomination of
$100,000 was approximately $5,879,277 and $4,791,054 at April 30, 1996 and 1995,
respectively. Deposits over $100,000 are not federally insured.
The Bank held deposits of approximately $1,578,000 and $1,253,000 for its
directors and officers at April 30, 1996 and 1995, respectively.
At April 30, 1996, contractual maturities of certificates of deposit are as
follows:
<TABLE>
<CAPTION>
Stated Year Ended April 30
Interest Rate 1997 1998 1999 2000 2001 After
- ------------- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
3.00 to 3.99% $ 105,056 $ --- $ --- $ --- $ --- $ ---
4.00 to 4.99% 5,962,465 156,341 --- --- --- ---
5.00 to 5.99% 17,458,244 6,403,895 2,130,213 139,702 12,114 ---
6.00 to 6.99% 8,673,857 6,628,049 2,116,434 2,506,856 328,762 7,000
7.00 to 7.99% 1,766,772 133,500 505,370 260,781 84,613 ---
8.00 to 8.99% --- --- 3,000 --- --- 14,107
----------- ----------- ---------- ---------- ---------- ----------
$33,966,394 $13,321,785 $4,755,017 $2,907,339 $ 425,489 $ 21,107
=========== =========== ========== ========== ========== ==========
Interest expense on deposits are as follows:
Year Ended April 30
1996 1995 1994
----------------------------------
Now, Money Market and Passbook savings accounts $ 386,380 $ 484,797 $ 484,470
Certificate accounts 3,077,153 2,261,993 2,186,207
---------- ---------- ----------
$3,463,533 $2,746,790 $2,670,677
========== ========== ==========
</TABLE>
NOTE G--INCOME TAXES
Components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
Year Ended April 30
1996 1995 1994
--------- --------- --------
<S> <C> <C> <C>
Current $368,000 $309,500 $463,500
Deferred (benefit) (5,000) (8,000) 21,000
-------- -------- --------
$363,000 $301,500 $484,500
======== ======== ========
</TABLE>
In addition, the Bank recorded deferred income tax to equity relating to
unrealized gains and losses on investment securities available-for-sale of
$7,571 and $ 7,387 for the years ended April 30, 1996 and 1995, respectively.
F-12
<PAGE>
NOTE G--INCOME TAXES - Cont'd
The provision for income taxes as shown on the consolidated statements of income
differs from amounts computed by applying the statutory federal income tax rate
of 34% to income before taxes as follows:
<TABLE>
<CAPTION>
Year Ended April 30
1996 1995 1994
---------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income tax expense at statutory rates $334,239 34.0% $287,091 34.0% $464,287 34.0%
Increase (decrease) resulting from:
State income taxes, net of federal benefit 21,120 2.1 24,090 2.8 33,214 2.4
Other, net 7,641 0.8 (9,681) (1.1) (13,001) (.9)
-------- ---- -------- ---- -------- ----
$363,000 36.9% $301,500 35.7% $484,500 35.5%
======== ==== ======== ==== ======== ====
</TABLE>
Deferred income taxes reflect the impact of "temporary differences" between
amounts of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws. Temporary differences which give rise to a
significant portion of deferred tax assets and liabilities included in other
liabilities are as follows at April 30:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Deferred tax assets
Allowance for loan losses $ 240,000 $ 227,000
Deferred tax liabilities
Depreciation (120,000) (117,000)
Federal Home Loan Bank of Des Moines stock dividend (76,000) (71,000)
Unrealized gain on available-for-sale securities (12,308) (4,920)
--------- ---------
NET DEFERRED TAX ASSET $ 31,692 $ 34,080
========= =========
</TABLE>
NOTE H--ADVANCES FROM FEDERAL HOME LOAN BANK OF DES MOINES (FHLB)
Advances from FHLB consist of the following at April 30:
<TABLE>
<CAPTION>
Stated Interest
Maturity Interest Rate at
Date Rate April 30, 1996 1996 1995
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
August 30, 1996 6.50% 6.50% $2,000,000 $2,000,000
March 20, 1997 7.12 7.12 2,500,000 2,500,000
April 11, 1997 Variable 5.90 500,000 ---
---------- ----------
$5,000,000 $4,500,000
========== ==========
</TABLE>
The Bank has signed a blanket pledge agreement with the FHLB under which it can
draw advances of unspecified amounts from the FHLB. The Bank must hold an
unencumbered portfolio of eligible one-to four-family residential mortgages with
a book value of not less than 150% of the indebtedness.
F-13
<PAGE>
NOTE I--EQUITY
Pursuant to the Financial Institutions Reform Recovery and Enforcement Act
("FIRREA") of 1989, as implemented by a rule promulgated by OTS, saving
institutions are required to have a minimum regulatory tangible capital equal to
1.5% of adjusted total assets, a minimum of 3.0% core/leverage capital ratio,
and a minimum 8% total risk-based capital. FIRREA also restricts investment
activities with respect to noninvestment grade corporate debt and certain other
investments and increases the required ratio of housing-related assets in order
to qualify as a savings institution.
The following table presents the Bank's capital position relative to its
regulatory capital requirements under FIRREA at April 30, 1996:
<TABLE>
<CAPTION>
Regulatory Capital
(dollars in thousands)
Tangible Core Risk-based
-------------------------------
<S> <C> <C> <C>
GAAP capital $9,117 $9,117 $9,117
Adjustments to Capital:
Unrealized gains (21) (21) (21)
General valuation allowances as
defined --- --- 642
Real estate investment, net --- --- (252)
------ ------ ------
REGULATORY CAPITAL 9,096 9,096 9,486
Regulatory capital requirement 1,282 2,564 4,111
------ ------ ------
EXCESS REGULATORY CAPITAL $7,814 $6,532 $5,375
====== ====== ======
Regulatory capital ratio 10.64% 10.64% 18.46%
Regulatory capital requirement 1.50 3.00 8.00
------ ------ ------
EXCESS REGULATORY CAPITAL RATIO 9.14% 7.64% 10.46%
====== ====== ======
</TABLE>
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
established additional capital requirements which require regulatory action
against depository institutions in one of the undercapitalized categories
defined in implementing regulations. Institutions such as the Bank, which are
defined as "well capitalized", must generally have a leverage capital (core)
ratio of at least 5%, a tier risk-based capital ratio of at least 6% and a total
risk-based capital ratio of at least 10%. In November 1994, the OTS revised its
regulations whereby unrealized gains or losses on available-for-sale securities
accounted for under SFAS No. 115 are not considered in the determination of
regulatory capital. FDICIA also provided for increased supervision by federal
regulatory agencies, increased reporting requirements for insured depository
institutions and other changes in the legal and regulatory environment for
institutions.
The Bank has qualified under provisions of the Internal Revenue Code which
permit it to deduct from taxable income a provision for bad debts, which differs
from the provisions for such losses charged to income. Accordingly, retained
earnings at April 30, 1996, includes income of approximately $1,900,000 for
which no provision for federal income taxes has been made. If, in the future,
this portion of retained earnings is used for any purpose other than to absorb
loan losses, federal income taxes may be imposed at the then applicable rates.
The Bank's retained earnings at April 30, 1996, were substantially restricted
because of the effect of these bad debt reserves.
F-14
<PAGE>
NOTE J--EMPLOYEE BENEFITS
The Bank has a 401(k) salary reduction plan that covers all employees meeting
specific age and length of service requirements. Under the plan, the Bank
matches up to 3 percent of participating employees' salaries. Pension costs
recognized under the plan totalled $19,330, $17,913 and $12,199 for the year
ended April 30, 1996, 1995 and 1994, respectively.
NOTE K--SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for taxes and interest are as follows:
<TABLE>
<CAPTION>
Year Ended April 30
1996 1995 1994
----------------------------------
<S> <C> <C> <C>
Income taxes $ 247,100 $ 374,321 $ 608,355
========== ========== ==========
Interest $3,753,158 $2,876,055 $2,692,566
========== ========== ==========
</TABLE>
NOTE L--SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Noncash investment and financing activities are as follows:
<TABLE>
<CAPTION>
Year Ended April 30
1996 1995 1994
--------------------------
<S> <C> <C> <C>
Loans to facilitate sales of real estate $ 77,805 $70,500 $ ---
======== ======= =======
Foreclosed real estate acquired by foreclosure
or deed in lieu of foreclosure $267,861 $92,617 $49,524
======== ======= =======
Stock and patronage dividends $ 59,826 $ --- $12,200
======== ======= =======
</TABLE>
NOTE M--FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK
The Bank is a party to financial instruments with off-balance sheet risk in the
normal course of business to meet customer financing needs. These financial
instruments consist principally of commitments to extend credit. The Bank uses
the same credit policies in making commitments and conditional obligations as it
does for on-balance sheet instruments. The Bank's exposure to credit loss in
the event of nonperformance by the other party is represented by the contractual
amount of those instruments. The Bank does not generally require collateral or
other security on unfunded loan commitments until such time that loans are
funded.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses. The Bank
evaluates each customer's creditworthiness on a case-by-case basis. The amount
of collateral obtained, if deemed necessary by the Bank upon extension of
credit, is based on management's credit evaluation of the counterparty. Such
collateral consists primarily of residential properties.
F-15
<PAGE>
NOTE M--FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK - Cont'd
The Bank had the following outstanding commitments at April 30, 1996:
<TABLE>
<S> <C>
Undisbursed portion of mortgage loans $3,742,642
Undisbursed equity line of credit 88,359
Commitments to originate mortgage loans with variable or pending
interest rates 3,007,780
Commitments to originate mortgage loans with fixed interest rates
ranging from 7.875% to 8.75% 984,450
----------
TOTAL $7,823,231
==========
</TABLE>
At April 30, 1996, the Bank had amounts on deposit at banks and federal agencies
in excess of federally insured limits of approximately $2,518,000.
NOTE N--COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Bank has various outstanding commitments
and contingent liabilities that are not reflected in the accompanying
consolidated financial statements. In addition, the Bank is a defendant in
certain claims and legal actions arising in the ordinary course of business. In
the opinion of management, after consultation with legal counsel, the ultimate
disposition of these matters is not expected to have a material adverse effect
on the consolidated financial position of the Bank.
The United States Congress is considering legislation that, if it became law,
would result in an assessment on all Savings Association Insurance Fund
("SAIF")-insured deposits in such amounts that will increase the SAIF reserve
ratio to 1.25% of SAIF-insured deposits. This one-time assessment has been
estimated to be approximately 80 cents, per $100 of SAIF-insured deposits. If
this legislation became law, it could result in an assessment payable by the
Bank amounting to approximately $345,000, net of tax. If this legislation
becomes law, it is anticipated that this assessment will be charged to earnings
in the period during which it is signed into law. Therefore, no provision for
such an assessment has been made to the consolidated financial statements.
Thereafter, SAIF premiums are currently expected to decline to levels
approximating Bank Insurance Fund premiums.
NOTE O--PLAN OF CONVERSION
On January 9, 1996, the Bank's Board of Directors adopted a plan of conversion
("Plan") to convert from a federally chartered mutual savings bank to a
federally chartered stock savings bank, subject to approval by the Bank's
members. The Plan, which includes the formation of a Holding Company, is subject
to approval by the OTS and includes the filing of a registration statement with
the Securities and Exchange Commission.
The Plan is expected to be accomplished by the sale of common stock of the
Holding Company. The Holding Company's common stock will be offered to various
eligible account holders, to the Bank's Employee Stock Ownership Plan, to other
supplemental eligible depositors and to other members of the Bank in a
subscription offering. Shares of the Holding Company's common stock not
subscribed for in the subscription offering, if any, may be offered for sale in
a community offering, as determined by the Board of Directors of the Bank.
F-16
<PAGE>
NOTE O--PLAN OF CONVERSION - Cont'd
At the time of conversion, the Bank will establish a liquidation account in an
amount equal to its retained earnings as reflected in the latest statement of
financial condition used in the final conversion prospectus. The liquidation
account will be maintained for the benefit of eligible account holders and
supplemental eligible account holders (collectively, "eligible depositors") who
continue to maintain their deposit accounts in the Bank after conversion. In
the event of a complete liquidation of the Bank (and only in such an event),
eligible depositors who continue to maintain accounts shall be entitled to
receive a distribution from the liquidation account before any liquidation may
be made with respect to common stock.
The Bank may not declare or pay a cash dividend if the effect thereof would
cause its equity to be reduced below either the amount required for the
liquidation account or the regulatory capital requirements imposed by the OTS.
Conversion costs will be deducted from the proceeds of sale of common stock and
recorded as a reduction to equity. If the conversion is not completed, all costs
will be charged to expense. As of April 30, 1996, the Bank has incurred costs
related to the conversion of $22,722.
NOTE P--FAIR VALUE OF FINANCIAL INSTRUMENTS
On May 1, 1995, the Bank adopted SFAS No. 107, Disclosures about Fair Values of
Financial Instruments, which requires disclosure of fair value information about
financial instruments, whether or not recognized in the statement of financial
condition. In cases where quoted market prices are not available, fair values
are based on estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. In that regard, the derived
fair value estimates cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in immediate settlement of the
instruments. SFAS No. 107 excludes certain financial instruments and all
nonfinancial instruments from its disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not represent the underlying value of
the Bank.
The following methods and assumptions were used by the Bank in estimating fair
values of financial instruments as disclosed herein.
Cash and due from depository institutions: The carrying amounts of cash and due
from depository institutions approximate their fair value.
Investment securities: Fair value is determined by reference to quoted market
prices.
Stock in FHLB: This stock is a restricted asset and its carrying value is a
reasonable estimate of fair value.
Loans held-for-sale: The carrying value is a reasonable estimate of fair value.
Loans receivable: The fair value of first mortgage loans is estimated by using
discounted cash flow analyses, using interest rates currently offered by the
Bank for loans with similar terms to borrowers of similar credit quality. The
majority of real estate loans are residential. First mortgage loans are
segregated by fixed and adjustable interest terms. The fair value of consumer
loans is calculated by using the discounted cash flow based upon the current
market for like instruments. Fair values for impaired loans are estimated using
discounted cash flow analyses.
Accrued interest receivable: The carrying value approximates fair value.
F-17
<PAGE>
NOTE P--FAIR VALUE OF FINANCIAL INSTRUMENTS - Cont'd
Transaction deposits: Transaction deposits, payable on demand or with
maturities of 90 days or less, have a fair value equal to book value.
Certificates of Deposit: The fair value of fixed maturity certificates of
deposit is estimated by discounting the future cash flows using the rates
currently offered for deposits of similar maturities.
Advances from borrowers for taxes and insurance: The book value approximates
fair value.
All other liabilities: The book value approximates fair value.
Off-Balance Sheet Instruments: The fair value of a loan commitment and a letter
of credit is determined based on the fees currently charged to enter into
similar agreements, taking into account the remaining terms of the agreement and
the present creditworthiness of the counterparties. Neither the fees earned
during the year on these instruments nor their value at year-end are significant
to the Bank's consolidated financial position.
Limitations: Fair value estimates are made at a specific point in time, based
on relevant market information and information about the financial instrument.
The valuation techniques employed above involve uncertainties and are affected
by assumptions used and judgements regarding prepayments, credit risk, discount
rates, cash flows and other factors. Changes in assumptions could significantly
affect the reported fair value.
In addition, the fair value estimates are based on existing on and off-balance
sheet financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that are not
considered financial instruments. For example, the Bank has a mortgage
servicing portfolio that contributes net fee income annually. The mortgage
servicing portfolio is not considered a financial instrument and its value has
not been incorporated into the fair value estimates. Also, the fair value
estimates do not include the benefit that results from the low-cost funding
provided by the deposit liabilities compared to the cost of borrowing funds in
the market. The amounts at April 30, 1996 (dollars in thousands) are as follows:
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
-----------------
<S> <C> <C>
ASSETS
Cash and due from depository institutions $ 2,924 $ 2,924
Investment securities 3,216 3,216
Stock in FHLB 637 637
Loans held-for-sale, net 2,306 2,306
Loans receivable, net 73,893 73,923
Accrued interest receivable 608 608
LIABILITIES
Transaction accounts 14,919 14,919
Certificates of deposit 55,397 55,513
Advances from Federal Home Loan Bank 5,000 5,000
Advances from borrowers for taxes and insurance 620 620
Accrued interest payable 300 300
</TABLE>
F-18
<PAGE>
No dealer, salesman or any other person has been authorized to give any
information or to make any representation other than as contained in this
Prospectus in connection with the offering made hereby, and, if given or made,
such other information or representation must not be relied upon as having been
authorized by Fulton Bancorp, Inc., or Fulton Savings Bank, FSB. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any of the securities offered hereby to any person or in any jurisdiction in
which such offer or solicitation is not authorized or in which the person making
such offer or solicitation is not qualified to do so, or to any person to whom
it is unlawful to make such offer or solicitation in such jurisdiction. Neither
the delivery of this Prospectus nor any sale hereunder shall under any
circumstances create any implication that there has been no change in the
affairs of Fulton Bancorp, Inc. or Fulton Savings Bank, FSB since any of the
dates as of which information is furnished herein or since the date hereof.
Table of Contents Page
----------------- ----
Prospectus Summary.............................................
Selected Consolidated Financial Information....................
Risk Factors...................................................
Fulton Bancorp, Inc............................................
Fulton Savings Bank, FSB ......................................
Use of Proceeds................................................
Dividend Policy................................................
Market for Common Stock........................................
Capitalization.................................................
Historical and Pro Forma Capital Compliance....................
Pro Forma Data.................................................
Shares to be Purchased by Management Pursuant to Subscription
Rights.......................................................
Fulton Savings Bank, FSB and Subsidiary........................
Consolidated Statements of Income..............................
Management's Discussion and Analysis of Financial..............
Condition and Results of Operations............................
Recent Developments............................................
Business of the Holding Company................................
Business of the Savings Bank...................................
Management of the Holding Company..............................
Management of the Savings Bank.................................
Regulation.....................................................
Taxation.......................................................
The Conversion.................................................
Restrictions on Acquisition of the Holding Company.............
Description of Capital Stock of the Holding Company............
Registration Requirements......................................
Legal and Tax Opinions.........................................
Experts........................................................
Additional Information.........................................
Index to Consolidated Financial Statements.....................
Until the later of ___________, 1996, or 25 days after commencement of the
Syndicated Community Offering of Common Stock, if any, all dealers effecting
transactions in the registered securities, whether or not participating in this
distribution, may be required to deliver a prospectus. This is in addition to
the obligation of dealers to deliver a prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
[Logo]
(Proposed Holding Company for Fulton Savings Bank, FSB)
1,105,000 to 1,495,000 Shares of
Common Stock
----------------
Prospectus
----------------
TRIDENT SECURITIES, INC.
___________, 1996
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution(1)
<TABLE>
<S> <C>
Legal fees............................... $115,000
Securities marketing legal fees.......... 28,500
Printing, postage and mailing............ 65,000
Appraisal and business plan preparation.. 27,500
Accounting fees.......................... 75,000
Securities marketing fees and expenses... 167,500
Data processing fees and expenses........ 8,500
SEC registration fee..................... 6,000
Blue Sky filing fees and expenses........ 15,000
OTS filing fees.......................... 8,400
Other expenses........................... 25,500
--------
Total................................ $541,900
========
- -------------------------
</TABLE>
(1) Assumes all of the Common Stock will be sold in the Subscription and
Direct Community Offerings.
Item 14. Indemnification of Officers and Directors
Article XVII of the Certificate of Incorporation of Fulton Bancorp,
Inc. requires indemnification of directors, officers and employees to
the fullest extent permitted by Delaware law.
Section 145 of the Delaware General Corporation Law sets forth
circumstances under which directors, officers, employees and agents
may be insured or indemnified against liability which they may incur
in their capacities:
145 INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS;
INSURANCE.--(a) A corporation may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no
II-1
<PAGE>
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b) of this
section. Such determination shall be made (1) by the board of directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even
if obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the corporation as authorized in this section. Such expenses (including
attorneys' fees) incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the board of directors deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him or
incurred by him any such capacity, or arising out of his status as such, whether
or not the corporation would have the power to indemnify him against such
liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agents, so that any
person who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
this section with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued.
(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
II-2
<PAGE>
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Item 15. Recent Sales of Unregistered Securities.
Not Applicable
Item 16. Exhibits and Financial Statement Schedules:
The financial statements and exhibits filed as part of this
Registration Statement are as follows:
(a) List of Exhibits
INDEX TO EXHIBITS
<TABLE>
<S> <C> <C>
1.1 - Form of proposed Agency Agreement among Fulton Bancorp, Inc., Fulton
Savings Bank, FSB and Trident Securities, Inc. (a)
1.2 - Engagement Letter between Fulton Savings Bank, FSB and Trident
Securities, Inc.
2 - Plan of Conversion of Fulton Savings Bank, FSB (attached as an exhibit
to the Proxy Statement included herein as Exhibit 99.5)
3.1 - Certificate of Incorporation of Fulton Bancorp, Inc.
3.2 - Bylaws of Fulton Bancorp, Inc.
4 - Form of Certificate for Common Stock (a)
5 - Opinion of Breyer & Aguggia regarding legality of securities registered
8.1 - Form of Federal Tax Opinion of Breyer & Aguggia
8.2 - Form of State Tax Opinion of Moore, Horton & Carlson, P.C.
8.3 - Opinion of RP Financial, LC. as to the value of subscription rights
10.1 - Proposed Form of Employment Agreement with Certain Executive Officers
10.2 - Proposed Form of Stock Option Plan
10.3 - Proposed Form of Management Recognition Plan and Trust Agreement
10.4 - Proposed Form of Employee Stock Ownership Plan
10.5 - Fulton Savings and Loan Association Retirement Trust (a)
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C> <C>
21 - Subsidiaries of Fulton Bancorp, Inc.
23.1 - Consent of Moore, Horton & Carlson, P.C.
23.2 - Consent of Breyer & Aguggia (contained in opinion included as Exhibit 5)
23.3 - Consent of Breyer & Aguggia as to its Federal Tax Opinion
23.4 - Consent of RP Financial, LC.
24 - Power of Attorney (contained in signature page to the Registration Statement)
27 - Financial Data Schedule
99.1 - Order and Acknowledgement Form (a)
99.2 - Solicitation and Marketing Materials
99.3 - Appraisal Agreement with RP Financial, LC.
99.4 - Appraisal Report of RP Financial, LC. (a)
99.5 - Proxy Statement for Special Meeting of Members of Fulton Savings
Bank, FSB
99.6 - Prospectus Supplement for Fulton Savings Bank Retirement Trust
- ---------------------
</TABLE>
(a) To be filed by amendment.
Financial Statements and Schedules
<TABLE>
<CAPTION>
Fulton Savings Bank, FSB and Subsidiary
<S> <C>
Pages
Independent Auditors' Report............................................... F-1
Consolidated Statements of Financial Condition as of
April 30, 1996 and 1995................................................... F-2
Consolidated Statements of Changes in Equity
for the Years Ended April 30, 1996, 1995 and 1994......................... F-3
Consolidated Statements of Income
for the Years Ended April 30, 1996, 1995 and 1994......................... 19
Consolidated Statements of Cash Flows
for the Years Ended April 30, 1996, 1995 and 1994......................... F-4
Notes to Consolidated Financial Statements................................. F-5
</TABLE>
II-4
<PAGE>
All schedules are omitted because the required information is either not
applicable or is included in the financial statements or related notes.
Item 17. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933, as amended ("Securities Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934, as amended ("Exchange Act") (and, where
applicable, each filing of any employee benefit plan's annual report pursuant to
Section 15(d) of the Exchange Act) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act, and is therefore, unenforceable. In the event that a claim for
indemnification against liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the questions whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Fulton, Missouri on the
19th day of July, 1996.
FULTON BANCORP, INC.
By: /s/ Kermit D. Gohring
------------------------------------------
Kermit D. Gohring
President and Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned directors and officers of Fulton Bancorp, Inc., do
hereby severally constitute and appoint Kermit D. Gohring and Richard W.
Gohring, our true and lawful attorneys and agents, to do any and all things and
acts in our names in the capacities indicated below and to execute all
instruments for us and in our names in the capacities indicated below which said
Kermit D. Gohring and Richard W. Gohring may deem necessary or advisable to
enable Fulton Bancorp, Inc. to comply with the Securities Act of 1933, as
amended, and any rules, regulations and requirements of the Securities and
Exchange Commission, in connection with the Registration Statement on Form S-1
relating to the offering of Fulton Bancorp Inc.'s Common Stock, including
specifically but not limited to, power and authority to sign for us or any of us
in our names in the capacities indicated below the Registration Statement and
any and all amendments (including post-effective amendments) thereto; and we
hereby ratify and confirm all that Kermit D. Gohring and Richard W. Gohring
shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
Signatures Title Date
- ---------- ----- ----
/s/ Kermit D. Gohring President, Chief Executive Officer July 19, 1996
- ------------------------ and Director
Kermit D. Gohring (Principal Executive Officer)
/s/ Richard W. Gohring Vice President and Director July 19, 1996
- ------------------------ (Principal Financial Officer)
Richard W. Gohring
/s/ Bonnie K. Smith Secretary-Treasurer and Director July 19, 1996
- ------------------------ (Principal Accounting Officer)
Bonnie K. Smith
/s/ Clifford E. Hamilton Director July 19, 1996
- ------------------------
Clifford E. Hamilton
<PAGE>
/s/ Billy Conner Director July 19, 1996
- -------------------------
Billy Conner
/s/ David West Director July 19, 1996
- -------------------------
David West
/s/ Dennis Adrian Director July 19, 1996
- ------------------------
Dennis Adrian
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<S> <C>
1.1 -- Form of proposed Agency Agreement among Fulton Bancorp, Inc., Fulton
Savings Bank, FSB and Trident Securities, Inc. (a)
1.2 -- Engagement Letter between Fulton Savings Bank, FSB and Trident
Securities, Inc.
2 -- Plan of Conversion of Fulton Savings Bank, FSB (attached as an
exhibit to the Proxy Statement included herein as Exhibit 99.5)
3.1 -- Certificate of Incorporation of Fulton Bancorp, Inc.
3.2 -- Bylaws of Fulton Bancorp, Inc.
4 -- Form of Certificate for Common Stock (a)
5 -- Opinion of Breyer & Aguggia regarding legality of securities
registered
8.1 -- Form of Federal Tax Opinion of Breyer & Aguggia
8.2 -- Form of State Tax Opinion of Moore, Horton & Carlson, P.C.
8.3 -- Opinion of RP Financial, LC. as to the value of subscription rights
10.1 -- Proposed Form of Employment Agreement with Certain Executive
Officers
10.2 -- Proposed Form of Stock Option Plan
10.3 -- Proposed Form of Management Recognition Plan
10.4 -- Proposed Form of Employee Stock Ownership Plan
10.5 -- Fulton Savings and Loan Association Retirement Trust (a)
21 -- Subsidiaries of Fulton Bancorp, Inc.
23.1 -- Consent of Moore, Horton & Carlson, P.C.
23.2 -- Consent of Breyer & Aguggia (contained in opinion included as
Exhibit 5)
23.3 -- Consent of Breyer & Aguggia as to its Federal Tax Opinion
23.4 -- Consent of RP Financial, LC.
24 -- Power of Attorney (contained in signature page to the Registration
Statement)
27 -- Financial Data Schedule
99.1 -- Order and Acknowledgement Form (a)
99.2 -- Solicitation and Marketing Materials
</TABLE>
<PAGE>
<TABLE>
<S> <C>
99.3 -- Appraisal Agreement with RP Financial, LC.
99.4 -- Appraisal Report of RP Financial, LC. (a)
99.5 -- Proxy Statement for Special Meeting of Members of Fulton Savings
Bank, FSB
99.6 -- Prospectus Supplement for Fulton Savings Bank Retirement Trust
</TABLE>
_____________________
(a) To be filed by amendment.
<PAGE>
EXHIBIT 1.2
ENGAGEMENT LETTER BETWEEN FULTON SAVINGS BANK, FSB,
AND TRIDENT SECURITIES, INC.
<PAGE>
[Letterhead of Trident Securities, Inc. appears here]
February 27, 1996
Board of Directors
Fulton Savings Bank
410 Market Street
Fulton, Missouri 65251
RE: Conversion Stock Marketing Services
Gentlemen:
This letter sets forth the terms of the proposed engagement between Trident
Securities, Inc. ("Trident") and Fulton Savings Bank, Fulton, Missouri (the
"Bank") concerning our investment banking services in connection with the
conversion of the Bank from a mutual to a capital stock form of organization.
Trident is prepared to assist the Bank in connection with the offering of its
shares of common stock during the subscription offering and community offering
as such terms are defined in the Bank's Plan of Conversion. The specific terms
of the services contemplated hereunder shall be set forth in a definitive sales
agency agreement (the "Agreement") between Trident and the Bank to be executed
on the date the offering circular/prospectus is declared effective by the
appropriate regulatory authorities. The price of the shares during the
subscription offering and community offering will be the price established by
the Bank's Board of Directors, based upon an independent appraisal as approved
by the appropriate regulatory authorities, provided such price is mutually
acceptable to Trident and the Bank.
In connection with the subscription offering and community offering, Trident
will act as financial advisor and exercise its best efforts to assist the Bank
in the sale of its common stock during the subscription offering and community
offering. Additionally, Trident may enter into agreements with other National
Association of Securities Dealers, Inc., ("NASD") member firms to act as
selected dealers, assisting in the sale of the common stock. Trident and the
Bank will determine the selected dealers to assist the Bank during the community
offering. At the appropriate time, Trident in conjunction with its counsel, will
conduct an examination of the relevant documents and records of the Bank as
Trident deems necessary and appropriate. The Bank will make all documents,
records and other information deemed necessary by Trident or its counsel
available to them upon request.
For its services hereunder, Trident will receive the following compensation and
reimbursement from the Bank:
1. A management fee in the amount of $157,500.
<PAGE>
Board of Directors
February 27, 1996
Page 2
2. For stock sold by other NASD member firms under selected dealer's
agreements, the commission shall not exceed a fee to be agreed upon
jointly by Trident and the Bank to reflect market requirements at the
time of the stock allocation in a Syndicated Community Offering.
3. The foregoing fees and commissions are to be payable to Trident at
closing as defined in the Agreement to be entered into between the
Bank and Trident.
4. Trident shall be reimbursed for allocable expenses incurred by them,
including legal fees, whether or not the Agreement is consummated.
Trident's out-of-pocket expenses will not exceed $10,000 and its legal
fees will not exceed $28,500. The Bank will forward to Trident a check
in the amount of $10,000 as an advance payment to defray the allocable
expenses of Trident.
It further is understood that the Bank will pay all other expenses of the
conversion including but not limited to its attorneys' fees, NASD filing fees,
and filing and registration fees and fees of either Trident's attorneys or the
attorneys relating to any required state securities law filings, telephone
charges, air freight, rental equipment, supplies, transfer agent charges, fees
relating to auditing and accounting and costs of printing all documents
necessary in connection with the foregoing.
For purposes of Trident's obligation to file certain documents and to make
certain representations to the NASD in connection with the conversion, the Bank
warrants that: (a) the Bank has not privately placed any securities within the
last 18 months; (b) there have been no material dealings within the last 12
months between the Bank and any NASD member or any person related to or
associated with any such member; (c) none of the officers or directors of the
Bank has any affiliation with the NASD; (d) except as contemplated by this
engagement letter with Trident, the Bank has no financial or management
consulting contracts outstanding with any other person; (e) the Bank has not
granted Trident a right of first refusal with respect to the underwriting of any
future offering of the Bank stock; and (f) there has been no intermediary
between Trident and the Bank in connection with the public offering of the
Bank's shares, and no person is being compensated in any manner for providing
such service.
The Bank agrees to indemnify and hold harmless Trident and each person, if any,
who controls the firm against all losses, claims, damages or liabilities, joint
or several and all legal or other expenses reasonably incurred by them in
connection with the investigation or defense thereof (collectively, "Losses"),
to which they may become subject under the securities laws or under the common
law, that arise out of or are based upon the conversion or the engagement
hereunder of Trident unless it is determined by final judgment of a court having
jurisdiction over the matter that such Losses are primarily a result of
Trident's willful misconduct or gross negligence. If the foregoing
indemnification is unavailable for any reason, the Bank agrees to contribute to
such Losses in the proportion that its financial interest in the conversion
bears to that of the indemnified parties. If the Agreement is entered into with
respect to the common stock to be issued in the conversion, the Agreement will
provide for indemnification, which will be in addition to any rights that
Trident or any other indemnified party may
<PAGE>
Board of Directors
February 27, 1996
Page 3
have at common law or otherwise. The indemnification provision of this paragraph
will be superseded by the indemnification provisions of the Agreement entered
into by the Bank and Trident.
This letter is merely a statement of intent and is not a binding legal agreement
except as to paragraph (4) above with regard to the obligation to reimburse
Trident for allocable expenses to be incurred prior to the execution of the
Agreement and the indemnity described in the preceding paragraph. While Trident
and the Bank agree in principle to the contents hereof and propose to proceed
promptly, and in good faith, to work out the arrangements with respect to the
proposed offering, any legal obligations between Trident and the Bank shall be
only as set forth in a duly executed Agreement. Such Agreement shall be in form
and content satisfactory to Trident and the Bank, as well as their counsel, and
Trident's obligations thereunder shall be subject to, among other things, there
being in Trident's opinion no material adverse change in the condition or
obligations of the Bank or no market conditions which might render the sale of
the shares by the Bank hereby contemplated inadvisable.
Please acknowledge your agreement to the foregoing by signing below and
returning to Trident one copy of this letter along with the advance payment of
$10,000. This proposal is open for your acceptance for a period of thirty (30)
days from the date hereof.
Yours very truly,
TRIDENT SECURITIES, INC.
By: /s/ Timothy E. Lavelle
----------------------
Timothy E. Lavelle
President
Agreed and accepted to this 21st day
of March, 1996
FULTON SAVINGS BANK
By: /s/ Kermit D. Gohring
------------------------
Kermit D. Gohring
President
TEL:cs
1-23-4
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION OF FULTON BANCORP, INC.
<PAGE>
CERTIFICATE OF INCORPORATION
OF
FULTON BANCORP, INC.
ARTICLE I
NAME
The name of the corporation is Fulton Bancorp, Inc. (herein the
"Corporation").
ARTICLE II
REGISTERED OFFICE
The address of the Corporation's registered office in the State of Delaware
is 1209 Orange Street, Corporation Trust Center, in the City of Wilmington,
County of New Castle. The name of the Corporation's registered agent at such
address is The Corporation Trust Company.
ARTICLE III
POWERS
The purpose for which the Corporation is organized is to act as a savings
and loan holding company and to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the State of
Delaware. The Corporation shall have all the powers of a corporation organized
under the General Corporation Law of the State of Delaware.
ARTICLE IV
TERM
The Corporation is to have perpetual existence.
ARTICLE V
INCORPORATORS
The name and mailing address of the incorporator are:
Name Mailing Address
---- ---------------
Kermit D. Gohring 410 Market Street
Fulton, Missouri 65251
<PAGE>
ARTICLE VI
INITIAL DIRECTORS
The number of directors constituting the initial board of directors of the
Corporation is seven (7), and the names and addresses of the persons who are to
serve as the initial directors until their successors are elected and qualified,
together with the classes of directorships to which such persons have been
assigned, are:
<TABLE>
<CAPTION>
Name Address Class
- ---- ------- -----
<S> <C> <C>
Richard W. Gohring 410 Market Street I
Fulton, Missouri 65251
Dennis Adrian 410 Market Street I
Fulton, Missouri 65251
Bonnie K. Smith 410 Market Street II
Fulton, Missouri 65251
David West 410 Market Street II
Fulton, Missouri 65251
Kermit D. Gohring 410 Market Street III
Fulton, Missouri 65251
Clifford E. Hamilton 410 Market Street III
Fulton, Missouri 65251
Billy Conner 410 Market Street III
Fulton, Missouri 65251
</TABLE>
ARTICLE VII
CAPITAL STOCK
The aggregate number of shares of all classes of capital stock which the
Corporation has authority to issue is seven million (7,000,000), of which six
million (6,000,000) are to be shares of common stock, $.01 par value per share,
and of which one million (1,000,000) are to be shares of serial preferred stock,
$.01 par value per share. The shares may be issued by the Corporation from time
to time as approved by the board of directors of the Corporation without the
approval of stockholders except as otherwise provided in this Article VII or the
rules of a national securities exchange, if applicable. The consideration for
the issuance of the shares shall be paid to or received by the Corporation in
full before their issuance and shall not be less than the par value per share.
The consideration for the issuance of the shares shall be cash, services
rendered, personal property (tangible or intangible), real property, leases of
real property or any combination of the foregoing. In the absence of actual
fraud in the transaction, the judgment of the board of directors as to the value
of such consideration shall be conclusive. Upon payment of such consideration
such shares shall be deemed to be fully paid and nonassessable. In the case of
a stock dividend, the part of the surplus of the Corporation which is
transferred to stated capital upon the issuance of shares as a stock dividend
shall be deemed to be the consideration for their issuance.
2
<PAGE>
A description of the different classes and series (if any) of the
Corporation's capital stock, and a statement of the relative powers,
designations, preferences and rights of the shares of each class and series (if
any) of capital stock, and the qualifications, limitations or restrictions
thereof, are as follows:
A. Common Stock. Except as provided in this Certificate, the holders of
------------
the common stock shall exclusively possess all voting power. Each holder of
shares of common stock shall be entitled to one vote for each share held by such
holder.
Whenever there shall have been paid, or declared and set aside for payment,
to the holders of the outstanding shares of any class of stock having preference
over the common stock as to the payment of dividends, the full amount of
dividends and sinking fund or retirement fund or other retirement payments, if
any, to which such holders are respectively entitled in preference to the common
stock, then dividends may be paid on the common stock, and on any class or
series of stock entitled to participate therewith as to dividends, out of any
assets legally available for the payment of dividends, but only when as declared
by the board of directors of the Corporation.
In the event of any liquidation, dissolution or winding up of the
Corporation, after there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class having preference
over the common stock in any such event, the full preferential amounts to which
they are respectively entitled, the holders of the common stock and of any class
or series of stock entitled to participate therewith, in whole or in part, as to
distribution of assets shall be entitled, after payment or provision for payment
of all debts and liabilities of the Corporation, to receive the remaining assets
of the Corporation available for distribution, in cash or in kind.
Each share of common stock shall have the same relative powers, preferences
and rights as, and shall be identical in all respects with, all the other shares
of common stock of the Corporation.
B. Serial Preferred Stock. Except as provided in this Certificate, the
----------------------
board of directors of the Corporation is authorized, by resolution or
resolutions from time to time adopted, to provide for the issuance of preferred
stock in series and to fix and state the powers, designations, preferences and
relative, participating, optional or other special rights of the shares of such
series, and the qualifications, limitations or restrictions thereof, including,
but not limited to determination of any of the following:
1. the distinctive serial designation and the number of shares
constituting such series;
2. the dividend rates or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative and, if so, from
which date or dates, the payment date or dates for dividends, and the
participating or other special rights, if any, with respect to dividends;
3. the voting powers, full or limited, if any, of the shares of such
series;
4. whether the shares of such series shall be redeemable and, if so,
the price or prices at which, and the terms and conditions upon which such
shares may be redeemed;
5. the amount or amounts payable upon the shares of such series in
the event of voluntary or involuntary liquidation, dissolution or winding up of
the Corporation;
6. whether the shares of such series shall be entitled to the
benefits of a sinking or retirement fund to be applied to the purchase or
redemption of such shares, and, if so entitled, the amount of such fund and the
manner of its application, including the price or prices at which such shares
may be redeemed or purchased through the application of such funds;
7. whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes or any other series of
the same or any other class or classes of stock of the Corporation
3
<PAGE>
and, if so convertible or exchangeable, the conversion price or prices, or the
rate or rates of exchange, and the adjustments thereof, if any, at which such
conversion or exchange may be made, and any other terms and conditions of such
conversion or exchange;
8. the subscription or purchase price and form of consideration for
which the shares of such series shall be issued; and
9. whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of serial preferred
stock and whether such shares may be reissued as shares of the same or any other
series of serial preferred stock.
Each share of each series of preferred stock shall have the same relative
powers, preferences and rights as, and shall be identical in all respects with,
all the other shares of the Corporation of the same series.
C. 1. Notwithstanding any other provision of this Certificate, in no
event shall any record owner of any outstanding common stock which is
beneficially owned, directly or indirectly, by a person who, as of any record
date for the determination of stockholders entitled to vote on any matter,
beneficially owns in excess of 10% of the then-outstanding shares of common
stock (the "Limit"), be entitled, or permitted to any vote in respect of the
shares held in excess of the Limit, unless a majority of the Whole Board (as
hereinafter defined) shall have by resolution granted in advance such
entitlement or permission. The number of votes which may be cast by any record
owner by virtue of the provisions hereof in respect of common stock beneficially
owned by such person owning shares in excess of the Limit shall be a number
equal to the total number of votes which a single record owner of all common
stock owned by such person would be entitled to cast, multiplied by a fraction,
the numerator of which is the number of shares of such class or series which are
both beneficially owned by such person and owned of record by such record owner
and the denominator of which is the total number of shares of common stock
beneficially owned by such person owning shares in excess of the Limit.
2. The following definitions shall apply to this Section C of this
Article VII.
(a) "Affiliate" shall have the meaning ascribed to it in Rule
12b-2 of the General Rules and Regulations under the Securities Exchange Act of
1934, as in effect on the date of filing of this Certificate.
(b) "Beneficial ownership" shall be determined pursuant to Rule
13d-3 of the General Rules and Regulations under the Securities Exchange Act of
1934 (or any successor rule or statutory provision), or, if said Rule 13d-3
shall be rescinded and there shall be no successor rule or provision thereto,
pursuant to said Rule 13d-3 as in effect on the date of filing of this
Certificate; provided, however, that a person shall, in any event, also be
-------- -------
deemed the "beneficial owner" of any common stock:
(i) which such person or any of its affiliates
beneficially owns, directly or indirectly; or
(ii) which such person or any of its affiliates has (A)
the right to acquire (whether such right is exercisable immediately or only
after the passage of time), pursuant to any agreement, arrangement or
understanding (but shall not be deemed to be the beneficial owner of any voting
shares solely by reason of an agreement, contract, or other arrangement with
this Corporation to effect any transaction which is described in any one or more
of subparagraphs A(1)(a) through (h) of Article XIV or upon the exercise of
conversion rights, exchange rights, warrants, or options or otherwise, or (B)
sole or shared voting or investment power with respect thereto pursuant to any
agreement, arrangement, understanding, relationship or otherwise (but shall not
be deemed to be the beneficial owner of any voting shares solely by reason of a
revocable proxy granted for a particular meeting of stockholders, pursuant to a
public solicitation of proxies for such meeting, with respect to shares of which
neither such person nor any such affiliate is otherwise deemed the beneficial
owner); or
4
<PAGE>
(iii) which are beneficially owned, directly or
indirectly, by any other person with which such first mentioned person or any of
its affiliates acts as a partnership, limited partnership, syndicate or other
group pursuant to any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of any shares of capital stock of this
Corporation; and provided further, however, that (i) no director or officer of
-------------------------
this Corporation (or any affiliate of any such director or officer) shall,
solely by reason of any or all of such directors of officers acting in their
capacities as such, be deemed, for any purposes hereof, to beneficially own any
common stock beneficially owned by any other such director or officer (or any
affiliate thereof), and (ii) neither any employee stock ownership or similar
plan of this Corporation or any subsidiary of this Corporation, nor any trustee
with respect thereto or any affiliate of such trustee (solely by reason of such
capacity of such trustee), shall be deemed, for any purposes hereof, to
beneficially own any common stock held under any such plan. For purposes of
computing the percentage beneficial ownership of common stock of a person, the
outstanding common stock shall include shares deemed owned by such person
through application of this subsection but shall not include any other common
stock which may be issuable by this Corporation pursuant to any agreement, or
upon exercise of conversion rights, warrants or options, or otherwise. For all
other purposes, the outstanding common stock shall include only common stock
then outstanding and shall not include any common stock which may be issuable by
this Corporation pursuant to any agreement, or upon the exercise of conversion
rights, warrants or options, or otherwise.
(c) A "person" shall mean any individual, firm, corporation, or
other entity.
(d) "Whole Board" shall mean the total number of directors which
the Corporation would have if there were no vacancies on the board of directors.
3. The board of directors shall have the power to construe and apply
the provisions of this Section and to make all determinations necessary or
desirable to implement such provisions, including but not limited to matters
with respect to (i) the number of shares of common stock beneficially owned by
any person, (ii) whether a person is an affiliate of another, (iii) whether a
person has an agreement, arrangement, or understanding with another as to the
matters referred to in the definition of beneficial ownership, (iv) the
application of any other definition or operative provision of this Section to
the given facts, or (v) any other matter relating to the applicability or effect
of this Section.
4. The board of directors shall have the right to demand that any
person who is reasonably believed to beneficially own common stock in excess of
the Limit (or holds of record common stock beneficially owned by any person in
excess of the Limit) supply the Corporation with complete information as to (i)
the record owner(s) of all shares beneficially owned by such person who is
reasonably believed to own shares in excess of the Limit, and (ii) any other
factual matter relating to the applicability or effect of this section as may
reasonably be required of such person.
5. Except as otherwise provided by law or expressly provided in this
Section C, the presence, in person or by proxy, of the holders of record of
shares of capital stock of the Corporation entitling the holders thereof to cast
a majority of the votes (after giving effect, if required, to the provisions of
this Section C) entitled to be cast by the holders of shares of capital stock of
the Corporation entitled to vote shall constitute a quorum at all meetings of
the stockholders, and every reference in this Certificate to a majority or other
proportion of capital stock (or the holders thereof) for purposes of determining
any quorum requirement or any requirement for stockholder consent or approval
shall be deemed to refer to such majority or other proportion of the votes (or
the holders thereof) then entitled to be cast in respect of such capital stock.
6. Any constructions, applications, or determinations made by the
board of directors pursuant to this Section in good faith and on the basis of
such information and assistance as was then reasonably available for such
purpose shall be conclusive and binding upon the Corporation and its
stockholders.
7. In the event any provision (or portion thereof) of this Section C
shall be found to be invalid, prohibited or unenforceable for any reason, the
remaining provisions (or portions thereof) of this Section
5
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shall remain in full force and effect, and shall be construed as if such
invalid, prohibited or unenforceable provision had been stricken herefrom or
otherwise rendered inapplicable, it being the intent of this Corporation and its
stockholders that each such remaining provision (or portion thereof) of this
Section C remain, to the fullest extent permitted by law, applicable and
enforceable as to all stockholders, including stockholders owning an amount of
stock over the Limit, notwithstanding any such finding.
ARTICLE VIII
PREEMPTIVE RIGHTS
No holder of any of the shares of any class or series of stock or of
options, warrants or other rights to purchase shares of any class or series of
stock or of other securities of the Corporation shall have any preemptive right
to purchase or subscribe for any unissued stock of any class or series, or any
unissued bonds, certificates of indebtedness, debentures or other securities
convertible into or exchangeable for stock of any class or series or carrying
any right to purchase stock of any class or series; but any such unissued stock,
bonds, certificates of indebtedness, debentures or other securities convertible
into or exchangeable for stock or carrying any right to purchase stock may be
issued pursuant to resolution of the board of directors of the Corporation to
such persons, firms, corporations or associations, whether or not holders
thereof, and upon such terms as may be deemed advisable by the board of
directors in the exercise of its sole discretion.
ARTICLE IX
REPURCHASE OF SHARES
The Corporation may from time to time, pursuant to authorization by the
board of directors of the Corporation and without action by the stockholders,
purchase or otherwise acquire shares of any class, bonds, debentures, notes,
scrip, warrants, obligations, evidences of indebtedness, or other securities of
the Corporation in such manner, upon such terms, and in such amounts as the
board of directors shall determine; subject, however, to such limitations or
restrictions, if any, as are contained in the express terms of any class of
shares of the Corporation outstanding at the time of the purchase or acquisition
in question or as are imposed by law.
ARTICLE X
MEETINGS OF STOCKHOLDERS; CUMULATIVE VOTING
A. Notwithstanding any other provision of this Certificate or the Bylaws
of the Corporation, no action required to be taken or which may be taken at any
annual or special meeting of stockholders of the Corporation may be taken
without a meeting, and the power of stockholders to consent in writing, without
a meeting, to the taking of any action is specifically denied.
B. Special meetings of the stockholders of the Corporation for any
purpose or purposes may be called at any time by the board of directors of the
Corporation, or by a committee of the board of directors which has been duly
designated by the board of directors and whose powers and authorities, as
provided in a resolution of the board of directors or in the Bylaws of the
Corporation, include the power and authority to call such meetings, but such
special meetings may not be called by any other person or persons.
C. There shall be no cumulative voting by stockholders of any class or
series in the election of directors of the Corporation.
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D. Meetings of stockholders may be held at such place as the Bylaws may
provide.
ARTICLE XI
NOTICE FOR NOMINATIONS AND PROPOSALS
A. Nominations for the election of directors and proposals for any new
business to be taken up at any annual or special meeting of stockholders may be
made by the board of directors of the Corporation or by any stockholder of the
Corporation entitled to vote generally in the election of directors. In order
for a stockholder of the Corporation to make any such nominations and/or
proposals, he or she shall give notice thereof in writing, delivered or mailed
by first class United States mail, postage prepaid, to the Secretary of the
Corporation not less than thirty days nor more than sixty days prior to any such
meeting; provided, however, that if less than thirty-one days' notice of the
meeting is given to stockholders, such written notice shall be delivered or
mailed, as prescribed, to the Secretary of the Corporation not later than the
close of the tenth day following the day on which notice of the meeting was
mailed to stockholders. Each such notice given by a stockholder with respect to
nominations for election of directors shall set forth (i) the name, age,
business address and, if known, residence address of each nominee proposed in
such notice, (ii) the principal occupation or employment of each such nominees,
(iii) the number of shares of stock of the Corporation which are beneficially
owned by each such nominee, (iv) such other information as would be required to
be included in a proxy statement soliciting proxies for the election of the
proposed nominee pursuant to Regulation 14A of the Securities Exchange Act of
1934, as amended, including, without limitation, such person's written consent
to being named in the proxy statement as a nominee and to serving as a director,
if elected, and (v) as to the stockholder giving such notice (a) his name and
address as they appear on the Corporation's books and (b) the class and number
of shares of the Corporation which are beneficially owned by such stockholder.
In addition, the stockholder making such nomination shall promptly provide any
other information reasonably requested by the Corporation.
B. Each such notice given by a stockholder to the Secretary with respect
to business proposals to bring before a meeting shall set forth in writing as to
each matter: (i) a brief description of the business desired to be brought
before the meeting and the reasons for conducting such business at the meeting,
(ii) the name and address, as they appear on the Corporation's books, of the
stockholder proposing such business; (iii) the class and number of shares of the
Corporation which are beneficially owned by the stockholder; and (iv) any
material interest of the stockholder in such business. Notwithstanding anything
in this Certificate to the contrary, no business shall be conducted at the
meeting except in accordance with the procedures set forth in this Article.
C. The Chairman of the annual or special meeting of stockholders may, if
the facts warrant, determine and declare to the meeting that a nomination or
proposal was not made in accordance with the foregoing procedure, and, if the
Chairman should so determine, the Chairman shall so declare to the meeting and
the defective nomination or proposal shall be disregarded and laid over for
action at the next succeeding adjourned, special or annual meeting of the
stockholders taking place thirty days or more thereafter. This provision shall
not require the holding of any adjourned or special meeting of stockholders for
the purpose of considering such defective nomination or proposal.
ARTICLE XII
DIRECTORS
A. Number; Vacancies. The number of directors of the Corporation shall
-----------------
be such number, not less than 5 nor more than 25 (exclusive of directors, if
any, to be elected by holders of preferred stock of the Corporation, voting
separately as a class), as shall be provided from time to time in or in
accordance with the Bylaws; provided, however, that no decrease in the number of
directors shall have the effect of shortening the term of any incumbent
director, and provided further, that no action shall be taken to decrease or
increase the number of directors from time
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<PAGE>
to time unless at least two-thirds of the directors then in office shall concur
in said action. Vacancies in the board of directors of the Corporation, however
caused, and newly created directorships shall be filled by a vote of two-thirds
of the directors then in office, whether or not a quorum, and any director so
chosen shall hold office for a term expiring at the annual meeting of
stockholders at which the term of the class to which the director has been
chosen expires and when the director's successor is elected and qualified.
B. Classified Board. The board of directors of the Corporation shall be
----------------
divided into three classes of directors which shall be designated Class I, Class
II and Class III. The members of each class shall be elected for a term of
three years and until their successors are elected and qualified. Such classes
shall be as nearly equal in number as the then total number of directors
constituting the entire board of directors shall permit, with the terms of
office of all members of one class expiring each year. At the first annual
meeting of stockholders, directors in Class I shall be elected to hold office
for a term expiring at the third succeeding annual meeting thereafter. At the
second annual meeting of stockholders, directors of Class II shall be elected to
hold office for a term expiring at the third succeeding meeting thereafter. At
the third annual meeting of stockholders, directors of Class III shall be
elected to hold office for a term expiring at the third succeeding meeting
thereafter. Thereafter, at each succeeding annual meeting, directors of each
class shall be elected for three year terms. Notwithstanding the foregoing, the
director whose term shall expire at any annual meeting shall continue to serve
until such time as his successor shall have been duly elected and shall have
qualified unless his position on the board of directors shall have been
abolished by action taken to reduce the size of the board of directors prior to
said meeting.
Should the number of directors of the Corporation be reduced, the
directorship(s) eliminated shall be allocated among classes as appropriate so
that the number of directors in each class is as nearly as equal as possible.
The board of directors shall designate, by the name of the incumbent(s), the
position(s) to be abolished. Notwithstanding the foregoing, no decrease in the
number of directors shall have the effect of shortening the term of any
incumbent director. Should the number of directors of the Corporation be
increased, the additional directorships shall be allocated among classes as
appropriate so that the number of directors in each class is as nearly as equal
as possible.
Whenever the holders of any one or more series of preferred stock of the
Corporation shall have the right, voting separately as a class, to elect one or
more directors of the Corporation, the board of directors shall consist of said
directors so elected in addition to the number of directors fixed as provided
above in this Article XII. Notwithstanding the foregoing, and except as
otherwise may be required by law, whenever the holders of any one or more series
of preferred stock of the Corporation shall have the right, voting separately as
a class, to elect one or more directors of the Corporation, the terms of the
director or directors elected by such holders shall expire at the next
succeeding annual meeting of stockholders.
ARTICLE XIII
REMOVAL OF DIRECTORS
Notwithstanding any other provision of this Certificate or the Bylaws of
the Corporation, any director or the entire board of directors of the
Corporation may be removed, at any time, but only for cause and only by the
affirmative vote of the holders of at least 80% of the outstanding shares of
capital stock of the Corporation entitled to vote generally in the election of
directors (considered for this purpose as one class) cast at a meeting of the
stockholders called for that purpose. Notwithstanding the foregoing, whenever
the holders of any one or more series of preferred stock of the Corporation
shall have the right, voting separately as a class, to elect one or more
directors of the Corporation, the preceding provisions of this Article XIII
shall not apply with respect to the director or directors elected by such
holders of preferred stock.
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ARTICLE XIV
APPROVAL OF CERTAIN BUSINESS COMBINATIONS
The stockholder vote required to approve Business Combinations (as
hereinafter defined) shall be as set forth in this section.
A. 1. Except as otherwise expressly provided in this Article XIV, the
affirmative vote of the holders of (i) at least 80% of the outstanding shares
entitled to vote thereon (and, if any class or series of shares is entitled to
vote thereon separately, the affirmative vote of the holders of at least 80% of
the outstanding shares of each such class or series), and (ii) at least a
majority of the outstanding shares entitled to vote thereon, not including
shares deemed beneficially owned by a Related Person (as hereinafter defined),
shall be required in order to authorize any of the following:
(a) any merger or consolidation of the Corporation with or into
a Related Person (as hereinafter defined);
(b) any sale, lease, exchange, transfer or other disposition,
including without limitation, a mortgage, or any other security device, of all
or any Substantial Part (as hereinafter defined) of the assets of the
Corporation (including without limitation any voting securities of a subsidiary)
or of a subsidiary, to a Related Person;
(c) any merger or consolidation of a Related Person with or into
the Corporation or a subsidiary of the Corporation;
(d) any sale, lease, exchange, transfer or other disposition of
all or any Substantial Part of the assets of a Related Person to the Corporation
or a subsidiary of the Corporation;
(e) the issuance of any securities of the Corporation or a
subsidiary of the Corporation to a Related Person;
(f) the acquisition by the Corporation or a subsidiary of the
Corporation of any securities of a Related Person;
(g) any reclassification of the common stock of the Corporation,
or any recapitalization involving the common stock of the Corporation; and
(h) any agreement, contract or other arrangement providing for
any of the transactions described in this Article.
2. Such affirmative vote shall be required notwithstanding any other
provision of this Certificate, any provision of law, or any agreement with any
regulatory agency or national securities exchange which might otherwise permit a
lesser vote or no vote.
3. The term "Business Combination" as used in this Article XIV shall
mean any transaction which is referred to in any one or more of subparagraphs
A(1)(a) through (h) above.
B. The provisions of paragraph A shall not be applicable to any
particular Business Combination, and such Business Combination shall require
only such affirmative vote as is required by any other provision of this
Certificate, any provision of law, or any agreement with any regulatory agency
or national securities exchange, if the Business Combination shall have been
approved by a two-thirds vote of the Continuing Directors (as hereinafter
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<PAGE>
defined); provided, however, that such approval shall only be effective if
obtained at a meeting at which a Continuing Director Quorum (as hereinafter
defined) is present.
C. For the purposes of this Article XIV the following definitions apply:
1. The term "Related Person" shall mean and include (a) any
individual, corporation, partnership or other person or entity which together
with its "affiliates" (as that term is defined in Rule 12b-2 of the General
Rules and Regulations under the Securities Exchange Act of 1934, as amended),
"beneficially owns" (as that term is defined in Rule 13d-3 of the General Rules
and Regulations under the Securities Exchange Act of 1934, as amended) in the
aggregate 10% or more of the outstanding shares of the common stock of the
Corporation; and (b) any "affiliate" (as that term is defined in Rule 12b-2
under the Securities Exchange Act of 1934, as amended) of any such individual,
corporation, partnership or other person or entity. Without limitation, any
shares of the common stock of the Corporation which any Related Person has the
right to acquire pursuant to any agreement, or upon exercise or conversion
rights, warrants or options, or otherwise, shall be deemed "beneficially owned"
by such Related Person.
2. The term "Substantial Part" shall mean more than 25% of the total
assets of the Corporation, as of the end of its most recent fiscal year ending
prior to the time the determination is made.
3. The term "Continuing Director" shall mean any member of the board
of directors of the Corporation who is unaffiliated with the Related Person and
was a member of the board prior to the time that the Related Person became a
Related Person, and any successor of a Continuing Director who is unaffiliated
with the Related Person and is recommended to succeed a Continuing Director by a
majority of Continuing Directors then on the board.
4. The term "Continuing Director Quorum" shall mean two-thirds of
the Continuing Directors capable of exercising the powers conferred on them.
ARTICLE XV
EVALUATION OF BUSINESS COMBINATIONS
In connection with the exercise of its judgment in determining what is in
the best interests of the Corporation and of the stockholders, when evaluating a
Business Combination (as defined in Article XIV) or a tender or exchange offer,
the board of directors of the Corporation shall, in addition to considering the
adequacy of the amount to be paid in connection with any such transaction,
consider all of the following factors and any other factors which it deems
relevant; (i) the social and economic effects of the transaction on the
Corporation and its subsidiaries, employees, depositors, loan and other
customers, creditors and other elements of the communities in which the
Corporation and its subsidiaries operate or are located; (ii) the business and
financial condition and earnings prospects of the acquiring person or entity,
including, but not limited to, debt service and other existing financial
obligations, financial obligations to be incurred in connection with the
acquisition and other likely financial obligations of the acquiring person or
entity and the possible effect of such conditions upon the Corporation and its
subsidiaries and the other elements of the communities in which the Corporation
and its subsidiaries operate or are located; and (iii) the competence,
experience, and integrity of the acquiring person or entity and its or their
management.
ARTICLE XVI
INDEMNIFICATION
A. Persons. The Corporation shall indemnify, to the extent provided in
-------
paragraphs B, D or F:
1. any person who is or was a director, officer, employee, of the
Corporation; and
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2. any person who serves or served at the Corporation's request as a
director, officer, employee, agent, partner or trustee of another corporation,
partnership, joint venture, trust or other enterprise.
B. Extent -- Derivative Suits. In case of a threatened, pending or
--------------------------
completed action or suit by or in the right of the Corporation against a person
named in paragraph A by reason of his holding a position named in paragraph A,
the Corporation shall indemnify such person if such person satisfies the
standard in paragraph C, for expenses (including attorneys' fees but excluding
amounts paid in settlement) actually and reasonably incurred by such person in
connection with the defense or settlement of the action or suit.
C. Standard -- Derivative Suits. In case of a threatened, pending or
----------------------------
completed action or suit by or in the right of the Corporation, a person named
in paragraph A shall be indemnified only if:
1. such person is successful on the merits or otherwise; or
2. such person acted in good faith in the transaction which is the
subject of the suit or action, and in a manner such person reasonably believed
to be in, or not opposed to, the best interest of the Corporation, including,
but not limited to, the taking of any and all actions in connection with the
Corporation's response to any tender offer or any offer or proposal of another
party to engage in a Business Combination (as defined in Article XIV) not
---
approved by the board of directors. However, such person shall not be
- ----------------------------------
indemnified in respect of any claim, issue or matter as to which such person has
been adjudged liable to the Corporation unless (and only to the extent that) the
court in which the suit was brought shall determine, upon application, that
despite the adjudication but in view of all the circumstances, such person is
fairly and reasonably entitled to indemnity for such expenses as the court shall
deem proper.
D. Extent -- Nonderivative Suits. In case of a threatened, pending or
-----------------------------
completed suit, action or proceeding (whether civil, criminal, administrative or
investigative), other than a suit by or in the right of the Corporation,
together hereafter referred to as a nonderivative suit, against a person named
in paragraph A by reason of his holding a position named in paragraph A, the
Corporation shall indemnify such person if such person satisfies the standard in
paragraph E, for amounts actually and reasonably incurred by such person in
connection with the defense or settlement of the nonderivative suit, including,
but not limited to (i) expenses (including attorneys' fees), (ii) amounts paid
in settlement, (iii) judgments, and (iv) fines.
E. Standard -- Nonderivative Suits. In case of a nonderivative suit, a
-------------------------------
person named in paragraph A shall be indemnified only if:
1. such person is successful on the merits or otherwise; or
2. such person acted in good faith in the transaction which is the
subject of the nonderivative suit and in a manner such person reasonably
believed to be in, or not opposed to, the best interests of the Corporation,
including, but not limited to, the taking of any and all actions in connection
with the Corporation's response to any tender offer or any offer or proposal of
another party to engage in a Business Combination (as defined in Article XIV of
this Certificate) not approved by the board of directors and, with respect to
any criminal action or proceeding, such person had no reasonable cause to
believe his conduct was unlawful. The termination of a nonderivative suit by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
---------------
its equivalent shall not, in itself, create a presumption that the person failed
to satisfy the standard of this paragraph E.2.
F. Determination That Standard Has Been Met. A determination that the
----------------------------------------
standard of paragraph C or E has been satisfied may be made by a court, or,
except as stated in paragraph C.2 (second sentence), the determination may be
made by:
1. a majority vote of the directors of the Corporation who are not
parties to the action, suit or proceeding, even though less than a quorum; or
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2. independent legal counsel (appointed by a majority of the
disinterested directors of the Corporation, whether or not a quorum) in a
written opinion; or
3. the stockholders of the Corporation.
G. Proration. Anyone making a determination under paragraph F may
---------
determine that a person has met the standard as to some matters but not as to
others, and may reasonably prorate amounts to be indemnified.
H. Advance Payment. The Corporation may pay in advance any expenses
---------------
(including attorneys' fees) which may become subject to indemnification under
paragraphs A through G if (i) the board of directors authorizes the specific
payment; and (ii) the person receiving the payment undertakes in writing to
repay the same if it is ultimately determined that such person is not entitled
to indemnification by the Corporation under paragraphs A through G.
I. Nonexclusive. The indemnification and advance of expenses provided by
------------
paragraphs A through H shall not be exclusive of any other rights to which a
person may be entitled by law, bylaw, agreement, vote of stockholders or
disinterested directors, or otherwise.
J. Continuation. The indemnification provided by this Article XVI shall
------------
be deemed to be a contract between the Corporation and the persons entitled to
indemnification thereunder, and any repeal or modification of this Article XVI
shall not affect any rights or obligations then existing with respect to any
state of facts then or theretofore existing or any action, suit or proceeding
theretofore or thereafter brought based in whole or in part upon any such state
of facts. The indemnification and advance payment provided by paragraphs A
through H shall continue as to a person who has ceased to hold a position named
in paragraph A and shall inure to such person's heirs, executors and
administrators.
K. Insurance. The Corporation may purchase and maintain insurance on
---------
behalf of any person who holds or who has held any position named in paragraph
A, against any liability incurred by such person in any such position, or
arising out of such person's status as such, whether or not the Corporation
would have power to indemnify such person against such liability under
paragraphs A through H.
L. Savings Clause. If this Article XVI or any portion hereof shall be
--------------
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each director, officer, employee, and
agent of the Corporation as to costs, charges, and expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement with respect
to any action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, including an action by or in the right of the Corporation to the
full extent permitted by any applicable portion of this Article XVI that shall
not have been invalidated and to the full extent permitted by applicable law.
ARTICLE XVII
ELIMINATION OF DIRECTORS' LIABILITY
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except: (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
made in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the General Corporation Law of the
State of Delaware, or (iv) for any transaction from which a director derived an
improper personal benefit. If the General Corporation Law of the State of
Delaware is amended after the date of filing of this Certificate to further
eliminate or limit the personal liability of directors, then the liability of a
director of the Corporation shall be
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eliminated or limited to the fullest extent permitted by the General Corporation
Law of the State of Delaware, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders
of the Corporation shall not adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or modification.
ARTICLE XVIII
AMENDMENT OF BYLAWS
In furtherance and not in limitation of the powers conferred by statute,
the board of directors of the Corporation is expressly authorized to make,
repeal, alter, amend and rescind the Bylaws of the Corporation by a two-thirds
vote of the board. Notwithstanding any other provision of this Certificate or
the Bylaws of the Corporation (and notwithstanding the fact that some lesser
percentage may be specified by law), the Bylaws shall not be adopted, repealed,
altered, amended or rescinded by the stockholders of the Corporation except by
the vote of the holders of not less than 80% of the outstanding shares of
capital stock of the Corporation entitled to vote generally in the election of
directors (considered for this purpose as one class) cast at a meeting of the
stockholders called for that purpose (provided that notice of such proposed
adoption, repeal, alteration, amendment or rescission is included in the notice
of such meeting), or, as set forth above, by the board of directors.
ARTICLE XIX
AMENDMENT OF CERTIFICATE OF INCORPORATION
The Corporation reserves the right to repeal, alter, amend or rescind any
provision contained in this Certificate in the manner now or hereafter
prescribed by law, and all rights conferred on stockholders herein are granted
subject to this reservation. Notwithstanding the foregoing, the provisions set
forth in Section C of Article VII and in Articles X, XI, XII, XIII, XIV, XV,
XVI, XVII, XVIII, and this Article XIX may not be repealed, altered, amended or
rescinded in any respect unless the same is approved by the affirmative vote of
the holders of not less than 80% of the outstanding shares of capital stock of
the Corporation entitled to vote generally in the election of directors
(considered for this purpose as a single class) cast at a meeting of the
stockholders called for that purpose (provided that notice of such proposed
adoption, repeal, alteration, amendment or rescission is included in the notice
of such meeting).
* * *
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THE UNDERSIGNED, being the incorporator hereinbefore named, for the purpose
of forming a corporation pursuant to the General Corporation Law of the State of
Delaware, do make this Certificate, hereby declaring and certifying that this is
my act and deed and the facts herein stated are true, and accordingly have
hereunto set my hand this 29th day of May 1996.
/s/ Kermit D. Gohring
------------------------
Kermit D. Gohring
Incorporator
14
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EXHIBIT 3.2
BYLAWS OF FULTON BANCORP, INC.
<PAGE>
BYLAWS
OF
FULTON BANCORP, INC.
ARTICLE I
HOME OFFICE
The home office of Fulton Bancorp, Inc. (herein the "Corporation")
shall be at 410 Market Street, Fulton, Missouri. The Corporation may also have
offices at such other places within or without the State of Missouri as the
board of directors shall from time to time determine.
ARTICLE II
STOCKHOLDERS
SECTION 1. Place of Meetings. All annual and special meetings of
-----------------
stockholders shall be held at the home office of the Corporation or at such
other place within or without the State in which the home office of the
Corporation is located as the board of directors may determine and as designated
in the notice of such meeting.
SECTION 2. Annual Meeting. A meeting of the stockholders of the
--------------
Corporation for the election of directors and for the transaction of any other
business of the Corporation shall be held annually at such date and time as the
board of directors may determine.
SECTION 3. Special Meetings. Special meetings of the stockholders
----------------
for any purpose or purposes may be called at any time by the majority of the
board of directors or by a committee of the board of directors in accordance
with the provisions of the Corporation's Certificate of Incorporation.
SECTION 4. Conduct of Meetings. Annual and special meetings shall
-------------------
be conducted in accordance with the rules and procedures established by the
board of directors. The board of directors shall designate, when present, either
the chairman of the board or president to preside at such meetings.
SECTION 5. Notice of Meetings. Written notice stating the place,
------------------
day and hour of the meeting and the purpose or purposes for which the meeting is
called shall be mailed by the secretary or the officer performing his duties,
not less than ten days nor more than sixty days before the meeting to each
stockholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail,
addressed to the stockholder at his address as it appears on the stock transfer
books or records of the Corporation as of the record date prescribed in Section
6 of this Article II, with postage thereon prepaid. If a stockholder be present
at a meeting, or in writing waive notice thereof before or after the meeting,
notice of the meeting to such stockholder shall be unnecessary. When any
stockholders' meeting, either annual or special, is adjourned for thirty days or
more, notice of the adjourned meeting shall be given as in the case of an
original meeting. It shall not be necessary to give any notice of the time and
place of any meeting adjourned for less than thirty days or of the business to
be transacted at such adjourned meeting, other than an announcement at the
meeting at which such adjournment is taken.
SECTION 6. Fixing of Record Date. For the purpose of determining
---------------------
stockholders entitled to notice of or to vote at any meeting of stockholders, or
any adjournment thereof, or stockholders entitled to receive payment of any
dividend, or in order to make a determination of stockholders for any other
proper purpose, the board of directors shall fix in advance a date as the record
date for any such determination of stockholders. Such date in any case shall be
not more than sixty days, and in case of a meeting of stockholders, not less
than ten days prior to the date on which the particular action is to be taken.
When a determination of stockholders entitled to vote at any
<PAGE>
meeting of stockholders has been made as provided in this section, such
determination shall apply to any adjournment thereof.
SECTION 7. Voting Lists. The officer or agent having charge of
------------
the stock transfer books for shares of the Corporation shall make, at least ten
days before each meeting of shareholders, a complete record of the stockholders
entitled to vote at such meeting or any adjournment thereof, with the address of
and the number of shares held by each. The record, for a period of ten days
before such meeting, shall be kept on file at the principal office of the
Corporation, and shall be subject to inspection by any shareholder for any
purpose germane to the meeting at any time during usual business hours. Such
record shall also be produced and kept open at the time and place of the meeting
and shall be subject to the inspection of any stockholder for any purpose
germane to the meeting during the whole time of the meeting. The original stock
transfer books shall be prima facie evidence as to who are the stockholders
entitled to examine such record or transfer books or to vote at any meeting of
stockholders.
SECTION 8. Quorum. A majority of the outstanding shares of the
------
Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of stockholders. If less than a majority of the
outstanding shares are represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified. The stockholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough stockholders to leave less than a quorum.
SECTION 9. Proxies. At all meetings of stockholders, a stockholder
-------
may vote by proxy executed in writing by the stockholder or by his duly
authorized attorney in fact. Proxies solicited on behalf of the management shall
be voted as directed by the stockholder or, in the absence of such direction, as
determined by a majority of the board of directors. No proxy shall be valid
after eleven months from the date of its execution unless otherwise provided in
the proxy.
SECTION 10. Voting. At each election for directors every
------
stockholder entitled to vote at such election shall be entitled to one vote for
each share of stock held by him. Unless otherwise provided in the Certificate of
Incorporation, by Statute, or by these Bylaws, a majority of those votes cast by
stockholders at a lawful meeting shall be sufficient to pass on a transaction or
matter.
SECTION 11. Voting of Shares in the Name of Two or More Persons.
---------------------------------------------------
When ownership of stock stands in the name of two or more persons, in the
absence of written directions to the Corporation to the contrary, at any meeting
of the stockholders of the Corporation any one or more of such stockholders may
cast, in person or by proxy, all votes to which such ownership is entitled. In
the event an attempt is made to cast conflicting votes, in person or by proxy,
by the several persons in whose name shares of stock stand, the vote or votes to
which these persons are entitled shall be cast as directed by a majority of
those holding such stock and present in person or by proxy at such meeting, but
no votes shall be cast for such stock if a majority cannot agree.
SECTION 12. Voting of Shares by Certain Holders. Shares standing in
-----------------------------------
the name of another corporation may be voted by any officer, agent or proxy as
the bylaws of such corporation may prescribe, or, in the absence of such
provision, as the board of directors of such corporation may determine. Shares
held by an administrator, executor, guardian or conservator may be voted by him,
either in person or by proxy, without a transfer of such shares into his name.
Shares standing in the name of a trustee may be voted by him, either in person
or by proxy, but no trustee shall be entitled to vote shares held by him without
a transfer of such shares into his name. Shares standing in the name of a
receiver may be voted by such receiver, and shares held by or under the control
of a receiver may be voted by such receiver without the transfer thereof into
his name if authority to do so is contained in an appropriate order of the court
or other public authority by which such receiver was appointed.
2
<PAGE>
A stockholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the Corporation, nor
shares held by another corporation, if a majority of the shares entitled to vote
for the election of directors of such other corporation are held by the
Corporation, shall be voted at any meeting or counted in determining the total
number of outstanding shares at any given time for purposes of any meeting.
SECTION 13. Inspectors of Election. In advance of any meeting of
----------------------
stockholders, the board of directors may appoint any persons, other than
nominees for office, as inspectors of election to act at such meeting or any
adjournment thereof. The number of inspectors shall be either one or three. If
the board of directors so appoints either one or three inspectors, that
appointment shall not be altered at the meeting. If inspectors of election are
not so appointed, the chairman of the board or the president may make such
appointment at the meeting. In case any person appointed as inspector fails to
appear or fails or refuses to act, the vacancy may be filled by appointment by
the board of directors in advance of the meeting or at the meeting by the
chairman of the board or the president.
Unless otherwise prescribed by applicable law, the duties of such
inspectors shall include: determining the number of shares of stock and the
voting power of each share, the shares of stock represented at the meeting, the
existence of a quorum, and the authenticity, validity and effect of proxies;
receiving votes, ballots or consents; hearing and determining all challenges and
questions in any way arising in connection with the right to vote; counting and
tabulating all votes or consents; determining the result; and such acts as may
be proper to conduct the election or vote with fairness to all stockholders.
SECTION 14. Nominating Committee. The board of directors shall act
--------------------
as a nominating committee for selecting the management nominees for election as
directors. Except in the case of a nominee substituted as a result of the death
or other incapacity of a management nominee, the nominating committee shall
deliver written nominations to the secretary at least twenty days prior to the
date of the annual meeting. Provided such committee makes such nominations, no
nominations for directors except those made by the nominating committee shall be
voted upon at the annual meeting unless other nominations by stockholders are
made in writing and delivered to the secretary of the Corporation in accordance
with the provisions of the Corporation's Certificate of Incorporation.
SECTION 15. New Business. Any new business to be taken up at the
------------
annual meeting shall be stated in writing and filed with the secretary of the
Corporation in accordance with the provisions of the Corporation's Certificate
of Incorporation. This provision shall not prevent the consideration and
approval or disapproval at the annual meeting of reports of officers, directors
and committees, but in connection with such reports no new business shall be
acted upon at such annual meeting unless stated and filed as provided in the
Corporation's Certificate of Incorporation.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. General Powers. The business and affairs of the
--------------
Corporation shall be under the direction of its board of directors. The board of
directors shall annually elect a president from among its members and may also
elect a chairman of the board from among its members. The board of directors
shall designate, when present, either the chairman of the board or the president
to preside at its meetings.
SECTION 2. Number, Term and Election. The board of directors shall
-------------------------
initially consist of seven (7) members and shall be divided into three classes
as nearly equal in number as possible. The members of each class shall be
elected for a term of three years and until their successors are elected or
qualified. One class shall be elected by ballot annually. The board of directors
shall be classified in accordance with the provisions of the Corporation's
Certificate of Incorporation.
3
<PAGE>
SECTION 3. Qualification. Each director shall at all times be the
-------------
beneficial owner of not less than 100 shares of capital stock of the
Corporation.
SECTION 4. Regular Meetings. A regular meeting of the board of
----------------
directors shall be held without other notice than this Bylaw immediately after,
and at the same place as, the annual meeting of stockholders. The board of
directors may provide, by resolution, the time and place for the holding of
additional regular meetings without other notice than such resolution.
SECTION 5. Special Meetings. Special meetings of the board of
----------------
directors may be called by or at the request of the chairman of the board or the
president, or by one-third of the directors. The persons authorized to call
special meetings of the board of directors may fix any place in the State of
Missouri as the place for holding any special meeting of the board of directors
called by such persons.
Members of the board of directors may participate in special meetings
by means of conference telephone or similar communications equipment by which
all persons participating in the meeting can hear each other. Such participation
shall constitute presence in person.
SECTION 6. Notice. Written notice of any special meeting shall be
------
given to each director at least two days previous thereto delivered personally
or by telecopier or telegram or at least five days previous thereto delivered by
mail at the address at which the director is most likely to be reached. Such
notice shall be deemed to be delivered when deposited in the United States mail
so addressed, with postage thereon prepaid if mailed or when delivered by
telecopier or to the telegraph company if sent by telegram. Any director may
waive notice of any meeting by a writing filed with the secretary. The
attendance of a director at a meeting shall constitute a waiver of notice of
such meeting, except where a director attends a meeting for the express purpose
of objecting to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any meeting of the board of directors need be specified in the
notice or waiver of notice of such meeting.
SECTION 7. Quorum. A majority of the number of directors fixed by
------
Section 2 of this Article III shall constitute a quorum for the transaction of
business at any meeting of the board of directors, but if less than such
majority is present at a meeting, a majority of the directors present may
adjourn the meeting from time to time. Notice of any adjourned meeting shall be
given in the same manner as prescribed by Section 6 of this Article III.
SECTION 8. Manner of Acting. The act of the majority of the
----------------
directors present at a meeting at which a quorum is present shall be the act of
the board of directors, unless a greater number is prescribed by these Bylaws,
the Certificate of Incorporation, or the General Corporation Law of the State of
Delaware.
SECTION 9. Action Without a Meeting. Any action required or
------------------------
permitted to be taken by the board of directors at a meeting may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the directors.
SECTION 10. Resignation. Any director may resign at any time by
-----------
sending a written notice of such resignation to the home office or the
administrative office of the Corporation addressed to the chairman of the board
or the president. Unless otherwise specified herein, such resignation shall take
effect upon receipt thereof by the chairman of the board or the president.
SECTION 11. Vacancies. Any vacancy occurring in the board of
---------
directors shall be filled in accordance with the provisions of the Corporation's
Certificate of Incorporation. Any directorship to be filled by reason of an
increase in the number of directors may be filled by the affirmative vote of two
thirds of the directors then in office. The term of such director shall be in
accordance with the provisions of the Corporation's Certificate of
Incorporation.
4
<PAGE>
SECTION 12. Removal of Directors. Any director or the entire board
--------------------
of directors may be removed only in accordance with the provisions of the
Corporation's Certificate of Incorporation.
SECTION 13. Compensation. Directors, as such, may receive a stated
------------
fee for their services. By resolution of the board of directors, a reasonable
fixed sum, and reasonable expenses of attendance, if any, may be allowed for
actual attendance at each regular or special meeting of the board of directors.
Members of either standing or special committees may be allowed such
compensation for actual attendance at committee meetings as the board of
directors may determine. Nothing herein shall be construed to preclude any
director from serving the Corporation in any other capacity and receiving
remuneration therefor.
SECTION 14. Presumption of Assent. A director of the Corporation
---------------------
who is present at a meeting of the board of directors at which action on any
corporate matter is taken shall be presumed to have assented to the action taken
unless his dissent or abstention shall be entered in the minutes of the meeting
or unless he shall file his written dissent to such action with the person
acting as the secretary of the meeting before the adjournment thereof or shall
forward such dissent by registered mail to the secretary of the Corporation
immediately after the adjournment of the meeting. Such right to dissent shall
not apply to a director who votes in favor of such action.
SECTION 15. Advisory Directors. The board of directors may by
------------------
resolution appoint advisory directors or directors emeriti to the board, and
shall have such authority and receive such compensation and reimbursement as the
board of directors shall provide. Advisory directors or directors emeriti shall
not have the authority to participate by vote in the transaction of business.
ARTICLE IV
COMMITTEES OF THE BOARD OF DIRECTORS
SECTION 1. Appointment. The board of directors may, by resolution
-----------
adopted by a majority of the full board, designate one or more committees, each
consisting of two or more directors, to serve at the pleasure of the board of
directors. The board of directors may designate one or more directors as
alternate members of any committee, who may replace any absent member at any
meeting of any such committee.
SECTION 2. Authority. Any such committee shall have all the
---------
authority of the board of directors, except to the extent, if any, that such
authority shall be limited by the resolution appointing the committee; and
except also that no committee shall have the authority of the board of directors
with reference to: the declaration of dividends; the amendment of the charter or
bylaws of the Corporation, or recommending to the shareholders a plan of merger,
consolidation, or conversion; the sale, lease, or other disposition of all or
substantially all of the property and assets of the Corporation otherwise than
in the usual and regular course of its business; a voluntary dissolution of the
Corporation; a revocation of any of the foregoing; the approval of a transaction
in which any member of the committee, directly or indirectly, has any material
beneficial interest; the filling of vacancies on the board of directors or in
any committee; or the appointment of other committees of the board of directors
or members thereof.
SECTION 3. Tenure. Subject to the provisions of Section 8 of this
------
Article IV, each member of a committee shall hold office until the next regular
annual meeting of the board of directors following his or her designation and
until a successor is designated as a member of the committee.
SECTION 4. Meetings. Unless the board of directors shall otherwise
--------
provide, regular meetings of any committee appointed pursuant to this Article IV
shall be at such times and places as are determined by the board of directors,
or by any such committee. Special meetings of any such committee may be held at
the principal executive office of the Corporation, or at any place which has
been designated from time to time by resolution of such committee or by written
consent of all members thereof, and may be called by any member thereof upon not
less than one day's notice stating the place, date, and hour of the meeting,
which notice shall been given in the
5
<PAGE>
manner provided for the giving of notice to members of the board of directors of
the time and place of special meetings of the board of directors.
SECTION 5. Quorum. A majority of the members of any committee
------
shall constitute a quorum for the transaction of business at any meeting
thereof.
SECTION 6. Action Without a Meeting. Any action required or
------------------------
permitted to be taken by any committee at a meeting may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the members of any such committee.
SECTION 7. Resignations and Removal. Any member of any committee
------------------------
may be removed at any time with or without cause by resolution adopted by a
majority of the full board of directors. Any member of any committee may resign
from any such committee at any time by giving written notice to the president or
secretary of the Corporation. Unless otherwise specified, such resignation shall
take effect upon its receipt; the acceptance of such resignation shall not be
necessary to make it effective.
SECTION 8. Procedure. Unless the board of directors otherwise
---------
provides, each committee shall elect a presiding officer from its members and
may fix its own rules of procedure which shall not be inconsistent with these
bylaws. It shall keep regular minutes of its proceedings and report the same to
the board of directors for its information at the meeting held next after the
proceedings shall have occurred.
ARTICLE V
OFFICERS
SECTION 1. Positions. The officers of the Corporation shall be a
---------
president, one or more vice presidents, a secretary and a treasurer, each of
whom shall be elected by the board of directors. The board of directors may also
designate the chairman of the board as an officer. The president shall be the
chief executive officer unless the board of directors designates the chairman of
the board as chief executive officer. The president shall be a director of the
Corporation. The offices of the secretary and treasurer may be held by the same
person and a vice president may also be either the secretary or the treasurer.
The board of directors may designate one or more vice presidents as executive
vice president or senior vice president. The board of directors may also elect
or authorize the appointment of such other officers as the business of the
Corporation may require. The officers shall have such authority and perform such
duties as the board of directors may from time to time authorize or determine.
In the absence of action by the board of directors, the officers shall have such
powers and duties as generally pertain to their respective offices.
SECTION 2. Election and Term of Office. The officers of the
---------------------------
Corporation shall be elected annually by the board of directors at the first
meeting of the board of directors held after each annual meeting of the
shareholders. If the election of officers is not held at such meeting, such
election shall be held as soon thereafter as possible. Each officer shall hold
office until his successor shall have been duly elected and qualified or until
his death or until he shall resign or shall have been removed in the manner
hereinafter provided. Election or appointment of an officer, employee or agent
shall not of itself create contract rights. The board of directors may authorize
the Corporation to enter into an employment contract with any officer in
accordance with state law; but no such contract shall impair the right of the
board of directors to remove any officer at any time in accordance with Section
3 of this Article V.
SECTION 3. Removal. Any officer may be removed by vote of two-
-------
thirds of the board of directors whenever, in its judgment, the best interests
of the Corporation will be served thereby, but such removal, other than for
cause, shall be without prejudice to the contract rights, if any, of the person
so removed.
SECTION 4. Vacancies. A vacancy in any office because of death,
---------
resignation, removal, disqualification or otherwise, may be filled by the board
of directors for the unexpired portion of the term.
6
<PAGE>
SECTION 5. Remuneration. The remuneration of the officers shall be
------------
fixed from time to time by the board of directors and no officer shall be
prevented from receiving such salary by reason of the fact that he is also a
director of the Corporation.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. Contracts. To the extent permitted by applicable law,
---------
and except as otherwise prescribed by the Corporation's Certificate of
Incorporation or these Bylaws with respect to certificates for shares, the board
of directors may authorize any officer, employee, or agent of the Corporation to
enter into any contract or execute and deliver any instrument in the name of and
on behalf of the Corporation. Such authority may be general or confined to
specific instances.
SECTION 2. Loans. No loans shall be contracted on behalf of the
-----
Corporation and no evidence of indebtedness shall be issued in its name unless
authorized by the board of directors. Such authority may be general or confined
to specific instances.
SECTION 3. Checks, Drafts, Etc. All checks, drafts or other orders
-------------------
for the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation shall be signed by one or more officers, employees or
agents of the Corporation in such manner as shall from time to time be
determined by resolution of the board of directors.
SECTION 4. Deposits. All funds of the Corporation not otherwise
--------
employed shall be deposited from time to time to the credit of the Corporation
in any of its duly authorized depositories as the board of directors may select.
ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. Certificates for Shares. The shares of the Corporation
-----------------------
shall be represented by certificates signed by the chairman of the board of
directors or by the president or a vice president and by the treasurer or by the
secretary of the Corporation, and may be sealed with the seal of the Corporation
or a facsimile thereof. Any or all of the signatures upon a certificate may be
facsimiles if the certificate is countersigned by a transfer agent, or
registered by a registrar, other than the Corporation itself or an employee of
the Corporation. If any officer who has signed or whose facsimile signature has
been placed upon such certificate shall have ceased to be such officer before
the certificate is issued, it may be issued by the Corporation with the same
effect as if he were such officer at the date of its issue.
SECTION 2. Form of Share Certificates. All certificates
--------------------------
representing shares issued by the Corporation shall set forth upon the face or
back that the Corporation will furnish to any shareholder upon request and
without charge a full statement of the designations, preferences, limitations,
and relative rights of the shares of each class authorized to be issued, the
variations in the relative rights and preferences between the shares of each
such series so far as the same have been fixed and determined, and the authority
of the board of directors to fix and determine the relative rights and
preferences of subsequent series.
Each certificate representing shares shall state upon the face
thereof: that the Corporation is organized under the laws of the State of
Delaware; the name of the person to whom issued; the number and class of shares;
the date of issue; the designation of the series, if any, which such certificate
represents; the par value of each share represented by such certificate, or a
statement that the shares are without par value. Other matters in regard to the
form of the certificates shall be determined by the board of directors.
7
<PAGE>
SECTION 3. Payment for Shares. No certificate shall be issued for
------------------
any shares until such share is fully paid.
SECTION 4. Form of Payment for Shares. The consideration for the
--------------------------
issuance of shares shall be paid in accordance with the provisions of the
Corporation's Certificate of Incorporation.
SECTION 5. Transfer of Shares. Transfer of shares of capital stock
------------------
of the Corporation shall be made only on its stock transfer books. Authority for
such transfer shall be given only by the holder of record thereof or by his
legal representative, who shall furnish proper evidence of such authority, or by
his attorney thereunto authorized by power of attorney duly executed and filed
with the Corporation. Such transfer shall be made only on surrender for
cancellation of the certificate for such shares. The person in whose name shares
of capital stock stand on the books of the Corporation shall be deemed by the
Corporation to be the owner thereof for all purposes.
SECTION 6. Stock Ledger. The stock ledger of the Corporation shall
------------
be the only evidence as to who are the stockholders entitled to examine the
stock ledger, the list required by Section 7 of Article II or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.
SECTION 7. Lost Certificates. The board of directors may direct a
-----------------
new certificate to be issued in place of any certificate theretofore issued by
the Corporation alleged to have been lost, stolen, or destroyed, upon the making
of an affidavit of that fact by the person claiming the certificate of stock to
be lost, stolen, or destroyed. When authorizing such issue of a new certificate,
the board of directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen, or destroyed
certificate, or his legal representative, to give the Corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost, stolen,
or destroyed.
SECTION 8. Beneficial Owners. The Corporation shall be entitled to
-----------------
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such shares on
the part of any other person, whether or not the Corporation shall have express
or other notice thereof, except as otherwise provided by law.
ARTICLE VIII
FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the Corporation shall end on the 30th day of April
of each year. The Corporation shall be subject to an annual audit as of the end
of its fiscal year by independent public accountants appointed by and
responsible to the board of directors.
ARTICLE IX
DIVIDENDS
Subject to the provisions of the Certificate of Incorporation and
applicable law, the board of directors may, at any regular or special meeting,
declare dividends on the Corporation's outstanding capital stock. Dividends may
be paid in cash, in property or in the Corporation's own stock.
ARTICLE X
CORPORATE SEAL
The corporate seal of the Corporation shall be in such form as the
board of directors shall prescribe.
8
<PAGE>
ARTICLE XI
AMENDMENTS
In accordance with the Corporation's Certificate of Incorporation,
these Bylaws may be repealed, altered, amended or rescinded by the stockholders
of the Corporation only by vote of not less than 80% of the outstanding shares
of capital stock of the Corporation entitled to vote generally in the election
of directors (considered for this purpose as one class) cast at a meeting of the
stockholders called for that purpose (provided that notice of such proposed
repeal, alteration, amendment or rescission is included in the notice of such
meeting). In addition, the board of directors may repeal, alter, amend or
rescind these Bylaws by vote of two-thirds of the board of directors at a legal
meeting held in accordance with the provisions of these Bylaws.
9
<PAGE>
Exhibit 5
[letterhead of Breyer & Aguggia]
July 19, 1996
Board of Directors
Fulton Bancorp, Inc.
410 Market Street
Fulton, Missouri 65251
RE: Fulton Bancorp, Inc.
Registration Statement on Form S-1
To the Board of Directors:
You have requested our opinion as special counsel for Fulton Bancorp, Inc.,
a Delaware corporation, in connection with the above-referenced registration
statement filed with the Securities and Exchange Commission under the Securities
Act of 1933, as amended.
In rendering this opinion, we understand that the common stock of Fulton
Bancorp, Inc. will be offered and sold in the manner described in the
Prospectus, which is part of the Registration Statement. We have examined such
records and documents and made such examination as we have deemed relevant in
connection with this opinion.
Based upon the foregoing, it is our opinion that the shares of common stock
of Fulton Bancorp, Inc. will upon issuance be legally issued, fully paid and
nonassessable.
This opinion is furnished for use as an exhibit to the Registration
Statement. We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the heading "LEGAL AND
TAX OPINIONS."
Sincerely,
/s/ Breyer & Aguggia
--------------------
BREYER & AGUGGIA
Washington, D.C.
<PAGE>
EXHIBIT 8.1
FORM OF FEDERAL TAX OPINION OF BREYER & AGUGGIA
<PAGE>
FORM OF FEDERAL TAX OPINION
________, 1996
Boards of Directors
Fulton Savings Bank, FSB
Fulton Bancorp, Inc.
410 Market Street
P.O. Box 700
Fulton, Missouri 65251-0700
Re: Certain Federal Income Tax Consequences Relating to Proposed Holding
Company Conversion of Fulton Savings
Bank, FSB
--------------------------------------------------------------------
Gentlemen:
In accordance with your request, set forth herein is the opinion of this
firm relating to certain federal income tax consequences of (i) the proposed
conversion of Fulton Savings Bank, FSB (the "Savings Bank") from a federally-
chartered mutual savings bank to a federally-chartered stock savings bank (the
"Converted Savings Bank") (the "Stock Conversion") and (ii) the concurrent
acquisition of 100% of the outstanding capital stock of the Converted Savings
Bank by a parent holding company formed at the direction of the Board of
Directors of the Savings Bank and to be known as Fulton Bancorp, Inc. (the
"Holding Company").
For purposes of this opinion, we have examined such documents and questions
of law as we have considered necessary or appropriate, including but not limited
to the Plan of Conversion as adopted by the Savings Bank's Board of Directors on
January 9, 1996 (the "Plan"); the federal mutual charter and bylaws of the
Savings Bank; the certificate of incorporation and bylaws of Holding Company;
the Affidavit of Representations dated ________, 1996 provided to us by the
Savings Bank (the "Affidavit"), and the Prospectus (the "Prospectus") included
in the Registration Statement on Form S-1 filed with the Securities and Exchange
Commission ("SEC") on _______, 1996 (the "Registration Statement"). In such
examination, we have assumed, and have not independently verified, the
genuineness of all signatures on original documents where due execution and
delivery are requirements to the effectiveness thereof. Terms used but not
defined herein, whether capitalized or not, shall have the same meaning as
defined in the Plan.
<PAGE>
Boards of Directors
Fulton Savings Bank, FSB
Fulton Bancorp, Inc.
_________, 1996
Page 2
BACKGROUND
----------
Based solely upon our review of such documents, and upon such information
as the Savings Bank has provided to us (which we have not attempted to verify in
any respect), and in reliance upon such documents and information, we set forth
herein a general summary of the relevant facts and proposed transactions,
qualified in its entirety by reference to the documents cited above.
The Savings Bank is a federally-chartered mutual savings bank which is in
the process of converting to a federally-chartered stock savings bank. The
Savings Bank was initially organized in 1912. The Savings Bank is also a member
of the Federal Home Loan Bank System and its deposits are federally insured
under the Savings Association Insurance Fund ("SAIF") of the Federal Deposit
Insurance Corporation. The Savings Bank operates out of its main office in
Fulton, Missouri and a branch office in Holts Summit, Missouri.
The Savings Bank is primarily engaged in the business of attracting
deposits from the general public and originating permanent loans secured by
first mortgages on one- to four-family residential properties. At April 30,
1996, the Savings Bank had total assets of $85.5 million, deposits of $70.3
million, and total equity of $9.1 million.
As a federally-chartered mutual savings bank, the Savings Bank has no
authorized capital stock. Instead, the Savings Bank, in mutual form, has a
unique equity structure. A savings depositor of the Savings Bank is entitled to
payment of interest on his account balance as declared and paid by the Savings
Bank, but has no right to a distribution of any earnings of the Savings Bank
except for interest paid on his deposit. Rather, such earnings become retained
earnings of the Savings Bank.
However, a savings depositor does have a right to share pro rata, with
--- ----
respect to the withdrawal value of his respective savings account, in any
liquidation proceeds distributed if the Savings Bank is ever liquidated.
Savings depositors and certain borrowers are members of the Savings Bank and
thereby have voting rights in the Savings Bank. Each savings depositor is
entitled to cast votes in proportion to the size of their account balances or
fraction thereof held in a withdrawable deposit account of the Savings Bank, and
each borrower member (hereinafter "borrower") is entitled to one vote in
addition to the votes (if any) to which such person is entitled in such
borrower's capacity as a savings depositor of the Savings Bank. All of the
interests held by a
<PAGE>
Boards of Directors
Fulton Savings Bank, FSB
Fulton Bancorp, Inc.
_________, 1996
Page 3
savings depositor in the Savings Bank cease when such depositor closes his
accounts with the Savings Bank.
The Holding Company was incorporated in May 1996 under the laws of the
State of Delaware as a general business corporation in order to act as a savings
institution holding company. The Holding Company has an authorized capital
structure of six million shares of common stock and one million shares of
preferred stock.
PROPOSED TRANSACTION
--------------------
Management of the Savings Bank believes that the Stock Conversion offers a
number of advantages which will be important to the future growth and
performance of the Converted Savings Bank in that it is intended to (i) provide
substantially increased capital for investment in its business to expand the
operations of the Converted Savings Bank; (ii) provide future access to capital
markets; (iii) enhance the ability to diversify its operations into new business
activities; and (iv) afford depositors and others the opportunity to become
stockholders of the Converted Savings Bank and thereby participate more directly
in any future growth of the Converted Savings Bank.
Accordingly, pursuant to the Plan, the Savings Bank will undergo the Stock
Conversion whereby it will be converted from a federally-chartered mutual
savings bank to a federally-chartered stock savings bank. As part of the Stock
Conversion, the Savings Bank will amend its existing mutual savings bank charter
and bylaws to read in the form of a Federal Stock Charter and Bylaws. The
Converted Savings Bank will then issue to the Holding Company shares of the
Converted Savings Bank's common stock, representing all of the shares of capital
stock to be issued by the Converted Savings Bank in the Conversion, in exchange
for payment by the Holding Company of 50% of the net proceeds realized by the
Holding Company from such sale of its Common Stock, less amounts necessary to
fund the Employee Stock Ownership Plan of the Savings Bank, or such other
percentage as the Office of Thrift Supervision ("OTS") may authorize or require.
Also pursuant to the Plan, the Holding Company will offer its shares of
Common Stock for sale in a Subscription Offering and, if necessary, a Direct
Community Offering. The aggregate purchase price at which all shares of Common
Stock will be offered and sold pursuant to the Plan and the total number of
shares of Common Stock to be offered in the Conversion will be determined by the
Boards of Directors of the Savings Bank and the Holding Company on the basis of
the estimated pro forma market value of the Converted Savings
--- -----
<PAGE>
Boards of Directors
Fulton Savings Bank, FSB
Fulton Bancorp, Inc.
_________, 1996
Page 4
Bank as a subsidiary of the Holding Company. The estimated pro forma market
--- -----
value will be determined by an independent appraiser. Pursuant to the Plan, all
such shares will be issued and sold at a uniform price per share. The Stock
Conversion, including the sale of newly issued shares of the stock of the
Converted Savings Bank to the Holding Company, will be deemed effective
concurrently with the closing of the sale of the Common Stock.
Under the Plan and in accordance with regulations of the OTS, the shares of
Common Stock will first be offered through the Subscription Offering pursuant to
nontransferable subscription rights on the basis of preference categories in the
following order of priority:
(1) Eligible Account Holders;
(2) Tax-Qualified Employee Stock Benefit Plans of the Savings Bank;
(3) Supplemental Eligible Account Holders; and
(4) Other Members.
Any shares of Common Stock not subscribed for in the Subscription Offering
may be offered in the Direct Community Offering in the following order of
priority:
(a) Natural persons who are permanent residents of Boone or Callaway
Counties, Missouri; and
(b) The general public.
Any shares of Common Stock not subscribed for in the Direct Community
Offering may be offered to certain members of the general public on a best
efforts basis by a selling group of broker dealers in a Syndicated Community
Offering.
The Plan also provides for the establishment of a Liquidation Account by
the Converted Savings Bank for the benefit of all Eligible Account Holders and
any Supplemental Eligible Account Holders in an amount equal to the net worth of
the Savings Bank as of the date of the latest statement of financial condition
contained in the final prospectus issued in connection with the Conversion. The
establishment of the Liquidation Account will not operate to restrict the use or
application of any of the net worth accounts of the Converted Savings Bank. The
account holders will have an inchoate interest in a proportionate amount of the
Liquidation Account with respect to each savings account held and
<PAGE>
Boards of Directors
Fulton Savings Bank, FSB
Fulton Bancorp, Inc.
_________, 1996
Page 5
will be paid by the Converted Savings Bank in event of liquidation prior to any
liquidation distribution being made with respect to capital stock.
Following the Stock Conversion, voting rights in the Converted Savings Bank
shall be vested in the sole holder of stock in the Converted Savings Bank, which
will be the Holding Company. Voting rights in the Holding Company after the
Stock Conversion will be vested in the holders of the Common Stock.
The Stock Conversion will not interrupt the business of the Savings Bank.
The Converted Savings Bank will continue to engage in the same business as the
Savings Bank immediately prior to the Stock Conversion, and the Converted
Savings Bank will continue to have its savings accounts insured by the SAIF.
Each depositor will retain a withdrawable savings account or accounts equal in
dollar amount to, and on the same terms and conditions as, the withdrawable
account or accounts at the time of Stock Conversion except to the extent funds
on deposit are used to pay for Common Stock purchased in the Stock Conversion.
All loans of the Savings Bank will remain unchanged and retain their same
characteristics in the Converted Savings Bank.
The Plan must be approved by the OTS and by an affirmative vote of at least
a majority of the total votes eligible to be cast at a meeting of the Savings
Bank's members called to vote on the Plan.
Immediately prior to the Conversion, the Savings Bank will have a positive
net worth determined in accordance with generally accepted accounting
principles.
OPINION
-------
Based on the foregoing and in reliance thereon, and subject to the
conditions stated herein, it is our opinion that the following federal income
tax consequences will result from the proposed transaction.
1. The Stock Conversion will constitute a reorganization within the
meaning of Section 368(a)(1)(F) of the Internal Revenue Code of 1986,
as amended (the "Code"), and no gain or loss will be recognized to
either the Savings Bank or the Converted Savings Bank as a result of
the Stock Conversion (see Rev. Rul. 80-105, 1980-1 C.B. 78).
---
<PAGE>
Boards of Directors
Fulton Savings Bank, FSB
Fulton Bancorp, Inc.
_________, 1996
Page 6
2. The assets of the Savings Bank will have the same basis in the hands
of the Converted Savings Bank as in the hands of the Savings Bank
immediately prior to the Stock Conversion (Section 362(b) of the
Code).
3. The holding period of the assets of the Savings Bank to be received by
the Converted Savings Bank will include the period during which the
assets were held by the Savings Bank prior to the Stock Conversion
(Section 1223(2) of the Code).
4. No gain or loss will be recognized by the Converted Savings Bank on
the receipt of money from the Holding Company in exchange for shares
of common stock of the Converted Savings Bank (Section 1032(a) of the
Code). The Holding Company will be transferring solely cash to the
Converted Savings Bank in exchange for all the outstanding capital
stock of the Converted Savings Bank and therefore will not recognize
any gain or loss upon such transfer. (Section 351(a) of the Code; see
---
Rev. Rul. 69-357, 1969-1 C.B. 101).
5. No gain or loss will be recognized by the Holding Company upon receipt
of money from stockholders in exchange for shares of Common Stock
(Section 1032(a) of the Code).
6. No gain or loss will be recognized by the Eligible Account Holders and
Supplemental Eligible Account Holders of the Savings Bank upon the
issuance of them of deposit accounts in the Converted Savings Bank in
the same dollar amount and on the same terms and conditions in
exchange for their deposit accounts in the Savings Bank held
immediately prior to the Stock Conversion (Section 1001(a) of the
Code; Treas. Reg. (S)1.1001-1(a)).
7. The tax basis of the Eligible Account Holders' and Supplemental
Eligible Account Holders' savings accounts in the Converted Savings
Bank received as part of the Stock Conversion will equal the tax basis
of such account holders' corresponding deposit accounts in the Savings
Bank surrendered in exchange therefor (Section 1012 of the Code).
8. Gain or loss, if any, will be realized by the deposit account holders
of the Savings Bank upon the constructive receipt of their interest in
the liquidation account of the Converted Savings Bank and on the
nontransferable
<PAGE>
Boards of Directors
Fulton Savings Bank, FSB
Fulton Bancorp, Inc.
_________, 1996
Page 7
subscription rights to purchase stock of the Holding Company in
exchange for their proprietary rights in the Savings Bank. Any such
gain will be recognized by the Savings Bank deposit account holders,
but only in an amount not in excess of the fair market value of the
liquidation account and subscription rights received. (Section 1001
of the Code; Paulsen v. Commissioner, 469 U.S. 131 (1985); Rev. Rul.
-----------------------
69-646, 1969-2 C.B. 54.)
9. The basis of each account holder's interest in the Liquidation Account
received in the Stock Conversion and to be established by the
Converted Savings Bank pursuant to the Stock Conversion will be equal
to the value, if any, of that interest.
10. No gain or loss will be recognized upon the exercise of a subscription
right in the Stock Conversion. (Rev. Rul. 56-572, 1956-2 C.B. 182).
11. The basis of the Common Stock acquired in the Stock Conversion will be
equal to the purchase price of such stock, increased, in the case of
such stock acquired pursuant to the exercise of subscription rights,
by the fair market value, if any, of the subscription rights exercised
(Section 1012 of the Code).
12. The holding period of the Common Stock acquired in the Stock
Conversion pursuant to the exercise of subscription rights will
commence on the date on which the subscription rights are exercised
(Section 1223(6) of the Code). The holding period of the Common Stock
acquired in the Community Offering will commence on the date following
the date on which such stock is purchased (Rev. Rul. 70-598, 1970-2
C.B. 168; Rev. Rul. 66-97, 1966-1 C.B. 190).
SCOPE OF OPINION
----------------
Our opinion is limited to the federal income tax matters described above
and does not address any other federal income tax considerations or any federal,
state, local, foreign or other tax considerations. If any of the information
upon which we have relied is incorrect, or if changes in the relevant facts
occur after the date hereof, our opinion could be affected thereby. Moreover,
our opinion is based on the case law, Code, Treasury Regulations thereunder and
Internal Revenue Service rulings as they now exist. These authorities are all
subject to change, and such
<PAGE>
Boards of Directors
Fulton Savings Bank, FSB
Fulton Bancorp, Inc.
_________, 1996
Page 8
change may be made with retroactive effect. We can give no assurance that,
after such change, our opinion would not be different. We undertake no
responsibility to update or supplement our opinion. This opinion is not binding
on the Internal Revenue Service and there can be no assurance, and none is
hereby given, that the Internal Revenue Service will not take a position
contrary to one or more of the positions reflected in the foregoing opinion, or
that our opinion will be upheld by the courts if challenged by the Internal
Revenue Service.
CONSENTS
--------
We hereby consent to the filing of this opinion with the OTS as an exhibit
to the Application H-(e)1-S filed by the Holding Company with the OTS in
connection with the Conversion and the reference to our firm in the Application
H-(e)1-S under Item 110.55 therein.
We also hereby consent to the filing of this opinion with the SEC and the
OTS as exhibits to the Registration Statement and the Savings Bank's Application
for Conversion on Form AC ("Form AC"), respectively, and the reference on our
firm in the Prospectus, which is a part of both the Registration Statement and
the Form AC, under the headings "THE CONVERSION -- Effect of Conversion to Stock
Form on Depositors and Borrowers of the Savings Bank -- Tax Effects" and "LEGAL
AND TAX OPINIONS."
Very truly yours,
BREYER & AGUGGIA
<PAGE>
Exhibit 8.2
[LETTERHEAD OF MOORE, HORTON & CARLSON, P.C.]
FORM OF MISSOURI TAX OPINION
Board of Directors
Fulton Savings Bank, FSB
Fulton, Missouri 65251
RE: Certain Missouri Income Tax Consequences Relating to Proposed Holding
Company Conversion
Gentlemen:
In accordance with your request, set forth herein is the opinion of this firm
relating to certain Missouri income tax consequences of (i) the proposed
conversion of Fulton Savings Bank, FSB (the "Bank") from a federally-chartered
mutual savings bank to a federally-chartered stock savings bank (the "Converted
Bank") (the "Stock Conversion") and (ii) the concurrent acquisition of 100% of
the outstanding capital stock of the Converted Bank by a parent holding company
formed at the direction of the Board of Directors of the Bank and to be known as
Fulton Bancorp, Inc. (the "Holding Company").
You have previously received the opinion of Breyer & Aguggia regarding the
federal income tax consequences of the Stock Conversion and Holding Company
formation to the Bank, the Converted Bank, and the Holding Company and the
deposit account holders of the Bank under the Internal Revenue Code of 1986,
as amended (the "Code"). The federal tax opinion concludes, inter alia,
that the proposed transactions qualify as a tax-free reorganization under
Section 368(a)(1)(F) of the Code.
The State of Missouri will, for income tax purposes, treat the proposed
transactions in an identical manner as they are treated by the Internal Revenue
Service for federal income tax purposes. Based upon the facts and circumstances
attendant to the Stock Conversion, and applicable provisions of the Internal
Revenue Code, it is our opinion that, under the laws of the State of Missouri,
no adverse Missouri tax consequences will be incurred by the parties to the
proposed transactions, including deposit account holders, as a result of the
Stock Conversion and Holding Company formation.
<PAGE>
Board of Directors
Fulton Savings Bank, FSB
Page 2
No opinion is expressed on any matter other than income tax consequences
including, but not limited to, any franchise or capital stock taxes which
might result from the implementation of the proposed transactions.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement (Form S-1) of the Holding Company filed under the
Securities Act of 1933, as amended, the Bank's Application for Approval of
Conversion (Form AC) filed with the Office of Thrift Supervision ("OTS"),
and to the reference to us in the prospectus and proxy statement included
therein. We also consent to the filing of this opinion as an exhibit to the
Holding Company Application H-(e)1-S filed on behalf of the Holding Company
with the OTS.
This opinion is rendered only for the purposes expressed herein and is not to
be relied upon by anyone other than you without our express written consent.
Mexico, Missouri
, 1996
<PAGE>
Exhibit 8.3
[LETTERHEAD OF RP Financial, LC.]
Financial Services Industry Consultants
July 19, 1996
Board of Directors
Fulton Savings Bank, FSB
410 Market Street
Fulton, Missouri 65251
Re: Plan of Conversion: Subscription Rights
Fulton Savings Bank, FSB
Gentlemen:
All capitalized terms not otherwise defined in this letter have the
meanings given such terms in the Plan of Conversion adopted by the Board of
Directors of Fulton Savings Bank, FSB ("Fulton Savings" or the "Bank") whereby
the Bank will convert from a federally chartered mutual savings bank to a
federally chartered capital stock savings bank and issue all of the Bank's
outstanding capital stock to Fulton Bancorp, Inc. (the "Holding Company").
Simultaneously, the Holding Company will issue shares of Common Stock.
We understand that in accordance with the Plan of Conversion, Subscription
Rights to purchase shares of Common Stock in the Holding Company are to be
issued to: (1) Eligible Account Holders; (2) the ESOP; (3) Supplemental Eligible
Account Holders; and (4) Other Members. Based solely upon our observation that
the Subscription Rights will be available to such parties without cost, will be
legally non-transferable and of short duration, and will afford such parties the
right only to purchase shares of Common Stock at the same price as will be paid
by members of the general public in the Direct Community Offering and Syndicated
Community Offering, but without undertaking any independent investigation of
state or federal law or the position of the Internal Revenue Service with
respect to this issue, we are of the belief that, pursuant to our valuation of
the Subscription Rights:
(1) the Subscription Rights will have no ascertainable market value; and,
(2) the price at which the Subscription Rights are exercisable will not be
more or less than the pro forma market value of the shares upon
issuance.
Changes in the local and national economy, the legislative and regulatory
environment, the stock market, interest rates, and other external forces (such
as natural disasters or significant world events) may occur from time to time,
often with great unpredictability and may materially impact the value of thrift
stocks as a whole or the Holding Company's value alone. Accordingly, no
assurance can be given that persons who subscribe to shares of common stock in
the conversion will thereafter be able to buy or sell such shares at the same
price paid in the Subscription Offering.
Sincerely,
/s/ James J. Oren
------------------
James J. Oren
Vice President
[LETTERHEAD OF RP Financial, LC.]
<PAGE>
EXHIBIT 10.1
PROPOSED FORM OF EMPLOYMENT AGREEMENT
WITH CERTAIN EXECUTIVE OFFICERS
<PAGE>
FORM OF EMPLOYMENT AGREEMENT FOR CERTAIN EXECUTIVE OFFICERS
THIS AGREEMENT is made effective as of ________________, 1996, by and
between FULTON SAVINGS BANK, FSB (the "Savings Bank"), FULTON BANCORP, INC., a
Delaware corporation (the "Company"); and ________________ (the "Executive").
WHEREAS, the Savings Bank wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, Executive is willing to serve in the employ of the Savings Bank on
a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, Executive agrees to serve as
_________________________________________________. [During said period,
Executive also agrees to serve, if elected, as an officer and director of the
Company or any subsidiary or affiliate of the Company or the Savings Bank.]
2. TERMS AND DUTIES.
(a) The term of this Agreement shall be deemed to have commenced as of the
date first above written and shall continue for a period of thirty-six (36) full
calendar months thereafter. Commencing on the first anniversary date, and
continuing at each anniversary date thereafter, the Board of Directors of the
Savings Bank (the "Board") may extend the Agreement for an additional year.
Prior to the extension of the Agreement as provided herein, the Board of
Directors of the Savings Bank will conduct a formal performance evaluation of
Executive for purposes of determining whether to extend the Agreement, and the
results thereof shall be included in the minutes of the Board's meeting.
(b) During the period of his employment hereunder, except for periods of
absence occasioned by illness, reasonable vacation periods, and reasonable
leaves of absence, Executive shall devote substantially all his business time,
attention, skill, and efforts to the faithful performance of his duties
hereunder including activities and services related to the organization,
operation and management of the Savings Bank; provided, however, that, with the
approval of the Board, as evidenced by a resolution of such Board, from time to
time, Executive may serve, or continue to serve, on the boards of directors of,
and hold any other offices or positions in, companies or organizations, which,
in such Board's judgment, will not present any conflict of interest with the
Savings Bank, or materially affect the performance of Executive's duties
pursuant to this Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The compensation specified under this Agreement shall constitute the
salary and benefits paid for the duties described in Sections 1 and 2. The
Savings Bank shall pay Executive as compensation a salary of $____________ per
year ("Base Salary"). Such Base Salary shall be payable in accordance with the
customary payroll practices of the Savings Bank. During the period of this
Agreement, Executive's Base Salary shall be reviewed at least annually; the
first such review will be made no later than one year from the date of this
Agreement. Such review shall be conducted by a Committee designated by the
Board, and the Board may increase Executive's Base Salary. In addition to the
Base Salary provided in this Section 3(a), the Savings Bank shall provide
Executive
<PAGE>
at no cost to Executive with all such other benefits as are provided uniformly
to permanent full-time employees of the Savings Bank.
(b) The Savings Bank will provide Executive with employee benefit plans,
arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the Savings Bank will not,
without Executive's prior written consent, make any changes in such plans,
arrangements or perquisites which would adversely affect Executive's rights or
benefits thereunder. Without limiting the generality of the foregoing
provisions of this Subsection (b), Executive will be entitled to participate in
or receive benefits under any employee benefit plans including, but not limited
to, retirement plans, supplemental retirement plans, pension plans, profit-
sharing plans, health-and-accident plan, medical coverage or any other employee
benefit plan or arrangement made available by the Savings Bank in the future to
its senior executives and key management employees, subject to, and on a basis
consistent with, the terms, conditions and overall administration of such plans
and arrangements. Executive will be entitled to incentive compensation and
bonuses as provided in any plan, or pursuant to any arrangement of the Savings
Bank, in which Executive is eligible to participate. Nothing paid to Executive
under any such plan or arrangement will be deemed to be in lieu of other
compensation to which Executive is entitled under this Agreement, except as
provided under Section 5(e).
(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3, the Savings Bank shall pay or reimburse Executive for all reasonable
travel and other obligations under this Agreement and may provide such
additional compensation in such form and such amounts as the Board may from time
to time determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during Executive's term of employment under this Agreement, the provisions of
this Section shall apply. As used in this Agreement, an "Event of Termination"
shall mean and include any one or more of the following: (i) the termination by
the Savings Bank of Executive's full-time employment hereunder for any reason
other than a Change in Control, as defined in Section 5(a) hereof; disability,
as defined in Section 6(a) hereof; death; retirement, as defined in Section 7
hereof; or Termination for Cause, as defined in Section 8 hereof; (ii)
Executive's resignation from the Savings Bank's employ, upon (A) unless
consented to by Executive, a material change in Executive's function, duties, or
responsibilities, which change would cause Executive's position to become one of
lesser responsibility, importance, or scope from the position and attributes
thereof described in Sections 1 and 2, above (any such material change shall be
deemed a continuing breach of this Agreement), (B) a relocation of Executive's
principal place of employment by more than 35 miles from its location at the
effective date of this Agreement, or a material reduction in the benefits and
perquisites to Executive from those being provided as of the effective date of
this Agreement, (C) the liquidation or dissolution of the Savings Bank, or (D)
any breach of this Agreement by the Savings Bank. Upon the occurrence of any
event described in clauses (A), (B), (C) or (D), above, Executive shall have the
right to elect to terminate his employment under this Agreement by resignation
upon not less than sixty (60) days prior written notice given within a
reasonable period of time not to exceed, except in case of a continuing breach,
four (4) calendar months after the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, the Savings Bank shall
pay Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, as severance pay or liquidated
damages, or both, a sum equal to the payments due to Executive for the remaining
term of the Agreement, including Base Salary, bonuses, and any other cash or
deferred compensation paid or to be paid (including the value of employer
contributions that would have been made on Executive's behalf over the remaining
term of the agreement to any tax-qualified retirement plan sponsored by the
Savings Bank as of the Date of Termination), to Executive for the term of the
Agreement provided, however, that if the Savings Bank is not in compliance with
its minimum capital requirements or if such payments would cause the Savings
Bank's capital to be reduced below its minimum capital requirements, such
payments shall be deferred until such time as the Savings Bank is in capital
compliance. All payments made pursuant to this Section 4(b) shall be paid in
substantially equal
2
<PAGE>
monthly installments over the remaining term of this Agreement following
Executive's termination; provided, however, that if the remaining term of the
Agreement is less than one (1) year (determined as of Executive's Date of
Termination), such payments and benefits shall be paid to Executive in a lump
sum within thirty (30) days of the Date of Termination.
(c) Upon the occurrence of an Event of Termination, the Savings Bank will
cause to be continued life, medical, dental and disability coverage
substantially identical to the coverage maintained by the Savings Bank for
Executive prior to his termination. Such coverage shall cease upon the
expiration of the remaining term of this Agreement.
5. CHANGE IN CONTROL.
(a) No benefit shall be paid under this Section 5 unless there shall have
occurred a Change in Control of the Company or the Savings Bank. For purposes
of this Agreement, a "Change in Control" of the Company or the Savings Bank
shall be deemed to occur if and when (a) an offeror other than the Company
purchases shares of the common stock of the Company or the Savings Bank pursuant
to a tender or exchange offer for such shares, (b) any person (as such term is
used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) is
or becomes the beneficial owner, directly or indirectly, of securities of the
Company or the Savings Bank representing 25% or more of the combined voting
power of the Company's then outstanding securities, (c) the membership of the
board of directors of the Company or the Savings Bank changes as the result of a
contested election, such that individuals who were directors at the beginning of
any twenty-four (24) month period (whether commencing before or after the date
of adoption of this Plan) do not constitute a majority of the Board at the end
of such period, or (d) shareholders of the Company or the Savings Bank approve a
merger, consolidation, sale or disposition of all or substantially all of the
Company's or the Savings Bank's assets, or a plan of partial or complete
liquidation.
(b) If any of the events described in Section 5(a) hereof constituting a
Change in Control have occurred or the Board of the Savings Bank or the Company
has reasonably determined that a Change in Control has occurred, Executive shall
be entitled to the benefits provided in paragraphs (c), (d) and (e) of this
Section 5 upon his subsequent involuntary termination following the effective
date of a Change in Control (or voluntary termination following the effective
date of a Change in Control following any demotion, loss of title, office or
significant authority, reduction in his annual compensation or benefits (other
than a reduction affecting the Savings Bank's personnel generally), or
relocation of his principal place of employment by more than thirty-five (35)
miles from its location immediately prior to the Change in Control), unless such
termination is because of his death, retirement as provided in Section 7,
termination for Cause, or termination for Disability.
(c) Upon the occurrence of a Change in Control followed by Executive's
termination of employment, the Savings Bank shall pay Executive, or in the event
of his subsequent death, his beneficiary or beneficiaries, or his estate, as the
case may be, as severance pay or liquidated damages, or both, a sum equal to
2.99 times Executive's "base amount," within the meaning of (S)280G(b)(3) of
the Internal Revenue Code of 1986 ("Code"), as amended. Such payment shall be
made in a lump sum paid within ten (10) days of Executive's Date of Termination.
(d) Upon the occurrence of a Change in Control followed by Executive's
termination of employment, the Savings Bank will cause to be continued life,
medical, dental and disability coverage substantially identical to the coverage
maintained by the Savings Bank for Executive prior to his severance. In
addition, Executive shall be entitled to receive the value of employer
contributions that would have been made on Executive's behalf over the remaining
term of the agreement to any tax-qualified retirement plan sponsored by the
Savings Bank as of the Date of Termination. Such coverage and payments shall
cease upon the expiration of thirty-six (36) months.
(e) Upon the occurrence of a Change in Control, Executive shall be
entitled to receive benefits due him under, or contributed by the Company or the
Savings Bank on his behalf, pursuant to any retirement, incentive, profit
sharing, bonus, performance, disability or other employee benefit plan
maintained by the Savings Bank or the
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Company on Executive's behalf to the extent that such benefits are not otherwise
paid to Executive upon a Change in Control.
(f) Notwithstanding the preceding paragraphs of this Section 5, in the
event that the aggregate payments or benefits to be made or afforded to
Executive under this Section would be deemed to include an "excess parachute
payment" under (S)280G of the Code, such payments or benefits shall be payable
or provided to Executive over the minimum period necessary to reduce the present
value of such payments or benefits to an amount which is one dollar ($1.00) less
than three (3) times Executive's "base amount" under (S)280G(b)(3) of the Code.
6. TERMINATION FOR DISABILITY.
(a) If Executive shall become disabled as defined in the Savings Bank's
then current disability plan (or, if no such plan is then in effect, if
Executive is permanently and totally disabled within the meaning of Section
22(e)(3) of the Code as determined by a physician designated by the Board), the
Savings Bank may terminate Executive's employment for "Disability."
(b) Upon Executive's termination of employment for Disability, the Savings
Bank will pay Executive, as disability pay, a bi-weekly payment equal to three-
quarters (3/4) of Executive's bi-weekly rate of Base Salary on the effective
date of such termination. These disability payments shall commence on the
effective date of Executive's termination and will end on the earlier of (i) the
date Executive returns to the full-time employment of the Savings Bank in the
same capacity as he was employed prior to his termination for Disability and
pursuant to an employment agreement between Executive and the Savings Bank; (ii)
Executive's full-time employment by another employer; (iii) Executive attaining
the age of sixty-five (65); or (iv) Executive's death; or (v) the expiration of
the term of this Agreement. The disability pay shall be reduced by the amount,
if any, paid to Executive under any plan of the Savings Bank providing
disability benefits to Executive.
(c) The Savings Bank will cause to be continued life, medical, dental and
disability coverage substantially identical to the coverage maintained by the
Savings Bank for Executive prior to his termination for Disability. This
coverage and payments shall cease upon the earlier of (i) the date Executive
returns to the full-time employment of the Savings Bank, in the same capacity as
he was employed prior to his termination for Disability and pursuant to an
employment agreement between Executive and the Savings Bank; (ii) Executive's
full-time employment by another employer; (iii) Executive's attaining the age of
sixty-five (65); (iv) Executive's death; or (v) the expiration of the term of
this Agreement.
(d) Notwithstanding the foregoing, there will be no reduction in the
compensation otherwise payable to Executive during any period during which
Executive is incapable of performing his duties hereunder by reason of temporary
disability.
7. TERMINATION UPON RETIREMENT; DEATH OF EXECUTIVE.
Termination by the Savings Bank of Executive based on "Retirement" shall
mean retirement at age sixty-five (65) or in accordance with any retirement
arrangement established with Executive's consent with respect to him. Upon
termination of Executive upon Retirement, Executive shall be entitled to all
benefits under any retirement plan of the Savings Bank or the Company and other
plans to which Executive is a party. Upon the death of Executive during the
term of this Agreement, the Savings Bank shall pay to Executive's estate the
compensation due to Executive through the last day of the calendar month in
which his death occurred.
8. TERMINATION FOR CAUSE.
For purposes of this Agreement, "Termination for Cause" shall include
termination because of Executive's personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law, rule, or
regulation (other than traffic violations or similar
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offenses) or final cease-and-desist order, or material breach of any provision
of this Agreement. For purposes of this Section, no act, or the failure to act,
on Executive's part shall be "willful" unless done, or omitted to be done, not
in good faith and without reasonable belief that the action or omission was in
the best interest of the Savings Bank or its affiliates. Notwithstanding the
foregoing, Executive shall not be deemed to have been terminated for Cause
unless and until there shall have been delivered to him a copy of a resolution
duly adopted by the affirmative vote of not less than three-fourths (3/4) of the
members of the Board at a meeting of the Board called and held for that purpose
(after reasonable notice to Executive and an opportunity for him, together with
counsel, to be heard before the Board), finding that in the good faith opinion
of the Board, Executive was guilty of conduct justifying termination for Cause
and specifying the reasons thereof. Executive shall not have the right to
receive compensation or other benefits for any period after termination for
Cause. Any stock options granted to Executive under any stock option plan or
any unvested awards granted under any other stock benefit plan of the Savings
Bank, the Company, or any subsidiary or affiliate thereof, shall become null and
void effective upon Executive's receipt of Notice of Termination for Cause
pursuant to Section 9 hereof, and shall not be exercisable by Executive at any
time subsequent to such Termination for Cause.
9. REQUIRED PROVISIONS.
(a) The Savings Bank may terminate Executive's employment at any time, but
any termination by the Savings Bank, other than Termination for Cause, shall not
prejudice Executive's right to compensation or other benefits under this
Agreement. Executive shall not have the right to receive compensation or other
benefits for any period after Termination for Cause as defined in Section 8
herein.
(b) If Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Savings Bank's affairs by a notice served
under Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act ("FDIA")
(12 U.S.C. 1818(e)(3) and (g)(1)), the Savings Bank's obligations under the
Agreement shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the
Savings Bank may, in its discretion, (i) pay Executive all or part of the
compensation withheld while its contract obligations were suspended and (ii)
reinstate (in whole or in part) any of its obligations that were suspended.
(c) If Executive is removed and/or permanently prohibited from
participating in the conduct of the Savings Bank's affairs by an order issued
under Section 8(e)(4) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(4) or (g)(1)),
all obligations of the Savings Bank under the Agreement shall terminate as of
the effective date of the order, but vested rights of the contracting parties
shall not be affected.
(d) If the Savings Bank is in default (as defined in Section 3(x)(1) of
the FDIA), all obligations under this Agreement shall terminate as of the date
of default, but this paragraph shall not affect any vested rights of the
parties.
(e) All obligations under this Agreement shall be terminated (except to
the extent determined that continuation of the Agreement is necessary for the
continued operation of the Savings Bank): (i) by the Director of the Office of
Thrift Supervision (the "Director") or his designee at the time the Federal
Deposit Insurance Corporation or the Resolution Trust Corporation enters into an
agreement to provide assistance to or on behalf of the Savings Bank under the
authority contained in Section 13(c) of the FDIA or (ii) by the Director, or his
designee at the time the Director or such designee approves a supervisory merger
to resolve problems related to operation of the Savings Bank or when the Savings
Bank is determined by the Director to be in an unsafe or unsound condition. Any
rights of the parties that have already vested, however, shall not be affected
by such action.
(f) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
(S)1828(k) and any regulations promulgated thereunder.
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10. NOTICE.
(a) Any purported termination by the Savings Bank or by Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
(b) "Date of Termination" shall mean (A) if Executive's employment is
terminated for Disability, thirty (30) days after a Notice of Termination is
given (provided that he shall not have returned to the performance of his duties
on a full-time basis during such thirty (30) day period), and (B) if his
employment is terminated for any other reason, the date specified in the Notice
of Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by Executive in which case the Date
of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal there from having expired and no appeal having been perfected)
and provided further that the Date of Termination shall be extended by a notice
of dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Savings Bank will continue
to pay Executive his full compensation in effect when the notice giving rise to
the dispute was given (including, but not limited to, Base Salary) and continue
him as a participant in all compensation, benefit and insurance plans in which
he was participating when the notice of dispute was given, until the dispute is
finally resolved in accordance with this Agreement. Amounts paid under this
Section are in addition to all other amounts due under this Agreement and shall
not be offset against or reduce any other amounts due under this Agreement.
11. NON-COMPETITION.
(a) Upon any termination of Executive's employment hereunder pursuant to
an Event of Termination as provided in Section 4 hereof, Executive agrees not to
compete with the Savings Bank and/or the Company for a period of one (1) year
following such termination in any city, town or county in which the Savings Bank
and/or the Company has an office or has filed an application for regulatory
approval to establish an office, determined as of the effective date of such
termination. Executive agrees that during such period and within said cities,
towns and counties, Executive shall not work for or advise, consult or otherwise
serve with, directly or indirectly, any entity whose business materially
competes with the depository, lending or other business activities of the
Savings Bank and/or the Company. The parties hereto, recognizing that
irreparable injury will result to the Savings Bank and/or the Company, its
business and property in the event of Executive's breach of this Subsection
11(a) agree that in the event of any such breach by Executive, the Savings Bank
and/or the Company will be entitled, in addition to any other remedies and
damages available, to an injunction to restrain the violation hereof by
Executive, Executive's partners, agents, servants, employers, employees and all
persons acting for or with Executive. Executive represents and admits that in
the event of the termination of his employment pursuant to Section 8 hereof,
Executive's experience and capabilities are such that Executive can obtain
employment in a business engaged in other lines and/or of a different nature
than the Savings Bank and/or the Company, and that the enforcement of a remedy
by way of injunction will not prevent Executive from earning a livelihood.
Nothing herein will be construed as prohibiting the Savings Bank and/or the
Company from pursuing any other remedies available to the Savings Bank and/or
the Company for such breach or threatened breach, including the recovery of
damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Savings Bank and
affiliates thereof, as it may exist from time to time, is a valuable, special
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and unique asset of the business of the Savings Bank. Executive will not,
during or after the term of his employment, disclose any knowledge of the past,
present, planned or considered business activities of the Savings Bank or
affiliates thereof to any person, firm, corporation, or other entity for any
reason or purpose whatsoever. Notwithstanding the foregoing, Executive may
disclose any knowledge of banking, financial and/or economic principles,
concepts or ideas which are not solely and exclusively derived from the business
plans and activities of the Savings Bank. In the event of a breach or
threatened breach by Executive of the provisions of this Section, the Savings
Bank will be entitled to an injunction restraining Executive from disclosing, in
whole or in part, the knowledge of the past, present, planned or considered
business activities of the Savings Bank or affiliates thereof, or from rendering
any services to any person, firm, corporation, other entity to whom such
knowledge, in whole or in part, has been disclosed or is threatened to be
disclosed. Nothing herein will be construed as prohibiting the Savings Bank
from pursuing any other remedies available to the Savings Bank for such breach
or threatened breach, including the recovery of damages from Executive.
12. SOURCE OF PAYMENTS.
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Savings Bank. The Company, however,
guarantees all payments and the provision of all amounts and benefits due
hereunder to Executive and, if such payments are not timely paid or provided by
the Savings Bank, such amounts and benefits shall be paid or provided by the
Company.
13. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Savings Bank or any
predecessor of the Savings Bank and Executive, except that this Agreement shall
not affect or operate to reduce any benefit or compensation inuring to Executive
of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
14. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive, the Savings Bank, the Company and their respective successors and
assigns.
15. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there by any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
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16. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
17. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
18. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Missouri,
unless otherwise specified herein; provided, however, that in the event of a
conflict between the terms of this Agreement and any applicable federal or state
law or regulation, the provisions of such law or regulation shall prevail.
19. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the employee within one
hundred (100) miles from the location of the Savings Bank, in accordance with
the rules of the American Arbitration Association then in effect. Judgment may
be entered on the arbitrator's award in any court having jurisdiction; provided,
however, that Executive shall be entitled to seek specific performance of his
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
20. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the Savings Bank, if successful pursuant to a legal judgment,
arbitration or settlement.
21. INDEMNIFICATION.
The Savings Bank shall provide Executive (including his heirs, executors
and administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, or in lieu thereof, shall indemnify
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under law against all expenses and liabilities reasonably incurred by
him in connection with or arising out of any action, suit or proceeding in which
he may be involved by reason of his having been a director or officer of the
Savings Bank (whether or not he continues to be a directors or officer at the
time of incurring such expenses or liabilities), such expenses and liabilities
to include, but not be limited to, judgment, court costs and attorneys' fees and
the cost of reasonable settlements.
22. SUCCESSOR TO THE SAVINGS BANK OR THE COMPANY.
The Savings Bank and the Company shall require any successor or assignee,
whether direct or indirect, by purchase, merger, consolidation or otherwise, to
all or substantially all the business or assets of the Savings Bank or the
Company, expressly and unconditionally to assume and agree to perform the
Savings Bank's or the Company's obligations under this Agreement, in the same
manner and to the same extent that the Savings Bank or the Company would be
required to perform if no such succession or assignment had taken place.
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IN WITNESS WHEREOF, the Savings Bank and the Company hereto have caused
this Agreement to be executed and their seal to be affixed hereunto by a duly
authorized officer or director, and Executive has signed this Agreement, all on
the ____ day of _____________, 1996.
ATTEST: FULTON SAVINGS BANK, FSB
________________________ BY:________________________________________
[SEAL]
ATTEST: FULTON BANCORP, INC.
_________________________ BY:________________________________________
[SEAL]
WITNESS:
_________________________ ___________________________________________
Executive
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EXHIBIT 10.2
PROPOSED FORM OF STOCK OPTION PLAN
<PAGE>
FULTON BANCORP, INC.
1996 STOCK OPTION PLAN
SECTION 1. PURPOSE. The purposes of the Fulton Bancorp, Inc. 1996 Stock Option
Plan are to promote the interests of the Company, its affiliates, and its
stockholders by (i) attracting and retaining exceptional executive personnel and
other key employees and directors of the Company and its affiliates; (ii)
motivating such employees and Eligible Directors by means of performance-related
incentives to achieve longer-range performance goals; and (iii) enabling such
employees and Eligible Directors to participate in the long-term growth and
financial success of the Company.
SECTION 2. DEFINITIONS. As used in the Plan, the following terms shall have
the meanings set forth below:
"Affiliate" shall mean the Bank or any present or future corporation that
would be a "subsidiary" corporation as defined in Sections 424(f), of the Code.
"Award" shall mean any grant of Options or Director Options.
"Award Agreement" shall mean any written agreement, contract, or other
instrument or document evidencing any Award, which may, but need not, be
executed or acknowledged by a Participant or Eligible Director.
"Bank" shall mean Fulton Savings Bank, FSB, Fulton, Missouri.
"Board" shall mean the Board of Directors of the Company.
"Change in Control" shall mean an event deemed to occur if and when (a) an
offeror other than the Company purchases shares of the common stock of the
Company or the Bank pursuant to a tender or exchange offer for such shares, (b)
any person (as such term is used in Sections 13(d) and 14(d)(2) of the Exchange
Act) is or becomes the beneficial owner, directly or indirectly, of securities
of the Company or the Bank representing twenty-five percent (25%) or more of the
combined voting power of the Company's or the Bank's then outstanding
securities, (c) the membership of the board of directors of the Company or the
Bank changes as the result of a contested election, such that individuals who
were directors at the beginning of any twenty-four month period (whether
commencing before or after the date of adoption of this Plan) do not constitute
a majority of the Board at the end of such period, or (d) shareholders of the
Company or the Bank approve a merger, consolidation, sale or disposition of all
or substantially all of the Company's or the Bank's assets, or a plan of partial
or complete liquidation. If any of the events enumerated in clauses (a) - (d)
occur, the Board shall determine the effective date of the change in control
resulting therefrom, for purposes of the Plan.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Committee" shall mean a committee of the Board designated by the Board to
administer the Plan.
"Company" shall mean Fulton Bancorp, Inc., a Delaware corporation.
"Director Option" shall mean a Non-Qualified Stock Option granted to an
Eligible Director pursuant to Section 6(e).
"Disability" shall have the meaning set forth in Section 22(e)(3) of the
Code. For purposes of the Plan, all determinations as to whether a Participant
has become disabled shall be made by a majority of the Board upon the basis of
such evidence as its deems necessary or desirable, and shall be final and
binding on all interested persons.
"Effective Date" shall mean the date of shareholder approval of the Plan.
<PAGE>
"Eligible Director" shall mean, on any date, a person who is serving as a
member of the Board but shall not include a person who is an Employee.
"Employee" shall mean an employee of the Company or any Affiliate.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Fair Market Value" shall be determined as follows:
(a) If the Shares are traded or quoted on the Nasdaq Stock Market at the
time of grant of the Award, then the Fair Market Value shall be the
average of the highest and lowest selling price on such exchange on
the date such Award is granted or, if there were no sales on such
date, then on the next prior business day on which there was a sale.
(b) If the Shares are not traded or quoted on the Nasdaq Stock Market,
then the Fair Market Value shall be a value determined by the
Committee in good faith on such basis as it deems appropriate.
"Incentive Stock Option" shall mean a right to purchase Shares from the
Company that is granted under Section 6 of the Plan and that is intended to meet
the requirements of Section 422 of the Code or any successor provision thereto.
"Initial Award" shall means any grant of Options made prior to the date of
the second annual meeting of stockholders of the Company.
"Non-Qualified Stock Option" shall mean a right to purchase Shares from the
Company that is granted under Section 6 of the Plan and that is not intended to
be an Incentive Stock Option.
"Option" shall mean an Incentive Stock Option or a Non-Qualified Stock
Option but shall not include a Director Option.
"Participant" shall mean any Employee or Eligible Director selected by the
Committee to receive an Award of Options Director Options, as appropriate.
"Person" shall mean any individual, corporation, partnership, association,
joint-stock company, trust, unincorporated organization, government or political
subdivision thereof or other entity.
"Plan" shall mean the Fulton Bancorp, Inc. 1996 Stock Option Plan.
"Rule 16b-3" shall mean Rule 16b-3 as promulgated and interpreted by the
SEC under the Exchange Act, or any successor rule or regulation thereto as in
effect from time to time.
"SEC" shall mean the Securities and Exchange Commission or any successor
thereto and shall include the staff thereof.
"Shares" shall mean common shares of the Company, or such other securities
of the Company as may be designated by the Committee from time to time.
"Ten Percent Stockholder" shall mean any stockholder who, at the time an
Incentive Stock Option is granted to such stockholder, owns (within the meaning
of Section 424(d) of the Code) more than ten percent (10%) of the voting power
of all classes of stock of the Company.
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<PAGE>
"Termination for Cause" shall mean termination because of a Participant's
personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule, or regulation (other than traffic violations or
similar offenses) or material breach of any provision of any employment
agreement between the Company, the Bank and a Participant.
SECTION 3. ADMINISTRATION.
(a) The Plan shall be administered by the Committee. Subject to the
terms of the Plan and applicable law, and in addition to other express powers
and authorizations conferred on the Committee by the Plan, the Committee shall
have full power and authority to: (i) designate Participants; (ii) determine the
type or types of Awards to be granted to an eligible Employee; (iii) determine
the number of Shares to be covered by, or with respect to which payments,
rights, or other matters are to be calculated in connection with, Awards; (iv)
determine the terms and conditions of any Award; (v) determine whether, to what
extent, and under what circumstances Awards may be settled or exercised in cash,
Shares, other securities, other Awards or other property, or canceled,
forfeited, or suspended; (vi) determine whether, to what extent, and under what
circumstances cash, Shares, other securities, other Awards, other property, and
other amounts payable with respect to an Award shall be deferred either
automatically or at the election of the holder thereof or of the Committee;
(vii) interpret and administer the Plan and any instrument or agreement relating
to, or Award made under, the Plan; (viii) establish, amend, suspend, or waive
such rules and regulations and appoint such agents as it shall deem appropriate
for the proper administration of the Plan; and (ix) make any other determination
and take any other action that the Committee deems necessary or desirable for
the administration of the Plan.
(b) Unless otherwise expressly provided in the Plan, all designations,
determinations, interpretations, and other decisions under or with respect to
the Plan or any Award shall be within the sole discretion of the Committee, may
be made at any time and shall be final, conclusive, and binding upon all
Persons, including the Company, and Participant, any holder or beneficiary of
any Award, any shareholder and any Employee.
SECTION 4. SHARES AVAILABLE FOR AWARDS.
(a) SHARES AVAILABLE. Subject to adjustment as provided in Section 4(b),
the number of Shares with respect to which Options and Director Options may be
granted under the Plan shall be ____________. If, after the effective date of
the Plan, any Shares covered by an Option or Director Option granted under the
Plan, or to which such an Option or Director Option relates, are forfeited, or
if an Option or Director Option otherwise terminates or is canceled without the
delivery of Shares, then the Shares covered by such Option or Director Option,
or to which such Option or Director Option relates, or the number of Shares
otherwise counted against the aggregate number of Shares with respect to which
Options and Director Options may be granted, to the extent of any such
settlement, forfeiture, termination or cancellation, shall again be, or shall
become, Shares with respect to which Options and Director Options may be
granted. In the event that any Option or Director Option is exercised through
the delivery of Shares, the number of Shares available for Awards under the plan
shall be increased by the number of Shares surrendered.
(b) ADJUSTMENTS. In the event that any dividend or other distribution
(whether in the form of cash, Shares, other securities, or other property),
recapitalization, stock split, reverse stock split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase, or exchange of
Shares or other securities of the Company, issuance of warrants or other rights
to purchase Shares or other securities of the Company, or other similar
corporate transaction or event affects the Shares such that an adjustment is
necessary in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan, then the
Committee shall proportionately adjust any or all (as necessary) of (i) the
number of Shares or other securities of the Company (or number and kind of other
securities or property) with respect to which Awards may be granted, including
an Award pursuant to Section 6(e), (ii) the number of Shares or other securities
of the Company (or number and kind of other securities or property) subject to
outstanding Awards, and (iii) the grant or exercise price with respect to any
Award; provided, in each case, that with respect to Awards of Incentive Stock
Option no such adjustment shall
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<PAGE>
be authorized to the extent that such authority would cause the Plan to violate
Section 422(b)(1) of the Code, as from time to time amended.
(c) SOURCES OF SHARES. Any Shares delivered pursuant to an Option or
Director Option may consist, in whole or in part, of authorized and unissued
Shares or of treasury Shares.
SECTION 5. ELIGIBILITY. An Employee, including any officer or employee-
director of the Company, who is not a member of the Committee shall be eligible
to be designated a Participant. Each Eligible Director shall be eligible to
receive Director Options in accordance with Section 6(e) hereof.
SECTION 6. OPTIONS AND DIRECTOR OPTIONS.
(a) GRANT. Subject to the provisions of the Plan, the Committee shall
have sole and complete authority to determine the Employees to whom Options
shall be granted, the number of Shares to be covered by each Option, the option
price therefor and the conditions and limitations applicable to the exercise of
the option. The Committee shall have the authority to grant Incentive Stock
Options, or to grant Non-Qualified Stock Options, or to grant both types of
options. In such case of Incentive Stock Options, the terms and conditions of
such grants shall be subject to and comply with such rules as may be prescribed
by Section 422 of the Code, as from time to time amended, and any regulations
implementing such statute, including without limitation, the requirements of
Code Section 422(d), which limits the aggregate fair market value of Shares of
which Incentive Stock Options are exercisable for the first time to one hundred
thousand dollars ($100,000) per calendar year. Each provision of the Plan and of
each written option agreement relating to an Option designated an Incentive
Stock Option shall be construed so that such Option qualifies as an Incentive
Stock Option, and any provision that cannot be so construed shall be
disregarded.
(b) EXERCISE PRICE. The Committee shall establish the exercise price at
the time each Option or Director Option is granted, which price shall not be
less than one hundred percent (100%) of the per Share Fair Market Value on the
date of grant. Notwithstanding any provision contained herein, in the case of an
Incentive Stock Option, the exercise price at the time such Incentive Stock
Option is granted to any Employee who, at the time of such grant, is a Ten
Percent Stockholder, shall not be less than one hundred ten percent (110%) of
the per Share Fair Market Value on the date of grant.
(c) EXERCISE. Each Option shall be exercisable at such times and
subject to such terms and conditions as the Committee may, in its sole
discretion, specify in the applicable Award Agreement or thereafter; provided,
in the case of an Incentive Stock Option, a Participant may not exercise such
Option as an Incentive Stock Option after the earlier of (i) the date which is
ten (10) years (five (5) years in the case of a Participant who is a Ten Percent
Stockholder) after the date on which such Incentive Stock Option is granted, or
(ii) the date which is three (3) months (twelve (12) months in the case of a
Participant who becomes Disabled, or who dies) after the date on which he ceases
to be an employee of the Company or an Affiliate, and provided, further, that no
Initial Award of Options under the Plan shall vest more rapidly than ratably
over a five-year whereby twenty percent (20%) of the Award shall vest on each of
the first through the fifth anniversaries of the date of grant; provided,
further, that an Award of Options shall be one hundred (100) percent vested upon
a Participant's death or Disability. In the event of an Employee's Termination
for Cause, his Options shall be canceled on the date he ceases to be an
Employee. The Committee may impose such conditions with respect to the exercise
of Options, including without limitation, any relating to the application of
federal or state securities laws, as it may deem necessary or advisable. Except
with respect to the vesting of an Initial Award, the Committee shall have the
right to accelerate the exercisability of any Option or outstanding Options in
its discretion.
(d) PAYMENT. No Shares shall be delivered pursuant to any exercise of
an Option or Director Option until payment in full of the option price therefor
is received by the Company. Such payment may be made in cash or its equivalent,
or, if and to the extent permitted by the Committee, by exchanging Shares owned
by the optionee (which are not the subject of any pledge or other security
interest), or by a combination of the foregoing, provided
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<PAGE>
that the combined value of all cash and cash equivalents and the Fair Market
Value of any such Shares so tendered to the Company as of the date of such
tender is at least equal to such option price.
(e) DIRECTOR OPTIONS. Subject to the provisions of the Plan, the
Committee shall have sole and complete authority to determine the Eligible
Directors to whom Director Options shall be granted, the number of shares to be
covered by each Director Option and the condition and limitations applicable to
the exercise of each Director Option. Each Award of Director Options shall vest
ratably over a five (5) year period whereby twenty percent (20%) of the Award
shall vest on each of the first through the fifth anniversaries of the date of
grant; provided, however, that the Award shall be one hundred percent (100%)
vested in the event of the Eligible Director's death or Disability. A Director
Option shall be exercisable until the earlier to occur of the following two (2)
dates (i) the tenth anniversary of the date of grant of such Director Option or
(ii) one (1) year (two (2) years in the case of an Eligible Director who becomes
Disabled, or who dies) after the date the Eligible Director ceases to be a
member of the Board, except that if the Eligible Director ceases to be a member
of the Board upon Termination for Cause, his Director Option shall be canceled
on the date he ceases to be a member of the Board. An Eligible Director may pay
the exercise price of a Director Option in the manner described in Section 6(d).
(f) EFFECT OF A CHANGE IN CONTROL. In the event of a Change in Control,
all then outstanding Options and Director Options, shall (to the extent
authorized or not prohibited by applicable law or regulations) become one
hundred percent (100%) vested and exercisable as of the effective date of the
Change in Control. If, in connection with or as a consequence of a Change in
Control, the Company or the Bank is merged into or consolidated with another
corporation, or if the Company or the Bank sells or otherwise disposes of
substantially all of its assets to another corporation, then unless provisions
are made in connection with such transaction for the continuance of the Plan
and/or the assumption or substitution of then outstanding Options and Director
Options with new options covering the stock of the successor corporation, or
parent or subsidiary thereof, with appropriate adjustments as to the number and
kind of shares and prices, such Options or Director Options shall be canceled as
of the effective date of the merger, consolidation, or sale and the Participant
or Eligible Director shall be paid in cash an amount equal to the difference
between the Fair Market Value of the Shares subject to the Options or Director
Options as of the effective date of the such corporate event and the exercise
price of the Options or Director Options, as appropriate.
(g) DIVIDEND EQUIVALENT RIGHT. Unless otherwise determined by the
Committee, each Award Agreement shall provide that, upon the payment of an
"extraordinary dividend" by the Company, each Participant shall receive a cash
payment from the Company equivalent to one hundred (100) percent of the
dividends that would have been payable to such Participant had the Participant's
Options or Director Options been exercised on or before the record date of such
dividend. For purposes of this Section 6(g), "extraordinary dividend" shall mean
a dividend payable at a rate in excess of the Bank's weighted average cost of
funds on interest bearing liabilities for the twelve (12) month period preceding
the record date of the dividend.
(h) LIMITATION ON AWARDS. Notwithstanding anything herein to the
contrary, if this plan is implemented within one year of the consummation of the
Bank's mutual-to-stock conversion, (i) no Employee shall receive an Award
covering in excess of twenty five (25) percent, (ii) no Eligible Director shall
receive in excess of five (5) percent and (iii) Eligible Directors shall not
receive in excess of thirty (30) percent in the aggregate, of the number of
shares reserved for issuance under the Plan.
SECTION 7. AMENDMENT AND TERMINATION.
(a) AMENDMENTS TO THE PLAN. The Board may amend, alter, suspend,
discontinue, or terminate the Plan or any portion thereof at any time; provided
that no such amendment, alteration, suspension, discontinuation or termination
shall be made without shareholder approval if such approval is necessary to
comply with any tax or regulatory requirement.
(b) AMENDMENTS TO AWARDS. Except as provided under Section 3, the
Committee may waive any conditions or rights under, amend any terms of, or
alter, suspend, discontinue, cancel or terminate, any Award
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<PAGE>
theretofore granted, prospectively or retroactively; provided that any such
waiver, amendment, alteration, suspension, discontinuance, cancellation or
termination that would impair the rights of any Participant or any holder or
beneficiary of any Award theretofore granted shall not to that extent be
effective without the consent of the affected Participant, holder or
beneficiary.
(c) CANCELLATION. Any provision of this Plan or any Award Agreement to
the contrary notwithstanding, the Committee may cause any Award of Options
granted hereunder to be canceled in consideration of the granting to the holder
of an alternative Award of Options having a Fair Market Value equal to the Fair
Market Value of such canceled Award.
SECTION 8. GENERAL PROVISIONS.
(a) NONTRANSFERABILITY.
(i) Each Award, and each right under any Award, shall be
exercisable only by the Participant's lifetime, or, if permissible under
applicable law, by the Participant's guardian or legal representative or a
transferee receiving such Award pursuant to a domestic relations order, as
determined by the Committee.
(ii) No Award may be assigned, alienated, pledged, attached, sold
or otherwise transferred or encumbered by a Participant otherwise than by will
or by the laws of descent and distribution or pursuant to a domestic relations
order, and any such purported assignment, alienation, pledge, attachment, sale,
transfer or encumbrance shall be void and unenforceable against the Company;
provided that the designation of a beneficiary shall not constitute an
assignment, alienation, pledge, attachment, sale, transfer or encumbrance.
(iii) The restrictions set forth in clause (ii) of this Section
8(a) shall not apply to any Non-Qualified Stock Option after the Board has
determined that such restrictions are not then required for grants under the
Plan to satisfy the requirements for exemption provided by Rule 16b-3 under the
Exchange Act (in the form then applicable to the Company) or for members of the
Committee to qualify as "disinterested persons" for purposes of such Rule;
provided, however, that (A) any transfer of a Non-Qualified Stock Option is to
be made for no consideration to any of the following permissible transferees (1)
any member of the Immediate Family of the Participant to which such Non-
Qualified Stock Option was granted, (2) any trust solely for the benefit of the
Participant's Immediate Family, or (3) any partnership whose only partners are
members of the Participant's Immediate Family and (B) the transferee shall
remain subject to all of the terms and conditions applicable to such Non-
Qualified Stock Option prior to such transfer. For purposes of this clause
(iii), "Immediate Family" shall mean, with respect to a particular Participant,
such Participant's spouse, children and grandchildren.
(b) NO RIGHTS TO AWARDS. No Employee, Participant or other Person shall
have any claim to be granted any Award, and there is no obligation for
uniformity of treatment of Employees, Participants, or holders or beneficiaries
of Awards. The terms and conditions of Awards need not be the same with respect
to each recipient.
(c) SHARE CERTIFICATES. All Shares or other securities of the Company
delivered under the Plan pursuant to any Award or the exercise thereof shall be
subject to such stop transfer orders and other restrictions as the Committee may
deem advisable under the Plan or the rules, regulations, and other requirements
of the SEC, any stock exchange or national securities association upon which
such Shares or other securities are then listed, and any applicable Federal or
state laws, and the Committee may cause a legend or legends to be put on any
certificates representing such Shares or other securities to make appropriate
reference to such restrictions.
(d) DELEGATION. Subject to the terms of the Plan and applicable law,
the Committee may delegate to one or more officers or managers of the Company,
or to a committee of such officers or managers, the authority, subject to such
terms and limitations as the Committee shall determine, to grant Awards to, or
to cancel, modify or waive rights with respect to, or to alter, discontinue,
suspend, or terminate Awards held by, Employees who are not
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<PAGE>
officers or directors of the Company for purposed of Section 16 of the Exchange
Act, or any successor section thereto, or who are otherwise not subject to such
Section.
(e) WITHHOLDING. A Participant may be required to pay to the Company
and the Bank shall have the right and is hereby authorized to withhold from any
Award, from any payment due or transfer made under any Award or from any
compensation or other amount owing to a Participant the amount of any applicable
withholding taxes in respect of an Award, its exercise, or any payment or
transfer under an Award and take such other action as may be necessary in the
opinion of the Company to satisfy all obligations for the payment of such taxes.
With respect to Participants who are not subject to Section 16 of the Exchange
Act, the withholding may be in the form of cash, Shares, or other property as
the Committee may allow. With respect to Participants who are subject to Section
16 of the Exchange Act, the withholding shall be in cash or in any other
property permitted by Rule 16b-3 as the Committee may allow.
(f) AWARD AGREEMENTS. Each Award hereunder shall be evidenced by an
Award Agreement which shall be delivered to the Participant and shall specify
the terms and conditions of the Award and any rules applicable thereto.
(g) NO LIMIT ON OTHER COMPENSATION ARRANGEMENTS. Nothing contained in
the Plan shall prevent the Company or any Affiliate from adopting or continuing
in effect other compensation arrangements, which may, but need not, provide for
the grant of options, restricted stock, Shares and other types of Awards
provided for hereunder (subject to shareholder approval if such approval is
required), and such arrangements may be either generally applicable or
applicable only in specific cases.
(h) NO RIGHT TO EMPLOYMENT. The grant of an Award shall not be
construed as giving a Participant the right to be retained in the employ of the
Company or an Affiliate. Further, the Company may at any time dismiss a
Participant from employment, free from any liability or any claim under the
Plan, unless otherwise expressly provide in the Plan or in any Award Agreement.
(i) NO RIGHTS AS STOCKHOLDER. Subject to the provisions of the
applicable Award, no Participant or holder or beneficiary of any Award shall
have any rights as a stockholder with respect to any Shares to be distributed
under the Plan until he or she has become the holder of such Shares.
(j) GOVERNING LAW. The validity, construction, and effect of the Plan
and any rules and regulations relating to the Plan and any Award Agreement shall
be determined in accordance with the laws of the State of Missouri, without
giving effect to the choice of law principles thereof.
(k) SEVERABILITY. If any provisions of the Plan or any Award is or
becomes or is deemed to be invalid, illegal, or unenforceable in any
jurisdiction or as to any Person or Award, or would disqualify the Plan or any
Award under any law deemed applicable by the Committee, such provision shall be
construed or deemed amended to conform to the applicable laws, or if it cannot
be construed or deemed amended without, in the determination of the Committee,
materially altering the intent of the Plan or the Award, such provision shall be
stricken as to such jurisdiction, Person or Award and the remainder of the Plan
and any such Award shall remain in full force and effect.
(l) OTHER LAWS. The Committee may refuse to issue or transfer any
Shares or other consideration under an Award if, acting in its sole discretion,
it determines that the issuance or transfer of such Shares or such other
consideration might violate any applicable law or regulation or entitle the
Company to recovery under Section 16(b) of the Exchange Act, and any payment
tendered to the Company by a Participant, other holder or beneficiary in
connection with the exercise of such Award shall be promptly refunded to the
relevant Participant, holder or beneficiary. Without limiting the generality of
the foregoing, no Award granted hereunder shall be construed as an offer to sell
securities of the Company, and no such offer shall be outstanding, unless and
until the Committee in its sole discretion has determined that any such offer,
if made, would be in compliance with all applicable requirements of the U.S.
federal securities laws.
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<PAGE>
(m) NO TRUST OR FUND CREATED. Neither the Plan nor any Award shall
create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company and a Participant or any other
Person. To the extent that any Person acquires a right to receive payments from
the Company pursuant to an Award, such rights shall be no greater than the right
of any unsecured general creditor of the Company.
(n) RULE 16B-3 COMPLIANCE. With respect to persons subject to Section
16 of the Exchange Act, transactions under this Plan are intended to comply with
all applicable terms and conditions of Rule 16b-3 and any successor provisions.
To the extent that any provision of the Plan or action by the Committee fails to
so comply, it shall be deemed null and void, to the extent permitted by law and
deemed advisable by the Committee.
(o) HEADINGS. Heading are given to the Sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall not
be deemed in any way material or relevant to the construction or interpretation
of the Plan or any provision thereof.
(p) NO IMPACT ON BENEFITS. Unless specifically provided under any other
benefit plan of the Company or its Affiliates, Awards shall not be treated as
compensation for purposes of calculating an Employee's or Eligible Director's
rights under such benefit plans.
(q) INDEMNIFICATION. Each person who is or shall have been a member of
the Committee or of the Board shall be indemnified and held harmless by the
Company against and from any loss, cost, liability, or expense that may be
imposed upon or reasonably incurred by him in connection with or resulting from
any claim, action, suit, or proceeding to which he may be made a party or in
which he may be involved by reason of any action taken or failure to act under
the Plan and against and from any and all amounts paid by him in settlement
thereof, with the Company's approval, or paid by him in satisfaction of any
judgement in any such action, suit, or proceeding against him, provided he shall
give the Company an opportunity, at its own expense, to handle and defend the
same before he undertakes to handle and defend it on his own behalf. The
foregoing right of indemnification shall not be exclusive and shall be
independent of any other rights of indemnification to which such persons may be
entitled under the Company's articles of incorporation or bylaws, by contract,
as a matter of law, or otherwise.
SECTION 9. TERM OF THE PLAN.
(a) EFFECTIVE DATE. The Plan shall become effective only upon approval
by a majority of the Company's stockholders at an annual or special meeting of
stockholders of the Company held not less than six (6) months after the date of
consummation of the Company's mutual-to-stock conversion nor more than twelve
(12) months after the date of adoption of the Plan by the Board.
(b) EXPIRATION DATE. The Plan shall terminate on and no Award shall be
granted under the Plan after the tenth anniversary of the Effective Date.
Unless otherwise expressly provided in the Plan or in an applicable Award
Agreement, any Award granted hereunder may, and the authority of the Board or
the Committee to amend, alter, adjust, suspend, discontinue, or terminate any
such Award or to waive any conditions or rights under any such Award shall,
continue after the tenth anniversary of the Effective Date.
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<PAGE>
EXHIBIT 10.3
PROPOSED FORM OF MANAGEMENT RECOGNITION PLAN
<PAGE>
FULTON BANCORP, INC.
1996 MANAGEMENT RECOGNITION AND DEVELOPMENT PLAN
1. PURPOSE; DEFINITIONS.
The purpose of the Plan is to increase the proprietary and vested interest
of the key Employees and Eligible Directors of the Company and its Affiliates in
the growth, development and financial success of the Bank by granting them
awards of Restricted Shares.
Whenever the following terms are used in the Plan, they shall have the
meaning specified below unless the context clearly indicated to the contrary.
"Affiliate" shall mean the Bank and any other "subsidiary" of the Company
---------
as defined in Section 424(f) of the Code.
"Award" shall mean an award of Restricted Shares under the Plan.
-----
"Bank" shall mean Fulton Savings Bank, FSB, Fulton, Missouri, or any
----
successor thereto.
"Board" shall mean the Board of Directors of the Company.
-----
"Change in Control" shall mean an event deemed to occur if and when (a) an
-------------------
offeror other than the Company purchases shares of the common stock of the
Company or the Bank pursuant to a tender or exchange offer for such shares, (b)
any person (as such term is used in Sections 13(d) and 14(d)(2) of the Exchange
Act) is or becomes the beneficial owner, directly or indirectly, of securities
of the Company or Bank representing twenty-five percent (25%) or more of the
combined voting power of the Company's or the Bank's then outstanding
securities, (c) the membership of the board of directors of the Company or the
Bank changes as the result of a contested election, such that individuals who
were directors at the beginning of any twenty-four (24) month period (whether
commencing before or after the date of adoption of this Plan) do not constitute
a majority of the Board at the end of such period, or (d) shareholders of the
Company or the Bank approve a merger, consolidation, sale or disposition of all
or substantially all of the Company's or the Bank's assets or a plan of partial
or complete liquidation. If any of the events enumerated in clauses (a) - (d)
occur, the Board shall determine the effective date of the change in control
resulting therefrom.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
----
"Committee" shall mean the committee of the Board designated by the Board
---------
to administer the Plan.
"Company" shall mean Fulton Bancorp, Inc., a Delaware corporation.
-------
"Designated Beneficiary" shall have the meaning set forth in Section 2.2
----------------------
hereof.
"Disability" shall have the meaning set forth in Section 22(e)(3) of the
----------
Code. For purposes of the Plan, all determinations as to whether a Participant
has become disabled shall be made by a majority of the Board, a majority upon
the basis of such evidence as its deems necessary or desirable, and shall be
final and binding on all interested persons.
"Effective Date" shall have the meaning set forth in Section 5.1 hereof.
--------------
"Employee" shall mean any person who is currently employed by the Bank or
--------
an Affiliate.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
------------
<PAGE>
"Participant" shall mean an Employee or Eligible Director to whom an award
-----------
of Restricted Shares is granted pursuant to the Plan.
"Plan" shall mean this Fulton Bancorp, Inc. 1996 Management Recognition and
----
Development Plan, as hereinafter amended from time to time.
"Restricted Shares" shall mean Shares which are awarded to an Employee or
-----------------
Eligible Director that are subject to the transfer and forfeitability
restrictions described in Section 4.2.
"Share" shall mean a share of the Company's common stock, par value $.01
-----
per share.
2. ADMINISTRATION.
2.1 Administration
--------------
The Plan shall be administered by the Committee, which shall have the power
to interpret the Plan and to adopt such rules for the administration,
interpretation and application of the Plan and Awards thereunder as are
consistent with its terms and provisions and to interpret, amend or revoke any
such rules. All actions taken and all interpretations and determinations made by
the Committee shall be binding upon all persons, including the Bank,
stockholders, Participants and Designated Beneficiaries. The Secretary of the
Company shall be authorized to implement the Plan in accordance with its terms,
and to take such actions of a ministerial nature as shall be necessary to
effectuate the intent and purposes thereof. No member of the Committee shall be
personally liable for any action, determination or interpretation made in good
faith with respect to the Plan or the awards hereunder, and all members of the
Board shall be fully protected by the Company in respect to any such action,
determination or interpretation.
2.2 Designated Beneficiaries
------------------------
If a Participant dies prior to receiving any payment due under the Plan,
such payment shall be made to his Designated Beneficiary. A Participant's
Designated Beneficiary shall be the beneficiary specifically designated by a
Participant in writing to receive amounts due the Participant in the event of
the Participant's death. In the absence of an effective designation by the
Participant, Designated Beneficiary shall mean the Participant's surviving
spouse or, if none, his estate.
3. SHARES SUBJECT TO THE PLAN.
3.1 Shares Subject to the Plan
--------------------------
The maximum number of Shares that may be the subject of Awards under this
Plan shall be __________. The Company shall reserve such number of Shares for
the purposes of the Plan out of its authorized but unissued Shares or out of
Shares held in the Company's treasury, or partly out of each. In the event that
a trust is established in connection with the Plan pursuant to Section 5.4, the
Company may authorize the trustees of the trust to purchase Shares in the open
market with funds contributed by the Company and such shares shall be included
in the number of shares that may be the subject of Awards. In the event that
Restricted Shares are forfeited for any reason, such Shares shall thereafter
again be available for award pursuant to the Plan.
3.2 Changes in the Company's Shares
-------------------------------
In the event that the Committee shall determine that any recapitalization,
reorganization, merger, consolidation, stock split, spin-off, combination, or
exchange of Shares, or other similar corporate event affects the Shares such
that an adjustment is required in order to preserve the benefits or potential
benefits intended under this Plan, the Committee shall, in such manner as it may
deem equitable, adjust any or all of the number and kind of
2
<PAGE>
Shares which thereafter may be awarded under the Plan, or the number and kind of
Shares subject to outstanding awards; provided, however, that the number of
Shares subject to any award shall always be a whole number.
4. RESTRICTED SHARES
4.1 Eligibility; Awards Under the Plan
----------------------------------
(a) Eligibility. Employees (including officers and employee directors of
------------
the Bank) and Eligible Directors shall be eligible to participate in the Plan
upon designation by the Committee. To the extent that Shares are available for
grant under the Plan, the Committee may determine which of the Employees and
Eligible Directors shall be granted an Award and the number of Restricted Shares
covered by each Award. In selecting those Employees to whom Awards will be
granted and the number of Shares covered by such Awards, the Committee shall
consider the position and responsibilities of the eligible Employees, the length
and value of their services to the Company and its Affiliates, the compensation
paid to the Employees and any other factors the Committee may deem relevant, and
the Committee may request the written recommendation of the chief executive
officer and other senior executive officers of the Company and its Affiliates.
(b) Limitation on Awards. Notwithstanding anything herein to the
---------------------
contrary, if this plan is implemented within one year of the consummation of the
Bank's mutual-to-stock conversion, no Employee shall receive an Award covering
in excess of twenty five (25) percent, no Eligible Director shall receive in
excess of five (5) percent and Eligible Directors serving as of the Effective
Date shall not receive in excess of thirty (30) percent in the aggregate, of the
number of shares reserved for issuance under the Plan.
(c) Fractions of Shares. Whenever under the terms of the Plan a
--------------------
fractional share would be required to be issued, the fractional share shall be
rounded up to the next full share.
4.2 Terms of Awards
---------------
The Restricted Shares awarded hereunder shall be awarded only pursuant to a
written agreement, which shall be executed by the Participant and a duly
authorized officer of the Company and which shall contain the following terms
and conditions:
(a) Acceptance of Award. An award of Restricted Shares must be accepted
--------------------
by the Participant within a period of sixty (60) days (or such other period as
the Board may specify at grant) after the award date by the execution of a
Restricted Share award agreement in the form provided by the Company.
(b) Restrictions and Conditions. The Restricted Shares awarded to a
----------------------------
Participant pursuant to this Section 4 shall be subject to the following
restrictions and conditions:
(i) A Participant shall not be permitted to sell, transfer, pledge,
assign or otherwise encumber Restricted Shares awarded under the Plan prior to
the date on which such shares vest in accordance with clause (iii), except in
accordance with the laws of descent and distribution.
(ii) Except as provided in clause (i) and this clause (ii) the
Participant shall have, with respect to the Restricted Shares, all of the rights
of a stockholder of the Company, including the right to vote and to receive any
cash dividends received thereon. Stock dividends, if any, issued with respect to
Restricted Shares shall be treated as additional Restricted Shares that are
subject to the same restrictions and other terms and conditions that apply with
respect to the Restricted Shares with respect to which such dividends are paid.
(iii) Subject to the applicable provisions of the Restricted Share
award agreement and this Section, a Participant's interest in Shares shall
immediately become fully vested and nonforfeitable, and the restrictions set
forth in this Section 4.2 shall lapse (x) ratably over a five (5) year period
whereby twenty percent
3
<PAGE>
(20%) of the Award shall vest on each of the first through the fifth
anniversaries of the date of grant (y) upon the Participant's death or
Disability, or (z) upon a Change in Control (to the extent such treatment is
authorized or not prohibited by applicable law or regulations).
4.3 Stock Certificates
------------------
A stock certificate registered in the name of each Participant receiving a
Restricted Share award (or in the name of a trustee for the benefit of each
Participant) shall be issued in respect of such shares. Such certificate shall
bear whatever appropriate legend referring to the terms, conditions, and
restrictions applicable to such award as the Board shall determine. The Board
may, in its sole discretion, require that the stock certificates evidencing
Restricted Shares be held in custody by the Company (or in trust by a trustee)
until the restrictions thereon shall have lapsed.
5. MISCELLANEOUS.
5.1 Shareholder Approval; Effective Date; Term
------------------------------------------
The Plan shall become effective only upon approval by a majority of the
Bank's shareholders at an annual or special meeting of shareholders of the
Company held not less than six (6) months after the date of consummation of the
Bank's mutual-to-stock conversion nor more than twelve (12) months after the
date of adoption of the Plan by the Board, and shall continue in effect until
the tenth anniversary of the Effective Date.
5.2 Amendment, Suspension or Termination of the Plan
------------------------------------------------
The Plan may be wholly or partially amended or otherwise modified, suspends
or terminated at any time or from time to time by the Board; provided, however,
that no amendment or modification shall be made without shareholder approval if
such approval is necessary to comply with any tax or regulatory requirement.
From and after the Effective Date, neither the amendment, suspension nor
termination of the Plan shall, without the consent of the Participant, alter or
impair any rights or obligations under any award theretofore granted. No awards
may be granted during any period of suspension nor after termination or
expiration of the Plan.
5.3 Regulations and Other Approvals
-------------------------------
(a) The obligation of the Company to deliver Shares with respect to any
award granted under the Plan shall be subject to all applicable laws, rules and
regulations, including all applicable federal and state securities laws, and the
obtaining of all such approvals by governmental agencies as may be deemed
necessary or appropriate by the Board.
(b) The Board may make such changes to the Plan as may be necessary or
appropriate to comply with the rules or requirements of any governmental
authority.
(c) Each award of Shares is subject to the requirement that, if at any
time the Board determines, in its sole discretion, that the listing,
registration or qualification of Shares issuable pursuant to the Plan is
required by any securities exchange or under any United States, state or federal
law, or the consent or approval of any governmental regulatory body is necessary
or desirable as a condition of, or in connection with, issuance of Shares, no
Shares shall be issued, in whole or in part, unless listing, registration,
qualification, consent or approval has been effected or obtained free of any
conditions as acceptable to the Board.
(d) In the event that the disposition of Shares acquired pursuant to the
Plan is not covered by a then current registration statement under the
Securities Act of 1933, and is not otherwise exempt from such registration, such
Shares shall be restricted against transfer to the extent required by the
Securities Act of 1933 or regulations thereunder, and the Board may require any
individual receiving Shares pursuant to the Plan, as a condition precedent
4
<PAGE>
to receipt of such Shares, to represent to the Company in writing that the
Shares acquired by such individual are acquired for investment only and not with
a view to distribution. The certificate for any Shares acquired pursuant to the
Plan shall include any legend that the Board deems appropriate to reflect any
restrictions on transfer.
(e) At the time of grant of any award, the Board may provide in the
Restricted Share award agreement that any Shares received as a result of such
grant shall be subject to a right of first refusal in favor of the Company,
pursuant to which the Participant shall be required to offer to the Company any
Shares that he wishes to sell, with the price being the then fair market value
of such Shares, subject to such other terms and conditions as the Board may
specify in the award agreement.
(f) Rule 16b-3 Compliance. With respect to persons subject to Section 16
of the Exchange Act, transactions under this Plan are intended to comply with
all applicable terms and conditions of Rule 16b-3 and any successor provisions.
To the extent that any provision of the Plan or action by the Committee fails to
so comply, it shall be deemed null and void, to the extent permitted by law and
deemed advisable by the Committee.
5.4 Trust Arrangement
-----------------
All benefits under the Plan represent an unsecured promise to pay by the
Company. The Plan shall be unfunded and the benefits hereunder shall be paid
only from the general assets of the Company resulting in the Participants having
no greater rights than the Company's general creditors; provided, however, that
nothing herein shall prevent or prohibit the Company from establishing a trust
or other arrangement for the purpose of providing for the payment of the
benefits payable under the Plan.
5.5 Governing Law
-------------
The Plan and the rights of all persons claiming hereunder shall be
construed and determined in accordance with the laws of the State of Missouri
without giving effect to the choice of law principles thereof.
5.6 Titles; Construction
--------------------
Titles are provided herein for convenience only and are not to serve as a
basis for interpretation or construction of the Plan. The masculine pronoun
shall include the feminine and neuter and the singular shall include the plural,
when the context so indicates.
5
<PAGE>
EXHIBIT 10.4
PROPOSED FORM OF EMPLOYEE STOCK OWNERSHIP PLAN
<PAGE>
FULTON SAVINGS BANK, FSB
EMPLOYEE STOCK OWNERSHIP PLAN
(EFFECTIVE JANUARY 1, 1996)
<PAGE>
Table of Contents
<TABLE>
<S> <C> <C>
I. Purpose of the Plan..........................................................1
II. Definitions
2.1 "Adjusted Balance"......................................................2
2.2 "Annual Additions"......................................................2
2.3 "Beneficiary"...........................................................2
2.4 "Board".................................................................2
2.5 "Break in Service"......................................................2
2.6 "Code"..................................................................3
2.7 "Committee".............................................................3
2.8 "Company"...............................................................3
2.9 "Company Contribution Account"..........................................4
2.10 "Company Stock".........................................................4
2.11 "Company Stock Account".................................................4
2.12 "Compensation"..........................................................4
2.13 "Debt"..................................................................5
2.14 "Early Retirement Date".................................................5
2.15 "Employee"..............................................................5
2.16 "Employment Year".......................................................5
2.17 "ERISA".................................................................5
2.18 "Highly Compensated Participant"........................................5
2.19 "Hour of Service".......................................................6
2.20 "Limitation Year".......................................................7
2.21 "Loan"..................................................................7
2.22 "Maximum Permissible Amount"............................................7
2.23 "Normal Retirement Date"................................................7
2.24 "Other Investments Account".............................................7
2.25 "Participant"...........................................................7
2.26 "Plan"..................................................................7
2.27 "Plan Year".............................................................8
2.28 "Qualified Election Period".............................................8
2.29 "Qualified Participant".................................................8
2.30 "Related Employer"......................................................8
</TABLE>
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<TABLE>
<S> <C> <C>
2.31 "Related Plan"......................................................... 8
2.32 "Service".............................................................. 8
2.33 "Spouse"............................................................... 8
2.34 "Suspense Account"..................................................... 8
2.35 "Trust" or "Trust Fund"................................................ 9
2.36 "Trust Agreement"...................................................... 9
2.37 "Trustee".............................................................. 9
2.38 "Valuation Date"....................................................... 9
III. Participation
3.1 Eligibility Requirement................................................10
3.2 Reemployment of Participant............................................10
IV. Contributions
4.1 Company Contributions..................................................11
4.2 Exclusive Benefit of Employees.........................................12
V. Investment of Trust Assets
5.1 Investments............................................................13
5.2 Valuation of Company Stock.............................................13
5.3 Suspense Account.......................................................13
5.4 Sales and Resales of Company Stock.....................................13
VI. Exempt Loans
6.1 Loans..................................................................14
6.2 Loan Payments..........................................................15
6.3 Right of First Refusal.................................................17
6.4 Put Option.............................................................17
6.5 Continuation of Rights or Put Option...................................18
VII. Allocations to Participants' Accounts
7.1 Separate Accounts......................................................19
7.2 Company Stock..........................................................19
7.3 Other Investments......................................................19
7.4 Allocations of Company Contributions and Forfeitures...................19
</TABLE>
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<TABLE>
<S> <C> <C>
7.5 Maximum Allocation.....................................................20
7.6 Vesting................................................................22
7.7 Net Income (or Loss) of the Trust......................................23
7.8 Accounting for Allocations.............................................23
7.9 Special Allocation Provisions..........................................24
7.10 Special Limitations on Allocations.....................................24
VIII. Retirement Payments, Disability Payments and Other Benefits
8.1 Payments on Retirement.................................................25
8.2 Payments on Death......................................................25
8.3 Payments on Disability.................................................26
8.4 Payments on Termination for Other Reasons..............................26
8.5 Property Distributed...................................................28
8.6 Methods of Payment.....................................................28
8.7 Administrative Powers Relating to Payments.............................34
8.8 Dividends..............................................................34
8.9 Diversification of Investments.........................................34
IX. Voting of Company Stock
9.1 Company Common Stock - Voting and Consent..............................37
X. Plan Administration
10.1 Company Responsibility.................................................38
10.2 Powers and Duties of Committee.........................................38
10.3 Organization and Operation of Committee................................38
10.4 Records and Reports of Committee.......................................39
10.5 Claims Procedure.......................................................39
10.6 Compensation and Expenses of Committee.................................40
10.7 Indemnity of Committee Members.........................................40
XI. Trust and Trustee
11.1 Trust Agreement........................................................41
11.2 Exclusive Benefit of Employees.........................................41
11.3 Trustee................................................................41
</TABLE>
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<TABLE>
<S> <C> <C>
XII. Amendment and Termination
12.1 Amendment of Plan.........................................................42
12.2 Voluntary Termination of or Permanent Discontinuance of Contributions
to the Plan..............................................................42
12.3 Limitation on Amendment or Termination....................................42
12.4 Involuntary Termination of Plan...........................................42
12.5 Payments on Termination of or Permanent Discontinuance of Contributions
to the Plan..............................................................43
XIII. Miscellaneous
13.1 Duty To Furnish Information and Documents.................................44
13.2 Committee's Annual Statements and Available Information...................44
13.3 No Enlargement of Employment Rights.......................................44
13.4 Applicable Law............................................................44
13.5 No Guarantee..............................................................44
13.6 Unclaimed Funds...........................................................45
13.7 Merger or Consolidation of Plan...........................................45
13.8 Interest Nontransferable..................................................45
13.9 Prudent Man Rule..........................................................46
13.10 Limitations on Liability..................................................46
13.11 Federal and State Security Law Compliance.................................46
13.12 Headings..................................................................46
13.13 Gender and Number.........................................................46
13.14 ERISA and Approval Under Internal Revenue Code............................46
13.15 Extension of Plan to Related Employers....................................47
13.16 Administrative Changes Without Amendment..................................47
XIV. Top-Heavy Provisions
14.1 Top-Heavy Status..........................................................48
14.2 Definitions...............................................................48
14.3 Determination of Top-Heavy Status.........................................48
14.4 Vesting...................................................................49
14.5 Minimum Contribution......................................................50
14.6 Compensation..............................................................51
14.7 Collective Bargaining Agreements..........................................51
</TABLE>
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ARTICLE I
PURPOSE OF THE PLAN
The purpose of this Plan is to enable participating Employees of Fulton
Savings Bank, FSB to share in the growth and prosperity of the Company, to
provide Employees with an opportunity to accumulate capital for their future
economic security, to furnish additional security to Employees who become
permanently disabled, and to enable Employees to acquire stock ownership
interests in the Company. Consequently, Company contributions to the Plan will
be invested primarily in Company Stock. The Plan, effective as of January 1,
1996, shall constitute an employee stock ownership plan under Section 4975(e)(7)
of the Code and Section 407(d)(6) of ERISA and a stock bonus plan under Section
401(a) of the Code.
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ARTICLE II
DEFINITIONS
Whenever used herein the following words and phrases shall have the
meanings stated below unless a different meaning is plainly required by the
context:
2.1 "Adjusted Balance" means the balance in a Participant's account or
accounts, as adjusted in accordance with Sections 7.8 and 7.9 of the Plan as of
the applicable Valuation Date.
2.2 "Annual Additions" means the total of: (a) Company contributions
allocated to a Participant's Accounts under this Plan and any Related Plan
during any Limitation Year; (b) the amount of employee contributions made by the
Participant under any Related Plan; and (c) forfeitures allocated to a
Participant's Accounts under the Plan and any Related Plan.
2.3 "Beneficiary" means the person, persons, or entity designated or
determined pursuant to the provisions of Section 8.2 of the Plan.
2.4 "Board" means the Board of Directors of the Company.
2.5 "Break in Service" means the termination of employment of an Employee
followed by the expiration of an Employment Year in which the Employee
accumulated fewer than 501 Hours of Service. For purposes of this Section:
(a) A Break in Service shall not be deemed to have occurred if (i) the
employment of a terminated Employee is resumed prior to the expiration of an
Employment Year in which he accumulates fewer than 501 Hours of Service; (ii)
the Employee is absent with the prior consent of the Company for a period not
exceeding 12 months (which consent shall be granted under uniform rules applied
to all Employees on a nondiscriminatory basis) and he returns to active
employment with the Company upon the expiration of the period of authorized
absence; or (iii) he leaves the Company to serve in the armed forces of the
United States for a period during which his reemployment rights are guaranteed
by law and he returns or offers to return to work for the Company prior to the
expiration of his reemployment rights.
(b) An Employee who is absent from work with the Company because of
(i) the Employee's pregnancy, (ii) the birth of the Employee's child, (iii) the
placement of a child with the Employee in connection with the Employee's
adoption of the child, or (iv) caring for such child immediately following such
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birth or placement shall receive credit, solely for purposes of determining
whether a Break in Service has occurred under this Section, for the Hours of
Service described in subsection (c) of this Section; provided that the total
number of hours credited as Hours of Service under this subsection shall not
exceed 501 Hours of Service.
(c) In the event of an Employee's absence from work for any of the
reasons set forth in subsection (b) of this Section, the Hours of Service that
the Employee will be credited with under subsection (b) are (i) the Hours of
Service that otherwise would normally have been credited to the Employee but for
such absence, or (ii) eight Hours of Service per day of such absence if the
Committee is unable to determine the Hours of Service described in clause (i).
(d) An Employee who is absent from work for any of the reasons set
forth in subsection (b) of this Section shall be credited with Hours of Service
under subsection (b), (i) only in the Employment Year in which the absence
begins, if the Employee would be prevented from incurring a Break in Service in
that Year solely because the period of absence is treated as credited Hours of
Service, as provided in subsections (b) and (c), or (ii) in any other case, in
the immediately following Employment Year.
(e) No credit for Hours of Service will be given pursuant to
subsections (b), (c) and (d) of this Section unless the Employee furnished to
the Committee such timely information that the Committee may reasonably require
to establish (i) that the absence from work is for one of the reasons specified
in subsection (b) and (ii) the number of days for which there was such an
absence. No credit for Hours of Service will be given pursuant to subsections
(b), (c), and (d) for any purpose of the Plan other than the determination of
whether an Employee has incurred a Break in Service pursuant to this Section.
2.6 "Code" means the Internal Revenue Code of 1986 as amended. Reference
to a section of the Code shall include that section and any comparable section
or sections of any future legislation that amends, supplements or supersedes
said sections.
2.7 "Committee" means the Plan Administrative Committee described in
Section 10.1 of the Plan.
2.8 "Company" means Fulton Savings Bank, FSB, a federally-chartered
savings bank, any successor corporation resulting from a merger or consolidation
with the Company or transfer of substantially all of the assets of the Company,
if such successor or transferee shall adopt and continue the Plan by appropriate
corporate action, pursuant to Section 12.4 of the Plan.
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2.9 "Company Contribution Account" means the Company Stock and other
assets held by the Trustee for the Plan derived from Company contributions to
the Trust.
2.10 "Company Stock" means any qualifying employer security within the
meaning of Section 4975(e)(8) of the Code and 407(d)(1) of ERISA and Regulations
thereunder.
2.11 "Company Stock Account" means an account of a Participant which is
credited with his allocable share of Company Stock purchased and paid for by the
Trust or contributed to the Trust.
2.12 "Compensation" means a Participant's total earning from the Company
paid during a Plan Year for services rendered, including bonuses, overtime and
commissions, but excluding any contributions or benefits under this Plan or any
other pension, profit sharing, insurance, hospitalization or other plan or
policy maintained by the Company for the benefit of such Participant, and all
other extraordinary and unusual payments. For purposes of Sections 2.18 and
2.22, Compensation means wages, salaries, fees for professional services, and
other amounts received for personal services actually rendered in the course of
employment with the Company (including, but not limited to, commissions paid
salesmen, compensation for services on the basis of percentage of profits, tips,
and bonuses); shall include all compensation actually paid or made available to
a Participant for an entire Limitation Year; and shall not include any other
items or amounts paid to or for the benefit of a Participant. The limit of
Compensation for any participant for a Plan Year or Limitation Year shall be the
dollar limitation in effect under Section 401(a)(17) of the Code and the
Regulations thereunder for such Year. In addition to other applicable
limitations set forth in the Plan, and notwithstanding any other provision of
the plan to the contrary, for plan years beginning on or after January 1, 1994,
the annual compensation of each employee taken into account under the plan shall
not exceed the OBRA '93 annual compensation limit. The OBRA '93 annual
compensation limit is $150,000, as adjusted by the Commissioner for increased in
the cost of living in accordance with Section 401(a)(17)(B) of the Code. The
cost-of-living adjustment in effect for a calendar year applies to any period,
not exceeding 12 months, over which compensation is determined (determination
period) beginning in such calendar year. If a determination period consists of
fewer than 12 months, the OBRA '93 annual compensation limit will be multiplied
by a fraction, the numerator of which is the number of months in the
determination period, and the denominator of which is the number of months in
the determination period, and the denominator of which is 12. For plan years
beginning on or after January 1, 1994, any reference in this Plan to the
limitation under section 401(a)(17) of the Code shall mean the OBRA '93 annual
compensation limit set forth in this provision. If Compensation for any prior
determination period is taken into account in determining an employee's benefits
accruing in the current plan year, the Compensation for that prior determination
period is subject to the OBRA '93 annual compensation limit in effect for that
prior determination period. For this purpose, for determination periods
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<PAGE>
beginning before the first date of the first plan year beginning on or after
January 1, 1994, the OBRA '93 annual compensation limit is $150,000.
2.13 "Debt" means any borrowing obligation incurred by the Trustee that is
not a Loan.
2.14 "Early Retirement Date" means the date a Participant attains age 55.
2.15 "Employee" means an individual employed by the Company; provided,
however, that "Employee" does not include an hourly employee or any individual
covered by a collective bargaining agreement between employee representatives
and the Company if retirement benefits were the subject of good faith bargaining
between such employee representatives and the Company. A person who is not
employed by the Company but who performs services for the Company pursuant to an
agreement between the Company and a leasing organization shall be considered a
"leased employee" after such person performs such services for a 12-month period
and the services are of a type historically performed by employees. A person who
is considered a leased employee of the Company shall not be considered an
Employee for purposes of the Plan. If a leased employee subsequently becomes an
Employee, and thereafter participates in the Plan, he shall be given credit for
Hours of Service and Years of Service for his period of employment as a leased
employee, except to the extent that Section 414(n)(5) of the Code was satisfied
with respect to such Employee while he was a leased employee.
2.16 "Employment Year" means a 12 consecutive month period commencing with
an Employee's initial date of hire (or last date of rehire if he has incurred a
Break in Service) or with any anniversary thereof. For purposes hereof, an
Employee's date of hire shall be the first day on which he completes an Hour of
Service and his date of rehire shall be the first day on which he completes an
Hour of Service following a Break in Service.
2.17 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
2.18 "Highly Compensated Participant" means a Participant who, during the
current Plan Year or the preceding Plan Year, (a) was at any time a five percent
(5%) owner of the Company, (b) received Compensation from the Company in excess
of $75,000 (or such greater amount provided by the Secretary of the Treasury
pursuant to Section 414(q) of the Code), (c) received Compensation from the
Company in excess of $50,000 (or such greater amount provided by the Secretary
of the Treasury pursuant to Section 414(q) of the Code) and was in the top-paid
group of Employees for such Year, or (d) was at any time an officer of the
Company and received Compensation from the Company greater than 150% of the
amount in effect under
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<PAGE>
Section 415(c)(1)(A) of the Code for such Plan Year. The provisions of Section
414(q) of the Code shall apply in determining whether a Participant is a Highly
Compensated Participant. The Company for any Plan Year may elect to identify
Highly Compensated Participants based upon only the current Plan Year to the
extent permitted by Section 414(q) of the Code and Regulations issued
thereunder.
2.19 "Hour of Service" means (i) each hour for which an Employee is paid or
entitled to payment for the performance of duties for the Company or a Related
Employer; and (ii) each hour for which an Employee is directly or indirectly
paid by the Company or a Related Employer during which no duties are performed
by reason of vacation, holiday, illness, incapacity (including disability),
layoff, jury duty, military duty or leave of absence (but not in excess of 501
hours in any continuous period during which no duties are performed). Each Hour
of Service for which back pay, irrespective of mitigation of damages, is either
awarded or agreed to by the Company or a Related Employer shall be included
under either (i) or (ii) as may be appropriate. Hours of Service shall be
credited:
(a) in the case of Hours referred to in clause (i) of the first
sentence of this section, for the computation period in which the duties are
performed;
(b) in the case of Hours referred to in clause (ii) of the first
sentence of this section, for the computation period or periods in which the
period during which no duties are performed occurs; and
(c) in the case of Hours for which back pay is awarded or agreed to
by the Company or a Related Employer, for the computation period or periods to
which the award or agreement pertains rather than the computation period in
which the award, agreement or payment is made.
In determining Hours of Service an Employee who is employed by the Company
or a Related Employer on other than an hourly rated basis shall be credited with
ten Hours of Service per day for each day the Employee would, if hourly rated,
be credited with service pursuant to clause (i) of the first sentence of this
Section 2.19. If an Employee is paid for reasons other than the performance of
duties pursuant to clause (ii) of the first sentence of this Section 2.19: (i)
in the case of a payment made or due which is calculated on the basis of units
of time, an Employee shall be credited with the number of regularly scheduled
working hours included in the units of time on the basis of which the payment is
calculated; and (ii) an Employee without a regular work schedule shall be
credited with eight Hours of Service per day (to a maximum of 40 Hours of
Service per week) for each day that the Employee is so paid. Hours of Service
shall be calculated in accordance with Department of Labor Regulations Section
2530.200b-2 or any future legislation or Regulation that amends, supplements or
supersedes said section.
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Solely for purposes of determining an Employee's
(i) eligibility to participate in the Plan under Section 3.1, and
(ii) vesting under Section 7.6,
Hours of Service shall include Hours during an approved leave of
absence granted by an Employer to an Employee on or after August 5,
1993 pursuant to the Family and Medical Leave Act, if the Employee
returns to work for an Employer at the end of such leave of absence.
Such Hours of Service shall be calculated pursuant to the second
sentence of this paragraph.
2.20 "Limitation Year" means the Plan Year.
2.21 "Loan" means any loan as described in Section 4975(d)(1) of the Code
to the Trustee made or guaranteed by a disqualified person (within the meaning
of Section 4975(e)(2) of the Code), including, but not limited to, a direct loan
of cash, a purchase money transaction, an assumption of an obligation of the
Trustee, an unsecured guarantee or the use of assets of a disqualified person
(within the meaning of Section 4975(e)(2) of the Code) as collateral for a loan.
2.22 "Maximum Permissible Amount" means the lesser of: (a) $30,000 (or, if
greater, one-quarter of the dollar limitation in effect pursuant to Section
415(b)(1)(A) of the Code); or (b) 25% of a Participant's Compensation.
2.23 "Normal Retirement Date" means the date a Participant attains age 65.
2.24 "Other Investments Account" means an account of a Participant which is
credited with his share of the net income (or loss) or the Trust and Company
contributions and forfeitures in other than Company Stock, and which is debited
with payments made to pay for Company Stock
2.25 "Participant" means an Employee who becomes a Participant under the
provisions of Section 3.1 of the Plan.
2.26 "Plan" means this Fulton Savings Bank, FSB Employee Stock Ownership
Plan. It is hereby intended that this Plan shall constitute a stock bonus plan.
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2.27 "Plan Year" means the period beginning January 1 and ending December
31 of each year.
2.28 "Qualified Election Period" means the six Plan Year period beginning
with the first Plan Year in which a Participant first becomes a Qualified
Participant.
2.29 "Qualified Participant" means any Participant who has attained age 55
and has been a Participant in the Plan for at least ten years.
2.30 "Related Employer" means (i) any corporation that is a member of a
controlled group of corporations (as defined in Section 414(b) of the Code) that
includes the Company; (ii) any trade or business (whether incorporated or
unincorporated) that is under common control (as defined in Section 414(c) of
the Code) with the Company; and (iii) any member of an affiliated service group
(as defined in Section 414(m) of the Code) that includes the Company. For
purposes of Section 7.5, paragraphs (i) and (ii) shall be as amended by Section
415(h) of the Code.
2.31 "Related Plan" means any other defined contribution plan (as defined
in Section 415 of the Code) maintained by the Company or by any Related
Employer.
2.32 "Service" means a period of time, measured in whole Employment Years,
commencing with the Employment Year in which an Employee is initially employed
and ending with the Employment Year in which a Break in Service occurs;
provided, however, that Service shall not include any Employment Year in which
the Employee accrues less than 1,000 Hours of Service. Service shall include an
approved leave of absence granted to an Employee on or after August 3, 1993
pursuant to the Family and Medical Leave Act, if the Employee returns to work
for an Employer at the end of such leave of absence. Without regard to the
preceding provisions of this Section 2.28, a Participant's years of Service
after a period of five consecutive one-year Breaks in Service shall be
disregarded for purposes of determining his nonforfeitable interest in his
Accounts as of the Valuation Date coincident with or next preceding the date he
incurs such five consecutive one-year Breaks in Service.
2.33 "Spouse" means the person who is legally married to a Participant
immediately prior to the Participant's death.
2.34 "Suspense Account" means an account to which securities purchased with
any Loans are allocated pending their release and allocation to other accounts
as the Loan is repaid.
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2.35 "Trust" or "Trust Fund" means all money, securities and other property
held under the Trust Agreement for the purposes of the Plan.
2.36 "Trust Agreement" means the agreement between the Company and the
Trustee (or any successor Trustee) governing the administration of the Trust, as
it may be amended.
2.37 "Trustee" means the corporation or individuals appointed by the Board
of Directors of the Company to administer the Trust and which executes the Trust
Agreement.
2.38 "Valuation Date" means the last day of each Plan Year and such other
date, if any, as shall be selected by the Company.
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ARTICLE III
PARTICIPATION
3.1 Eligibility Requirement. Any Employee who was in the employ of the
------------------------
Company on the effective date shall participate in the Plan as of the effective
date if he has completed an Employment Year as of such date and has attained the
age of 19. Each other Employee shall be eligible to participate upon: (i) the
completion of one Employment Year during which the Employee has completed 1,000
Hours of Service and (ii) attainment of the age of 19. An Employee who is
eligible to participate shall commence participation in the Plan on the January
1 or July 1 next following the date on which the Employee is first eligible to
participate in the Plan.
3.2 Reemployment of Participant. For purposes of Section 3.1 of the Plan
----------------------------
pertaining to eligibility and Section 7.7 of the Plan pertaining to vesting, if
a Participant shall incur a Break in Service and shall thereafter be reemployed
by the Company: (i) Years of Service completed before such Break shall not be
required to be taken into account until the Participant has completed a Year of
Service after his return to employment with the Company at which time such Years
of Service shall be restored and the Participant shall participate in the Plan
retroactively from the date of his return to employment with the Company; and
(ii) if no part of the Participant's Company stock and Other Investments
Accounts was nonforfeitable when he incurred such Break, Years of Service with
the Company completed prior to such Break shall not be required to be taken into
account in any event if the number of consecutive one-year Breaks in Service
equals or exceeds the greater of (a) five or (b) the aggregate number of years
of Service prior to such Break.
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ARTICLE IV
CONTRIBUTIONS
4.1 Company Contributions.
----------------------
(a) For each Plan Year, Company contributions under the Plan may be
paid to the Trust in such amounts (or under such formula) and at such times as
may be determined by the Company's Board of Directors. Company contributions
under the Plan for a Plan Year may be paid during the Plan Year and shall in any
event be paid not later than the due date for filing the Company's federal
income tax return for that year, including any extensions of such due date.
Company contributions for any Plan Year shall not be paid to the Trust in
amounts that would exceed the limitations of Section 404 of the Code. In no
event shall Company contributions in any Limitation year exceed an amount which
would cause: (a) Annual Additions to the accounts of any Participant to exceed
the Maximum Permissible Amount for that Limitation Year (except as provided in
Section 7.5); or (b) the sum of the defined benefit plan fraction (as defined in
Section 7.5) and the defined contribution plan fraction (as defined in Section
7.5) to exceed one for that Limitation Year.
(b) Company contributions may be paid to the Trust in cash or in
shares of Company Stock, as determined by the Company's Board of Directors;
provided that Company contributions shall be paid in cash in such amounts, and
at such times (subject to the limitations described in Section 7.5) as needed to
provide the Trust with funds sufficient to pay in full when due any principal
and interest payments required by a Loan incurred by the Trustee pursuant to
Article VI to finance the acquisition of Company Stock.
(c) All Company contributions for a Plan Year shall be allocated to
the Company Contribution Account when paid. The Company Contribution Account
shall be subdivided into a Company Stock Contribution Account and a Company
Other Investments Contribution Account. As of the last day of each Plan Year
amounts in the Company Contribution Account, including amounts contributed after
such last day under paragraph (a) above shall be allocated to Participants'
accounts as provided in Article VIII.
(d) No participants shall be required or permitted to make
contributions to the Plan or Trust.
(e) All Company contribution made under the Plan are conditioned upon
the qualification of the Plan under Section 401(a) of the Code and upon the
deductibility of the contribution under Section 404 of the Code.
-11-
<PAGE>
4.2 Exclusive Benefit of Employees. All contributions made pursuant to
-------------------------------
the Plan shall be held by the Trustee in accordance with the terms of the Trust
Agreement for the exclusive benefit of those Employees who are Participants
under the Plan, including former Employees, and their Beneficiaries, and shall
be applied to provide benefits under the Plan and to pay expenses of
administration of the Plan and the Trust, to the extent that such expenses are
not otherwise paid. At no time prior to the satisfaction of all liabilities with
respect to such Employees and their Beneficiaries shall any part of the Trust
Fund (other than such part as may be required to pay administration expenses and
taxes) be used for, or diverted to, purposes other than for the exclusive
benefit of such Employees and their Beneficiaries. However, without regard to
the provisions of this Section 4.2:
(a) If a contribution under the Plan is conditioned on initial
qualification of the Plan under Section 401(a) of the Code, and the Plan
receives an adverse determination with respect to its initial qualification, the
Trustee shall, upon written request of the Company, return to the Company the
amount of such contribution (increased by earnings attributable thereto and
reduced by losses attributable thereto) within one calendar year after the date
that qualification of the Plan is denied, provided that the application for the
determination is made by the time prescribed by law for filing the Company's
return for the taxable year in which the Plan is adopted, or such later date as
the Secretary of the Treasury may prescribe;
(b) If a contribution is conditioned upon the deductibility of the
contribution under Section 404 if the Code, then, to the extent the deduction is
disallowed, the Trustee shall upon written request of the Company return the
contribution (to the extent disallowed) to the Company within one year after the
date the deduction is disallowed;
(c) If a contribution or any portion thereof is made by the Company
by a mistake of fact, the Trustee shall, upon written request of the Company,
return the contribution or such portion to the Company within one year after the
date of payment of the Trustee; and
(d) Earnings attributable to amount to be returned to the Company
pursuant to subsection (b) or (c) above shall not be returned, and losses
attributable to amounts to be returned pursuant to subsection (b) or (c) shall
reduce the amount to be so returned.
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<PAGE>
ARTICLE V
INVESTMENT OF TRUST ASSETS
5.1 Investments. The Trust Fund will be invested primarily in Company
------------
Stock. The Committee may direct the Trustee to incur Debt from time to time to
finance the acquisition of Company Stock by the Trust or otherwise. The Trust
Fund may be used to acquire shales of Company Stock from Company shareholders
(including former Participants) or from the Company. The Trustee may also invest
the Trust Fund in savings accounts, certificates of deposit, high-grade short-
term securities, equity stock, bonds, or other investments desirable for the
Trust, or the Trust Fund may be held in cash. All investments will be made by
the Trustee only upon the direction of the Committee. The Committee may direct
that the entire Trust Fund assets be invested and held in Company Stock.
5.2 Valuation of Company Stock. All purchases of Company Stock will be
---------------------------
made at a price, or at prices, that do not exceed the fair market value of such
Company Stock. If Company Stock is traded on a national securities exchange,
fair market value shall be the average of the closing prices thereof on such
exchange for the ten trading days immediately preceding the purchase. If Company
Stock is not traded on such an exchange but is publicly traded, fair market
value shall be the average of the bid and asked price thereof for such ten
trading days. If Company Stock is not publicly traded, the determination of the
fair market value of Company Stock for all purposes of the Plan shall in all
cases be made by an independent appraiser appointed pursuant to this section
shall meet requirements similar to the requirements of Regulations promulgated
under Section 170(a)(1) of the Code.
5.3 Suspense Account. Company Stock purchased with the proceeds of a Loan
-----------------
shall be held in the Suspense Account pending release and reallocation to other
Accounts as the Loan is paid. Company Stock purchased with amounts allocated to
Participants' Other Investment Accounts or Company Other Investments Accounts
shall immediately upon purchase be credited pro rata to the corresponding
Participants' Company Stock or Company Stock Contribution Accounts as the case
may be. Company Stock contributed to the Plan pursuant to Article IV shall be
allocated to the Company Stock Accounts of Participants pursuant to Section 7.4.
5.4 Sales and Resales of Company Stock. The Committee may direct the
-----------------------------------
Trustee to sell or resell shares of Company Stock to any person, including the
Company, provided that any such sales to any disqualified person, including the
Company, will be made at no less than the fair market value as determined under
Section 5.2 and no commission is charged. Any such sale shall be made in
conformance with Section 408(e) of ERISA. All sales of Company Stock (except
Company Stock held in a Suspense Account or Company Stock Contribution Account)
by the Trustee will be charged pro rata to the Company Stock Accounts of the
Participants.
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<PAGE>
ARTICLE VI
EXEMPT LOANS
6.1 Loans.
------
(a) The Committee may direct the Trustee to obtain Loans. Any such
Loan will meet all requirements necessary to constitute an "exempt loan" within
the meaning of Section 4975(d)(3) of the Code and Regulations (S)54.4975-
7(b)(1)(iii) and shall be used primarily for the benefit of the Participants and
Beneficiaries. The proceeds of any such Loan shall be used, within a reasonable
time after the Loan is obtained, only to purchase Company Stock, repay the Loan,
or repay any prior Loan. Any such Loan shall provide for no more than a
reasonable rate of interest (as determined under Regulations (S)54.4975-7(b)(7))
and must be without recourse against the Plan. The number of years to maturity
under the Loan must be definitely ascertainable at all times. The only assets of
the Plan that may be given as collateral on a Loan are shares of Company Stock
acquired with the proceeds of the Loan and shares of Company Stock that were
used as collateral on a prior Loan repaid with the proceeds of the current Loan.
Such Company Stock so pledged shall be placed in a Suspense Account. No person
entitled to payment under a Loan shall have recourse against Trust Assets other
than such collateral, contributions (other than contributions of Company Stock)
that are available under the Plan to meet obligations under the Loan and
earnings attributable to such collateral and the investment of such
contributions. All Company contributions paid during the Plan Year in which a
Loan is made (whether before or after the date the proceeds of the Loan are
received), all Company contributions paid thereafter until the Loan has been
repaid in full, and all earnings from investment of such Company contributions,
without regard to whether any such Company contributions and earnings have been
allocated to Participants' Other Investment Accounts, shall be available to meet
obligations under the Loans as such obligations accrue, or prior to the time
such obligations accrue, unless otherwise provided by the Company at the time
any such contribution is made.
(b) Any pledge of Company Stock must provide for the release of
shares so pledged upon the payment of any portion of the Loan. The number of
shares to be released will be determined, at the discretion of the Committee,
under clause (1) or (2) of this section 6.1(b).
(1) If the Loan provides annual payments of principal and
interest at a cumulative rate that is not less rapid at any
time than level annual payments of principal and interest
over ten years, then for each Plan Year during the duration
of the Loan, the number of shares of Company Stock released
from such pledge shall equal the number of encumbered
securities held
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<PAGE>
immediately before release for the current Plan Year
multiplied by a fraction. The numerator of the fraction is
the principal paid in such Plan Year. The denominator of the
fraction is the sum of the numerator plus the principal to
be paid for all future years. Such years will be determined
without taking into account any possible extension or
renewal periods. To the extent that the net proceeds
received by the Plan in respect of any Loan exceed the
stated principal amount of the Loan, that portion of any
interest payment that would be deemed to be a repayment of
principal under standard loan amortization tables shall be
treated as principal paid or principal to be paid, as the
case may be, for purposes of the above calculation.
(2) If the Loan does not satisfy the conditions stated in
subparagraph (1), then for each Plan Year during the
duration of the Loan, the number of shares of Company Stock
released from such pledge shall equal the number of
encumbered securities held immediately before release for
the current Plan year multiplied by a fraction. The
numerator of the fraction is the sum of the principal and
interest paid in such Plan Year. The denominator of the
fraction is the sum of the numerator plus the principal and
interest to be paid for all future years. Such years will be
determined without taking into account any possible
extension of renewal periods.
(c) If the collateral includes more than one class of Company Stock,
the number of shares of each class to be released for a Plan Year must be
determined by applying the same fraction to each class. If interest on any Loan
is variable, the interest to be paid in future years under the Loan shall be
computed by using the interest rate application as of the end of the Plan Year.
Should a Loan initially satisfying the conditions stated in subparagraph (b)(1)
at some subsequent date cease to satisfy the conditions of such subparagraph, by
reason of a renewal, extension, or refinancing of the Loan, then subparagraph
(b)(2) shall be applied in determining the shares released upon payment of any
principal or interest after such date.
6.2 Loan Payments.
--------------
(a) Payments of principal and interest on any Loan during a Plan Year
shall be made by the Trustee (as directed by the Committee) only from (1)
Company Contributions to the Trust made to meet the Plan's obligation under a
Loan (other than contributions of Company Stock) and from any earnings
-15-
<PAGE>
attributable to Company Stock and investments of such contributions (both
received during or prior to the Plan Year); (2) the proceeds of a subsequent
Loan made to repay a prior Loan; and (3) the proceeds of the sale of any Company
Stock held as collateral for a Loan. Such contribution and earnings must be
accounted for separately by the Plan until the Loan is repaid.
(b) Company Stock released by reason of the payment of principal or
interest on a Loan from amounts allocated to Participants' Other Investments
Accounts or Company Other Investments Accounts shall immediately upon payment be
allocated as set forth in Sections 7.2 and 7.4 to the corresponding Company
Stock or Company Stock Contribution Accounts.
(c) The Company shall contribute to the Trust sufficient amounts to
enable the Trust to pay principal and interest on any such Loan as they are due,
provided however that no such contributions shall exceed the limitations in
Section 7.5. In the event that such contributions by reason of the limitations
in Section 7.5 are insufficient to enable the Trust to pay principal and
interest on such Loan as it is due, then upon the Trustee's request the Company
shall:
(1) Make a loan to the Trust as described in Regulations
(S)54.4975(b)(4)(iii), in sufficient amounts to meet such principal and interest
payment. Such new Loan shall also meet all requirements of an "exempt loan"
within the meaning of Regulations (S)54.4975-7(b)(1)(iii) and shall be
subordinated to the prior Loan. Company Stock released from the pledge of the
prior Loan shall be pledged as collateral to secure the new Loan. Such Company
Stock will be released from this new pledge and allocated to the accounts of the
Participants in accordance with applicable provisions of the Plan;
(2) Purchase any Company Stock pledged as collateral in an
amount necessary to provide the Trustee with sufficient funds to meet the
principal and interest repayments. Any such sale by the Plan shall meet the
requirements of Section 408(e) of ERISA; or
(3) Any combination of the foregoing.
(d) The Company shall not, pursuant to the provisions of this
subsection, do, fail to do or cause to be done any act or thing which would
result in a disqualification of the Plan as an employee stock ownership plan
under the Code.
(e) Except as provided in sections 6.3 and 6.4 below, and
notwithstanding any amendment to or termination of the Plan which causes it to
cease to qualify as an employee stock ownership plan within
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<PAGE>
the meaning of Section 4975(e)(7) of the Code, or any repayment of a loan, no
shares of Company Stock acquired with the proceeds of a Loan obtained by the
Trust to purchase Company Stock may be subject to a put, call or other option,
or buy-sell or similar arrangement while such shares are held by and when
distributed from the Plan.
6.3 Right of First Refusal. Shares of Company Stock purchased with the
-----------------------
proceeds of a Loan and distributed by the Trustee may be subject to a "right of
first refusal." Such a "right" shall provide that prior to any subsequent
transfer, the shares must first be offered in writing to the Company at a price
equal to the greater of (1) the then fair market value of such shares of Company
Stock as determined in accordance with Section 5.2, or (2) the purchase price
offered by a buyer, other than the Company or Trustee, making a good faith (as
determined by the Committee) offer to purchase such shares of Company Stock. The
Trust or the Company, as the case may be, may accept the offer as to part or all
of the Company Stock at any time during a period not exceeding 14 days after
receipt of such offer by the Trust, on terms and conditions no less favorable to
the shareholder than those offered by the independent third party buyer. Any
installment purchase shall be made pursuant to a note secured by the shares
purchased and shall bear a reasonable rate of interest as determined by the
Committee. If the offer is not accepted by the Trust, or the Company, or both,
then the proposed transfer may be completed within a reasonable prior following
the end of the 14 day period, but only upon terms and conditions of the third
party buyer's prior offer. Shares of Company Stock which are publicly traded
within the meaning of Code Section 409(h)(1)(B) at the time such right may
otherwise be exercised shall not be subject to this "right of first refusal."
6.4 Put Option.
-----------
(a) Shares of Company Stock acquired by the Trust shall be subject to
a "put" option at the time of distribution, provided that at such time the
shares are not readily tradable on an established market within the meaning of
Section 409(h)(1)(B) of the Code. The "put" option shall be exercisable by the
Participant or his Beneficiary, by the donees of either, or by a person
(including an estate or its distributee) to whom the Company Stock passes by
reason of the Participant's or Beneficiary's death. The "put" option shall
provide that for a period of at least 60 days following the date of distribution
of the Company Stock, the holder of the option shall have the right to cause the
Company, by notifying the Committee in writing, to purchase such shares at their
fair market value (as determined pursuant to Section 5.2). If the "put" option
is not exercised within such 60-day period, the option shall be exercisable for
an additional period of 60 days in the following Plan Year. The Committee may
give the Trustee the option to assume the rights and obligations of the Company
at the time the "put" option is exercised, insofar as the repurchase of Company
Stock is concerned.
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<PAGE>
(b) If the entire Adjusted Balance of a Participant's Accounts is
distributed to the Participant within one taxable year, payment of the price of
the Company Stock purchased pursuant to an exercised "put" option shall be made
in five substantially equal annual payments and the first installment shall be
paid not later than 30 days after the Participant exercises the "put" option.
The Plan will provide adequate security and pay a reasonable rate of interest on
amounts not paid after 30 days. If the entire Adjusted Balance of a
Participant's Accounts is not distributed to him within one taxable year,
payment of the price of the Company Stock purchased pursuant to an exercised
"put" option shall be made in a single lump sum not later than 30 days after the
Participant exercises the "put" option.
6.5 Continuation of Rights or Put Option. The rights set forth in Section
-------------------------------------
6.2(d) and the "put" option provided for by Section 6.4 are nonterminable and
shall continue to apply to shares of Company Stock purchased by the Trustee with
the proceeds of a Loan as described herein or to shares of Company Stock
distribute hereunder notwithstanding the repayment of the Loan or any amendment
to, or termination of, this Plan which causes the Plan to cease to be an
employee stock ownership plan within the meaning of Section 4975(e)(7) of the
Code.
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<PAGE>
ARTICLE VII
ALLOCATIONS TO PARTICIPANTS' ACCOUNTS
7.1 Separate Accounts. Separate Company Stock Accounts and Other
------------------
Investments Accounts will be established to reflect Participants' interests
under the Plan. Records shall be kept by the Committee from which can be
determined the portion of each Other Investments Account which at any time is
available to meet obligations under a Loan in accordance with Section 6.1 and
the portion which is not so available.
7.2 Company Stock. The Company Stock Account maintained for each
--------------
Participant will be credited with his allocable share determined under Section
7.4 of Company Stock (including fractional shares) purchased and paid for by the
Trust or contributed in kind to the Trust, with the forfeitures of Company
Stock, and with any stock dividends on Company Stock allocated to his Company
Stock Account to the extent such dividends are not distributed pursuant to
Section 8.8. Company Stock acquired by the Trust with the proceeds of a Loan
obtained pursuant to Article VI shall be allocated to the Company Stock Accounts
of Participants according to the method set forth in Section 7.4, as the Company
Stock is released from Suspense Accounts as provided for in Section 6.1.
7.3 Other Investments. The Other Investments Account maintained for each
------------------
Participant will be credited (or debited) with its allocable shares as
determined under Section 7.8 of the net income (or loss) of the Trust, with any
cash dividends on Company Stock allocated to his Company Stock Accounts to the
extent such dividends are not distributed to the Participant or applied to the
repayment of principal or interest of a Loan pursuant to Section 8.8, with
Company Contributions which have not been used to make principal and interest
payments on a Loan or other Debt or to purchase Company Stock and with
forfeitures in other than Company Stock. Each Other Investments Account will be
debited for its share of any payments for the acquisition of Company Stock for
the benefit of the Participants' Company Stock Accounts and for any repayment of
principal or interest on any Loan or other Debt chargeable to Participants'
Company Stock Accounts; provided that only the portion of each Other Investments
Account which is available to meet obligations under Loans shall be used to pay
principal or interest on a Loan.
7.4 Allocations of Company Contributions and Forfeitures. The Company
-----------------------------------------------------
Stock and other investments held in the Company Contribution Accounts under the
Plan, and forfeitures incurred under the Plan for each Plan Year, shall be
allocated as of the last day of such Plan Year (even though receipt of the
Company Contributions by the Trustee may take place after the close of such
Year) among the Company Stock and Other Investments Accounts of all Participants
who, during the course of such Plan Year; (i) completed at least 1,000 Hours of
Service and were employed by the Company on the last day of such Plan
-19-
<PAGE>
Year; (ii) retired on or after their Normal Retirement Dates; (iii) died; or
(iv) became disabled as defined in Section 8.3. Such allocation shall be in the
ratio that each Participant's Compensation (as defined in Section 2.12 of the
Plan) during the Plan Year bears to the total Compensation during such Plan Year
of all Participants entitled to share in such allocation. Notwithstanding the
preceding provisions of this Section, in no event shall an allocation be made to
the Account of any Participant, for any Limitation Year, which would cause: (a)
Annual Additions to the accounts of such Participant to exceed the Maximum
Permissible Amount for that Year (except as permitted in Section 7.5); or (b)
the sum of the defined benefit plan fraction (as defined in Section 7.5) and the
defined contribution plan fraction (as defined in Section 7.5) to exceed one for
such Participant for that Year.
7.5 Maximum Allocation.
-------------------
(a) Except as provided in paragraphs (b) and (c) below, the
allocations to the accounts of any Participant in any Limitation Year shall be
limited so that the Participant's Annual Additions for such Year do not exceed
the Maximum Permissible Amount.
(b) If no more than one-third of the Company Contribution for a
Limitation Year that are deductible as principal or interest payments on a Loan,
pursuant to the provisions of Section 404(a)(9) of the Code, are allocated to
Highly Compensated Participants, then the limitations imposed by subsection (a)
or (b), whichever is applicable, shall not apply to:
(i) Forfeitures of Company Stock if the Company Stock was
acquired with the proceeds of a Loan, or
(ii) Company Contributions that are deductible as interest
payments on a Loan under Section 404(a)(9)(B) of the Code
and charged against a Participant's Account.
(c) If the foregoing limitation on allocations would be exceeded in
any Limitation Year for any Participant as a result of the allocation of
forfeitures under the Plan, reasonable error in estimating a Participant's
Compensation, or under such other limited facts and circumstances that the
Commissioner of the Internal Revenue Service, pursuant to Regulations (S)1.415-
6(b)(6), finds justify the availability of this Section 7.5, the amount in
excess of the limits of this Section 7.5 shall be placed, unallocated to any
Participant, in a Limitation Account. If a Limitation Account is in existence at
any time during a particular Limitation Year, other than the Limitation Year
described in the preceding sentence, all amounts in the
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<PAGE>
Limitation Account must be allocated to Participants' Accounts (subject to the
limits of this Section 7.5) before any Company Contributions which would
constitute Annual Additions may be made to the Plan for that Limitation Year.
The excess amount allocated pursuant to this Section 7.5(d) shall be used to
reduce Company Contributions for the next Limitation Year (and succeeding
Limitation Years, as necessary) for all of the Participants in the Plan. The
Limitation Account will not share in the valuation of Participants' Accounts and
the allocation of earnings set forth in Section 7.8 of the Plan, and the change
in fair market value and allocation of earnings attributable to the Limitation
Account shall be allocated to the remaining accounts hereunder as set forth in
Section 7.5.
(d) Upon termination of the Plan, any amounts in a Limitation Account
at the time of such termination shall revert to the Company.
(e) In the event that any Participant under this Plan is also a
Participant in a defined benefit plan (as defined in Section 415(k) of the Code)
maintained by the Company or a Related Employer, the sum of the defined benefit
plan fraction and the defined contribution plan fraction for any Limitation Year
with respect to such Participant shall not exceed one. The "defined benefit plan
fraction" for any Limitation Year for a Participant means a fraction, the
numerator of which is the projected annual benefit of the Participant under all
defined benefit plans maintained by the Company or a Related Employer determined
as of the close of the Limitation Year and the denominator of which is the
lesser of (a) the product of 1.25 and the dollar limitation in effect under
Section 415(b)(1)(A) of the Code for such Year, or (b) the product of 1.4 and
the amount taken into account under Section 415(b)(1)(B) of the Code for the
Participant for such Year. The "defined contribution plan fraction" for any
Limitation Year for any Participant is a fraction, the numerator of which is the
sum of the annual additions to the Participant's accounts under the Plan and to
the accounts under all Related Plans as of the close of the Year, and the
denominator of which is the sum of the lesser of the following amounts
determined for such Year and for each prior Year of Service with the Company or
an Affiliate: (A) the product of 1.25 of the dollar limitation in effect under
Section 415(c)(1)(A) of the Code for such Year (determined without regard to
Section 415(c)(6) of the Code), and (B) the product of 1.4 and the amount which
may be taken into account under Section 415(c)(1)(B) of the Code with respect to
such Participant for such Year.
(f) If a Participant shall be entitled to receive an allocation under
this Plan and any Related Plan and, in the absence of the limitations contained
in this and Section 7.6, the Company would have contributed or allocated to the
Account of any Participant an amount for a Limitation Year that would have
caused the Annual Additions to the Account of a Participant to exceed the
Maximum Permissible Amount for such Year, then the contributions or allocations
under such Related Plan shall be reduced prior to any
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<PAGE>
reduction in contributions or allocations made with respect to the Participant
under this Plan to the extent necessary so that the allocations of such Annual
Additions does not exceed the Maximum Permissible Amount.
(g) Any reduction in the contributions and allocations under this
Plan made with respect to a Participant's Accounts required pursuant to this
Section 7.5 and Section 415 of the Code shall be effected, to the minimum extent
necessary, by reducing the Company Contributions that would have been made by
the Company for the applicable Plan Year with respect to such Participant.
(h) The provisions of this Section shall be interpreted by the
Committee, in the administration of the Plan, to reduce contributions and
allocations (as required by this Section) only to the minimum extent necessary
to reflect the requirements of Section 415 of the Code, as amended and in force
from time to time, and Regulations promulgated pursuant to that Section, which
are incorporated by reference herein.
7.6 Vesting.
--------
(a) Each Participant shall have a vested interest in the Adjusted
Balance of his Company Stock and Other Investments Accounts in accordance with
the following formula:
<TABLE>
<CAPTION>
Years of Vested Forfeitable
Service Percentage Percentage
------- ---------- ----------
<S> <C> <C>
Less than 1 0% 100%
1 0% 100%
2 0% 100%
3 20% 80%
4 40% 60%
5 60% 40%
6 80% 20%
7 or more 100% 0%
</TABLE>
(b) On reaching his Normal Retirement Date, a Participant shall be
one hundred percent (100%) vested in the Adjusted Balance of his Company Stock
and Other Investments Accounts.
(c) In the event a Participant dies or becomes disabled within the
meaning of Section 8.3 while an Employee, he shall be one hundred percent (100%)
vested in the Adjusted Balance of his Company Stock and Other Investments
Accounts as of the date of his death or disability.
-22-
<PAGE>
(d) In the event the Plan is terminated or upon the complete
discontinuance of Company Contributions to the Plan, each Participant shall
become one hundred percent (100%) vested in the Adjusted Balance of his Company
Stock and Other Investments Accounts if such event occurs (1) in the case of a
Participant who does not have a vested interest in his Accounts, while the
Participant is an Employee, and (2) in the case of a Participant who has a
vested interest in his Accounts, prior to the time the Participant incurs a one-
year Break in Service.
7.7 Net Income (or Loss) of the Trust. Any dividends received in respect
----------------------------------
of Company Stock allocated to Company Stock Accounts of Participants or Company
Stock Contribution Account shall be credited upon receipt (to the extent not
distributed or applied to the repayment of principal or interest on a Loan
pursuant to Section 8.8) to the applicable Company Stock Account or Company
Stock Contribution Account in the case of stock dividends, or to the
corresponding Other Investments or Company Other Investments Contributions
Account in the case of cash dividends. The net income (or loss) of the Trust for
each Plan Year will be determined as of each Valuation Date. Each Participant's
share of the net income (or loss) will be allocated to his Other Investments
Account in the ratio which the balance of such Account on the preceding
Anniversary Date (reduced by the amount of any distribution from such Account)
bears to the sum of such balances for all Participants as of that date. The net
income (or loss) of the Trust includes the increase (or decrease) in the fair
market value of the Trust Fund (other than Company Stock, except as provided
below), interest income, dividends and other income (or loss) attributable to
the Trust Fund (other than allocated Company Stock) since the preceding
Valuation Date but net income (or loss) shall not include Company contributions
or forfeitures. Any dividends on unallocated Company Stock and any proceeds of
sales of unallocated Company Stock, to the extent such proceeds are not used to
pay principal or interest on a Loan, shall be considered net income for the
Trust for the Plan Year and allocated to the Company Other Investments
Contribution Account. Net income (or loss) attributable to any Limitation
Account established under Section 7.4 shall be allocated to the Other
Investments Accounts of Participants in the manner set forth in the third
sentence of this Section, and the Limitation Account shall not share in the
allocation of Net Income (or loss) of the Trust under this Section.
7.8 Accounting for Allocations. The Committee shall adopt accounting
---------------------------
procedures for the purposes of making the allocations, valuations and
adjustments to Participants' Accounts provided for in this Article. Except as
provided in Regulations (S) 54.4975-11(d), Company Stock acquired by the Plan
shall be accounted for as provided under Regulations (S) 1.402(a)-1(b)(2)(ii),
allocations of Company Stock shall be made separately for each class of stock,
and the Committee shall maintain adequate records of the cost basis of all
shares of Company Stock allocated to each Participant's Company Stock Account.
From time to time, the Committee may modify the accounting procedures for the
purpose of achieving equitable and
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<PAGE>
nondiscriminatory allocations among the Accounts of Participants in accordance
with the general concepts of the Plan and the provisions of this Section.
Annual valuations of Trust Assets shall be made at fair market value, as
described in Section 5.2 above.
7.9 Special Allocation Provisions. Whenever an account balance is
------------------------------
distributable in installments, the undistributed balance of such account shall
participate in the valuation provided in Section 7.7 until fully distributed. In
lieu of such participation, however, upon the written request of the former
Participant or Beneficiary entitled to receive such installments, received by
the Committee prior to the payment of the first installment, the Adjusted
Balances of his accounts shall be deposited in the name of the Trustee in a
savings account or certificate of deposit in a national or state bank or in a
federal savings and loan association and earn and be credited with such earnings
(at not less than the current rate of earnings paid thereon by the depository).
Any amounts deposited pursuant to this Section 7.9 and any earnings thereon
shall be disregarded in computing the fair market value of trust assets to be
allocated under Section 7.7 of the Plan and the earnings shall be payable to
such former Participant or Beneficiary with payment of the aforementioned
installments. Any expenses incurred by the Trustee and the Committee as the
result of any deposit made pursuant to this Section shall be payable from the
accounts of the former Participant or Beneficiary from whom such deposit was
made.
7.10 Special Limitations on Allocations.
-----------------------------------
(a) Notwithstanding the foregoing provisions of this Article, if more
than one-third of Company Contributions for a Plan Year which are
deductible under Section 404(a)(9) of the Code would be allocated, in the
aggregate, to the Accounts of Highly Compensated Participants then such
allocations to the Accounts Highly Compensated Participants shall be
reduced, pro rata, in an amount sufficient to reduce the amounts allocated
to the Accounts of such Participants to an amount not in excess of one-
third of such deductible contributions with respect to such Plan Year. Any
contributions which are prevented from being allocated due to the
restriction contained in this Section 7.10 shall be allocated pursuant to
Section 7.4 as though those Highly Compensated Participants did not
participate in the Plan.
(b) Notwithstanding the foregoing provisions of this Article, in the
event that the Trustee acquires shares of Company Stock transaction to
which Section 1042 of the Code applies, then, in accordance with the
Regulations, such Shares shall not be allocated, directly or indirectly, to
any Participant described in Section 409(n)(1) of the Code for the duration
of the "nonallocation period" (as defined in section 409(n)(3)(C) of the
Code). Where any shares of Company Stock are prevented
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from being allocated due to the prohibition contained in the allocation of
contributions otherwise provided under Section 7.4 shall be adjusted to
reflect such result.
ARTICLE VIII
RETIREMENT PAYMENTS, DISABILITY PAYMENTS AND OTHER BENEFITS
8.1 Payments on Retirement. A Participant who attains his Normal
-----------------------
Retirement Date and continues to be an Employee shall continue to share in the
allocation of Company Contributions and of forfeitures under the Plan. Upon the
retirement of a Participant at or after his Normal Retirement Date the Committee
shall notify the Trustee in writing of the Participant's retirement and shall
direct the Trustee to make payment of the Adjusted Balance of the Participant's
Accounts as of the Valuation Date coinciding with or immediately preceding the
distribution commencement date pursuant to Section 8.6, in a method provided in
the Plan.
8.2 Payments on Death.
------------------
(a) Upon the death of a Participant, the Committee shall promptly
notify the Trustee in writing of the Participant's death and the name of his
Beneficiary and shall direct the Trustee to make payments of the Adjusted
Balance of the Participant's accounts as of the Valuation Date coinciding with
or immediately preceding the date of distribution to his Beneficiary pursuant to
Section 8.6, in a method provided in the Plan.
(b) Each unmarried Participant or each married Participant whose
surviving Spouse has consented to any alternate Beneficiary or an alternate
method of payment as provided in subsection (c), shall have the right to
designate, by giving a written designation to the Committee, (i) a person or
entity as Beneficiary to receive the death benefit provided under this Section
8.2 and (ii) the method of payment of such death benefit to his Beneficiary
pursuant to Section 8.6. Successive designations may be made, and the last
designation received by the Committee prior to the death of the Participant
shall be effective and shall revoke all prior designations. If a designated
Beneficiary shall die before the Participant, his interest shall terminate, and,
unless otherwise provided in the Participant's designation, if the designation
included more than one Beneficiary, such interest shall be paid in equal shares
to those Beneficiaries, if any, who survive the Participant. A Participant to
whom this subsection applies shall have the right to designate different
Beneficiaries to receive the Adjusted Balance in the Participant's various
accounts under the Plan.
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(c) The Beneficiary of each Participant who is married shall be the
surviving Spouse of such Participant and the death benefits of any Participant
who is married shall be paid in full to his surviving Spouse in a single lump
sum. Notwithstanding the preceding sentence, the death benefits provided
pursuant to subsection (a) shall be distributed to any other Beneficiary
designated by a married Participant as provided in subsection (b), if the
Participant's surviving Spouse consented to such designation, prior to the date
of the Participant's death, in writing. Such a consent must acknowledge the
effect of the election and designation and the identity of any nonsurviving
Spouse Beneficiary, including any class of Beneficiaries or contingent
Beneficiaries, and must be witnessed by a representative of the Plan or a notary
public. Consent of a Participant's surviving Spouse shall not be required if the
Participant established to the satisfaction of the Committee that consent may
not be obtained because there is no surviving Spouse or the surviving Spouse
cannot be located, or because of such other circumstances as the Secretary of
the Treasury may prescribe by Regulations. The Participant may not subsequently
change the method of distribution elected by the Participant or the designation
of his Beneficiary unless his surviving Spouse consents to the new elections or
designation in accordance with the requirements set forth in the preceding
sentence, or unless the surviving Spouse's consent permits the Participant to
change the election of method of payment or the designation of his Beneficiary
without the Spouse's further consent. A surviving Spouse's consent shall be
irrevocable. Any consent by a surviving Spouse, or establishment that the
consent of the surviving Spouse may not be obtained, shall be effective only
with respect to that surviving Spouse.
(d) The Committee may determine the identity of the distributees and
in so doing may act and rely upon any information it may deem reliable upon
reasonable inquiry, and upon any affidavit, certificate, or other paper believed
by it to be genuine, and upon any affidavit, certificate, or other paper
believed by it to be genuine, and upon any evidence believed by it sufficient.
8.3 Payments on Disability. Upon the termination of a Participant's
-----------------------
employment with the Company by reason of a disability, the Committee shall
notify the Trustee in writing of said disability termination, and shall direct
the Trustee to make payment of the Adjusted Balance of the Participant's
accounts as of the Valuation Date coinciding with or immediately preceding the
distribution commencement date under Section 8.6 in a method provided in the
Plan. For purposes of this section "disability" means a physical or mental
condition which is expected to render the Participant permanently unable to
perform his usual duties or any comparable duties for the Company. The
determination of the existence of such disability shall be made by the Committee
and shall be final and binding upon the Participant and all other parties. The
Committee may require the submission of such medical evidence as it may deem
necessary in order to arrive at its determination. The Committee's determination
of the existence of a disability will be made with reference to the nature of
the injury without regard to the period the Participant is absent from work.
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8.4 Payments on Termination for Other Reasons. Upon the termination of a
------------------------------------------
Participant's employment with the Company for any reason (whether before, on, or
after his Early Retirement Date) other than retirement on or after his Normal
Retirement Date, or permanent disability, the Committee shall notify the Trustee
to make payment of the vested portion of the Adjusted Balance of his Accounts,
if any, as of the Valuation Date coinciding with or next preceding the
distribution commencement date determined under Section 8.6, in a method
provided in the Plan. The vested portion of a Participant's Accounts shall be
determined in accordance with Section 7.7 of the Plan. The nonvested portion of
the Adjusted Balance of his Accounts shall be retained in his Accounts until a
period has elapsed sufficient to determine whether he will be reemployed or will
incur five consecutive one-year Breaks in Service. If he is reemployed before he
incurs five consecutive one-year Breaks in Service, his Accounts will continue
to vest; if he incurs five consecutive one-year Breaks in Service, the amount in
such Accounts shall be deemed a forfeiture as of the last day of the Plan Year
in which the Participant incurs the last of the five consecutive one-year Breaks
in Service. The amount of any such forfeiture shall be first deducted from the
Participant's Other Investments Account. If forfeitures of the Participants'
Other Investments Account are not sufficient to reduce the fair market value of
the vested portion of the Adjusted Balances of his Accounts to the percentage of
the total value of his Accounts determined under this Section, the remainder of
the forfeitures shall be deducted from the Participant's Company Stock Account.
If a Participant's Company Stock Account includes more than one class of Company
Stock, the forfeiture will consist of the same proportion of each class of
stock. All forfeitures will be applied in the same manner described in Section
7.4 as of the end of the Plan Year in which the last of five consecutive one-
year Breaks in Service resulting in forfeiture occurs. If a Participant incurs a
Break in Service, is rehired before incurring five consecutive one-year Breaks
in Service and subsequently incurs another Break in Service under circumstances
in which he is not fully vested in his Accounts, the portion of his Accounts
distributable upon the date of his later one-year Break in Service shall be
calculated as follows:
(i) the amount distributed to the Participant from his
Accounts upon his earlier Break in Service shall
be added to the Adjusted Balance of his Accounts;
(ii) the amount determined under paragraph (i) shall be
multiplied by the vested percentage as of the date
of his later termination of employment determined
under Section 7.7; and
(iii) the amount distributed to the Participant upon his
earlier Break in Service shall be deducted from the
product
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calculated under paragraph (ii) to determine the amount
distributable upon his later Break in Service.
8.5 Property Distributed. Distribution of the vested portion of the
---------------------
Adjusted Balance of a Participant's Accounts under the Plan will be made in
whole shares of Company Stock. To the extent a distribution is to be made in
Company Stock, any cash or other property in the Participant's Other Investments
Accounts will be used to acquire Company Stock for distribution. The right of a
Participant to receive a distribution in whole shares of Company Stock pursuant
to this Section 8.5 shall not apply to the extent the Participant is a Qualified
Participant who makes a valid and timely election for a distribution pursuant to
Section 8.9 below. Notwithstanding the foregoing, if applicable corporate
charter or bylaw provisions restrict ownership of substantially all outstanding
shares of Company Stock to Employees or to a plan or trust descried in Section
401(a) of the Code, then any distribution shall be in cash. Notwithstanding
anything herein to the contrary, if any shares of Company Stock in a
Participant's Accounts are issued by a bank described in Section 409(h)(3) of
the Code, distribution shall be made, at the Participant's election, in cash or
Shares.
8.6 Methods of Payments.
--------------------
(a) Whenever the Committee shall direct the Trustee to make payment
to a Participant or his Beneficiary upon termination of the Participant's
employment (whether by reason of retirement, death, disability or for other
reasons), the Committee shall direct the Trustee to pay the vested portion of
the Adjusted Balance of his Accounts, if any, to or for the benefit of the
Participant or his Beneficiary, in either of the following ways as the
Participant (or, if a deceased former Participant shall have failed to select a
method of payment, as his Benefit) shall determine;
(i) In a lump sum; provided that distribution of Company Stock
shall be valued at its fair market value on the date of such
distribution as determined pursuant to section 5.2; or
(ii) Subject to Section 8.2, in installments payable in
substantially equal amounts, continuing over a period that
complies with subsection (d) below, but in no event over a
period exceeding ten years in the case of a Participant
whose termination occurs prior to age 65.
If the selection of a method of payment is not made within 90 days prior to
the distribution date determined under subsection (b), payment shall be made in
a lump sum.
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(b) Payment under this Section shall be made or commence as follows:
(i) In the case of a Participant whose employment terminated due
to death, disability, retirement or termination of
employment, not more than 60 days after the end of the Plan
Year in which the employment of the Participant terminates,
unless the Participant, or his Beneficiary in the event of
his death, agrees to a later date. Notwithstanding the
preceding sentence, however, if the Participant's Account
balances at the time for any distribution exceed $3,500,
then neither such distribution nor any subsequent
distribution shall be made to the Participant at any time
before his 65th birthday without his written consent.
(ii) If a Participant terminates service and the value of his
Account balances does not exceed (or at the time of any
prior distribution has not exceeded) $3,500, the Participant
shall receive a distribution of the entire value of his
Account balances as soon as administratively feasible. For
purposes of this Section 8.6(b)(ii), if the value of the
Participant's Account balances is zero, the Participant
shall be deemed to have received a distribution of such
Account balances.
(c) Notwithstanding the provisions of paragraph (b) of this Section,
unless a Participant, or his Beneficiary in the event of his death, otherwise
elects, the payment of benefits under the Plan will begin not later than 60 days
after the last day of the Plan Year in which last of the following events occur:
(i) the date on which the Participant attains the age of
65;
(ii) the tenth anniversary of the date on which the
Participant commenced participation in the Plan; or
(iii) the date on which the Participant's employment with
the Company terminates.
(d) Notwithstanding the provisions of subsection (b) and (c) other
than those that require the consent of a Participant to a distribution of the
Adjusted Balance of his Accounts in excess of $3,500:
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(i) A Participant may always elect to have the payment of
benefits begin not later than one year after the close
of the Plan Year (x) in which the Participant
separates from service by reason of the attainment of
his Normal Retirement Date, disability, or death or
(y) which is the fifth Plan Year following the Plan
Year in which the Participant otherwise separates from
service.
(ii) Unless the Participant otherwise elects, the
distribution of the Adjusted Balance of his Accounts
will be in substantially equal annual or more frequent
payments over a period not longer than the greater of
(1) five years, or (2) in the case of a Participant
the Adjusted Balance of whose Accounts exceeds
$642,450, five years plus one additional year (but not
more than five additional years) for each $128,490 or
fraction thereof by which such Adjusted Balance
exceeds $623,450. The dollar amounts contained in this
paragraph (ii) shall be adjusted by the Secretary of
the Treasury pursuant to Section 409(o)(2) of the
Code.
(e) Notwithstanding anything to the contrary contained elsewhere in
the Plan:
(i) A Participant's benefits under the Plan will:
(1) be distributed to him not later than the Required
Distribution Date (as defined in subsection (iii)), or
(2) be distributed commencing not later than the
Required Distribution Date in accordance with
regulations prescribed by the Secretary of the
Treasury over a period not extending beyond the life
expectancy of the Participant or the life expectancy
of the Participant and his Beneficiary.
(ii) (1) If the Participant dies after distribution has
commenced pursuant to subsection (i)(2) but before his
entire interest in the Plan has been distributed to
him, then the remaining portion of that interest will
be distributed at least as rapidly as under the
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method of distribution being used under subsection
(i)(2) at the date of his death.
(2) If the Participant dies before distribution has
commenced pursuant to subsection (i)(2), then, except
as provided in subsections (ii)(3) and (ii)(4), his
entire interest in the Plan will be distributed within
five years after his death.
(3) Notwithstanding the provisions of subsection
(ii)(2), if the Participant dies before distribution
has commenced pursuant to subsection (i)(2) and if any
portion of his interest in the Plan is payable (A) to
or for the benefit of a Beneficiary, (B) in accordance
with Regulations prescribed by the Secretary of the
Treasury over a period not extending beyond the life
expectancy of the Beneficiary, and (C) beginning not
later than one year after the date as the Secretary of
the Treasury may prescribe by Regulations, then the
portion referred to in this subsection (ii)(3) shall
be treated as distributed on the date on which such
distribution begins.
(4) Notwithstanding the provisions of subsections
(ii)(2) and (ii)(3), if the Beneficiary referred to in
subsection (ii)(3) is the spouse of the Participant,
then
(A) the date on which the distributions are
required to begin under subsection (ii)(3)(C)
of this Section shall not be earlier than the
date on which the Participant would have
attained age 70 1/2, and
(B) if the spouse dies before the distributions
to that spouse begin, then this subsection
(ii)(4) shall be applied as if the surviving
spouse were the Participant.
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<PAGE>
(iii) For purposes of paragraph (h), the Required
Distribution Date means October 1 of the calendar year
following the calendar year in which the Participant
attains age 70 1/2.
(iv) For purposes of subsection (e), the life
expectancy of a Participant and his spouse may be
redetermined, but not more frequently than annually.
(v) A Participant may not elect a form of
distribution pursuant to subsection (i) providing
payments to a Beneficiary who is other than his spouse
unless the actuarial value of the payments expected to
be paid to the Participant is more than 50% of the
actuarial value of the total payments expected to be
paid under such form of distribution.
(vi) No Participant shall receive a distribution
under circumstances that would impose an additional
tax on such distribution pursuant to Section 72(t) of
the Code unless and until that individual is notified
in writing by the Committee of the tax and the
individual, by writing delivered to the Committee,
acknowledges receipt of the notification and requests
the distribution.
(f) (i) This subsection 8.6(f) applies to distributions
made on or after January 1, 1993. Notwithstanding any
provision of the Plan to the contrary that would
otherwise limit a Distributee's election under this
subsection, a Distributee may elect, at the time and
in the manner prescribed by the Plan Administrator, to
have any portion of an Eligible Rollover Distribution
paid directly to an Eligible Retirement Plan specified
by the Distributee in a Direct Rollover.
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(ii) Definitions.
(A) "Eligible Rollover Distribution" is any distribution
of all or any portion of the balance to the credit of
the Distributee, except that an Eligible Rollover
Distribution does not include: Any distribution that
is one of a series of substantially equal periodic
payments (not less frequently than annually) made for
the life (or life expectancy) of the Distributee or
the joint lives (or joint life expectancies) of the
Distributee and the Distributee's designated
Beneficiary, or for a specified period of ten years or
more; any distribution to the extent such distribution
is required under Section 401(a)(9) of the Code; and
the portion of any distribution that is not includible
in gross income (determined without regard to the
exclusion for net unrealized appreciation with respect
to employer securities).
(B) "Eligible Retirement Plan" is an individual retirement
account described in Section 408(b) of the Code, an
individual retirement annuity described in Section
403(a) of the Code, or a qualified trust described in
Section 401(a) of the Code, that accepts the
Distributee's eligible rollover distribution. However,
in the case of an Eligible Rollover Distribution to
the Surviving Spouse, an Eligible Retirement Plan is
an individual retirement account or individual
retirement annuity.
(C) "Distributee" includes an Employee or former Employee.
In addition, the Employee's or former Employee's
Surviving Spouse and the Employee's or former
Employee's spouse or former spouse who is the
alternate payee under a qualified domestic relations
order, as defined in Section 414(p) of the Code, are
Distributees with regard to the interest of the spouse
or former spouse.
(D) "Direct Rollover" is a payment by the Plan to the
Eligible Retirement Plan specified by the Distributee.
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8.7 Administrative Powers Relating to Payments. If a Participant or
-------------------------------------------
Beneficiary is under a legal disability or, by reason of illness or mental or
physical disability, is in the opinion of the Committee unable properly to
attend to his personal financial matters, the Trustee may make such payments in
such of the following ways as the Committee shall direct:
(i) directly to such Participant or Beneficiary;
(ii) to the legal representative of such Participant or Beneficiary;
or
(iii) to some relative by blood or marriage, or friend, for the
benefit of such Participant or Beneficiary.
Any payment made pursuant to this section shall be in complete discharge of
the obligation therefor under the Plan.
8.8 Dividends. Any cash dividends received by the Trustee on Company
----------
Stock allocated to the Accounts of Participants (or former Participants or
Beneficiaries) may be applied to the repayment of principal or interest on a
Loan, retained in the Participants' applicable accounts or paid to such
Participants, former Participants or Beneficiaries (in a nondiscriminatory
manner) at the sole discretion of the Committee; provided that any current
payment in cash must be paid to Participants, Former Participant or
Beneficiaries within 90 days after the close of the Plan Year in which the
dividend is received by the Trustee. Any such payment of cash dividends on
shares of Company Stock shall be accounted for as if the Participant or former
Participant receiving such dividends was the direct owner of such shares of
Company Stock and such payment shall not be treated as a distribution under the
Plan. In the event that cash dividends paid with respect to shares allocated to
the Accounts of a Participant are applied to the repayment of principal or
interest on a Loan, shares of Company Stock released thereby from the Suspense
Account shall be allocated to the Accounts of each Participant in proportion to
the value of the dividends otherwise allocable to such Participant's Accounts.
Any cash dividends paid with respect to unallocated Company Stock shall be
applied to the repayment of principal or interest on a Loan.
8.9 Diversification of Investments.
-------------------------------
(a) Notwithstanding any other provisions of the Plan or the Trust,
each Qualified Participant in the Plan may elect within 90 days after the close
of each Plan Year in the Qualified Election Period, by written instrument
delivered to the Committee, to direct the investment of not more than 25% (in
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whole multiples of 1%) of the Participant's Adjusted Balance of his Accounts in
the Plan (to the extent that such portion exceeds the amount to which a prior
election under this Section applies). In the case of an election year in which
the Participant can make his last election, the preceding sentence shall be
applied by substituting "50%" for "25%." The Committee shall direct the Trustee
to invest the Accounts of Qualified Participants pursuant to their valid and
timely elections within 90 days after the last day of the period during which
the election can be made. Notwithstanding the foregoing, a Qualified Participant
shall not be entitled to make the election hereunder for a Plan Year within the
Qualified Election Period if the fair market value of his Accounts as of the
last day of such Plan Year is less than $500.
(b) A Qualified Participant's election pursuant to this Section 8.9
shall direct the investment of the amount subject to the election among one or
more of the three investment options provided by the Trustee from time to time.
The Trustee will provide a written description of each such investment option to
the Qualified Participant within a reasonable time prior to the Qualified
Election Period. Such an investment election shall comply with such rules and
regulations as the Committee may prescribe.
(c) Distributions.
--------------
(1) At the election of a Qualified Participant, the Plan shall
distribute the portion of the Participant's Accounts that is
covered by the election described in this Section 8.9 within
90 days after the last day of the period during which the
election can be made. Such a distribution shall be subject
to right of first refusal and "put" option provisions of
Sections 6.3 and 6.4 of the Plan. The provisions of this
paragraph (1) shall apply notwithstanding any other
provisions of the Plan other than those that require the
consent of the Participant to a distribution of the Adjusted
Balance of his Accounts in excess of $3,500.
(2) In lieu of a distribution pursuant to paragraph (1), a
Qualified Participant who has the right to receive a cash
distribution pursuant to paragraph (1) may direct the Plan
to transfer the portion of the Adjusted Balance of his
Accounts that is covered by the election to another
qualified plan of the Company that accepts such transfers,
provided that the transferee plan permits participant-
directed investments and does not invest in Company Stock to
a substantial degree. Such a transfer shall be made no later
than 90 days after the last day of the period during which
the election can be made.
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(d) The portion of the Adjusted Balance of a Participant's Accounts
attributable to Company Stock acquired by the Plan after December 31, 1986,
shall be determined by multiplying the number of shares of Stock held in the
Accounts by a fraction, the numerator of which is the number of shares acquired
by the Plan after December 31, 1986 and allocated to Participant's Accounts (not
to exceed the number of shares held by the Plan on the date the Participant
becomes a Qualified Participant) and the denominator of which is the total
number of shares held by the Plan at the date the Participant becomes a
Qualified Participant.
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ARTICLE IX
VOTING OF COMPANY STOCK
9.1 Company Common Stock -- Voting and Consents.
--------------------------------------------
(a) Each Participant is entitled to direct the Trustee as to the
manner in which any Company Common Stock allocated to his Company Contribution
Account is to be voted. The Company shall furnish the Trustee with notices and
information statements when voting rights are to be exercised. The Trustee will
notify Participants of each occasion for the exercise of voting rights and will
forward copies of any proxy material within a reasonable time after it is
secured from the Company. A Participant shall elect to exercise such right by
filing written voting instructions with the Trustee at such time and in such
form as the Trustee may reasonably specify. Instructions received from
Participants by the Trustee shall be held in the strictest confidence and shall
not be divulged or released to any person including officers, director or
employees of the Company. To the extent not inconsistent with its fiduciary
obligations under ERISA, the Trustee shall vote shares of Company Stock for
which it does not receive timely instructions from Participants, or that have
not been allocated to Participants' Accounts, pro rata in accordance with the
timely instructions it has received from Participants.
(b) Participants will be allowed to direct the voting of fractional
shares or fractional rights to shares. This requirement will be satisfied if the
Trustee, or such other person or persons as the Trustee may designate, votes the
combined fractional shares or rights to shares to the extent possible to reflect
the instructions of the Participants holding fractional shares or rights to
shares.
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ARTICLE X
PLAN ADMINISTRATION
10.1 Company Responsibility. The Company shall be responsible for and
-----------------------
shall control and manage the operation and administration of the Plan. It shall
be the "Plan Administrator" and "Named Fiduciary" for purposes of ERISA and
shall be subject to service of process on behalf of the Plan. The Board may, in
its discretion, appoint a Committee of one or more persons, to be known as the
"Plan Administrative Committee" to act as the agent of the Company in performing
these duties. In the event that the Board chooses not to appoint such a
Committee, all references in the Plan to the "Committee" (except for such
references in this Section 10.1) shall mean the Board. The members of the
Committee shall serve at the pleasure of the Board; they may be officers,
directors, or Employees of the Company or any other individuals. Any member may
resign by delivering his written resignation to the Board and to the Committee.
Vacancies in the Committee arising by resignation, death, removal or otherwise,
shall be filled by the Board. The Company shall advise the Trustee in writing of
the names of the member of the Committee and of changes in membership from time
to time.
10.2 Powers and Duties of Committee. The Committee shall administer the
-------------------------------
Plan in accordance with its terms and shall have all powers necessary to carry
out the provisions of the Plan. The Committee shall direct the Trustee
concerning all payments which shall be made out of the Trust pursuant to the
Plan. The Committee shall interpret the Plan and shall determine all questions
arising in the administration, interpretation, and application of the Plan,
including but not limited to questions of eligibility and the status and rights
of Participants, Beneficiaries and other persons. Any such determination by the
Committee shall presumptively be conclusive and binding on all persons. The
regularly kept records of the Company shall be conclusive and binding upon all
persons with respect to an Employee's Hours of Service, date and length of
employment, time and amount of Compensation and the manner of payment thereof,
type and length of any absence from work and all other matters contained therein
relating to Employees. All rules and determinations of the Committee shall be
uniformly and consistently applied to all persons in similar circumstances.
10.3 Organization and Operations of Committee.
-----------------------------------------
(a) The Committee shall act by a majority vote of its members at the
time in office, and such action may be taken either by a vote at a meeting or in
writing without a meeting. The signatures of a majority of the members will be
sufficient to authorize Committee action. A Committee member shall not
participant in discussions of or vote upon matters pertaining to his own
participation in the Plan.
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(b) The Committee may authorize any of its members or any other
person to execute any document or documents on behalf of the Committee, in which
event the Committee shall notify the Trustee in writing of such action and the
name or names of such member or person. The Trustee thereafter shall accept and
rely upon any document executed by such members or persons as representing
action by the Committee, until the Committee shall file with the Trustee a
written revocation of such designation.
(c) The Committee may adopt such bylaws and regulations as it deems
desirable for the conduct of its affairs and with the consent of the President
of the Company, may appoint such accountants, counsel, specialists, and other
persons as it deems necessary or desirable in connection with the administration
of this Plan. The Committee shall be entitled to rely conclusively upon, and
shall be fully protected in any action taken by it in good faith in relying
upon, any opinions or reports which shall be furnished to it by any such
accountant, counsel, specialist or other person.
10.4 Records and Reports of Committee. The Committee shall keep a record
---------------------------------
of all its proceedings and acts and shall keep all such books of account,
records, and other data as may be necessary for proper administration of the
Plan. The Committee shall notify the Trustee and the Company of any action taken
by the Committee and, when required, shall notify any other interested person or
persons.
10.5 Claims Procedure. Claims for benefits under the Plan shall be made in
-----------------
writing to the Committee. In the event a claim for benefits is wholly or
partially denied by the Committee, the Committee shall, within a reasonable
period of time, but no later than 90 days after the receipt of the claim, notify
the claimant in writing of the denial of the claim. If the claimant shall not be
notified in writing of the denial of the claim within 90 days after it is
received by the Committee, the claim shall be deemed denied. A notice of denial
shall be written in a manner calculated to be understood by the claimant, and
shall contain (i) the specific reason or reasons for denial of the claim, (ii) a
specific reference to the pertinent Plan provisions upon which the denial is
based, (iii) a description of any additional material or information necessary
for the claimant to perfect the claim, together with an explanation of why such
material or information is necessary, and (iv) an explanation of the Plan's
review procedure. Within 60 days of the receipt by the claimant of the written
notice of denial of the claim, or within 60 days after the claim is deemed
denied as set forth above, if applicable, the claimant may file a written
request with the Committee that it conduct a full and fair review of the denial
of the claimant's claim for benefits, including the conducting of a hearing, if
deemed necessary by the Committee. In connection with the claimant's appeal of
the denial of his benefit, the claimant may review pertinent documents and may
submit issues and comments in writing. The Committee shall render a decision on
the claim appeal promptly, but not later than 60 days after the receipt of the
claimant's request for review, unless special circumstances (such as the need to
hold a hearing, if necessary) require an extension
-39-
<PAGE>
of time for processing, in which case the 60 day period may be extended to 120
days. The Committee shall notify the claimant in writing of any such extension.
The decision upon review shall (i) include specific reasons for the decision,
(ii) be written in a manner calculated to be understood by the claimant and
(iii) contain specific references to the pertinent Plan provisions upon which
the decision is based.
10.6 Compensation and Expenses of Committee. The members of the Committee
---------------------------------------
shall serve without compensation for services as such, but all reasonable
expenses incurred by the Committee incident to the administration of the Plan
(including reasonable expenses of litigation involving the Plan and reasonable
fees and expenses of its attorneys and agents) shall be borne by, and paid out
of the plan assets, except to the extent the Board elects to have such expenses
paid directly by the Company.
10.7 Indemnity of Committee Members. The Company shall indemnify and
-------------------------------
defend each member of the Committee and each of its other employees against any
and all claims, loss, damages, expenses (including reasonable attorneys fees),
and liability arising in connection with the administration of the Plan, except
when the same is judicially determined to be due to the gross negligence or
willful misconduct of such member or other employee.
-40-
<PAGE>
ARTICLE XI
TRUST AND TRUSTEE
11.1 Trust Agreement. A Trust has been created and will be maintained for
----------------
the purposes of the Plan. All contributions under the Plan will be paid into the
Trust. The Trust Fund will be held, invested and disposed of by the Trustee from
time to time acting in accordance with the Trust Agreement. All benefits payable
under the Plan will be paid from the Trust Fund.
11.2 Exclusive Benefit of Employees. All contributions made pursuant to
-------------------------------
the Plan shall be held by the Trustee in accordance with the terms of the Trust
Agreement and Section 4.2 of the Plan for the exclusive benefit of those
Employees who are Participants under the Plan, including former Employees and
their Beneficiaries, and shall be applied to provide benefits under the Plan and
to pay expenses of administration of the Plan and the Trust, to the extent that
such expenses are not otherwise paid by the Company.
11.3 Trustee. The Company shall appoint a bank or trust company or
--------
an individual or individuals to act as Trustee or Trustees under the Trust
Agreement. The Trustee shall serve at the pleasure of the Company and its powers
and responsibilities shall be set forth in a Trust Agreement entered into
between the Company and the Trustee. No person who receives full-time pay from
the Company shall receive compensation paid by the Trust Fund except for
reimbursement of expenses properly incurred.
-41-
<PAGE>
ARTICLE XII
AMENDMENT AND TERMINATION
12.1 Amendment of Plan. The Company shall have the right to amend the Plan
------------------
at any time and from time to time by resolution of its Board of Directors, and
all Employees and persons claiming any interest hereunder shall be bound
thereby; provided, however, that no amendment shall have the effect of: (i)
directly or indirectly divesting the interest of any Participant in any amount
that he would have received had he terminated his employment with the Company
immediately prior to the effective date of such amendment, of the interest of
any Beneficiary as such interest existed immediately prior to the effective date
of such amendment; (ii) directly or indirectly affective the vesting schedule
set forth in Section 7.7 used to determine the vested interest of a Participant
on the effective date of the amendment unless the conditions of Section 203(c)
of ERISA are satisfied; (iii) vesting in the Company any right, title or
interest in or to any Plan assets, (iv) causing or effecting discrimination in
favor of officers, shareholders, or highly compensated Employees; or (v) causing
any part of the Plan assets to be used for any purpose other than for the
exclusive benefit of the Participants and their Beneficiaries.
12.2 Voluntary Termination of or Permanent Discontinuance of Contributions
---------------------------------------------------------------------
to the Plan. The Company expects the Plan to be permanent, but since future
- ------------
conditions affecting the Company cannot be anticipated, the Company shall have
the right to terminate the Plan in whole or in part, or to permanently
discontinue contributions to the Plan, at any time by resolution of its Board
and by giving written notice of such termination or permanent discontinuance,
which shall not be earlier than the first day of the Plan Year which includes
the date of the resolution.
12.3 Limitation on Amendment or Termination. Notwithstanding the
---------------------------------------
provisions of Sections 12.1 and 12.2, the Company shall not terminate the Plan
or discontinue contributions thereto while any Debt or Loan shall remain
outstanding and unpaid in whole or in part, without the prior written consent to
any such termination or amendment by all holders and guarantors, if any, of the
Plan's obligations under such Debt or Loan.
12.4 Involuntary Termination of Plan. The Plan shall automatically
--------------------------------
terminate if the Company is legally adjudicated a bankrupt, makes a general
assignment for the benefit of creditors, or is dissolved. In the event of the
merger or consolidation of the Company with or into any other corporation, or in
the event substantially all of the assets of the Company shall be transferred to
another corporation, the successor corporation resulting from the consolidation
or merger, or transfer of such assets, as the case may be, shall have the right
to adopt and continue the Plan and succeed to the position of the Company
hereunder. If,
-42-
<PAGE>
however, the Plan is not so adopted within 90 days after the effective date of
such consolidation, merger or sale, the Plan shall automatically be deemed
terminated as of the effective date of such transaction. Nothing in this Plan
shall prevent the dissolution, liquidation, consolidation or merger of the
Company, or the sale or transfer of all or substantially all of its assets.
12.5 Payments on Termination of or Permanent Discontinuance of Contribution
----------------------------------------------------------------------
to the Plan. If the Plan is terminated as herein provided, or if it should be
- ------------
partially terminated, or upon the complete discontinuance of Company
contributions to the Plan, the following procedure shall be followed, except
that in the event of a partial termination, it shall be followed only in cases
of those Participants and Beneficiaries directly affected:
(i) The Committee may continue to function, but if it fails to do
so, its records, books of account and other necessary data shall be turned over
to the Trustee and the Trustee shall act on its own motion as hereinafter
provided.
(ii) Notwithstanding any other provisions of the Plan, all interests
of Participants shall become fully vested and nonforfeitable, provided that, the
Accounts of a former Participant who terminated employment prior to the date of
Plan termination, who had no vested interest at the date of his termination of
employment, and who has incurred a Break in Service of more than one year but
less than five years at the date of Plan termination, shall not be vested.
(iii) The value of the Trust and the shares of all Participants and
Beneficiaries shall be determined as of the date of termination or
discontinuance.
(iv) Distribution to Participants and Beneficiaries shall be made at
such time after termination of or discontinuance of contributions to the Plan
and by such of the methods provided in Sections 8.5 and 8.6, as the Committee
(or the Trustee if no Committee is then acting) in its discretion shall
determine (except that distribution shall be made not later than the time
specified in Section 8.6(c)).
-43-
<PAGE>
ARTICLE XIII
MISCELLANEOUS
13.1 Duty To Furnish Information and Documents. Participants and their
------------------------------------------
Beneficiaries must furnish to the Committee and the Trustee such evidence, data
or information as the Committee considers necessary or desirable for the purpose
of administering the Plan, and the provisions of the Plan for each person are
upon the condition that he will furnish promptly full, true, and complete
evidence, data, and information requested by the Committee. All parties to, or
claiming any interest under, the Plan hereby agrees to perform any and all acts,
and to execute any and all document and papers, necessary or desirable for
carrying out the Plan and the Trust.
13.2 Committee's Annual Statements and Available Information. The Company
--------------------------------------------------------
shall advise Employees of the eligibility requirements and benefits under the
Plan. As soon as practicable after making the annual valuations and allocations
provided for in the Plan, and at such other times as the Committee may
determine, the Committee shall provide each Participant, and each former
Participant and Beneficiary with respect to whom an account is maintained, with
a statement reflecting the current status of his accounts, including the
Adjusted Balance thereof. No Participant, except a member of the Committee,
shall have the right to inspect the records reflecting the account of any other
Participant. The Committee shall make available for inspection at reasonable
times by Participants and Beneficiaries copies of the Plan, any amendments
thereto, Plan summary, and all reports of Plan and Trust operations required by
law.
13.3 No Enlargement of Employment Rights. Nothing contained in the Plan
------------------------------------
shall be construed as a contract of employment between the Company and any
person, nor shall the Plan be deemed to give any person the right to be retained
in the employ of the Company or limit the right of the Company to employ or
discharge any person with or without cause, or to discipline any Employee.
13.4 Applicable Law. All questions pertaining to the validity,
---------------
construction and administration of the Plan shall be determined in conformity
with the laws of Missouri to the extent that such laws are not preempted by
ERISA and valid regulations published thereunder.
13.5 No Guarantee. Neither the Trustee, the Committee, nor the Company in
-------------
any way guarantees the Trust Fund from loss or depreciation nor the payment of
any money or other assets which may be or become due to any person from the
Trust Fund. No Participant or other person shall have any recourse against the
Trustee, the Company or the Committee if the Trust Fund is insufficient to
provide Plan benefits in full. Nothing herein contained shall be deemed to give
any Participant, former Participant, or Beneficiary
-44-
<PAGE>
an interest in any specific part of the Trust Fund or any other interest except
the right to receive benefits out of the Trust Fund in accordance with the
provisions of the Plan and Trust.
13.6 Unclaimed Funds. Each Participant shall keep the Committee informed
----------------
of his current address and the current address of his Beneficiary or
Beneficiaries. Neither the Company, the Committee nor the Trustee shall be
obligated to search for the whereabouts of any person. If the location of a
Participant is not made known to the Committee within three years after the date
on which distribution of the Participant's Accounts may first be made,
distribution may be made as though the Participant had died at the end of the
three-year period. If, within one additional year after such three-year period
has elapsed, or, within three years after the actual death of a Participant, the
Committee is unable to locate any individual who would receive a distribution
under the Plan upon the death of the Participant pursuant to Section 8.2 of the
Plan, the Adjusted Balance in the Participant's Accounts shall be deemed a
forfeiture and shall be used to reduce Company contributions to the Plan for the
Plan Year next following the year in which the forfeiture occurs; provided,
however, that in the event that the Participant or a Beneficiary makes a claim
for any amount which has been so forfeited, the benefits which have been
forfeited shall be reinstated.
13.7 Merger or Consolidation of Plan. Any merger or consolidation of the
--------------------------------
Plan with another plan, or transfer of Plan assets or liabilities to any other
plan, shall be effected in accordance with such regulation, if any, as may be
issued pursuant to Section 208 of ERISA, in such a manner that each Participant
in the Plan would receive, if the merged, consolidated or transferee plan were
terminated immediately following such event, a benefit which is equal to or
greater than the benefit he would have been entitled to receive if the Plan had
terminated immediately before such event.
13.8 Interest Nontransferable. Except as provided in this Section, no
-------------------------
interest of any person or entity in, or right to receive distributions from, the
Trust Fund shall be subject in any manner to sale, transfer, assignment, pledge,
attachment, garnishment, or other alienation or encumbrance of any kind; nor may
such interest or right to receive distributions be taken, either voluntarily or
involuntarily, for the satisfaction of the debts of, or other obligations or
claims against, such person or entity, including claims in bankruptcy
proceedings. The Account of any Participant, however, shall be subject to and
payable in accordance with the applicable requirements of any qualified domestic
relations order, as that term is defined in Section 414(p) of the Code, and the
Committee shall direct the Trustees to provide for payment from a Participant's
Accounts in accordance with such order and with the provisions of Section 414(p)
of the Code and any regulations promulgated thereunder.
-45-
<PAGE>
13.9 Prudent Man Rule. Notwithstanding any other provisions of this Plan,
-----------------
and the Trust Agreement, the Trustee, the Committee and the Company shall
exercise their powers and discharge their duties under this Plan and the Trust
Agreement for the exclusive purpose of providing benefits to Employees and their
Beneficiaries, and shall act with the care, skill, prudence and diligence under
the circumstances that a prudent man acting in a like capacity and familiar with
such matters would use in the conduct of an enterprise of a like character and
with like aims.
13.10 Limitations on Liability. Notwithstanding any of the preceding
-------------------------
provisions of the Plan, none of the Trustee, the Company, the Committee and each
individual acting as an employee or agent of any of them shall be liable to any
Participant, former Participant or Beneficiary for any claim, loss, liability or
expense incurred in connection with the Plan, except when the same shall have
been judicially determined to be due to the gross negligence or willful
misconduct of such person.
13.11 Federal and State Security Law Compliance.
------------------------------------------
(a) Each Participant or Beneficiary shall, prior to the transfer of
Company Stock to such Participant and Beneficiary, execute and deliver an
agreement, in form and substance acceptable to the Committee, certifying such
person's intent to hold such Stock and containing such other representations and
agreements relating to the Stock as the Committee may reasonably request.
(b) The Committee will take all necessary steps to comply with any
applicable registration or other requirements of federal or state securities
laws from which no exemption is available.
(c) Stock certificates distributed to Participants may bear such
legends concerning restrictions imposed by federal or state securities law, and
concerning other restrictions and rights under the Plan, as the Committee in its
discretion may determine.
13.12 Headings. The headings in this Plan are inserted for convenience of
---------
reference only and are not to be considered in construction of the provisions
hereof.
13.13 Gender and Number. Except when otherwise required by the context,
------------------
any masculine terminology in this document shall include the feminine, and any
singular terminology shall include the plural.
13.14 ERISA and Approval Under Internal Revenue Code. This Plan is
-----------------------------------------------
intended to constitute an employee stock ownership plan and meet the
requirements of Sections 401(a), 409, 501(a) and 4975(d)(3) and
-46-
<PAGE>
(e)(7) of the Code, and Sections 407(d)(6) and 408(b)(3) of ERISA, to the extent
applicable, as now in effect or hereafter amended. Any modification or amendment
of the Plan may be made retroactively, as necessary or appropriate, to establish
and maintain such qualification and to meet any requirements of the Code or
ERISA.
13.15 Extension of Plan to Related Employers.
---------------------------------------
(a) With the approval of the Company, any Related Employer may
adopt the Plan and qualify its Employees to become Participants thereunder by
taking proper corporate action to adopt the Plan and making such contributions
to the Trust Fund as the board of directors of the Related Employer may require.
(b) The Plan will terminate with respect to any Related Employer
that has adopted the Plan pursuant to this Section if the Related Employer
ceases to be a Related Employer, revokes its adoption of the Plan by appropriate
corporate action, permanently discontinues its contributions for its Employees,
is judicially declared bankrupt, makes a general assignment for the benefit of
creditors, or is dissolved. If the Plan is terminated or contributions are
discontinued with respect to any Related Employer, the provisions of Section
12.5 shall apply to the interest in the Plan of the Employees of such Related
Employer, and their Beneficiaries.
(c) The terms "Company" and "Employee" in the Plan shall include
any Related Employer that has adopted the Plan pursuant to this Section 13.15
and such Related Employer's Employees; provided, however, that the term
"Company" shall not include any such Related Employer where used in Articles X
or XI of the Plan. The Company shall act as the agent for each Related Employer
that adopts the Plan for all purposes of administration thereof.
13.16 Administrative Changes Without Plan Amendment.
----------------------------------------------
The Committee reserves authority to make administrative changes to this
Plan document that do not alter the minimum qualification requirements, without
formal amendment to the Plan. The Committee will effect such changes by
substituting pages in the Plan document with corrected pages. Administrative
changes include, but are not limited to, corrections of typographical errors and
similar errors, conforming provisions for administrative procedures to actual
practice and changes in practice, and deleting or correcting language that fails
to accurately reflect the intended provision of the Plan.
-47-
<PAGE>
ARTICLE XIV
TOP-HEAVY PROVISIONS
14.1 Top-Heavy Status. Except as provided in Sections 14.4(b) and (c), the
-----------------
provisions of this Article shall not apply to the Plan with respect to any Plan
Year for which the Plan is not Top-Heavy. If the Plan is or becomes Top-Heavy in
any Plan Year, the provisions of this Article XIV will supersede any conflicting
provisions elsewhere in the Plan.
14.2 Definitions. For purposes of this Article XIV, the following words
------------
and phrases shall have the meanings states below unless a different meaning is
plainly required by the context:
(a) "Determination Date" means, with respect to any Plan Year: (i)
the last day of the preceding Plan Year, or (ii) in the case of the first Plan
Year of the Plan, the last day of such Plan Year.
(b) "Key Employee" means in Employee meeting the definition of "key
employee" contained in Section 416(i)(1) of the Code and the Regulations
interpreting that section. For purposes of determining whether an Employee is a
Key Employee, the definition of Compensation set forth in Section 14.6 shall
apply.
(c) "Non-Key Employee" means any Employee who is not a Key Employee.
(d) "Valuation Date" means with respect to a particular Determination
Date, the most recent Valuation Date (as defined in Section 2.34 occurring
within a 12-month period ending on the applicable Determination Date.
14.3 Determination of Top-Heavy Status.
----------------------------------
(a) The Plan will be "Top-Heavy" with respect to any Plan Year if, as
of the Determination Date applicable to such Year, the ratio of the Adjusted
Balances in the accounts of Key Employees (determined as of the Valuation Date
applicable to such Determination Date) to the Adjusted Balances in the accounts
of all Employees (determined as of such Valuation Date) exceeds 60%. For
purposes of computing such ratio and for all other purposes of applying and
interpreting this paragraph (a): (i) the amount of the accounts of any Employee
shall be increased by the aggregate distributions made with respect to such
Employee under the Plan during the five-year period ending on any Determination
Date; (ii) benefits provided under all plans which are aggregated pursuant to
(b) of this Section must be considered; and
-48-
<PAGE>
(iii) the provisions of Section 416 of the Code and all Regulations interpreting
that section shall be applied. If any Employee has not performed services for
the company or any Related Employer at any time during the five-year period
ending on any Determination Date, the balances of the accounts of such Employee
shall not be taken into consideration for purposes of determining whether the
Plan is Top-Heavy with respect to the Plan Year to which such Determination Date
applies.
(b) For purposes of determining whether the Plan is Top-Heavy, all
qualified retirement plans maintained by the Company and each Related Employer
shall be aggregated to the extent that such aggregation is required under the
applicable provisions of Section 416 of the Code and the Regulations
interpreting that Section. All other qualified Related employer shall be
aggregated only to the extent permitted by Section 416 of the Code and such
Regulations and elected by the Company.
(c) For purposes of determining whether the Plan is Top-Heavy, the
Adjusted Balance of a Participant's accounts shall not include (i) the amount of
a rollover contribution (or similar transfer) accepted after December 31, 1983,
initiated by the Participant and derived from a plan not maintained by the
Company or any Related Employer, or (ii) a distribution made with respect to any
Employee which is a tax-free rollover contribution (or similar transfer) that is
either not initiated by the Employee or that is made to a plan maintained by the
Company or any Related Employer.
(d) Solely for purposes of determining whether the Plan is Top-Heavy,
the accrued benefit of any Non-key Employee shall be determined (i) under the
method, if any, that uniformly applies for accrual purposes under all plans of
the Company or any Related Employer, or (ii) if there is no such method, as if
such benefit accrued not more rapidly than the slowest accrual rate permitted
under the fractional accrual rule of Section 411(b)(1)(C) of the Code.
14.4 Vesting.
--------
(a) If the Plan becomes Top-Heavy, the vested interest of a
Participant in the portion of his Company Stock and Other Investments Accounts
referred to in subsection (b) shall be determined in accordance with the
following formula in lieu of the formula set forth in Section 7.6:
<TABLE>
<CAPTION>
Vested Forfeitable
Years of Service Percentage Percentage
---------------- ---------- ----------
<S> <C> <C>
Less than 3 0% 100%
3 or more 100% 0%
</TABLE>
-49-
<PAGE>
For purposes of the above schedule, years of Service shall include all
years of Service required to be counted under Section 411(a) of the Code,
disregarding all years of Service permitted to be disregarded under Section
411(a)(4) of the Code.
(b) The vesting schedule set forth in subsection (a) shall apply to all
amounts allocated to a Participant's Company Stock and Other Investments
Accounts while the Plan is Top-Heavy and during the period of time before the
Plan becomes Top Heavy. This vesting schedule shall not apply to the Company
Stock and Other Investments Accounts of any Employee who does not have an Hour
of Service after the Plan becomes Top-Heavy.
(c) If the Plan becomes Top-Heavy and subsequently ceases to be Top-Heavy,
the vesting schedule set forth in subsection (a) shall automatically cease to
apply, and the vesting schedule set forth in Section 7.6 above shall
automatically apply, with respect to all amounts allocated to a Participant's
Company Stock and Other Investments Accounts for all Plan Years after the Plan
Year with respect to which the Plan was las Top-Heavy. For purposes of this
subsection (c), this change in vesting schedules shall only be valid to the
extent that the conditions of Section 12.1 of the Plan and Section 411(a)(10) of
the Code are satisfied.
14.5 Minimum Contribution. For each Plan Year that the Plan is Top-Heavy,
---------------------
the Company will contribute and allocate to the Company Stock and Other
Investments Accounts of each Participant who is a Non-key Employee and is
employed by the Company on the last day of such Plan Year an amount consisting
of contributions and forfeitures equal to the lesser of (i) 3% of such
Participant's Compensation (as defined in Section 14.6) for such Plan Year and
(ii) the largest percentage of Company contributions and forfeitures, as a
percentage of the Key Employee's compensation (as described in Section 14.6),
allocated to the Company Stock and Other Investments Accounts of any Key
Employee for such Year. The minimum contribution allocable pursuant to this
Section 14.5 will be determined without regard to any contributions by the
Company for any Employee under the Federal Social Security Act. A Non-key
Employee will not be excluded from an allocation pursuant to this Section merely
because his compensation is less than a stated amount. A Non-Key Employee who
has become a Participant but who fails to complete at least 1,000 Hours of
Service in a Plan Year in which the Plan is top Heavy shall not be excluded from
an allocation pursuant to this Section.
14.6 Compensation. For any Plan Year in which the Plan is Top-Heavy,
-------------
annual Compensation for the purposes of this Article shall have the meaning set
forth in Section 414(q)(7) of the Code.
14.7 Collective Bargaining Agreements. The requirements of Sections 14.4
---------------------------------
and 14.5 shall not apply with respect to any employees included in a unit of
employees covered by a collective bargaining agreement
-50-
<PAGE>
between employer representatives and the Company or a Related Employer if
retirements benefits were the subject of good faith bargaining between such
employer representatives and the Company or Related Employer.
IN WITNESS WHEREOF, Fulton Savings Bank, FSB has caused this Plan to be
executed by its duly authorized officer this _______ day of ____________, 1996.
Attest: FULTON SAVINGS BANK, FSB
___________________ By: ______________________________
Secretary President
-51-
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF FULTON BANCORP, INC.
<PAGE>
SUBSIDIARIES OF THE REGISTRANT
------------------------------
Registrant
- ----------
Fulton Bancorp, Inc.
<TABLE>
<CAPTION>
Percentage State of
Subsidiaries Owned Incorporation
- -------------------------------------- ----- -------------
<S> <C> <C>
Fulton Savings Bank, FSB (1) 100% United States
Multi-Purpose Service Agency, Inc. (2) 100% Missouri
</TABLE>
- -------------------------
(1) Upon consummation of the Conversion, Fulton Savings Bank, FSB will become a
wholly-owned subsidiary of the Registrant.
(2) This subsidiary is a wholly-owned subsidiary of Fulton Savings Bank, FSB.
<PAGE>
Exhibit 23.1
[LETTERHEAD OF MOORE, HORTON & CARLSON, P.C.]
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Fulton Bancorp, Inc.
Fulton Savings Bank, FSB
Fulton, Missouri 65251
We consent to the use in this Registration Statement on Form S-1 on behalf of
Fulton Bancorp, Inc. of our report date June 14, 1996, relating to the
consolidated financial statements of Fulton Savings Bank, FSB and Subsidiary,
which appears in such Registration Statement. We also consent to the reference
to us under the headings "Legal and Tax Opinions" and "Experts" contained in the
Prospectus, which is a part of such Registration Statement.
/s/ Moore, Horton & Carlson, P.C.
Mexico, Missouri
July 19, 1996
<PAGE>
[LETTERHEAD OF Breyer & Aguggia]
Exhibit 23.3
July 19, 1996
Board of Directors
Fulton Bancorp, Inc.
410 Market Street
Fulton, Missouri 65251
RE: Fulton Bancorp, Inc.
Form S-1 Registration Statement
To the Board of Directors:
We hereby consent to the filing of the form of our federal tax opinion as
an exhibit to the Form S-1 Registration Statement and to the reference to us in
the Prospectus included therein under the headings "THE CONVERSION -- Effects of
Conversion to Stock Form on Depositors and Borrowers of the Savings Bank" and
"LEGAL AND TAX OPINIONS."
Sincerely,
/s/ Breyer & Aguggia
--------------------
BREYER & AGUGGIA
Washington, D.C.
<PAGE>
Exhibit 23.4
[LETTERHEAD OF RP Financial, LC.]
Financial Services Industry Consultants
July 19, 1996
Board of Directors
Fulton Savings Bank, FSB
410 Market Street
Fulton, Missouri 65251
Gentlemen:
We hereby consent to the use of our firm's name in the Form AC Application
for Conversion of Fulton Savings Bank, FSB and any amendments thereto, in the
Form S-1 Registration Statement and any amendments thereto and in the
Application H(e)1-s for Fulton Bancorp, Inc. We also hereby consent to the
inclusion of, summary of and references to our Appraisal Report and our
statement concerning subscription rights in such filings including the
Prospectus of Fulton Bancorp, Inc.
Very truly yours,
RP Financial, L.C.
/s/ James J. Oren
------------------
James J. Oren
Vice President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED
FINANCIAL STATEMENTS OF FULTON SAVINGS BANK, FSB FOR THE YEAR ENDED APRIL 30,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-START> MAY-01-1995
<PERIOD-END> APR-30-1996
<CASH> 1,842,675
<INT-BEARING-DEPOSITS> 1,081,064
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,216,157
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 73,893,045
<ALLOWANCE> 782,070
<TOTAL-ASSETS> 85,496,988
<DEPOSITS> 70,315,921
<SHORT-TERM> 5,000,000
<LIABILITIES-OTHER> 1,063,324
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 9,116,743
<TOTAL-LIABILITIES-AND-EQUITY> 85,495,988
<INTEREST-LOAN> 4,914,438
<INTEREST-INVEST> 297,716
<INTEREST-OTHER> 959,534
<INTEREST-TOTAL> 6,171,688
<INTEREST-DEPOSIT> 3,463,533
<INTEREST-EXPENSE> 2,781,030
<INTEREST-INCOME-NET> 2,390,658
<LOAN-LOSSES> 44,242
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,848,848
<INCOME-PRETAX> 983,076
<INCOME-PRE-EXTRAORDINARY> 620,076
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 620,076
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 3.02
<LOANS-NON> 318,640
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 761,897
<CHARGE-OFFS> 27,391
<RECOVERIES> 3,322
<ALLOWANCE-CLOSE> 782,070
<ALLOWANCE-DOMESTIC> 640,084
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 141,986
</TABLE>
<PAGE>
EXHIBIT 99.2
SOLICITATION AND MARKETING MATERIALS
<PAGE>
FULTON BANCORP, INC.
PROPOSED HOLDING COMPANY FOR
FULTON SAVINGS BANK, FSB
FULTON, MISSOURI
PROPOSED MARKETING MATERIALS
7-8-96
<PAGE>
Marketing Materials
Fulton Bancorp, Inc.
Fulton, Missouri
Table of Contents
-----------------
I. Press Releases
A. Explanation
B. Schedule
C. Distribution List
D. Press Release Examples
II. Advertisements
A. Explanation
B. Schedule
C. Advertisement Examples
III. Question and Answer Brochure
A. Explanation
B. Method of Distribution
C. Example
IV. IRA Mailing
A. Explanation
B. Quantity
C. IRA Mailing Example
V. Counter Cards and Lobby Posters
A. Explanation
B. Quantity
VI. Proxy Reminder
A. Explanation
B. Example
<PAGE>
I. Press Releases
A. Explanation
In an effort to assure that all customers receive prompt accurate
information in a simultaneous manner, Trident advises the Savings Bank to
forward press releases to area newspapers, radio stations, etc. at various
points during the conversion process.
Only press releases approved by Conversion Counsel and the OTS will be
forwarded for publication in any manner.
B. Schedule
1. OTS Approval of Conversion
2. Close of Stock Offering
<PAGE>
C. Distribution List
National Distribution List
--------------------------
National Thrift News Wall Street Journal
- -------------------- -------------------
212 West 35th Street World Financial Center
13th Floor 200 Liberty
New York, New York 10001 New York, NY 10004
Richard Chang
American Banker SNL Securities
- --------------- --------------
One State Street Plaza Post Office Box 2124
New York, New York 10004 Charlottesville, Virginia 22902
Michael Weinstein
Barrons Investors Business Daily
- ------- ------------------------
Dow Jones & Company 12655 Beatrice Street
Barrons Statistical Information Post Office Box 661750
200 Burnett Road Los Angeles, California 90066
Chicopee, Massachusetts 01020
New York Times
- --------------
229 West 43rd Street
New York, NY 10036
<PAGE>
Local Media List
----------------
(To be provided)
Newspaper
- ---------
Radio
- -----
<PAGE>
D. Press Release Examples
PRESS RELEASE FOR IMMEDIATE RELEASE
---------------------
For More Information Contact:
Kermit D. Gohring
(573) 642-6618
FULTON SAVINGS BANK, FSB
------------------------
CONVERSION TO STOCK FORM APPROVED
---------------------------------
Fulton, Missouri (September __, 1996) - Kermit D. Gohring, President of
Fulton Savings Bank, FSB ("Fulton Savings Bank" or the "Savings Bank"), Fulton,
Missouri, announced that Fulton Savings Bank has received approval from the
Office of Thrift Supervision to convert from a federally-chartered mutual
savings bank to a federally-chartered stock savings bank. In connection with
the Conversion, Fulton Savings Bank has formed a holding company, Fulton
Bancorp, Inc., to hold all of the outstanding capital stock of Fulton Savings
Bank.
Fulton Bancorp, Inc. is offering up to ___________ shares of its common
stock, subject to adjustment, at a price of $10.00 per share. Certain account
holders and borrowers of the Savings Bank will have an opportunity to subscribe
for stock through a Subscription Offering that closes on _________, 1996.
Shares that are not subscribed for during the Subscription Offering may be
offered subsequently to the general public in a Direct Community Offering, with
first preference given to natural persons and trusts of natural persons residing
in Boone and Callaway Counties, Missouri. The Subscription Offering and
Community Offering, if conducted, will be managed by Trident Securities, Inc. of
Raleigh, North Carolina. Copies of the Prospectus relating to the offerings and
describing the Plan of Conversion will be mailed to customers on or about
September __, 1996.
As a result of the Conversion, Fulton Savings Bank will be structured in
the stock form as are all commercial banks and an increasing number of savings
institutions and will be a
<PAGE>
wholly-owned subsidiary of Fulton Bancorp, Inc. According to Mr. Gohring, "Our
day to day operations will not change as a result of the Conversion and deposits
will continue to be insured by the FDIC up to the applicable legal limits."
Customers with questions concerning the stock offering should call Fulton
Savings Bank's Stock Information Center at (573) ________, or visit one of
Fulton Savings Bank's offices.
<PAGE>
PRESS RELEASE FOR IMMEDIATE RELEASE
---------------------
For More Information Contact:
Kermit D. Gohring
(573) 642-6618
FULTON SAVINGS BANK COMPLETES INITIAL STOCK OFFERING
----------------------------------------------------
Fulton, Missouri - (October __, 1996) Kermit D. Gohring, President of
Fulton Savings Bank ("Fulton Savings Bank" or the "Savings Bank"), announced
today that Fulton Bancorp, Inc., the proposed holding company for Fulton Savings
Bank, has completed its initial stock offering in connection with the Savings
Bank's conversion from mutual to stock form. A total of __________ shares were
sold at the price of $10.00 per share.
On October __, 1996, Fulton Savings Bank's Plan of Conversion was approved
by the Savings Bank's voting members at a special meeting of members.
Mr. Gohring said that the officers and boards of directors of Fulton
Bancorp, Inc. and Fulton Savings Bank wished to express their thanks for the
response to the stock offering and that Fulton Savings Bank looks forward to
serving the needs of its customers and new stockholders as a community-based
stock institution. The stock is anticipated to commence trading on October __,
1996 on the Nasdaq SmallCap Market under the symbol "____". Trident Securities,
Inc. of Raleigh, North Carolina managed the stock offering.
<PAGE>
II. Advertisements
A. Explanation
The intended use of the attached advertisement "A" is to notify Fulton
Savings Bank's customers and members of the local community that the
conversion offering is underway.
The intended use of advertisement "B" is to remind Fulton Savings Bank's
customers of the closing date of the Subscription Offering.
B. Media Schedule
1. Advertisement A - To be run immediately following OTS approval and
possibly run weekly for the first three weeks.
2. Advertisement B - To be run during the last week of the subscription
offering.
Trident may feel it is necessary to run more ads in order to remind
customers of the close of the Subscription Offering and the Community
Offering, if conducted.
Alternatively, Trident may, depending upon the response from the customer
base, choose to run fewer ads or no ads at all.
These ads will run in the local newspapers.
The ad size will be as shown or smaller.
<PAGE>
- --------------------------------------------------------------------------------
This announcement is neither an offer to sell nor a solicitation of an offer to
buy these securities. The offer is made only by the prospectus. These shares
have not been approved or disapproved by the Securities and Exchange
Commission, the Office of Thrift Supervision or the Federal
Deposit Insurance Corporation, nor has such commission,
office or corporation passed upon the accuracy or
adequacy of the prospectus. Any representation
to the contrary is unlawful.
NEW ISSUE SEPTEMBER __, 1996
____________ SHARES
These shares are being offered pursuant
to a Plan of Conversion whereby
FULTON SAVINGS BANK, FSB
Fulton, Missouri, will
convert from a federal mutual savings bank to a
federal capital stock savings bank
and become a wholly owned subsidiary of
FULTON BANCORP, INC.
COMMON STOCK
_______________
PRICE $10.00 PER SHARE
_______________
TRIDENT SECURITIES, INC.
For a copy of the prospectus call (573) ________.
Copies of the prospectus may be obtained in any State in which this
announcement is circulated from Trident Securities, Inc. or such
other brokers and dealers as may legally offer these
securities in such state.
THE STOCK WILL NOT BE INSURED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY.
- --------------------------------------------------------------------------------
<PAGE>
Advertisement (B)
- --------------------------------------------------------------------------------
FULTON SAVINGS BANK
OCTOBER __, 1996 IS THE DEADLINE TO
ORDER STOCK OF FULTON BANCORP, INC.
Customers of Fulton Savings Bank
have the opportunity
to invest in Fulton Savings Bank
by subscribing
for common stock in its proposed holding company
FULTON BANCORP, INC.
A Prospectus relating to these securities is
available at our office or by calling our
Stock Information Center at (573) ________.
This announcement is neither an offer to sell nor a
solicitation of an offer to buy the stock of
Fulton Bancorp, Inc. The offer is made only by the
Prospectus. The shares of common stock are not
deposits or savings accounts and will not be insured
by the Federal Deposit Insurance Corporation
or any other government agency.
Copies of the Prospectus may be obtained in any State in which this announcement
is circulated from Trident Securities, Inc. or such other brokers and dealers
as may legally offer these securities in such state.
- --------------------------------------------------------------------------------
<PAGE>
III. Question and Answer Brochure
A. Explanation
The Question and Answer brochure is an essential marketing piece in any
conversion. It serves two purposes: a) to answer some of the most commonly
asked questions in "plain, everyday language"; and b) to highlight in
brochure form the purchase commitments of the Savings Bank's officers and
directors shown in the Prospectus. Although most of the answers are taken
verbatim from the Prospectus, it saves the individual from searching for
the answer to a simple question.
B. Method of Distribution
There are four primary methods of distribution of the Question and Answer
brochure. However, regardless of the method the brochures are always
accompanied by a Prospectus.
1. A Question and Answer brochure is sent out in the initial mailing to
all members of the Savings Bank.
2. Question and Answer brochures are available in Fulton Savings Bank's
offices.
3. Question and Answer brochures are sent out in a standard information
packet to all interested investors who phone the Stock Information
Center requesting information.
<PAGE>
PROPOSED OFFICER AND DIRECTOR PURCHASES
<TABLE>
<CAPTION>
Shares of
Name Common Stock Amount($)
- ---- ------------ ---------
<S> <C> <C>
</TABLE>
(to be completed)
<PAGE>
QUESTIONS AND ANSWERS
REGARDING
THE PLAN OF CONVERSION
On January 9, 1996, the Board of Directors of Fulton Savings Bank, FSB ("Fulton
Savings Bank" or the "Savings Bank") unanimously adopted the Plan of Conversion,
pursuant to which Fulton Savings Bank will convert from a federally-chartered
mutual savings bank to a federally-chartered stock savings bank. In addition,
all of Fulton Savings Bank's outstanding capital stock will be issued to the
holding company, Fulton Bancorp, Inc. (the "Holding Company"), which was
organized by Fulton Savings Bank to own Fulton Savings Bank as a subsidiary.
This brochure is provided to answer general questions you might have about the
Conversion. Following the Conversion, Fulton Savings Bank will continue to
provide financial services to its depositors, borrowers and other customers as
it has in the past and will operate with its existing management and employees.
The Conversion will not affect the terms, balances, interest rates or existing
federal insurance coverage on Fulton Savings Bank's deposits or the terms or
conditions of any loans to existing borrowers under their individual contract
arrangements with Fulton Savings Bank.
For complete information regarding the Conversion, see the Prospectus and the
Proxy Statement dated September __, 1996. Copies of each of the Prospectus and
the Proxy Statement may be obtained by calling the Stock Information Center at
(573) ________.
THIS INFORMATION DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY FULTON BANCORP, INC. COMMON STOCK. OFFERS TO BUY OR TO SELL MAY BE
MADE ONLY BY THE PROSPECTUS. PLEASE READ THE PROSPECTUS PRIOR TO MAKING AN
INVESTMENT DECISION.
THE SHARES OF FULTON BANCORP, INC. COMMON STOCK BEING OFFERED IN THE
SUBSCRIPTION AND DIRECT COMMUNITY OFFERINGS ARE NOT SAVINGS OR DEPOSIT ACCOUNTS
AND ARE NOT INSURED BY THE SAVINGS ASSOCIATION INSURANCE FUND OF THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
<PAGE>
QUESTIONS AND ANSWERS
FULTON BANCORP, INC.
(THE PROPOSED HOLDING COMPANY FOR
FULTON SAVINGS BANK, FSB)
Questions and Answers Regarding the Subscription and Community Offerings
MUTUAL TO STOCK CONVERSION
--------------------------
1. Q. WHAT IS A "CONVERSION"?
A. Conversion is a change in the legal form of organization. Fulton
Savings Bank currently operates as a federally-chartered mutual
savings bank with no stockholders. Through the Conversion, Fulton
Savings Bank will become a federally-chartered stock savings bank, and
the stock of its holding company, Fulton Bancorp, Inc. will be held
primarily by stockholders who purchase stock in the Subscription,
Direct Community and Syndicated Community Offerings or in the open
market following the Offerings.
2. Q. WHY IS FULTON SAVINGS BANK CONVERTING?
A. Fulton Savings Bank, as a mutual savings bank, does not have
stockholders and has no authority to issue capital stock. By
converting to the stock form of organization, the Savings Bank will be
structured in the form used by commercial banks, most business
entities and a growing number of savings institutions. The Conversion
will be important to the future growth and performance of the Savings
Bank by providing a larger capital base from which the Savings Bank
may operate, the ability to attract and retain qualified management
through stock-based employee benefit plans, enhanced ability to
diversify into other financial services related activities and
expanded ability to render services to the public.
The Board of Directors and management of Fulton Savings Bank believe
that the stock form of organization is preferable to the mutual form
of organization for a financial institution. The Board and management
recognize the decline in the number of mutual thrifts from over 12,500
mutual institutions in 1929 to under 800 mutual thrifts today.
Fulton Savings Bank believes that converting to the stock form of
organization will allow Fulton Savings Bank to more effectively
compete with local community banks, thrifts, and with statewide and
regional banks, which are in stock form. Fulton Savings Bank believes
that by combining its existing quality service and products with a
local ownership base the Savings Bank's customers and community
members who become stockholders will be inclined to do more business
with Fulton Savings Bank.
Furthermore, because Fulton Savings Bank competes with local and
regional banks not only for customers, but also for employees, Fulton
Savings Bank
<PAGE>
believes that the stock form of organization will better afford Fulton
Savings Bank the opportunity to attract and retain employees,
management and directors through various stock benefit plans which are
not available to mutual savings institutions.
3. Q. IS FULTON SAVINGS BANK'S MUTUAL TO STOCK CONVERSION BENEFICIAL TO
THE COMMUNITIES THAT THE SAVINGS BANK SERVES?
A. Management believes that the structure of the Subscription, Community
and Syndicated Community Offerings is in the best interest of the
various communities that Fulton Savings Bank serves because following
the Conversion it is anticipated that a significant portion of the
Common Stock will be owned by local residents desiring to share in the
ownership of a local community financial institution. Management
desires that a significant portion of the shares of common stock sold
in the Offerings will be sold to residents of the Savings Bank's Local
Community ("Boone and Calloway Counties, Missouri").
4. Q. WHAT EFFECT WILL THE CONVERSION HAVE ON DEPOSIT ACCOUNTS AND LOANS?
A. Terms and balances of accounts in Fulton Savings Bank and interest
rates paid on such accounts will not be affected by the Conversion.
Insurable accounts will continue to be insured by the Federal Deposit
Insurance Corporation ("FDIC") up to the maximum amount permitted by
law. The Conversion also will not affect the terms or conditions of
any loans to existing borrowers or the rights and obligations of these
borrowers under their individual contractual arrangements with Fulton
Savings Bank.
5. Q. WILL THE CONVERSION CAUSE ANY CHANGES IN FULTON SAVINGS BANK'S
PERSONNEL?
A. No. Both before and after the Conversion, Fulton Savings Bank's
business of accepting deposits, making loans and providing financial
services will continue without interruption with the same board of
directors, management and staff.
6. Q. WHAT APPROVALS MUST BE RECEIVED BEFORE THE CONVERSION BECOMES
EFFECTIVE?
A. First, the Board of Directors of Fulton Savings Bank must adopt the
Plan of Conversion, which occurred on January 9, 1996. Second, the
Office of Thrift Supervision must approve the applications required to
effect the Conversion. These approvals have been obtained. Third,
the Plan of Conversion must be approved by a majority of all votes
eligible to be cast by Fulton Savings Bank's voting members. A
Special Meeting of voting members will be held on October __, 1996, to
consider and vote upon the Plan of Conversion.
<PAGE>
THE HOLDING COMPANY
-------------------
7. Q. WHAT IS A HOLDING COMPANY?
A. A holding company is a company that owns another entity. Concurrent
with the Conversion, Fulton Savings Bank will become a subsidiary of
Fulton Bancorp, Inc., a company organized by Fulton Savings Bank to
acquire all of the capital stock of Fulton Savings Bank to be
outstanding after the Conversion.
8. Q. IF I DECIDE TO BUY STOCK IN THIS OFFERING, WILL I OWN STOCK IN THE
HOLDING COMPANY OR FULTON SAVINGS BANK?
A. You will own stock in Fulton Bancorp, Inc. However, Fulton Bancorp,
Inc., as a holding company, will own all of the outstanding capital
stock of Fulton Savings Bank.
9. Q. WHY DID THE BOARD OF DIRECTORS FORM THE HOLDING COMPANY?
A. The Board of Directors believes that the Conversion of Fulton Savings
Bank and the formation of the Holding Company will result in a
stronger financial institution with the ability to provide additional
flexibility to diversify the Savings Bank's business activities
through existing or newly-formed subsidiaries, although there are no
current arrangements or understandings with respect to such
diversification. The Holding Company will also be able to use stock-
based incentive programs to attract and retain executive and other
personnel for itself and its subsidiaries.
ABOUT BECOMING A STOCKHOLDER
----------------------------
10. Q. WHAT ARE THE SUBSCRIPTION, DIRECT COMMUNITY AND SYNDICATED COMMUNITY
OFFERINGS?
A. Under the Plan of Conversion adopted by Fulton Savings Bank, the
Holding Company is offering shares of stock in the Subscription
Offering to certain current and former customers of the Savings Bank
and to the Savings Bank's Employee Stock Ownership Plan ("ESOP").
Shares which are not subscribed for in the Subscription Offering, if
any, may be offered to the general public in a Direct Community
Offering with preference given to natural persons who are residents of
the Savings Bank's Local Community. These Offerings are consistent
with the board's objective of Fulton Bancorp, Inc. being a locally
owned financial institution. The Subscription Offering and Direct
Community Offering, if conducted, are being managed by Trident
Securities, Inc. It is anticipated that any shares not subscribed for
in either the Subscription or Direct Community Offerings may be
offered for sale in a Syndicated Community Offering, which is an
offering on a best efforts basis by a selling group of broker-dealers.
11. Q. MUST I PAY A COMMISSION TO BUY STOCK IN CONJUNCTION WITH THE
SUBSCRIPTION, DIRECT COMMUNITY OR SYNDICATED COMMUNITY OFFERINGS?
A. No. You will not pay a commission to buy the stock if the stock is
purchased in the Subscription, Direct Community or Syndicated
Community Offerings.
<PAGE>
12. Q. HOW MANY SHARES OF FULTON BANCORP, INC. STOCK WILL BE ISSUED IN THE
CONVERSION?
A. It is currently expected that between ___________ shares and
___________ shares of common stock will be sold at a price of $10.00
per share. Under certain circumstances the number of shares may be
increased to ____________.
13. Q. HOW WAS THE PRICE DETERMINED?
A. The aggregate price of the common stock was determined by RP
Financial, LC., an independent appraisal firm specializing in the
thrift industry, and was approved by the Office of Thrift Supervision.
The price is based on the pro forma market value of Fulton Savings
Bank and the Holding Company as determined by the independent
evaluation.
14. Q. WHO IS ENTITLED TO BUY STOCK IN THE CONVERSION?
A. The shares of Fulton Bancorp, Inc. to be issued in the Conversion are
being offered in the Subscription Offering in the following order of
priority to: (i) depositors with $50.00 or more on deposit at the
Savings Bank as of December 31, 1994 ("Eligible Account Holders"),
(ii) the Savings Bank's ESOP, (iii) depositors with $50.00 or more on
deposit at the Savings Bank as of June 30, 1996 ("Supplemental
Eligible Account Holders"), and (iv) depositors of the Savings Bank as
of _______, 1996 ("Voting Record Date") and borrowers of the Savings
Bank whose loans were outstanding as of April 15, 1995, and continue
to be outstanding as of the Voting Record Date ("Other Members"),
subject to the priorities and purchase limitations set forth in the
Plan of Conversion. Subject to the prior rights of holders of
subscription rights, Common Stock not subscribed for in the
Subscription Offering may be offered subsequently in the Direct
Community Offering to certain members of the general public, with
preference given to natural persons and trusts of natural persons
residing in Boone and Callaway Counties, Missouri (the Savings Bank's
"Local Community"). Shares, if any, not subscribed for in the
Subscription or Direct Community Offerings may be offered to the
general public in the Syndicated Community Offering.
15. Q. ARE THE SUBSCRIPTION RIGHTS TRANSFERABLE?
A. No. Subscription rights granted to Fulton Savings Bank's Eligible
Account Holders, Supplemental Eligible Account Holders and Other
Members in the Conversion are not transferable. Persons violating
such prohibition, directly or indirectly, may lose their right to
purchase stock in the Conversion and be subject to other possible
sanctions. IT IS THE RESPONSIBILITY OF EACH SUBSCRIBER QUALIFYING AS
AN ELIGIBLE ACCOUNT HOLDER, SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDER OR
OTHER MEMBER TO LIST COMPLETELY ALL ACCOUNT NUMBERS FOR QUALIFYING
SAVINGS ACCOUNTS OR LOANS AS OF THE QUALIFYING DATE ON THE STOCK ORDER
FORM.
<PAGE>
16. Q. WHAT ARE THE MINIMUM AND MAXIMUM NUMBERS OF SHARES THAT I CAN PURCHASE
IN THE CONVERSION?
A. The minimum number of shares is 25. The maximum number of shares that
may be purchased in the Conversion by any person or entity currently
is 15,000. The maximum number of shares that may be purchased in the
Conversion by any person or entity other than the ESOP, together with
any associate or persons or entities acting in concert with such
person, currently is 20,000 shares.
17. Q. ARE THE BOARD OF DIRECTORS AND MANAGEMENT OF FULTON SAVINGS BANK
BUYING A SIGNIFICANT AMOUNT OF THE STOCK OF THE HOLDING COMPANY?
A. Directors and executive officers of the Savings Bank are expected to
subscribe for 128,000 shares. The purchase price paid by directors
and executive officers will be the same $10.00 per share price as that
paid by all other persons who order stock in the Subscription, Direct
Community or Syndicated Community Offerings.
18. Q. HOW DO I SUBSCRIBE FOR SHARES OF STOCK?
A. To subscribe for shares of stock in the Subscription Offering, you
should send or deliver a stock order form together with full payment
(or appropriate instructions for withdrawal from permitted deposit
accounts as described below) to Fulton Savings Bank in the postage-
paid envelope provided, so that the stock order form and payment or
withdrawal authorization instructions are received prior to the close
of the Subscription Offering, which will terminate at 4:30 p.m.,
Central Time, on October __, 1996, unless extended. Payment for
shares may be made in cash (if made in person) or by check or money
order. Subscribers who have deposit accounts with Fulton Savings Bank
may include instructions on the stock order form requesting withdrawal
from such deposit account(s) to purchase shares of Fulton Bancorp,
Inc. Withdrawals from certificates of deposit may be made without
incurring an early withdrawal penalty.
If shares remain available for sale after the expiration of the
Subscription Offering, they may be offered in the Direct Community
Offering, which will begin as soon as practicable after the end of the
Subscription Offering, but may begin at any time during the
Subscription Offering. Persons who wish to order stock in the Direct
Community Offering should return their stock order form as soon as
possible after the Direct Community Offering begins because it may
terminate at any time after it begins. Members of the general public
should contact the Stock Information Center at (573) ________ for
additional information.
19. Q. MAY I USE FUNDS IN A RETIREMENT ACCOUNT TO PURCHASE STOCK?
A. Yes. If you are interested in using funds held in your retirement
account at Fulton Savings Bank, the Stock Information Center can
assist you in transferring those funds to a self-directed IRA, if
necessary, and directing the trustee to purchase the stock. This
process may be done without an early withdrawal penalty and generally
without a negative tax consequence to your retirement
<PAGE>
account. Due to the additional paperwork involved, IRA transfers
should be completed by _________. For additional information, call the
Stock Information Center at (573) __________.
20. Q. WILL I RECEIVE INTEREST ON FUNDS I SUBMIT FOR A STOCK PURCHASE?
A. Yes. Fulton Savings Bank will pay interest at its passbook rate from
the date the funds are received until completion of the stock offering
or termination of the Conversion. All funds authorized for withdrawal
from deposit accounts with Fulton Savings Bank will continue to earn
interest at the contractual rate until the date of the completion of
the Conversion.
21. Q. MAY I OBTAIN A LOAN FROM FULTON SAVINGS BANK TO PAY FOR SHARES
PURCHASED IN THE CONVERSION?
A. No. Federal regulations prohibit Fulton Savings Bank from making
loans for this purpose. However, federal regulations do not prohibit
you from obtaining a loan from another source for the purpose of
purchasing stock in the Conversion.
22. Q. IF I BUY STOCK IN THE CONVERSION, HOW WOULD I GO ABOUT BUYING
ADDITIONAL SHARES OR SELLING SHARES IN THE AFTERMARKET?
A. Fulton Bancorp, Inc. has received approval to have the Common Stock
quoted on the Nasdaq SmallCap Market under the symbol "____."
Therefore, once the stock has commenced trading, interested investors
may contact any broker to buy or sell shares.
23. Q. WHAT IS THE HOLDING COMPANY'S DIVIDEND POLICY?
A. The Board of Directors of the Holding Company intends to adopt a
policy of paying regular cash dividends in the first full quarter
following consummation of the Conversion. Dividends will be subject
to determination and declaration by the Board of Directors, which will
take into account a number of factors, including the operating results
and financial condition of the Holding Company, net worth and capital
requirements and regulatory restrictions on the payment of dividends
by the Savings Bank to the Holding Company upon which dividends paid
by the Holding Company eventually will be primarily dependent. There
can be no assurance that dividends will in fact be paid on the Common
Stock or that, if paid, such dividends will not be reduced or
eliminated in future periods.
24. Q. WILL THE FDIC INSURE THE SHARES OF THE HOLDING COMPANY?
A. No. The shares of Fulton Bancorp, Inc. are not savings deposits or
savings accounts and are not insured by the FDIC or any other
government agency.
25. Q. IF I SUBSCRIBE FOR SHARES AND LATER CHANGE MY MIND, WILL I BE ABLE TO
GET A REFUND OR MODIFY MY ORDER?
A. No. Your order cannot be canceled, withdrawn or modified once it has
been received by Fulton Savings Bank without the consent of Fulton
Savings Bank.
<PAGE>
ABOUT VOTING "FOR" THE PLAN OF CONVERSION
-----------------------------------------
26. Q. AM I ELIGIBLE TO VOTE AT THE SPECIAL MEETING OF MEMBERS TO BE HELD TO
CONSIDER THE PLAN OF CONVERSION?
A. You are eligible to vote at the Special Meeting of Members to be held
on October __, 1996 if you were a) a depositor of Fulton Savings Bank
at the close of business on the Voting Record Date (_______, 1996) and
continue as such until the Special Meeting; or b) a borrower of the
Savings Bank whose loan was outstanding on April 15, 1995 and
continues to be outstanding on the Voting Record Date. If you were a
member on the Voting Record Date, you should have received a proxy
statement and a proxy card with which to vote.
27. Q. HOW MANY VOTES DO I HAVE?
A. Each account holder is entitled to one vote for each $100, or fraction
thereof, on deposit in such account(s). Each borrower member is
entitled to cast one vote in addition to the number of votes, if any,
he or she is entitled to cast as an account holder. No member may
cast more than 1,000 votes.
28. Q IF I VOTE "AGAINST" THE PLAN OF CONVERSION AND IT IS APPROVED, WILL I
BE PROBIBITED FROM BUYING STOCK DURING THE SUBSCRIPTION OFFERING?
A. No. Voting against the Plan of Conversion in no way restricts you
from purchasing Fulton Bancorp, Inc. stock in the Subscription
Offering.
29. Q. DID THE BOARD OF DIRECTORS OF FULTON SAVINGS BANK UNANIMOUSLY ADOPT
THE CONVERSION?
A. Yes. Fulton Savings Bank's Board of Directors unanimously adopted the
Plan of Conversion and urges that all members vote "FOR" approval of
such Plan.
30. Q. WHAT HAPPENS IF FULTON SAVINGS BANK DOES NOT GET ENOUGH VOTES TO
APPROVE THE PLAN OF CONVERSION?
A. The Conversion would not take place, and Fulton Savings Bank would
remain a mutual savings institution.
31. Q. AS A QUALIFYING DEPOSITOR OR BORROWER OF FULTON SAVINGS BANK, AM I
REQUIRED TO VOTE?
A. No. However, failure to return your proxy card or otherwise vote will
have the same effect as a vote AGAINST the Plan of Conversion.
32. Q. WHAT IS A PROXY CARD?
A. A proxy card gives you the ability to vote without attending the
Special Meeting in person. If you received more than one
informational packet, then you should vote the proxy cards in all
packets. Your proxy card(s) is (are) located in the window sleeve of
your informational packet(s).
You may attend the meeting and vote, even if you have returned your
proxy card, if you choose to do so. However, if you are unable to
attend, you still are
<PAGE>
represented by proxy. Previously executed proxies, other than those
proxies sent pursuant to the Conversion, will not be used to vote for
approval of the Plan of Conversion, even if the respective members do
not execute another proxy or attend the Special Meeting and vote in
person.
33. Q. HOW CAN I GET FURTHER INFORMATION CONCERNING THE STOCK OFFERING?
A. You may call the Stock Information Center at (573) ________ for
further information or to request a copy of the Prospectus, a stock
order form, a proxy statement or a proxy card.
THIS INFORMATION DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY FULTON BANCORP, INC. COMMON STOCK. SUCH OFFERS AND
SOLICITATIONS MAY BE MADE ONLY BY MEANS OF THE PROSPECTUS. COPIES OF THE
PROSPECTUS MAY BE OBTAINED BY CALLING THE STOCK INFORMATION CENTER AT (573)
______________.
THE SHARES OF FULTON BANCORP, INC. COMMON STOCK BEING OFFERED ARE NOT
SAVINGS OR DEPOSIT ACCOUNTS AND ARE NOT INSURED BY THE SAVINGS ASSOCIATION
INSURANCE FUND OF THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY.
<PAGE>
IV. IRA Mailing
A. Explanation
A special IRA mailing is proposed to be sent to all IRA customers of the
Savings Bank in order to alert the customers that funds held in an IRA can
be used to purchase stock. Since this transaction is not as simple as
designating funds from a certificate of deposit like a normal stock
purchase, this letter informs the customer that this process is slightly
more detailed and involves a personal visit to the Savings Bank.
B. Quantity
One IRA letter is proposed to be mailed to each IRA customer of the Savings
Bank. These letters would be mailed following OTS approval for the
conversion and after each customer has received the initial mailing
containing a Proxy Statement and a Prospectus.
C. Example - See following page.
<PAGE>
Fulton Savings Bank Letterhead
September __, 1996
Dear Individual Retirement Account Participant:
As you know, Fulton Savings Bank is in the process of converting from a
federally-chartered mutual savings bank to a federally-chartered stock savings
bank and has formed Fulton Bancorp, Inc. to hold all of the stock of Fulton
Savings Bank (the "Conversion"). Through the Conversion, certain current and
former depositors and borrowers of Fulton Savings Bank have the opportunity to
purchase shares of common stock of Fulton Bancorp, Inc. in a Subscription
Offering. Fulton Bancorp, Inc. currently is offering up to _________ shares,
subject to adjustment, of Fulton Bancorp, Inc. at a price of $10.00 per share.
As the holder of an individual retirement account ("IRA") at Fulton Savings
Bank, you have an opportunity to become a shareholder in Fulton Bancorp, Inc.
using funds being held in your IRA. If you desire to purchase shares of common
stock of Fulton Bancorp, Inc. through your IRA, Trident Securities, Inc. and
Fulton Savings Bank can assist you in self-directing those funds. This process
can be done without an early withdrawal penalty and generally without a negative
tax consequence to your retirement account.
If you are interested in receiving more information on self-directing your
IRA, please contact our Conversion Center at (573) __________. Because it may
take several days to process the necessary IRA forms, a response is requested by
_______, 1996 to accommodate your interest.
Sincerely,
Kermit D. Gohring
President
This letter is neither an offer to sell nor a solicitation of an offer to buy
Fulton Bancorp, Inc. common stock. The offer is made only by the Prospectus,
which was recently mailed to you. THE SHARES OF FULTON BANCORP, INC. COMMON
STOCK ARE NOT DEPOSITS AND WILL NOT BE INSURED BY THE FEDERAL DEPOSIT INSURANCE
---
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
<PAGE>
V. Counter Cards and Lobby Posters
A. Explanation
Counter cards and lobby posters serve two purposes: (1) As a notice to
Fulton Savings Bank's customers and members of the local community that the
stock sale is underway and (2) to remind the customers of the end of the
Subscription Offering. Trident has learned in the past that many people
forget the deadline for subscribing and therefore we suggest the use of
these simple reminders.
B. Quantity
Approximately 2 - 3 Counter cards will be used at teller windows and on
customer service representatives' desk.
Approximately 1 - 2 Lobby posters will be used at each office of Fulton
Savings Bank
C. Example
D. Size
The counter card will be approximately 8 1/2" x 11".
The lobby poster will be approximately 16" x 20".
<PAGE>
C. POSTER
OR
COUNTER CARD
================================================================================
"TAKE STOCK IN OUR FUTURE"
"STOCK OFFERING MATERIALS
AVAILABLE HERE"
FULTON SAVINGS BANK
================================================================================
<PAGE>
VI. Proxy Reminder
A. Explanation
A proxy reminder is used when the majority of votes needed to adopt the
Plan of Conversion is still outstanding. The proxy reminder is mailed to
those "target vote" depositors who have not previously returned their
signed proxy.
The target vote depositors are determined by the conversion agent.
B. Example
C. Size
Proxy reminder is approximately 8 1/2" x 11".
<PAGE>
B. Example
- --------------------------------------------------------------------------------
P R O X Y R E M I N D E R
FULTON SAVINGS BANK
YOUR VOTE ON OUR STOCK CONVERSION PLAN HAS NOT BEEN RECEIVED.
- --------- ---------------------
YOUR VOTE IS VERY IMPORTANT, PARTICULARLY SINCE FAILURE TO VOTE IS EQUIVALENT TO
- ---------------------------
VOTING AGAINST THE PLAN.
VOTING FOR THE CONVERSION WILL NOT AFFECT THE INSURANCE OF YOUR ACCOUNTS.
DEPOSIT ACCOUNTS WILL CONTINUE TO BE FEDERALLY INSURED UP TO THE APPLICABLE
LIMITS.
YOU MAY PURCHASE STOCK IF YOU WISH, BUT VOTING DOES NOT OBLIGATE YOU TO BUY
STOCK.
PLEASE ACT PROMPTLY! SIGN THE ENCLOSED PROXY CARD AND MAIL, OR DELIVER, THE
----------------------------
PROXY CARD TO FULTON SAVINGS BANK TODAY. PLEASE VOTE ALL PROXY CARDS RECEIVED.
---
WE RECOMMEND THAT YOU VOTE TO APPROVE THE PLAN OF CONVERSION. THANK YOU.
THE BOARD OF DIRECTORS AND MANAGEMENT OF
FULTON SAVINGS BANK
- --------------------------------------------------------------------------------
IF YOU RECENTLY MAILED THE PROXY,
PLEASE ACCEPT OUR THANKS AND DISREGARD THIS REQUEST.
FOR FURTHER INFORMATION CALL (573) _______.
<PAGE>
[Fulton Savings letterhead]
Dear Interested Investor:
Fulton Savings Bank, FSB ("Fulton Savings") is pleased to announce that we
have received regulatory approval to proceed with our plan to convert to a
federally-chartered stock savings bank, conditioned upon receipt of approval by
Fulton Savings' members, among other things. This stock Conversion is the most
significant event in the history of Fulton Savings in that it allows customers,
community members, directors and employees an opportunity to own stock in Fulton
Bancorp, Inc., the proposed holding company for Fulton Savings.
Enclosed is a Prospectus that fully describes Fulton Savings, its
management, board and financial condition. For your convenience we have
established a Stock Information Center. If you have any questions, please call
the Stock Information Center at (573) ________.
Sincerely,
Kermit D. Gohring
President and Chief Executive Officer
Enclosures
THIS DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER
TO BUY, SHARES OF FULTON BANCORP, INC. COMMON STOCK OFFERED IN THE CONVERSION.
SUCH OFFERS ARE MADE ONLY BY MEANS OF THE PROSPECTUS. THERE SHALL BE NO SALE OF
STOCK IN ANY STATE IN WHICH ANY OFFER, SOLICITATION OF AN OFFER OR SALE OF STOCK
WOULD BE UNLAWFUL.
THIS STOCK WILL NOT BE INSURED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY.
DI
<PAGE>
[Fulton Savings letterhead]
_____, 1996
Dear Member:
We are pleased to announce that Fulton Savings Bank, FSB ("Fulton Savings")
is converting from a federally chartered mutual savings bank to a federally
chartered stock savings bank. In conjunction with this Conversion, Fulton
Bancorp, Inc. ("Company"), the newly formed holding company for Fulton Savings,
is offering shares of its common stock in a Subscription Offering.
Enclosed you will find a Prospectus and Proxy Statement describing the
Conversion and proxy card(s). As a member of Fulton Savings as of ________,
1996, we ask you to participate in the Conversion by reviewing the information
provided and voting on the Conversion by completing and mailing the enclosed
proxies in the enclosed postage-paid envelope as soon as possible. The Board of
Directors recommends that you vote FOR the Plan of Conversion.
---
Although we encourage you to vote on the Plan of Conversion, unfortunately
the Company is unable to either offer or sell its Common Stock to you because
the small number of eligible subscribers in your jurisdiction makes registration
or qualification of the Common Stock under the Securities laws of your
jurisdiction impractical, for reasons of cost or otherwise. Accordingly, this
letter and the materials enclosed herewith should be considered neither an offer
to sell nor a solicitation of an offer to buy the Common Stock of the Company.
IF YOU HAVE ANY QUESTIONS ABOUT YOUR VOTING RIGHTS OR THE CONVERSION IN
GENERAL, PLEASE CALL OUR STOCK INFORMATION CENTER AT (573) ________.
Sincerely,
Kermit D. Gohring
President and Chief Executive Officer
Enclosures
THIS DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER
TO BUY, SHARES OF FULTON BANCORP, INC. COMMON STOCK OFFERED IN THE CONVERSION,
NOR DOES IT CONSTITUTE THE SOLICITATION OF A PROXY IN CONNECTION WITH THE
CONVERSION. SUCH OFFERS AND SOLICITATIONS OF PROXIES ARE MADE ONLY BY MEANS OF
THE PROSPECTUS AND PROXY STATEMENT. THERE SHALL BE NO SALE OF STOCK IN ANY
STATE IN WHICH ANY OFFER, SOLICITATION OF AN OFFER OR SALE OF STOCK WOULD BE
UNLAWFUL.
THE STOCK WILL NOT BE INSURED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY.
BS
<PAGE>
[Trident Securities letterhead]
_____, 1996
To Members and Friends of Fulton Savings Bank, FSB:
Trident Securities, Inc., a member of the National Association of
Securities Dealers ("NASD"), is assisting Fulton Savings Bank, FSB ("Fulton
Savings") in its conversion from a federally chartered mutual savings bank to a
federally chartered stock savings bank and the concurrent offering of shares of
common stock by its holding company, Fulton Bancorp, Inc. (the "Company").
At the request of the Company, we are enclosing materials explaining this
process and your alternatives, including an opportunity to invest in shares of
the Company's common stock being offered to customers through ______, 1996.
Please read the enclosed offering materials carefully. The Company has asked us
to forward these documents to you in view of certain requirements of the
securities laws in your state.
We urge you to study these materials carefully, particularly the Prospectus
and Proxy Statement. If you choose to exercise your rights to subscribe for
shares of Common Stock of the Company you should follow the instructions
contained in the enclosed materials. Trident Securities, Inc. should not be
understood as recommending or soliciting in any way any action by you in regard
to the enclosed materials. If you have any questions, we have set up a Stock
Information Center at Fulton Savings at Fulton Savings' main office at 410
Market Street, in Fulton, Missouri, or feel free to call the Stock Information
Center at (573) ________.
Sincerely,
TRIDENT SECURITIES, INC.
THE SHARES OF COMMON STOCK OFFERED IN THE CONVERSION ARE NOT SAVINGS
ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR
ANY OTHER GOVERNMENT AGENCY.
THIS IS NOT AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY STOCK. THE
OFFER WILL BE MADE ONLY BY MEANS OF THE PROSPECTUS.
TS
<PAGE>
[Fulton Savings letterhead]
_____, 1996
Dear Friend:
Fulton Savings Bank, FSB ("Fulton Savings") is pleased to announce that we
have received regulatory approval to proceed with our plan to convert to a
federally-chartered stock savings bank, conditioned upon receipt of approval by
Fulton Savings' members, among other things. This stock Conversion is the most
significant event in the history of Fulton Savings in that it allows customers,
community members, directors and employees an opportunity to own stock in Fulton
Bancorp, Inc., the proposed holding company for Fulton Savings.
Since 1912, Fulton Savings has successfully operated as a mutual company.
We want to assure you that the Conversion will not affect the terms, balances,
interest rates or existing FDIC insurance coverage on deposits at Fulton
Savings, or the terms or conditions of any loans to existing borrowers under
their individual contract arrangements with Fulton Savings. Let us also assure
you that the stock Conversion will not result in any changes in the management,
personnel or the Board of Directors of Fulton Savings.
Our records indicate that you were a depositor of Fulton Savings on
December 31, 1994. Therefore, under applicable law, you are entitled to
subscribe for Common Stock in Fulton Savings' Subscription Offering. Orders
submitted by you and others in the Subscription Offering are contingent upon the
current members' approval of the Plan of Conversion at a special meeting of
members to be held on ______, 1996 and upon receipt of all required regulatory
approvals.
IF YOU DECIDE TO EXERCISE YOUR SUBSCRIPTION RIGHTS TO PURCHASE SHARES, YOU
MUST RETURN A PROPERLY COMPLETED STOCK ORDER FORM TOGETHER WITH FULL PAYMENT FOR
THE SUBSCRIBED SHARES SO THAT IT IS RECEIVED AT FULTON SAVINGS NOT LATER THAN
4:30 P.M., CENTRAL TIME ON ______, 1996.
Enclosed is a Prospectus which fully describes Fulton Savings, its
management, board and financial condition. Please review it carefully before
you invest. For your convenience, we have established a Stock Information
Center. IF YOU HAVE ANY QUESTIONS, PLEASE CALL THE STOCK INFORMATION CENTER AT
(573) ________.
We look forward to continuing to provide quality financial services to you
in the future.
Sincerely,
Kermit D. Gohring
President and Chief Executive Officer
Enclosures
THIS DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER
TO BUY, SHARES OF FULTON BANCORP, INC. COMMON STOCK OFFERED IN THE CONVERSION,
NOR DOES IT CONSTITUTE THE SOLICITATION OF A PROXY IN CONNECTION WITH THE
CONVERSION. SUCH OFFERS AND SOLICITATIONS OF PROXIES ARE MADE ONLY BY MEANS OF
THE PROSPECTUS AND PROXY STATEMENT. THERE SHALL BE NO SALE OR STOCK IN ANY
STATE IN WHICH ANY OFFER, SOLICITATION OF AN OFFER OR SALE OF STOCK WOULD BE
UNLAWFUL.
THE STOCK WILL NOT BE INSURED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY.
DF
<PAGE>
[Fulton Savings letterhead]
_____, 1996
Dear Valued Customer:
Fulton Savings Bank, FSB ("Fulton Savings") is pleased to announce that we
have received regulatory approval to proceed with our plan to convert to a
federally-chartered stock savings bank, conditioned upon receipt of approval by
Fulton Savings' members, among other things. This stock Conversion is the most
significant event in the history of Fulton Savings in that it allows customers,
community members, directors and employees an opportunity to own stock in Fulton
Bancorp, Inc., the proposed holding company for Fulton Savings.
Since 1912, Fulton Savings has successfully operated as a mutual company.
We want to assure you that the Conversion will not affect the terms, balances,
interest rates or existing FDIC insurance coverage on deposits at Fulton
Savings, or the terms or conditions of any loans to existing borrowers under
their individual contract arrangements with Fulton Savings. Let us also assure
you that the stock Conversion will not result in any changes in the management,
personnel or the Board of Directors of Fulton Savings.
A special meeting of the members of Fulton Savings will be held on ______,
1996 at _:00 p.m., Central Time at Fulton Savings' main office at 410 Market
Street, Fulton, Missouri to consider and vote upon Fulton Savings' Plan of
Conversion. Enclosed is a proxy card. Your Board of Directors solicits your
vote "FOR" Fulton Savings' Plan of Conversion. A vote in favor of the Plan of
Conversion does not obligate you to purchase stock. If you do not plan to
attend the special meeting, please sign and return your proxy card promptly;
your vote is important to us.
As one of our valued members, you have the opportunity to invest in Fulton
Savings' future by purchasing stock in Fulton Bancorp, Inc. during the
Subscription Offering, without paying a sales commission.
If you decide to exercise your subscription rights to purchase shares, you
must return a properly completed stock order form together with full payment for
the subscribed shares so that it is received by Fulton Savings not later than
4:30 p.m., Central Time on ______, 1996.
We also have enclosed a Prospectus which fully describes Fulton Savings,
its management, board and financial condition. Please review it carefully
before you vote or invest. For your convenience we have established a Stock
Information Center. If you have any questions, please call the Stock
Information Center at (573) ________.
We look forward to continuing to provide quality financial services to you
in the future.
Sincerely,
Kermit D. Gohring
President and Chief Executive Officer
Enclosures
THIS DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER
TO BUY, SHARES OF FULTON BANCORP, INC. COMMON STOCK OFFERED IN THE CONVERSION,
NOR DOES IT CONSTITUTE THE SOLICITATION OF A PROXY IN CONNECTION WITH THE
CONVERSION. SUCH OFFERS AND SOLICITATIONS OF PROXIES ARE MADE ONLY BY MEANS OF
THE PROSPECTUS AND PROXY STATEMENT. THERE SHALL BE NO SALE OR STOCK IN ANY
STATE IN WHICH ANY OFFER, SOLICITATION OF AN OFFER OR SALE OF STOCK WOULD BE
UNLAWFUL.
THE STOCK WILL NOT BE INSURED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY.
DM
<PAGE>
EXHIBIT 99.3
APPRAISAL AGREEMENT WITH RP FINANCIAL, LC.
<PAGE>
[LETTERHEAD OF RP FINANCIAL APPEARS HERE]
December 26, 1995
Mr. Kermit D. Gohring
President and Chief Executive Officer
Fulton Savings Bank, FSB
410 Market Street
Fulton, Missouri 65251-1750
Dear Mr. Gohring:
This letter sets forth the agreement between Fulton Savings Bank, FSB
("Fulton" or the "Bank"), and RP Financial, LC. ("RP Financial") for certain
conversion appraisal services pertaining to the Bank's mutual-to-stock
conversion and simultaneous holding company formation. The specific appraisal
services to be rendered by RP Financial are described below. These appraisal
services will be rendered by a team of one to two senior consultants on staff
and will be directed by the undersigned.
Description of Conversion Appraisal Services
- --------------------------------------------
Prior to preparing the valuation report, RP Financial will conduct a
financial due diligence, including on-site interviews of senior management and
reviews of financial and other documents and records, to gain insight into the
Bank's operations, financial condition, profitability, market area, risks and
various internal and external factors which impact the pro forma value of the
Bank. RP Financial will prepare a written detailed valuation report of Fulton
which will be fully consistent with applicable regulatory guidelines and
standard pro forma valuation practices. The appraisal report will include an in-
depth analysis of the Bank's financial condition and operating results, as well
as an assessment of the Bank's interest rate risk, credit risk and liquidity
risk. The appraisal report will describe the Bank's business strategies, market
area, prospects for the future and the intended use of proceeds both in the
short term and over the longer term. A peer group analysis relative to publicly-
traded savings institutions will be conducted for the purpose of determining
appropriate valuation adjustments relative to the group. We will review
pertinent sections of the prospectus to obtain necessary data and information
for the appraisal, including the impact of key deal elements on the appraised
value, such as dividend policy, use of proceeds and reinvestment rate, tax rate,
conversion expenses and characteristics of stock plans. The appraisal report
will establish a midpoint pro forma value as well as the range of value. The
appraisal report may be periodically updated throughout the conversion process
and there will be at least one updated valuation prepared at the time of the
closing of the stock offering.
RP Financial agrees to deliver the valuation appraisal and subsequent
updates, in writing, to Fulton at the above address in conjunction with the
filing of the regulatory application. Subsequent updates will be filed promptly
as certain events occur which would warrant the preparation and filing of such
valuation updates. Further, RP Financial agrees to perform such other services
as are necessary or required in connection with the regulatory review of the
appraisal and respond to the regulatory comments, if any, regarding the
valuation appraisal and subsequent updates.
- --------------------------------------------------------------------------------
<PAGE>
RP Financial, LC.
Mr. Kermit D. Gohring
December 26, 1995
Page 2
Fee Structure and Payment Schedule
- ----------------------------------
Fulton agrees to pay RP Financial a fixed fee of $17,500 for these
services, plus reimbursable expenses. Payment of these fees shall be made
according to the following schedule:
o $5,000 upon execution of the letter of agreement engaging RP
Financial's appraisal services;
o $10,000 upon delivery of the completed original appraisal report; and
o $2,500 upon completion of the conversion to cover all subsequent
valuation updates that may be required.
The Bank will reimburse RP Financial for out-of-pocket expenses incurred in
preparation of the valuation. Such out-of-pocket expenses will likely include
travel, printing, telephone, facsimile, shipping, computer and data services. RP
Financial will agree to limit reimbursable expenses to a reasonable cap, subject
to written authorization from the Bank to exceed such level.
In the event Fulton shall, for any reason, discontinue the proposed
conversion prior to delivery of the completed documents set forth above and
payment of the respective progress payment fees, Fulton agrees to compensate RP
Financial according to RP Financial's standard billing rates for consulting
services based on accumulated and verifiable time expenses, not to exceed the
respective fee caps noted above, after giving full credit to the initial
retainer fee. RP Financial's standard billing rates range from $75 per hour for
research associates to $250 per hour for managing consultants.
If during the course of the proposed transaction, unforeseen events occur
so as to materially change the nature or the work content of the services
described in this contract, the terms of said contract shall be subject to
renegotiation by Fulton and RP Financial. Such unforeseen events shall include,
but not be limited to, major changes in the conversion regulations, appraisal
guidelines or processing procedures as they relate to conversion appraisals,
major changes in management or procedures, operating policies or philosophies,
and excessive delays or suspension of processing of conversion applications by
the regulators such that completion of the conversion transaction requires the
preparation by RP Financial of a new appraisal or financial projections.
Representations and Warranties
- -------------------------------
Fulton and RP Financial agree to the following:
1. The Bank agrees to make available or to supply to RP Financial such
information with respect to its business and financial condition as RP
Financial may reasonably request in order to provide the aforesaid valuation.
Such information heretofore or hereafter supplied or made available to RP
Financial shall include: annual financial statements, periodic regulatory
filings and material agreements, debt instruments, off balance sheet assets or
liabilities, commitments and contingencies, unrealized gains or losses and
corporate books and records. All information provided by the Bank to RP
Financial shall remain strictly confidential (unless such information is
otherwise made available to the public), and if conversion is not consummated or
the services of RP Financial are terminated hereunder, RP Financial shall upon
request promptly return to the Bank the original and any copies of such
information.
2. The Bank hereby represents and warrants to RP Financial that any
information provided to RP Financial does not and will not, to the best of the
Bank's knowledge, at the times it is provided to RP Financial,
<PAGE>
RP Financial, LC.
Mr. Kermit D. Gohring
December 26, 1995
Page 3
contain any untrue statement of a material fact or fail to state a material fact
necessary to make the statements therein not false or misleading in light of the
circumstances under which they were made.
3. (a) The Bank agrees that it will indemnify and hold harmless RP
Financial, any affiliates of RP Financial, the respective directors, officers,
agents and employees of RP Financial or their successors and assigns who act for
or on behalf of RP Financial in connection with the services called for under
this agreement (hereinafter referred to as "RP Financial"), from and against any
and all losses, claims, damages and liabilities (including, but not limited to,
all losses and expenses in connection with claims under the federal securities
laws) attributable to (i) any untrue statement or alleged untrue statement of a
material fact contained in the financial statements or other information
furnished or otherwise provided by the Bank to RP Financial, either orally or in
writing; (ii) the omission or alleged omission of a material fact from the
financial statements or other information furnished or otherwise made available
by the Bank to RP Financial; or (iii) any action or omission to act by the Bank,
or the Bank's respective officers, directors, employees or agents which action
or omission is willful or negligent. The Bank will be under no obligation to
indemnify RP Financial hereunder if a court determines that RP Financial was
negligent or acted in bad faith with respect to any actions or omissions of RP
Financial related to a matter for which indemnification is sought hereunder. Any
time devoted by employees of RP Financial to situations for which
indemnification is provided hereunder, shall be an indemnifiable cost payable by
the Bank at the normal hourly professional rate chargeable by such employee.
(b) RP Financial shall give written notice to the Bank of such claim
or facts within thirty days of the assertion of any claim or discovery of
material facts upon which the RP Financial intends to base a claim for
indemnification hereunder. In the event the Bank elects, within seven days of
the receipt of the original notice thereof, to contest such claim by written
notice to RP Financial, RP Financial will be entitled to be paid any amounts
payable by the Bank hereunder, together with interest on such costs from the
date incurred at the annual rate of prime plus two percent within five days
after the final determination of such contest either by written acknowledgement
of the Bank or a final judgment of a court of competent jurisdiction. If the
Bank does not so elect, RP Financial shall be paid promptly and in any event
within thirty days after receipt by the Bank of the notice of the claim.
(c) The Bank shall pay for or reimburse the reasonable expenses,
including attorneys' fees, incurred by RP Financial in advance of the final
disposition of any proceeding within thirty days of the receipt of such request
if RP Financial furnishes the Bank: (1) a written statement of RP Financial's
good faith belief that it is entitled to indemnification hereunder; and (2) a
written undertaking to repay the advance if it ultimately is determined in a
final adjudication of such proceeding that it or he is not entitled to such
indemnification.
(d) In the event the Bank does not pay any indemnified loss or make
advance reimbursements of expenses in accordance with the terms of this
agreement, RP Financial shall have all remedies available at law or in equity to
enforce such obligation.
It is understood that, in connection with RP Financial's above-mentioned
engagement, RP Financial may also be engaged to act for the Bank in one or more
additional capacities, and that the terms of the original engagement may be
embodied in one or more separate agreements. The provisions of Paragraph 3
herein shall apply to the original engagement, any such additional engagement,
any modification of the original engagement or such additional engagement and
shall remain in full force and effect following the completion or termination of
RP Financial's engagement(s). This agreement constitutes the entire
understanding of the Bank and RP Financial concerning the subject matter
addressed herein, and such contract shall be governed and construed in
accordance with the laws of the Commonwealth of Virginia. This agreement may not
be modified, supplemented or amended except by written agreement executed by
both parties.
<PAGE>
RP Financial, LC.
Mr. Kermit D. Gohring
December 26, 1995
Page 4
Fulton and RP Financial are not affiliated, and neither Fulton nor RP
Financial has an economic interest in, or is held in common with, the other and
has not derived a significant portion of its gross revenues, receipts or net
income for any period from transactions with the other.
* * * * * * * * * * *
Please acknowledge your agreement to the foregoing by signing as indicated
below and returning to RP Financial a signed copy of this letter, together with
the initial retainer fee of $5,000.
Sincerely,
/s/ Ronald S. Riggins
Ronald S. Riggins
President and Managing Consultant
Agreed To and Accepted By: Kermit D. Gohring /s/ Kermit D. Gohring
-----------------------
President and Chief Executive Officer
Upon Authorization by the Board of Directors For: Fulton Savings Bank, FSB
Fulton, Missouri
Date Executed: 1/10/96
-------------------------
<PAGE>
Exhibit 99.5
FULTON SAVINGS BANK, FSB
410 MARKET STREET
FULTON, MISSOURI 65251
(573) 642-6618
NOTICE OF SPECIAL MEETING OF MEMBERS
TO BE HELD ON ______ __, 1996
Notice is hereby given that a special meeting ("Special Meeting") of
members of Fulton Savings Bank, FSB ("Savings Bank") will be held at the Savings
Bank's main office at 410 Market Street, Fulton, Missouri, on _________, ______
__, 1996, at __:00 p.m., Central Time. Business to be taken up at the Special
Meeting shall be:
(1) To approve a Plan of Conversion adopted by the Board of Directors on
January 9, 1996 to convert the Savings Bank from a federally chartered mutual
savings bank to a federally chartered capital stock savings bank, to be held as
a wholly-owned subsidiary of a new holding company, Fulton Bancorp, Inc.,
including the adoption of a Federal Stock Charter and Bylaws for the Savings
Bank, pursuant to the laws of the United States and the rules and regulations of
the Office of Thrift Supervision; and
(2) To consider and vote upon any other matters that may lawfully come
before the Special Meeting.
Note: As of the date of mailing of this Notice, the Board of Directors is
not aware of any other matters that may come before the Special Meeting.
The members entitled to vote at the Special Meeting shall be those members
of the Savings Bank at the close of business on ________ __, 1996 and who
continue as members until the Special Meeting, and should the Special Meeting
be, from time to time, adjourned to a later time, until the final adjournment
thereof.
BY ORDER OF THE BOARD OF DIRECTORS
BONNIE K. SMITH
SECRETARY
Fulton, Missouri
______ __, 1996
PLEASE SIGN AND RETURN PROMPTLY EACH PROXY CARD YOU RECEIVE IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. THIS WILL ASSURE NECESSARY REPRESENTATION AT THE SPECIAL
MEETING, BUT WILL NOT PREVENT YOU FROM VOTING IN PERSON IF YOU SO DESIRE. THE
PROXY IS SOLICITED ONLY FOR THIS SPECIAL MEETING (AND ANY ADJOURNMENTS THEREOF)
AND WILL NOT BE USED FOR ANY OTHER MEETING. YOU MAY REVOKE YOUR WRITTEN PROXY
BY WRITTEN INSTRUMENT DELIVERED TO BONNIE K. SMITH, SECRETARY, FULTON SAVINGS
BANK, FSB, AT THE ABOVE ADDRESS AT ANY TIME PRIOR TO OR AT THE SPECIAL MEETING.
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FULTON SAVINGS BANK, FSB
410 MARKET STREET
FULTON, MISSOURI 65251
(573) 642-6618
PROXY STATEMENT
_______, 1996
YOUR PROXY, IN THE FORM ENCLOSED, IS SOLICITED BY THE BOARD OF DIRECTORS OF
FULTON SAVINGS BANK, FSB FOR USE AT A SPECIAL MEETING OF MEMBERS TO BE HELD ON
____________, ______ __, 1996, AND ANY ADJOURNMENT OF THAT MEETING, FOR THE
PURPOSES SET FORTH IN THE FOREGOING NOTICE OF SPECIAL MEETING. YOUR BOARD OF
DIRECTORS AND MANAGEMENT URGE YOU TO VOTE FOR THE PLAN OF CONVERSION.
PURPOSE OF MEETING -- SUMMARY
A special meeting of members ("Special Meeting") of Fulton Savings Bank,
FSB ("Savings Bank") will be held at the Savings Bank's main office at 410
Market Street, Fulton, Missouri, on _________, ______ __, 1996, at __:00 p.m.,
Central Time, for the purpose of considering and voting upon a Plan of
Conversion from Federal Mutual Savings Bank to Federal Stock Savings Bank and
Formation of a Holding Company ("Plan of Conversion"), which, if approved by a
majority of the total votes of the members eligible to be cast, will permit the
Savings Bank to convert from a federally chartered mutual savings bank to a
federally chartered capital stock savings bank, to be held as a subsidiary of
Fulton Bancorp, Inc. ("Holding Company"), a newly organized Delaware corporation
formed by the Savings Bank. The conversion of the Savings Bank and the
acquisition of control of the Savings Bank by the Holding Company are
collectively referred to herein as the "Conversion."
Members entitled to vote on the Plan of Conversion are members of the
Savings Bank as of ______ __, 1996, ("Voting Record Date") who continue as
members until the Special Meeting, and should the Special Meeting be, from time
to time, adjourned to a later time, until the final adjournment thereof. The
Conversion requires the approval of not less than a majority of the total votes
eligible to be cast at the Special Meeting.
The Plan of Conversion provides in part that, after receiving final
authorization from the Office of Thrift Supervision ("OTS"), the Savings Bank
will offer for sale shares of common stock of the Holding Company ("Common
Stock"), through the issuance of nontransferable subscription rights
("Subscription Rights"), first to depositors of the Savings Bank with $50.00 or
more on deposit as of December 31, 1994 ("Eligible Account Holders"), then to
the Savings Bank's employee stock ownership plan ("ESOP"), then to depositors of
the Savings Bank with $50.00 or more on deposit as of June 30, 1996
("Supplemental Eligible Account Holders"), then to depositors of the Savings
Bank as of the Voting Record Date and borrowers with loans outstanding as of
April 15, 1995, which continue to be outstanding as of the Voting Record Date
("Other Members"), in a subscription offering ("Subscription Offering"), and
then, if necessary, to certain members of the general public in a direct
community offering ("Direct Community Offering"). The Subscription and Direct
Community Offerings are referred to herein as the "Subscription and Direct
Community Offerings." It is anticipated that shares of Common Stock not
subscribed for in the Subscription and Direct Community Offerings will be
offered to the general public with the assistance of Trident Securities, Inc.
("Trident Securities") and, if necessary, a syndicate of registered broker-
dealers to be managed by Trident Securities pursuant to selected dealers'
agreements in a syndicated offering ("Syndicated Offering"). The Subscription,
Direct Community and Syndicated Offerings are referred to herein as the
"Offerings."
Adoption of a Federal Stock Charter ("Federal Stock Charter") and Bylaws
("Bylaws") of the Savings Bank is an integral part of the Plan of Conversion.
Copies of the Plan of Conversion and the proposed Federal Stock Charter and
Bylaws for the Savings Bank are attached to this Proxy Statement as exhibits.
They provide, among
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other things, for the termination of voting rights of members and of their
rights to receive any surplus remaining after liquidation of the Savings Bank.
These rights, except for the rights of Eligible Account Holders and Supplemental
Eligible Account Holders in the liquidation account, will vest exclusively in
the holders of the stock in the Holding Company and the Savings Bank. For
further information, see "THE CONVERSION -- Effects of Conversion to Stock Form
on Depositors and Borrowers of the Savings Bank."
FULTON SAVINGS BANK, FSB
The Savings Bank, founded in 1912, is a federally chartered mutual savings
bank located in Fulton, Missouri. The Savings Bank amended its charter from
that of a state-chartered mutual savings bank to become a federal mutual savings
bank in April 1995. In connection with the Conversion, the Savings Bank will
convert to a federally chartered capital stock savings bank and will become a
subsidiary of the Holding Company. The Savings Bank is regulated by the OTS,
its primary federal regulator, and the FDIC, the insurer of its deposits. The
Savings Bank's deposits are insured by the FDIC's Savings Association Insurance
Fund ("SAIF") and have been federally insured since 1965. The Savings Bank has
been a member of the Federal Home Loan Bank ("FHLB") System since 1942. At
April 30, 1996, the Savings Bank had total assets of $85.5 million, total
deposits of $70.3 million and retained earnings of $9.1 million on a
consolidated basis.
The Savings Bank is a community oriented financial institution that engages
primarily in the business of attracting deposits from the general public and
using those funds to originate residential and commercial mortgage loans within
the Savings Bank's market area. The Savings Bank generally sells all of the
fixed-rate and some of the adjustable-rate residential mortgage loans that it
originates while retaining the servicing rights on such loans. At April 30,
1996, one- to four-family residential mortgage loans totalled $46.7 million, or
59.6% of the Savings Bank's total gross loans. The Savings Bank also originates
multi-family, commercial real estate, construction, land and consumer and other
loans. The Savings Bank frequently sells participation interests in the non-
residential mortgage loans it originates. At April 30, 1996, multi-family and
commercial real estate loans accounted for 16.0% of the Savings Bank's total
gross loans, construction loans accounted for 9.8% of total gross loans and
consumer and other loans accounted for 12.7% of total gross loans. The Savings
Bank has a branch office located in Holts Summit, Missouri.
VOTING RIGHTS AND VOTE REQUIRED FOR APPROVAL
The Board of Directors of the Savings Bank has fixed the close of business
on _______ __, 1996 as the record date for the determination of members entitled
to notice of and to vote at the Special Meeting. All holders of the Savings
Bank's savings or other authorized accounts are members of the Savings Bank
under its current charter. All members of record as of the close of business on
the Voting Record Date who continue to be members on the date of the Special
Meeting or any adjournment thereof will be entitled to vote at the Special
Meeting or such adjournment.
Each eligible depositor member will be entitled at the Special Meeting to
cast one vote for each $100, or fraction thereof, of the aggregate withdrawal
value of all of the depositor's savings accounts in the Savings Bank as of the
Voting Record Date. Borrowers with loans outstanding as of April 15, 1995 which
continue to be outstanding as of the Voting Record Date will be entitled to cast
one vote for the period of time such borrowings remain in existence. No member
is entitled to cast more than 1,000 votes. Any number of members present and
voting, represented in person or by proxy, at the Special Meeting will
constitute a quorum.
Approval of the Plan of Conversion will require the affirmative vote of a
majority of the total outstanding votes of the Savings Bank's members eligible
to be cast at the Special Meeting. As of the Voting Record Date for the Special
Meeting, there were approximately ___________votes eligible to be cast, of which
__________ votes may be cast by depositor members and __________ votes may be
cast by borrower members.
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PROXIES
Members may vote at the Special Meeting or any adjournment thereof in
person or by proxy. Enclosed is a proxy which may be used by any eligible
member to vote on the Plan of Conversion. All properly executed proxies
received by management will be voted in accordance with the instructions
indicated thereon by the members giving such proxies. If no instructions are
given, such proxies will be voted in favor of the Plan of Conversion. If any
other matters are properly presented at the Special Meeting and may properly be
voted on, all proxies will be voted on such matters in accordance with the best
judgment of the proxy holders named therein. If the enclosed proxy is returned,
it may be revoked at any time before it is voted by written notice to the
Secretary of the Savings Bank, by submitting a later dated proxy, or by
attending and voting in person at the Special Meeting. The proxies being
solicited are only for use at the Special Meeting and at any and all
adjournments thereof and will not be used for any other meeting. Management is
not aware of any other business to be presented at the Special Meeting.
The Savings Bank, as trustee for individual retirement accounts at the
Savings Bank, will vote in favor of the Plan of Conversion, unless the
beneficial owner executes and returns the enclosed proxy for the Special Meeting
or attends the Special Meeting and votes in person.
To the extent necessary to permit approval of the Plan of Conversion,
proxies may be solicited by representatives of Trident Securities and by
officers, directors or regular employees of the Savings Bank, in person, by
telephone or through other forms of communication and, if necessary, the Special
Meeting may be adjourned to an alternative date. Such persons will be
reimbursed by the Savings Bank for their reasonable out-of-pocket expenses
incurred in connection with such solicitation.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF THE SAVINGS BANK UNANIMOUSLY RECOMMENDS THAT YOU
VOTE "FOR" THE PLAN OF CONVERSION. VOTING IN FAVOR OF THE PLAN OF CONVERSION
WILL NOT OBLIGATE ANY VOTER TO PURCHASE ANY STOCK.
THE CONVERSION
THE OTS HAS GIVEN APPROVAL TO THE PLAN SUBJECT TO THE PLAN'S APPROVAL BY
THE MEMBERS OF THE SAVINGS BANK ENTITLED TO VOTE ON THE MATTER AND SUBJECT TO
THE SATISFACTION OF CERTAIN OTHER CONDITIONS IMPOSED BY THE OTS IN ITS APPROVAL.
OTS APPROVAL, HOWEVER, DOES NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF
THE PLAN.
GENERAL
On January 9, 1996, the Board of Directors of the Savings Bank unanimously
adopted the Plan of Conversion, pursuant to which the Savings Bank will be
converted from a federally chartered mutual savings bank to a federally
chartered stock savings bank to be held as a wholly-owned subsidiary of the
Holding Company, a newly formed Delaware corporation. THE FOLLOWING DISCUSSION
OF THE PLAN OF CONVERSION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE PLAN
OF CONVERSION, WHICH IS ATTACHED HERETO AS EXHIBIT A. The OTS has approved the
Plan of Conversion subject to the Plan's approval by the members of the Savings
Bank entitled to vote on the matter at a Special Meeting called for that purpose
to be held on ______ __, 1996, and subject to the satisfaction of certain other
conditions imposed by the OTS in its approval.
If the Board of Directors of the Savings Bank decides for any reason, such
as possible delays resulting from overlapping regulatory processing or policies
or conditions that could adversely affect the Savings Bank's or the Holding
Company's ability to consummate the Conversion and transact its business as
contemplated herein and in accordance with the Savings Bank's operating
policies, at any time prior to the issuance of the Common Stock, not
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to use the holding company form of organization in implementing the Conversion,
the Plan of Conversion will be amended to not use the holding company form of
organization in the Conversion. In the event that such a decision is made, the
Savings Bank will promptly refund all subscriptions or orders received together
with accrued interest, withdraw the Holding Company's registration statement
from the SEC and will take all steps necessary to complete the Conversion and
proceed with a new offering without the Holding Company, including filing any
necessary documents with the OTS. In such event, and provided there is no
regulatory action, directive or other consideration upon which basis the Savings
Bank determines not to complete the Conversion, the Savings Bank will issue and
sell the common stock of the Savings Bank. There can be no assurance that the
OTS would approve the Conversion if the Savings Bank decided to proceed without
the Holding Company. The following description of the Plan assumes that a
holding company form of organization will be utilized in the Conversion. In the
event that a holding company form of organization is not utilized, all other
pertinent terms of the Plan as described below will apply to the Conversion of
the Savings Bank from mutual to stock form of organization and the sale of the
Savings Bank's common stock.
The Conversion will be accomplished through adoption of a Federal Stock
Charter and Bylaws to authorize the issuance of capital stock by the Savings
Bank. Under the Plan, 1,105,000 to 1,495,000 shares of Common Stock are being
offered for sale by the Holding Company at the purchase price of $10.00 per
share. As part of the Conversion, the Savings Bank will issue all of its newly
issued common stock (1,000 shares) to the Holding Company in exchange for 50% of
the net proceeds from the sale of Common Stock by the Holding Company.
The Plan of Conversion provides generally that: (i) the Savings Bank will
convert from a federally chartered mutual savings bank to a federally chartered
stock savings bank; (ii) the Common Stock will be offered by the Holding Company
in the Subscription Offering to persons having Subscription Rights; (iii) if
necessary, shares of Common Stock not subscribed for in the Subscription
Offering will be offered in a Direct Community Offering to certain members of
the general public, with preference given to natural persons and trusts of
natural persons residing in the Local Community, and then to certain members of
the general public in a Syndicated Community Offering through a syndicate of
registered broker-dealers pursuant to selected dealers agreements; and (iv) the
Holding Company will purchase all of the capital stock of the Savings Bank to be
issued in connection with the Conversion. The Conversion will be effected only
upon completion of the sale of at least 1,105,000 of Common Stock to be issued
pursuant to the Plan of Conversion.
As part of the Conversion, the Holding Company is making a Subscription
Offering of its Common Stock to holders of Subscription Rights in the following
order of priority: (i) Eligible Account Holders (depositors with $50.00 or more
on deposit as of December 31, 1994); (ii) the Savings Bank's ESOP; (iii)
Supplemental Eligible Account Holders (depositors with $50.00 or more on deposit
as of June 30, 1996); and (iv) Other Members (depositors of the Savings Bank as
of ______ __, 1996 and borrowers of the Savings Bank with loans outstanding as
of April 15, 1995 which continue to be outstanding as of _____ __, 1996).
Shares of Common Stock not subscribed for in the Subscription Offering may
be offered for sale in the Direct Community Offering to members of the general
public, with priority being given to natural persons and trusts of natural
persons residing in the Local Community. The Direct Community Offering, if one
is held, is expected to begin immediately after the Expiration Date, but may
begin at anytime during the Subscription Offering. Shares of Common Stock not
sold in the Subscription and Direct Community Offerings may be offered in the
Syndicated Community Offering. Regulations require that the Direct Community
and Syndicated Community Offerings be completed within 45 days after completion
of the Subscription Offering unless extended by the Savings Bank or the Holding
Company with the approval of the regulatory authorities. If the Syndicated
Community Offering is determined not to be feasible, the Board of Directors of
the Savings Bank will consult with the regulatory authorities to determine an
appropriate alternative method for selling the unsubscribed shares of Common
Stock. The Plan of Conversion provides that the Conversion must be completed
within 24 months after the date of the approval of the Plan of Conversion by the
members of the Savings Bank.
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No sales of Common Stock may be completed, either in the Subscription,
Direct Community or Syndicated Community Offerings, unless the Plan of
Conversion is approved by the members of the Savings Bank.
The completion of the Offerings, however, is subject to market conditions
and other factors beyond the Savings Bank's control. No assurance can be given
as to the length of time after approval of the Plan of Conversion at the Special
Meeting that will be required to complete the Direct Community or Syndicated
Community Offerings or other sale of the Common Stock. If delays are
experienced, significant changes may occur in the estimated pro forma market
value of the Holding Company and the Savings Bank as converted, together with
corresponding changes in the net proceeds realized by the Holding Company from
the sale of the Common Stock. In the event the Conversion is terminated, the
Savings Bank would be required to charge all Conversion expenses against current
income.
Orders for shares of Common Stock will not be filled until at least
1,105,000 shares of Common Stock have been subscribed for or sold and the OTS
approves the final valuation and the Conversion closes. If the Conversion is
not completed within 45 days after the last day of the fully extended
Subscription Offering and the OTS consents to an extension of time to complete
the Conversion, subscribers will be given the right to increase, decrease or
rescind their subscriptions. Unless an affirmative indication is received from
subscribers that they wish to continue to subscribe for shares, the funds will
be returned promptly, together with accrued interest at the Savings Bank's
passbook rate from the date payment is received until the funds are returned to
the subscriber. If such period is not extended, or, in any event, if the
Conversion is not completed, all withdrawal authorizations will be terminated
and all funds held will be promptly returned together with accrued interest at
the Savings Bank's passbook rate from the date payment is received until the
Conversion is terminated.
PURPOSES OF CONVERSION
The Savings Bank's Board of Directors has formed the Holding Company to
serve upon consummation of the Conversion as a holding company with the Savings
Bank as its subsidiary. The Savings Bank, as a mutual savings association, does
not have stockholders and has no authority to issue capital stock. By
converting to the stock form of organization, the Holding Company and the
Savings Bank will be structured in the form used by holding companies of
commercial banks and by a growing number of savings institutions. Management of
the Savings Bank believes that the Conversion offers a number of advantages
which will be important to the future growth and performance of the Savings Bank
in that it is intended: (i) to improve the overall competitive position of the
Savings Bank in its market area and to support possible future expansion and
diversification of operations (currently there are no specific plans,
arrangements or understandings, written or oral, regarding any such activities);
(ii) to afford members of the Savings Bank and others the opportunity to become
stockholders of the Holding Company and thereby participate more directly in,
and contribute to, any future growth of the Holding Company and the Savings
Bank; and (iii) to provide future access to capital markets.
EFFECTS OF CONVERSION TO STOCK FORM ON DEPOSITORS AND BORROWERS OF THE SAVINGS
BANK
VOTING RIGHTS. Savings members and borrowers will have no voting rights in
the converted Savings Bank or the Holding Company and therefore will not be able
to elect directors of the Savings Bank or the Holding Company or to control
their affairs. Currently, these rights are accorded to savings members of the
Savings Bank. Subsequent to the Conversion, voting rights will be vested
exclusively in the Holding Company with respect to the Savings Bank and the
holders of the Common Stock as to matters pertaining to the Holding Company.
Each holder of Common Stock shall be entitled to vote on any matter to be
considered by the stockholders of the Holding Company. A stockholder will be
entitled to one vote for each share of Common Stock owned.
SAVINGS ACCOUNTS AND LOANS. The Savings Bank's savings accounts, account
balances and existing FDIC insurance coverage of savings accounts will not be
affected by the Conversion. Furthermore, the Conversion will not affect the
loan accounts, loan balances or obligations of borrowers under their individual
contractual arrangements with the Savings Bank.
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TAX EFFECTS. The Savings Bank has received an opinion from Breyer &
Aguggia, Washington, D.C., that the Conversion will constitute a nontaxable
reorganization under Section 368(a)(1)(F) of the Code. Among other things, the
opinion states that: (i) no gain or loss will be recognized to the Savings Bank
in its mutual or stock form by reason of its Conversion; (ii) no gain or loss
will be recognized to its account holders upon the issuance to them of accounts
in the Savings Bank immediately after the Conversion, in the same dollar amounts
and on the same terms and conditions as their accounts at the Savings Bank in
its mutual form plus interest in the liquidation account; (iii) the tax basis of
account holders' accounts in the Savings Bank immediately after the Conversion
will be the same as the tax basis of their accounts immediately prior to
Conversion; (iv) the tax basis of each account holder's interest in the
liquidation account will be zero; (v) the tax basis of the Common Stock
purchased in the Conversion will be the amount paid and the holding period for
such stock will commence at the date of purchase; and (vi) no gain or loss will
be recognized to account holders upon the receipt or exercise of Subscription
Rights in the Conversion, except to the extent Subscription Rights are deemed to
have value as discussed below. Unlike a private letter ruling issued by the
IRS, an opinion of counsel is not binding on the IRS and the IRS could disagree
with the conclusions reached therein. In the event of such disagreement, no
assurance can be given that the conclusions reached in an opinion of counsel
would be sustained by a court if contested by the IRS.
Based upon past rulings issued by the IRS, the opinion provides that the
receipt of Subscription Rights by Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members under the Plan will be taxable to the
extent, if any, that the Subscription Rights are deemed to have a fair market
value. RP Financial, LC., a financial consulting firm retained by the Savings
Bank, whose findings are not binding on the IRS, has indicated that the
Subscription Rights do not have any value, based on the fact that such rights
are acquired by the recipients without cost, are nontransferable and of short
duration and afford the recipients the right only to purchase shares of the
Common Stock at a price equal to its estimated fair market value, which will be
the same price paid by purchasers in the Direct Community Offering for
unsubscribed shares of Common Stock. If the Subscription Rights are deemed to
have a fair market value, the receipt of such rights may only be taxable to
those Eligible Account Holders, Supplemental Eligible Account Holders and Other
Members who exercise their Subscription Rights. The Savings Bank could also
recognize a gain on the distribution of such Subscription Rights. Eligible
Account Holders, Supplemental Eligible Account Holders and Other Members are
encouraged to consult with their own tax advisors as to the tax consequences in
the event the Subscription Rights are deemed to have a fair market value.
The Savings Bank has also received an opinion from Moore, Horton & Carlson,
P.C., Mexico, Missouri, that, assuming the Conversion does not result in any
federal income tax liability to the Savings Bank, its account holders, or the
Holding Company, implementation of the Plan of Conversion will not result in any
Missouri income tax liability to such entities or persons.
The opinions of Breyer & Aguggia and Moore, Horton & Carlson, P.C., and the
letter from RP Financial, LC. are filed as exhibits to the Registration
Statement. See "ADDITIONAL INFORMATION."
PROSPECTIVE INVESTORS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS
REGARDING THE TAX CONSEQUENCES OF THE CONVERSION PARTICULAR TO THEM.
LIQUIDATION ACCOUNT. In the unlikely event of a complete liquidation of
the Savings Bank in its present mutual form, each depositor in the Savings Bank
would receive a pro rata share of any assets of the Savings Bank remaining after
payment of claims of all creditors (including the claims of all depositors up to
the withdrawal value of their accounts). Each depositor's pro rata share of
such remaining assets would be in the same proportion as the value of his
deposit account to the total value of all deposit accounts in the Savings Bank
at the time of liquidation.
After the Conversion, holders of withdrawable deposit(s) in the Savings
Bank, including certificates of deposit ("Savings Account(s)"), shall not be
entitled to share in any residual assets in the event of liquidation of the
Savings Bank. However, pursuant to OTS regulations, the Savings Bank shall, at
the time of the Conversion, establish a liquidation account in an amount equal
to its total equity as of the date of the latest statement of financial
condition contained herein.
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The liquidation account shall be maintained by the Savings Bank subsequent
to the Conversion for the benefit of Eligible Account Holders and Supplemental
Eligible Account Holders who retain their Savings Accounts in the Savings Bank.
Each Eligible Account Holder and Supplemental Eligible Account Holder shall,
with respect to each Savings Account held, have a related inchoate interest in a
portion of the liquidation account balance ("subaccount").
The initial subaccount balance for a Savings Account held by an Eligible
Account Holder or a Supplemental Eligible Account Holder shall be determined by
multiplying the opening balance in the liquidation account by a fraction of
which the numerator is the amount of such holder's "qualifying deposit" in the
Savings Account and the denominator is the total amount of the "qualifying
deposits" of all such holders. Such initial subaccount balance shall not be
increased, and it shall be subject to downward adjustment as provided below.
If the deposit balance in any Savings Account of an Eligible Account Holder
or Supplemental Eligible Account Holder at the close of business on any annual
closing day of the Savings Bank subsequent to September 30, 1994 is less than
the lesser of (i) the deposit balance in such Savings Account at the close of
business on any other annual closing date subsequent to December 31, 1994 or
June 30, 1996 or (ii) the amount of the "qualifying deposit" in such Savings
Account on December 31, 1994 or June 30, 1996, then the subaccount balance for
such Savings Account shall be adjusted by reducing such subaccount balance in an
amount proportionate to the reduction in such deposit balance. In the event of
a downward adjustment, such subaccount balance shall not be subsequently
increased, notwithstanding any increase in the deposit balance of the related
Savings Account. If any such Savings Account is closed, the related subaccount
balance shall be reduced to zero.
In the event of a complete liquidation of the Savings Bank (and only in
such event) each Eligible Account Holder and Supplemental Eligible Account
Holder shall be entitled to receive a liquidation distribution from the
liquidation account in the amount of the then current adjusted subaccount
balance(s) for Savings Account(s) then held by such holder before any
liquidation distribution may be made to stockholders. No merger, consolidation,
bulk purchase of assets with assumptions of Savings Accounts and other
liabilities or similar transactions with another federally insured institution
in which the Savings Bank is not the surviving institution shall be considered
to be a complete liquidation. In any such transaction the liquidation account
shall be assumed by the surviving institution.
REVIEW OF OTS ACTION
Any person aggrieved by a final action of the OTS which approves, with or
without conditions, or disapproves a plan of conversion pursuant to this part
may obtain review of such action by filing in the court of appeals of the United
States for the circuit in which the principal office or residence of such person
is located, or in the United States Court of Appeals for the District of
Columbia, a written petition praying that the final action of the OTS be
modified, terminated or set aside. Such petition must be filed within 30 days
after the publication of notice of such final action in the Federal Register, or
30 days after the mailing by the applicant of the notice to members as provided
for in 12 C.F.R. (S)563b.6(c), whichever is later. The further procedure for
review is as follows: A copy of the petition is forthwith transmitted to the
OTS by the clerk of the court and thereupon the OTS files in the court the
record in the proceeding, as provided in Section 2112 of Title 28 of the United
States Code. Upon the filing of the petition, the court has jurisdiction, which
upon the filing of the record is exclusive, to affirm, modify, terminate, or set
aside in whole or in part, the final action of the OTS. Review of such
proceedings is as provided in Chapter 7 of Title 5 of the United States Code.
The judgment and decree of the court is final, except that they are subject to
review by the United States Supreme Court upon certiorari as provided in Section
1254 of Title 28 of the United States Code.
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ADDITIONAL INFORMATION
The Holding Company has filed with the Securities and Exchange Commission
("SEC") a Registration Statement on Form S-1 (File No. 333-____) under the
Securities Act of 1933, as amended, with respect to the Common Stock offered in
the Conversion. The accompanying Prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the SEC. Such
information may be inspected at the public reference facilities maintained by
the SEC at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549; 500 West
Madison Street, Suite 1400, Room 1100, Chicago, Illinois 60661; and 75 Park
Place, New York, New York 10007. Copies may be obtained at prescribed rates
from the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549.
The Savings Bank has filed with the OTS an Application for Approval of
Conversion, which includes proxy materials for the Savings Bank's Special
Meeting and certain other information. The accompanying Prospectus omits
certain information contained in such Application. The Application, including
the proxy materials, exhibits and certain other information that are a part
thereof, may be inspected, without charge, at the offices of the OTS, 1700 G
Street, N.W., Washington, D.C. 20552 and at the office of the Regional Director
of the OTS at the Midwest Regional Office of the OTS, 122 W. John Carpenter
Freeway, Suite 600, Irving, Texas 75039.
Copies of the Holding Company's Certificate of Incorporation and Bylaws may
be obtained by written request to the Savings Bank.
All persons eligible to vote at the Special Meeting should review both this
Proxy Statement and the accompanying Prospectus carefully. However, no person
is obligated to purchase any Common Stock. For additional information, you may
call the Stock Information Center at (573) __________.
BY ORDER OF THE BOARD OF DIRECTORS
BONNIE K. SMITH
SECRETARY
Fulton, Missouri
__________, 1996
YOUR BOARD OF DIRECTORS URGES YOU TO CONSIDER CAREFULLY THE INFORMATION
CONTAINED IN THIS PROXY STATEMENT AND, WHETHER OR NOT YOU PLAN TO BE PRESENT IN
PERSON AT THE SPECIAL MEETING, TO FILL IN, DATE, SIGN AND RETURN THE ENCLOSED
PROXY CARD(S) AS SOON AS POSSIBLE TO ASSURE THAT YOUR VOTES WILL BE COUNTED.
THIS WILL NOT PREVENT YOU FROM VOTING IN PERSON IF YOU ATTEND THE SPECIAL
MEETING. YOU MAY REVOKE YOUR PROXY BY WRITTEN INSTRUMENT DELIVERED TO THE
SECRETARY OF THE SAVINGS BANK AT ANY TIME PRIOR TO OR AT THE SPECIAL MEETING OR
BY ATTENDING THE SPECIAL MEETING AND VOTING IN PERSON.
------------------------
THIS PROXY STATEMENT IS NOT AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY STOCK. THE OFFER WILL BE MADE ONLY BY THE PROSPECTUS IN THOSE
JURISDICTIONS IN WHICH IT IS LAWFUL TO MAKE SUCH OFFER.
8
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EXHIBIT A
FULTON SAVINGS BANK, FSB
FULTON, MISSOURI
PLAN OF CONVERSION
FROM FEDERAL MUTUAL SAVINGS BANK
TO FEDERAL STOCK SAVINGS BANK
AND FORMATION OF A HOLDING COMPANY
INTRODUCTION
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I. General
It is the desire of the Board of Directors to attract new capital to the
Savings Bank to increase its net worth, to support future savings growth, to
increase the amount of funds available for other lending and investment, to
provide greater resources for the expansion of customer services and to
facilitate future expansion by the Savings Bank. In addition, the Board of
Directors intends to implement stock option plans and other stock benefit plans
as part of the Conversion in order to attract and retain qualified directors and
officers. It is the further desire of the Board of Directors to reorganize the
Savings Bank as the wholly owned subsidiary of a holding company to enhance
flexibility of operations, diversification of business opportunities and
financial capability for business and regulatory purposes and to enable the
Savings Bank to compete more effectively with other financial service
organizations. Accordingly, on January 9, 1996, the Board of Directors of
Fulton Savings Bank, FSB ("Savings Bank"), after careful study and
consideration, adopted by unanimous vote this Plan of Conversion ("Plan"), which
provides for the conversion of the Savings Bank from a federally chartered
mutual savings bank to a federally chartered stock savings bank and the
concurrent formation of a holding company for the Savings Bank ("Holding
Company").
All capitalized terms contained in the Plan shall have the meanings
ascribed to them in Section II hereof.
Pursuant to the Plan, shares of Conversion Stock will be offered as part of
the Conversion in a Subscription Offering pursuant to nontransferable
Subscription Rights at a predetermined and uniform price first to the Savings
Bank's Eligible Account Holders, second to the Tax-Qualified Employee Stock
Benefit Plans, third to Supplemental Eligible Account Holders, and fourth to
Other Members of the Savings Bank. Concurrently with the Subscription Offering,
shares not subscribed for in the Subscription Offering will be offered as part
of the Conversion to the general public in a Direct Community Offering. Shares
remaining may then be offered to the general public in a Syndicated Community
Offering, an underwritten public offering or otherwise. The aggregate Purchase
Price of the Conversion Stock will be based upon an independent appraisal of the
Savings Bank and will reflect the estimated pro forma market value of the
Savings Bank as a subsidiary of the Holding Company.
The Conversion is subject to regulations of the Director of the OTS (Part
563b of the Rules and Regulations Applicable to All Savings Associations) as
promulgated pursuant to Section 5(i) of the Home Owners' Loan Act.
Consummation of the Conversion is subject to the approval of this Plan and
the Conversion by the OTS and by the affirmative vote of Members of the Savings
Bank holding not less than a majority of the total votes eligible to be cast at
a special meeting of the Members to be called to consider the Conversion.
No change will be made in the Board of Directors or management of the
Savings Bank as a result of the Conversion.
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II. Definitions
As used in this Plan, the terms set forth below have the following
meanings:
A. Acting in Concert: (i) Knowing participation in a joint activity or
interdependent conscious parallel action towards a common goal whether or not
pursuant to an express agreement; or (ii) a combination or pooling of voting or
other interests in the securities of an issuer for a common purpose pursuant to
any contract, understanding, relationship, agreement or other arrangement,
whether written or otherwise. A Person (as defined herein) who acts in concert
with another Person ("other party") shall also be deemed to be acting in concert
with any Person who is also acting in concert with that other party, except that
any Tax-Qualified Employee Stock Benefit Plan will not be deemed to be acting in
concert with its trustee or a Person who serves in a similar capacity solely for
the purpose of determining whether stock held by the trustee and stock held by
the Tax-Qualified Employee Benefit Plan will be aggregated.
B. Associate: When used to indicate a relationship with any Person,
means (i) any corporation or organization (other than the Savings Bank or a
majority-owned subsidiary of the Savings Bank, or the Holding Company) of which
such Person is an officer or partner or is, directly or indirectly, the
beneficial owner of ten percent or more of any class of equity securities, (ii)
any trust or other estate in which such Person has a substantial beneficial
interest or as to which such Person serves as trustee or in a similar fiduciary
capacity, except that it does not include a Tax-Qualified Employee Stock Benefit
Plan and (iii) any relative or spouse of such Person, or any relative of such
spouse, who has the same home as such Person or who is a director or officer of
the Savings Bank, any of its subsidiaries, or the Holding Company.
C. Capital Stock: Any and all authorized capital stock in the Savings
Bank, as converted.
D. Common Stock: Any and all authorized common stock in the Holding
Company subsequent to the Conversion.
E. Conversion: (i) Amendment of the Savings Bank's Charter and Bylaws to
authorize issuance of shares of Capital Stock by the Savings Bank and to conform
to the requirements of a Federal stock savings bank under the laws of the United
States and regulations of the OTS; (ii) issuance and sale of Conversion Stock by
the Holding Company in the Subscription Offering and Direct Community Offering;
and (iii) purchase by the Holding Company of the Capital Stock of the Savings
Bank to be issued in the Conversion immediately following or concurrently with
the close of the sale of all Conversion Stock.
F. Conversion Stock: Holding Company common stock to be issued and sold
by the Holding Company pursuant to the Plan.
G. Direct Community Offering: The offering for sale of Conversion Stock
to the public.
H. Eligibility Record Date: December 31, 1994.
I. Eligible Account Holder: Holder of a Qualifying Deposit in the Savings
Bank on the Eligibility Record Date.
J. FDIC: Federal Deposit Insurance Corporation.
K. Form AC Application: The application submitted to the OTS for
approval of the Conversion.
L. H-(e)1 Application: The application submitted to the OTS on OTS Form
H-(e)1 or Form H-(e)1-S, if applicable, for approval of the Holding Company's
acquisition of all of the Capital Stock of the Savings Bank.
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M. Holding Company: A corporation to be formed by the Savings Bank under
state law for the purpose of becoming a holding company through the issuance and
sale of its stock under the Plan, and concurrent acquisition of 100% of the
Capital Stock of the Savings Bank to be issued pursuant to the Plan.
N. Holding Company Stock: Any and all authorized capital stock of the
Holding Company.
O. Local Community: Boone and Callaway Counties, Missouri.
P. Market Maker: A dealer (i.e., any Person who engages directly or
indirectly as agent, broker, or principal in the business of offering, buying,
selling, or otherwise dealing or trading in securities issued by another Person)
who, with respect to a particular security, (i) regularly publishes bona fide,
competitive bid and offer quotations in a recognized inter-dealer quotation
system or furnishes bona fide competitive bid and offer quotations on request
and (ii) is ready, willing and able to effect transactions in reasonable
quantities at his quoted prices with other brokers or dealers.
Q. Members: All Persons or entities who qualify as members of the
Savings Bank pursuant to its Charter and Bylaws prior to the Conversion.
R. Officer: An executive officer of the Savings Bank, which includes the
Chairman of the Board, President, Executive Vice President, Senior Vice
Presidents, Vice Presidents in charge of principal business functions, the
Secretary and the Treasurer as well as any other person performing similar
functions.
S. Order Forms: Forms to be used for the purchase of Conversion Stock
sent to Eligible Account Holders and other parties eligible to purchase
Conversion Stock in the Subscription Offering pursuant to the Plan.
T. Other Member: Holder of a Savings Account (other than Eligible
Account Holders and Supplemental Eligible Account Holders) as of the Record Date
and borrowers from the Savings Bank as provided in the Savings Bank's Federal
Mutual Charter who continue to be borrowers from the Savings Bank as of the
Record Date.
U. OTS: Office of Thrift Supervision of the United States Department of
the Treasury.
V. Person: An individual, corporation, partnership, association, joint
stock company, trusts of natural Persons, unincorporated organization or a
government or any political subdivision thereof.
W. Plan: This Plan of Conversion, which provides for the conversion of
the Savings Bank from a federally chartered mutual savings bank to a federally
chartered capital stock savings bank as a wholly owned subsidiary of the Holding
Company, as originally adopted by the Board of Directors or as amended in
accordance with the terms thereof.
X. Qualifying Deposit: The deposit balance in any Savings Account as of
the Eligibility Record Date or the Supplemental Eligibility Record Date, as
applicable; provided, however, that no Savings Account with a deposit balance of
less than $50 shall constitute a Qualifying Deposit.
Y. Record Date: Date which determines which Members are entitled to vote
at the Special Meeting.
Z. Registration Statement: The registration statement on Form S-1 or
other applicable forms filed by the Holding Company with the SEC for the purpose
of registering the Conversion Stock under the Securities Act of 1933, as
amended.
AA. Savings Account(s): Withdrawable deposit(s) in the Savings Bank,
including certificates of deposit.
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BB. Savings Bank: Fulton Savings Bank, FSB, in its present form as a
federally chartered mutual savings bank.
CC. SEC: Securities and Exchange Commission.
DD. Special Meeting: The special meeting of Members called for the
purpose of considering the Plan for approval.
EE. Subscription Offering: The offering of Conversion Stock to Eligible
Account Holders, Tax-Qualified Employee Stock Benefit Plans, Supplemental
Eligible Account Holders and Other Members under the Plan.
FF. Subscription Rights: Non-transferable, non-negotiable, personal rights
of Eligible Account Holders, Tax-Qualified Employee Stock Benefit Plans,
Supplemental Eligible Account Holders and Other Members to purchase Conversion
Stock.
GG. Supplemental Eligibility Record Date: The last day of the calendar
quarter preceding the approval of the Plan by the OTS.
HH. Supplemental Eligible Account Holder: Holder of a Qualifying Deposit
in the Savings Bank (other than an Officer or director or their Associates) on
the Supplemental Eligibility Record Date.
II. Syndicated Community Offering: The offering for sale by a syndicate
of broker-dealers to the general public of shares of Conversion Stock not
purchased in the Subscription Offering and the Direct Community Offering.
JJ. Tax Qualified Employee Stock Benefit Plan: Any defined benefit plan
or defined contribution plan of the Savings Bank or Holding Company, such as an
employee stock ownership plan, bonus plan, profit-sharing plan or other plan,
which, with its related trust meets the requirements to be "qualified" under
section 401 of the Internal Revenue Code. A "non-tax-qualified employee stock
benefit plan" is any defined benefit plan or defined contribution plan that is
not so qualified.
III. Steps Prior to Submission of the Plan to the Members for Approval
Prior to submission of the Plan to the Members for approval, the Savings
Bank must receive approval from the OTS of the Form AC Application. Prior to
such regulatory approval:
A. The Board of Directors shall adopt the Plan by a vote of not less than
two-thirds of its entire membership.
B. The Savings Bank shall notify the Members of the adoption of the Plan
by publishing legal notice in a newspaper having a general circulation in each
community in which the Savings Bank maintains an office.
C. A press release relating to the proposed Conversion may be submitted
to the local media.
D. Copies of the Plan as adopted by the Board of Directors shall be made
available for inspection at each office of the Savings Bank.
E. The Savings Bank shall cause the Holding Company to be incorporated
under state law and the Board of Directors of the Holding Company shall concur
in the Plan by at least a two-thirds vote.
F. As soon as practicable following the adoption of this Plan, the
Savings Bank shall file the Form AC Application, and the Holding Company shall
file the Registration Statement and the H-(e)1 Application. Upon
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<PAGE>
filing the Form AC Application, the Savings Bank shall publish legal notice of
the filing of the Form AC Application in a newspaper having a general
circulation in each community in which the Savings Bank maintains an office
and/or by mailing a letter to each of its Members, and shall publish such other
notices of the Conversion as may be required in connection with the H-(e)1
Application and by the regulations and policies of the OTS.
G. The Savings Bank shall obtain an opinion of its tax advisors or a
favorable ruling from the United States Internal Revenue Service which shall
state that the Conversion will not result in any gain or loss for Federal income
tax purposes to the Savings Bank or its Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members. Receipt of a favorable opinion or
ruling is a condition precedent to completion of the Conversion.
IV. Meeting of Members
Subsequent to the approval of the Plan by the OTS, the Special Meeting
shall be scheduled in accordance with the Savings Bank's Bylaws. Promptly after
receipt of approval and at least 20 days but not more than 45 days prior to the
Special Meeting, the Savings Bank shall distribute proxy solicitation materials
to all Members and beneficial owners of accounts held in fiduciary capacities
where the beneficial owners possess voting rights, as of the Record Date. The
proxy solicitation materials shall include a copy of the proxy statement to be
used in connection with such solicitation ("Proxy Statement") and other
documents authorized for use by the regulatory authorities and may also include
a copy of the Plan and/or a prospectus ("Prospectus") as provided in Paragraph V
below. The Savings Bank shall also advise each Eligible Account Holder and
Supplemental Eligible Account Holder not entitled to vote at the Special Meeting
of the proposed Conversion and the scheduled Special Meeting, and provide a
postage prepaid card on which to indicate whether he wishes to receive the
Prospectus, if the Subscription Offering is not held concurrently with the proxy
solicitation.
Pursuant to OTS regulations, an affirmative vote of not less than a
majority of the total outstanding votes of the Members is required for approval
of the Plan. Voting may be in person or by proxy. The OTS shall be notified
promptly of the actions of the Members.
V. Summary Proxy Statement
The Proxy Statement furnished to Members may be in summary form, provided
that a statement is made in bold-face type that a more detailed description of
the proposed transaction may be obtained by returning an enclosed postage
prepaid card or other written communication requesting supplemental information.
Without prior approval of the OTS, the Special Meeting shall not be held less
than 20 days after the last day on which the supplemental information statement
is mailed to requesting Members. The supplemental information statement may be
combined with the Prospectus if the Subscription Offering is commenced
concurrently with or during the proxy solicitation of Members for the Special
Meeting.
VI. Offering Documents
The Holding Company may commence the Subscription Offering and, provided
that the Subscription Offering has commenced, may commence the Direct Community
Offering concurrently with or during the proxy solicitation of Members. The
Holding Company may close the Subscription Offering before the Special Meeting,
provided that the offer and sale of the Conversion Stock shall be conditioned
upon approval of the Plan by the Members at the Special Meeting. The Savings
Bank's proxy solicitation materials may require Eligible Account Holders,
Supplemental Eligible Account Holders (if applicable) and Other Members to
return to the Savings Bank by a reasonable certain date a postage prepaid card
or other written communication requesting receipt of a Prospectus with respect
to the Subscription Offering, provided that if the Prospectus is not mailed
concurrently with the proxy solicitation materials, the Subscription Offering
shall not be closed until the expiration of 30 days after the mailing of the
proxy solicitation materials. If the Subscription Offering is not commenced
within 45 days after the Special Meeting, the Savings Bank may transmit, not
more than 30 days prior to the commencement of the Subscription
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Offering, to each Eligible Account Holder, Supplemental Eligible Account Holder
and other eligible subscribers who had been furnished with proxy solicitation
materials a notice which shall state that the Savings Bank is not required to
furnish a Prospectus to them unless they return by a reasonable date certain a
postage prepaid card or other written communication requesting the receipt of
the Prospectus.
Prior to commencement of the Subscription Offering, the Direct Community
Offering and the Syndicated Community Offering, the Holding Company shall file
the Registration Statement. The Holding Company shall not distribute the final
Prospectus until the Registration Statement containing same has been declared
effective by the SEC and the Prospectus has been declared effective by the OTS.
VII. Combined Subscription and Direct Community Offering
Instead of a separate Subscription Offering, all Subscription Rights may be
exercised by delivery of properly completed and executed Order Forms to the
Savings Bank or selling group utilized in connection with the Direct Community
Offering and the Syndicated Community Offering. If a separate Subscription
Offering is not held, orders for Conversion Stock in the Direct Community
Offering shall first be filled pursuant to the priorities and limitations stated
in Paragraph IX.C., below.
VIII. Consummation of the Conversion
After receipt of all orders for Conversion Stock, and concurrently with the
execution thereof, the amendment of the Savings Bank's Federal mutual Charter
and Bylaws to authorize the issuance of shares of Capital Stock and to conform
to the requirements of a Federal capital stock savings bank will be declared
effective by the OTS, the amended Charter and Bylaws approved by the Members
will become effective. At such time, the Conversion Stock will be issued and
sold by the Holding Company, the Capital Stock to be issued in the Conversion
will be issued and sold to the Holding Company, and the Savings Bank will become
a wholly owned subsidiary of the Holding Company. The Savings Bank will issue
to the Holding Company 1,000 shares of its common stock, representing all of the
shares of Capital Stock to be issued by the Savings Bank, and the Holding
Company will make payment to the Savings Bank of that portion of the aggregate
net proceeds realized by the Holding Company from the sale of the Conversion
Stock under the Plan as may be authorized or required by the OTS.
IX. Stock Offering
A. Number of Shares
The number of shares of Conversion Stock to be offered pursuant to the Plan
shall be determined initially by the Board of Directors of the Savings Bank and
the Board of Directors of the Holding Company in conjunction with the
determination of the Purchase Price (as that term is defined in Paragraph IX.B.
below). The number of shares to be offered may be subsequently adjusted by the
Board of Directors prior to completion of the offering.
B. Independent Evaluation and Purchase Price of Shares
All shares of Conversion Stock sold in the Conversion, including shares
sold in any Direct Community Offering, shall be sold at a uniform price per
share, referred to herein as the "Purchase Price." The Purchase Price shall be
determined by the Board of Directors of the Savings Bank and the Board of
Directors of the Holding Company immediately prior to the simultaneous
completion of all such sales contemplated by this Plan on the basis of the
estimated pro forma market value of the Savings Bank, as converted, at such
time. The estimated pro forma market value of the Savings Bank shall be
determined for such purpose by an independent appraiser on the basis of such
appropriate factors not inconsistent with the regulations of the OTS.
Immediately prior to the Subscription Offering, a subscription price range shall
be established which shall vary from 15% above to 15% below the average of the
minimum and maximum of the estimated price range. The maximum subscription
price (i.e., the per share amount to be remitted when subscribing for shares of
Conversion Stock) shall then be determined within the
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subscription price range by the Board of Directors of the Savings Bank. The
subscription price range and the number of shares to be offered may be revised
after the completion of the Subscription Offering with OTS approval without a
resolicitation of proxies or Order Forms or both.
C. Method of Offering Shares
Subscription Rights shall be issued at no cost to Eligible Account Holders,
Tax-Qualified Employee Stock Benefit Plans, Supplemental Eligible Account
Holders and Other Members pursuant to priorities established by this Plan and
the regulations of the OTS. In order to effect the Conversion, all shares of
Conversion Stock proposed to be issued in connection with the Conversion must be
sold and, to the extent that shares are available, no subscriber shall be
allowed to purchase less than 25 shares; provided, however, that if the purchase
price is greater than $20 per share, the minimum number of shares which must be
subscribed for shall be adjusted so that the aggregate actual purchase price
required to be paid for such minimum number of shares does not exceed $500. The
priorities established for the purchase of shares are as follows:
1. Category 1: Eligible Account Holders
a. Each Eligible Account Holder shall receive, without payment,
Subscription Rights entitling such Eligible Account Holder to purchase
that number of shares of Conversion Stock which is equal to the
greater of the maximum purchase limitation established for the Direct
Community Offering, one-tenth of one percent of the total offering or
15 times the product (rounded down to the next whole number) obtained
by multiplying the total number of shares of Conversion Stock to be
issued by a fraction of which the numerator is the amount of the
Qualifying Deposit of the Eligible Account Holder and the denominator
is the total amount of Qualifying Deposits of all Eligible Account
Holders. If the allocation made in this paragraph results in an
oversubscription, shares of Conversion Stock shall be allocated among
subscribing Eligible Account Holders so as to permit each such account
holder, to the extent possible, to purchase a number of shares of
Conversion Stock sufficient to make his total allocation equal to 100
shares of Conversion Stock or the total amount of his subscription,
whichever is less. Any shares of Conversion Stock not so allocated
shall be allocated among the subscribing Eligible Account Holders on
an equitable basis, related to the amounts of their respective
Qualifying Deposits as compared to the total Qualifying Deposits of
all Eligible Account Holders.
b. Subscription Rights received by Officers and directors of
the Savings Bank and their Associates, as Eligible Account Holders,
based on their increased deposits in the Savings Bank in the one-year
period preceding the Eligibility Record Date shall be subordinated to
all other subscriptions involving the exercise of Subscription Rights
pursuant to this Category.
2. Category 2: Tax-Qualified Employee Stock Benefit Plans
a. Tax-Qualified Employee Stock Benefit Plans of the Savings
Bank shall receive, without payment, non-transferable Subscription
Rights to purchase in the aggregate up to 8% of the Conversion Stock,
including shares of Conversion Stock to be issued in the Conversion as
result of an increase in the estimated price range after commencement
of the Subscription Offering and prior to the completion of the
Conversion. The Subscription Rights granted to Tax-Qualified Stock
Benefit Plans of the Savings Bank shall be subject to the availability
of shares of Conversion Stock after taking into account the shares of
Conversion Stock purchased by Eligible Account Holders; provided,
however, that in the event the number of shares offered in the
Conversion is increased to an amount greater than the maximum of the
estimated price range as set forth in the Prospectus ("Maximum
Shares"), the Tax-Qualified Employee Stock Benefit Plans shall have a
priority right to purchase any such shares exceeding the Maximum
Shares up to an aggregate of 8% of the Conversion Stock. Tax-Qualified
Employee Stock Benefit Plans may use funds
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contributed or borrowed by the Holding Company or the Savings Bank
and/or borrowed from an independent financial institution to exercise
such Subscription Rights, and the Holding Company and the Savings Bank
may make scheduled discretionary contributions thereto, provided that
such contributions do not cause the Holding Company or the Savings
Bank to fail to meet any applicable capital requirements.
3. Category 3: Supplemental Eligible Account Holders
a. In the event that the Eligibility Record Date is more than
15 months prior to the date of the latest amendment to the Form AC
Application filed prior to OTS approval, then, and only in that event,
each Supplemental Eligible Account Holder shall receive, without
payment, Subscription Rights entitling such Supplemental Eligible
Account Holder to purchase that number of shares of Conversion Stock
which is equal to the greater of the maximum purchase limitation
established for the Direct Community Offering, one-tenth of one
percent of the total offering or 15 times the product (rounded down to
the next whole number) obtained by multiplying the total number of
shares of Conversion Stock to be issued by a fraction of which the
numerator is the amount of the Qualifying Deposit of the Supplemental
Eligible Account Holder and the denominator is the total amount of the
Qualifying Deposits of all Supplemental Eligible Account Holders.
b. Subscription Rights received pursuant to this category shall
be subordinated to Subscription Rights granted to Eligible Account
Holders and Tax-Qualified Employee Stock Benefit Plans.
c. Any Subscription Rights to purchase shares of Conversion
Stock received by an Eligible Account Holder in accordance with
Category Number 1 shall reduce to the extent thereof the Subscription
Rights to be distributed pursuant to this Category.
d. In the event of an oversubscription for shares of Conversion
Stock pursuant to this Category, shares of Conversion Stock shall be
allocated among the subscribing Supplemental Eligible Account Holders
as follows:
(1) Shares of Conversion Stock shall be allocated so as to
permit each such Supplemental Eligible Account Holder, to the
extent possible, to purchase a number of shares of Conversion
Stock sufficient to make his total allocation (including the
number of shares of Conversion Stock, if any, allocated in
accordance with Category Number 1) equal to 100 shares of
Conversion Stock or the total amount of his subscription,
whichever is less.
(2) Any shares of Conversion Stock not allocated in
accordance with subparagraph (1) above shall be allocated among
the subscribing Supplemental Eligible Account Holders on an
equitable basis, related to the amounts of their respective
Qualifying Deposits as compared to the total Qualifying Deposits
of all Supplemental Eligible Account Holders.
4. Category 4: Other Members
a. Other Members shall receive Subscription Rights to purchase
shares of Conversion Stock, after satisfying the subscriptions of
Eligible Account Holders, Tax-Qualified Employee Stock Benefit Plans
and Supplemental Eligible Account Holders pursuant to Category Nos. l,
2 and 3 above, subject to the following conditions:
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(1) Each such Other Member shall be entitled to subscribe
for the greater of the maximum purchase limitation established
for the Direct Community Offering or one-tenth of one percent of
the total offering.
(2) In the event of an oversubscription for shares of
Conversion Stock pursuant to Category No. 4, the shares of
Conversion Stock available shall be allocated among the
subscribing Other Members pro rata on the basis of the amounts of
their respective subscriptions.
D. Direct Community Offering and Syndicated Community Offering
1. Any shares of Conversion Stock not purchased through the exercise
of Subscription Rights set forth in Category Nos. 1 through 4 above may be
sold by the Holding Company to Persons under such terms and conditions as
may be established by the Savings Bank's Board of Directors with the
concurrence of the OTS. The Direct Community Offering may commence
concurrently with or as soon as possible after the completion of the
Subscription Offering and must be completed within 45 days after completion
of the Subscription Offering, unless extended with the approval of the OTS.
No Person may purchase in the Direct Community Offering shares of
Conversion Stock with an aggregate purchase price that exceeds $150,000.
The right to purchase shares of Conversion Stock under this Category is
subject to the right of the Savings Bank or the Holding Company to accept
or reject such subscriptions in whole or in part. In the event of an
oversubscription for shares in this Category, the shares available shall be
allocated among prospective purchasers pro rata on the basis of the amounts
of their respective orders. The offering price for which such shares are
sold to the general public in the Direct Community Offering shall be the
Purchase Price.
2. Orders received in the Direct Community Offering first shall be
filled up to a maximum of 2% of the Conversion Stock and thereafter
remaining shares shall be allocated on an equal number of shares basis per
order until all orders have been filled.
3. The Conversion Stock offered in the Direct Community Offering
shall be offered and sold in a manner that will achieve the widest
distribution thereof. Preference shall be given in the Direct Community
Offering to natural Persons and trusts of natural Persons residing in the
Local Community.
4. Subject to such terms, conditions and procedures as may be
determined by the Savings Bank and the Holding Company, all shares of
Conversion Stock not subscribed for in the Subscription Offering or ordered
in the Direct Community Offering may be sold by a syndicate of broker-
dealers to the general public in a Syndicated Community Offering. Each
order for Conversion Stock in the Syndicated Community Offering shall be
subject to the absolute right of the Savings Bank and the Holding Company
to accept or reject any such order in whole or in part either at the time
of receipt of an order or as soon as practicable after completion of the
Syndicated Community Offering. No Person may purchase in the Syndicated
Community Offering shares of Conversion Stock with an aggregate purchase
price that exceeds $150,000. The Savings Bank and the Holding Company may
commence the Syndicated Community Offering concurrently with, at any time
during, or as soon as practicable after the end of the Subscription
Offering and/or Direct Community Offering, provided that the Syndicated
Community Offering must be completed within 45 days after the completion of
the Subscription Offering, unless extended by the Savings Bank and the
Holding Company with the approval of the OTS.
5. If for any reason a Syndicated Community Offering of shares of
Conversion Stock not sold in the Subscription Offering and the Direct
Community Offering cannot be effected, or in the event that any
insignificant residue of shares of Conversion Stock is not sold in the
Subscription Offering, Direct Community Offering or Syndicated Community
Offering, the Savings Bank and the Holding Company shall
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use their best efforts to obtain other purchasers for such shares in such
manner and upon such conditions as may be satisfactory to the OTS.
6. In the event a Direct Community Offering or Syndicated Community
Offering appears not feasible, the Savings Bank will immediately consult
with the OTS to determine the most viable alternative available to effect
the completion of the Conversion. Should no viable alternative exist, the
Savings Bank may terminate the Conversion with the concurrence of the OTS.
E. Limitations Upon Purchases
The following additional limitations and exceptions shall be imposed upon
purchases of shares of Conversion Stock:
1. Purchases of shares of Conversion Stock in the Conversion,
including purchases in the Direct Community Offering and the Syndicated
Community Offering, by any Person shall not exceed an aggregate purchase
price of $150,000, except that Tax-Qualified Employee Stock Benefit Plans
may purchase up to 8% of the total Conversion Stock issued in the
Conversion and shares to be held by the Tax-Qualified Employee Stock
Benefit Plans and attributable to a Person shall not be aggregated with
other shares purchased directly by or otherwise attributable to such
Person.
2. Officers and directors and Associates thereof may not purchase in
the aggregate more than 34% of the shares issued in the Conversion.
3. The Savings Bank's and Holding Company's Boards of Directors will
not be deemed to be Associates or a group of Persons Acting in Concert with
other directors or trustees solely as a result of membership on the Board
of Directors.
4. Purchases of shares of Conversion Stock by a Person, together
with Associates of or Persons Acting in Concert with such Person, shall not
exceed an aggregate purchase price of $200,000, except that Tax-Qualified
Employee Stock Benefit Plans may purchase up to 8% of the total Conversion
Stock issued and shares held or to be held by the Tax-Qualified Employee
Stock Benefit Plans and attributable to a Person shall not be aggregated
with other shares purchased directly by or otherwise attributable to such
Person.
5. The Savings Bank's Board of Directors, with the approval of the
OTS and without further approval of Members, may, as a result of market
conditions and other factors, increase or decrease the purchase limitation
in paragraphs 1 and 4 above or the number of shares of Conversion Stock to
be sold in the Conversion. If the Savings Bank or the Holding Company, as
the case may be, increases the maximum purchase limitations or the number
of shares of Conversion Stock to be sold in the Conversion, the Savings
Bank or the Holding Company, as the case may be, is only required to
resolicit Persons who subscribed for the maximum purchase amount and may,
in the sole discretion of the Savings Bank or the Holding Company, as the
case may be, resolicit certain other large subscribers. If the Savings
Bank or the Holding Company, as the case may be, decreases the maximum
purchase limitations or the number of shares of Conversion Stock to be sold
in the Conversion, the orders of any Person who subscribed for the maximum
purchase amount shall be decreased by the minimum amount necessary so that
such Person shall be in compliance with the then maximum number of shares
permitted to be subscribed for by such Person.
Each Person purchasing Conversion Stock in the Conversion shall be deemed
to confirm that such purchase does not conflict with the purchase limitations
under the Plan or otherwise imposed by law, rule or regulation. In the event
that such purchase limitations are violated by any Person (including any
Associate or group of Persons affiliated or otherwise Acting in Concert with
such Person), the Holding Company shall have the right to purchase from such
Person at the actual Purchase Price per share all shares acquired by such Person
in excess of such
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purchase limitations or, if such excess shares have been sold by such Person, to
receive from such Person the difference between the actual Purchase Price per
share paid for such excess shares and the price at which such excess shares were
sold by such Persons. This right of the Holding Company to purchase such excess
shares shall be assignable by the Holding Company.
F. Restrictions On and Other Characteristics of the Conversion Stock
1. Transferability. Conversion Stock purchased by Officers and
directors of the Savings Bank and officers and directors of the Holding
Company shall not be sold or otherwise disposed of for value for a period
of one year from the date of Conversion, except for any disposition (i)
following the death of the original purchaser or (ii) resulting from an
exchange of securities in a merger or acquisition approved by the
regulatory authorities having jurisdiction.
The Conversion Stock issued by the Holding Company to such Officers
and directors shall bear a legend giving appropriate notice of the one-year
holding period restriction. Said legend shall state as follows:
"The shares evidenced by this certificate are restricted as to
transfer for a period of one year from the date of this certificate
pursuant to Part 563b of the Rules and Regulations of the Office of
Thrift Supervision. These shares may not be transferred prior thereto
without a legal opinion of counsel that said transfer is permissible
under the provisions of applicable laws and regulations."
In addition, the Holding Company shall give appropriate instructions
to the transfer agent of the Holding Company Stock with respect to the
foregoing restrictions. Any shares of Holding Company Stock subsequently
issued as a stock dividend, stock split or otherwise, with respect to any
such restricted stock, shall be subject to the same holding period
restrictions for such Persons as may be then applicable to such restricted
stock.
2. Subsequent Purchases by Officers and Directors. Without prior
approval of the OTS, if applicable, Officers and directors of the Savings
Bank and officers and directors of the Holding Company, and their
Associates, shall be prohibited for a period of three years following
completion of the Conversion from purchasing outstanding shares of Holding
Company Stock, except from a broker or dealer registered with the SEC.
Notwithstanding this restriction, purchases involving more than 1% of the
total outstanding shares of Holding Company Stock and purchases made and
shares held by a Tax-Qualified or non-Tax-Qualified Employee Stock Benefit
Plan which may be attributable to such directors and officers may be made
in negotiated transactions without OTS permission or the use of a broker or
dealer.
3. Repurchase and Dividend Rights. Pursuant to OTS regulations, for
a period of three years from the date of Conversion, repurchases of Holding
Company Stock by the Holding Company from any Person are subject to certain
restrictions, with the exception of (i) a repurchase on a pro rata basis
pursuant to an offer approved by the OTS and made to all stockholders, (ii)
the repurchase of qualifying shares of a director or (iii) a purchase in
the open market by a Tax-Qualified Employee Stock Benefit Plan or a non-
Tax-Qualified Employee Stock Benefit Plan of the Savings Bank or the
Holding Company in an amount reasonable and appropriate to fund the plan.
Repurchases during the first year following the consummation of the
Conversion are generally prohibited unless "exceptional circumstances" are
deemed to exist by the OTS. However, upon 10 days' written notification to
the District Director and to the Chief Counsel, Corporate and Securities
Division of the OTS, if the District Director does not object, the Holding
Company may make open market repurchases of outstanding Holding Company
Stock during the second and third years following the consummation of the
Conversion, provided that (i) no more than 5% of the outstanding Holding
Company Stock is to be purchased during any twelve-month period, (ii) the
Savings Bank's ratio
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of regulatory capital to total liabilities would not be reduced below 6%,
and (iii) the repurchases would not adversely affect the financial
condition of the Savings Bank.
OTS regulations also provide that the Savings Bank may not declare or
pay a cash dividend on or repurchase any of its Capital Stock if the result
thereof would be to reduce the regulatory capital of the Savings Bank below
the amount required for the liquidation account described in Paragraph
XIII. Further, any dividend declared or paid on, or repurchase of, the
Capital Stock shall be in compliance with the rules and regulations of the
OTS, or other applicable regulations. The above limitations shall not
preclude payment of dividends on, or repurchases of, Capital Stock in the
event applicable Federal regulatory limitations are liberalized subsequent
to the Conversion.
4. Voting Rights. After the Conversion, holders of Savings Accounts
in and obligors on loans of the Savings Bank will not have voting rights in
the Savings Bank. Exclusive voting rights with respect to the Holding
Company shall be vested in the holders of Holding Company Stock; holders of
Savings Accounts in and obligors on loans of the Savings Bank will not have
any voting rights in the Holding Company except and to the extent that such
Persons become stockholders of the Holding Company, and the Holding Company
will have exclusive voting rights with respect to the Savings Bank's
Capital Stock.
G. Mailing of Offering Materials and Collation of Subscriptions
The sale of all shares of Conversion Stock offered pursuant to the Plan
must be completed within 24 months after approval of the Plan at the Special
Meeting. After approval of the Plan by the OTS and the declaration of the
effectiveness of the Prospectus, the Holding Company shall distribute
Prospectuses and Order Forms for the purchase of shares of Conversion Stock in
accordance with the terms of the Plan.
The recipient of an Order Form shall be provided not less than 20 days nor
more than 45 days from the date of mailing, unless extended, properly to
complete, execute and return the Order Form to the Holding Company or the
Savings Bank. Self-addressed, postage prepaid, return envelopes shall accompany
all Order Forms when they are mailed. Failure of any eligible subscriber to
return a properly completed and executed Order Form within the prescribed time
limits shall be deemed a waiver and a release by such eligible subscriber of any
rights to purchase shares of Conversion Stock under the Plan.
The sale of all shares of Conversion Stock proposed to be issued in
connection with the Conversion must be completed within 45 days after the last
day of the Subscription Offering, unless extended by the Holding Company with
the approval of the OTS.
H. Method of Payment
Payment for all shares of Conversion Stock may be made in cash, by check or
by money order, or if a subscriber has a Savings Account in the Savings Bank
such subscriber may authorize the Savings Bank to charge the subscriber's
Savings Account. The Holding Company shall pay interest at not less than the
passbook rate on all amounts paid in cash or by check or money order to purchase
shares of Conversion Stock in the Subscription Offering from the date payment is
received until the Conversion is completed or terminated. The Savings Bank is
not permitted knowingly to loan funds or otherwise extend any credit to any
Person for the purpose of purchasing Conversion Stock.
If a subscriber authorizes the Savings Bank to charge the subscriber's
Savings Account, the funds shall remain in the subscriber's Savings Account and
shall continue to earn interest, but may not be used by such subscriber until
the Conversion is completed or terminated, whichever is earlier. The withdrawal
shall be given effect only concurrently with the sale of all shares of
Conversion Stock proposed to be sold in the Conversion and only to the extent
necessary to satisfy the subscription at a price equal to the Purchase Price.
The Savings Bank shall
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allow subscribers to purchase shares of Conversion Stock by withdrawing funds
from certificate accounts held with the Savings Bank without the assessment of
early withdrawal penalties, subject to the approval, if necessary, of the
applicable regulatory authorities. In the case of early withdrawal of only a
portion of such account, the certificate evidencing such account shall be
canceled if the remaining balance of the account is less than the applicable
minimum balance requirement. In that event, the remaining balance shall earn
interest at the passbook rate. This waiver of the early withdrawal penalty is
applicable only to withdrawals made in connection with the purchase of
Conversion Stock under the Plan.
Tax-Qualified Employee Stock Benefit Plans may subscribe for shares by
submitting an Order Form, along with evidence of a loan commitment from a
financial institution for the purchase of shares, if applicable, during the
Subscription Offering and by making payment for the shares on the date of the
closing of the Conversion.
I. Undelivered, Defective or Late Order Forms; Insufficient Payment
If an Order Form (i) is not delivered and is returned to the Holding
Company or the Savings Bank by the United States Postal Service (or the Holding
Company or Savings Bank is unable to locate the addressee); (ii) is not returned
to the Holding Company or Savings Bank, or is returned to the Holding Company or
Savings Bank after expiration of the date specified thereon; (iii) is
defectively completed or executed; or (iv) is not accompanied by the total
required payment for the shares of Conversion Stock subscribed for (including
cases in which the subscribers' Savings Accounts are insufficient to cover the
authorized withdrawal for the required payment), the Subscription Rights of the
Person to whom such rights have been granted shall not be honored and shall be
treated as though such Person failed to return the completed Order Form within
the time period specified therein. Alternatively, the Holding Company or
Savings Bank may, but shall not be required to, waive any irregularity relating
to any Order Form or require the submission of a corrected Order Form or the
remittance of full payment for the shares of Conversion Stock subscribed for by
such date as the Holding Company or Savings Bank may specify. Subscription
orders, once tendered, shall not be revocable. The Holding Company's and
Savings Bank's interpretation of the terms and conditions of the Plan and of the
Order Forms shall be final.
J. Members in Non-Qualified States or in Foreign Countries
The Holding Company shall make reasonable efforts to comply with the
securities laws of all states of the United States in which Persons entitled to
subscribe for shares of Conversion Stock pursuant to the Plan reside. However,
no such Person shall be offered or receive any such shares under the Plan who
resides in a foreign country or who resides in a state of the United States with
respect to which any of the following apply: (a) a small number of Persons
otherwise eligible to subscribe for shares of Conversion Stock reside in such
state; (b) the granting of Subscription Rights or offer or sale of shares of
Conversion Stock to such Persons would require the Holding Company to register,
under the securities laws of such state, as a broker or dealer or to register or
otherwise qualify its securities for sale in such state; or (c) such
registration or qualification would be impractical for reasons of cost or
otherwise.
X. Federal Stock Charter and Bylaws
As part of the Conversion, an amended Federal Stock Charter and Bylaws will
be adopted to authorize the Savings Bank to operate as a federal capital stock
savings bank. By approving the Plan, the Members of the Savings Bank will
thereby approve the amended Federal Stock Charter and Bylaws. Prior to
completion of the Conversion, the proposed Federal Stock Charter and Bylaws may
be amended in accordance with the provisions and limitations for amending the
Plan under Paragraph XVII below. The effective date of the adoption of the
Federal Stock Charter and Bylaws shall be the date of the issuance of the
Conversion Stock, which shall be the date of consummation of the Conversion.
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XI. Post Conversion Filing and Market Making
In connection with the Conversion, the Holding Company shall register the
Conversion Stock with the SEC pursuant to the Securities Exchange Act of 1934,
as amended, and shall undertake not to deregister such Conversion Stock for a
period of three years thereafter.
The Holding Company shall use its best efforts to encourage and assist
various Market Makers to establish and maintain a market for the shares of its
stock. The Holding Company shall also use its best efforts to list its stock
through The Nasdaq Stock Market or on a national or regional securities
exchange.
XII. Status of Savings Accounts and Loans Subsequent to Conversion
All Savings Accounts shall retain the same status after Conversion as these
accounts had prior to Conversion. Each Savings Account holder shall retain,
without payment, a withdrawable Savings Account or accounts after the
Conversion, equal in amount to the withdrawable value of such holder's Savings
Account or accounts prior to Conversion. All Savings Accounts will continue to
be insured by the Savings Association Insurance Fund of the FDIC up to the
applicable limits of insurance coverage. All loans shall retain the same status
after the Conversion as they had prior to the Conversion. See Paragraph IX.F.4.
with respect to the termination of voting rights of Members.
XIII. Liquidation Account
After the Conversion, holders of Savings Accounts shall not be entitled to
share in any residual assets in the event of liquidation of the Savings Bank.
However, the Savings Bank shall, at the time of the Conversion, establish a
liquidation account in an amount equal to its total net worth as of the date of
the latest statement of financial condition contained in the final Prospectus.
The function of the liquidation account shall be to establish a priority on
liquidation and, except as provided in Paragraph IX.F.3 above, the existence of
the liquidation account shall not operate to restrict the use or application of
any of the net worth accounts of the Savings Bank.
The liquidation account shall be maintained by the Savings Bank subsequent
to the Conversion for the benefit of Eligible Account Holders and Supplemental
Eligible Account Holders who retain their Savings Accounts in the Savings Bank.
Each Eligible Account Holder and Supplemental Eligible Account Holder shall,
with respect to each Savings Account held, have a related inchoate interest in a
portion of the liquidation account balance ("subaccount").
The initial subaccount balance for a Savings Account held by an Eligible
Account Holder and/or a Supplemental Eligible Account Holder shall be determined
by multiplying the opening balance in the liquidation account by a fraction of
which the numerator is the amount of such holder's Qualifying Deposit in the
Savings Account and the denominator is the total amount of the Qualifying
Deposits of all Eligible Account Holders and Supplemental Eligible Account
Holders. Such initial subaccount balance shall not be increased, and it shall
be subject to downward adjustment as provided below.
If the deposit balance in any Savings Account of an Eligible Account Holder
or Supplemental Eligible Account Holder at the close of business on any annual
closing date subsequent to the Eligibility Record Date is less than the lesser
of (i) the deposit balance in such Savings Account at the close of business on
any other annual closing date subsequent to the Eligibility Record Date or the
Supplemental Eligibility Record Date or (ii) the amount of the Qualifying
Deposit in such Savings Account on the Eligibility Record Date or the
Supplemental Eligibility Record Date, then the subaccount balance for such
Savings Account shall be adjusted by reducing such subaccount balance in an
amount proportionate to the reduction in such deposit balance. In the event of
a downward adjustment, such subaccount balance shall not be subsequently
increased, notwithstanding any increase in the deposit balance of the related
Savings Account. If any such Savings Account is closed, the related subaccount
balance shall be reduced to zero.
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In the event of a complete liquidation of the Savings Bank, each Eligible
Account Holder and Supplemental Eligible Account Holder shall be entitled to
receive a liquidation distribution from the liquidation account in the amount of
the then current adjusted subaccount balance(s) for Savings Account(s) then held
by such holder before any liquidation distribution may be made to stockholders.
No merger, consolidation, bulk purchase of assets with assumptions of Savings
Accounts and other liabilities or similar transactions with another Federally-
insured institution in which the Savings Bank is not the surviving institution
shall be considered to be a complete liquidation. In any such transaction, the
liquidation account shall be assumed by the surviving institution.
XIV. Regulatory Restrictions on Acquisition of Holding Company
A. OTS regulations provide that for a period of three years following
completion of the Conversion, no Person (i.e, individual, a group Acting in
Concert, a corporation, a partnership, an association, a joint stock company, a
trust, or any unincorporated organization or similar company, a syndicate or any
other group formed for the purpose of acquiring, holding or disposing of
securities of an insured institution or its holding company) shall directly, or
indirectly, offer to purchase or actually acquire the beneficial ownership of
more than 10% of any class of equity security of the Holding Company without the
prior approval of the OTS. However, approval is not required for purchases
directly from the Holding Company or the underwriters or selling group acting on
its behalf with a view towards public resale, or for purchases not exceeding 1%
per annum of the shares outstanding. Civil penalties may be imposed by the OTS
for willful violation or assistance of any violation. Where any Person,
directly or indirectly, acquires beneficial ownership of more than 10% of any
class of equity security of the Holding Company within such three-year period,
without the prior approval of the OTS, stock of the Holding Company beneficially
owned by such Person in excess of 10% shall not be counted as shares entitled to
vote and shall not be voted by any Person or counted as voting shares in
connection with any matter submitted to the stockholders for a vote. The
provisions of this regulation shall not apply to the acquisition of securities
by Tax-Qualified Employee Stock Benefit Plans provided that such plans do not
have beneficial ownership of more than 25% of any class of equity security of
the Holding Company.
B. The Holding Company may provide in its articles of incorporation a
provision that, for a specified period of up to five years following the date of
the completion of the Conversion, no Person shall directly or indirectly offer
to acquire or actually acquire the beneficial ownership of more than 10% of any
class of equity security of the Holding Company. Such provisions would not
apply to acquisition of securities by Tax-Qualified Employee Stock Benefit Plans
provided that such plans do not have beneficial ownership of more than 25% of
any class of equity security of the Holding Company. The Holding Company may
provide in its articles of incorporation for such other provisions affecting the
acquisition of its stock as shall be determined by its Board of Directors.
XV. Directors and Officers of the Converted Savings Bank
The Conversion is not intended to result in any change in the directors or
Officers. Each Person serving as a director of the Savings Bank at the time of
Conversion shall continue to serve as a member of the Savings Bank's Board of
Directors, subject to the Converted Savings Bank's charter and bylaws. The
Persons serving as Officers immediately prior to the Conversion will continue to
serve at the discretion of the Board of Directors in their respective capacities
as Officers of the Savings Bank. In connection with the Conversion, the Savings
Bank and the Holding Company may enter into employment agreements on such terms
and with such officers as shall be determined by the Boards of Directors of the
Savings Bank and the Holding Company.
XVI. Executive Compensation
The Savings Bank and the Holding Company may adopt, subject to any required
approvals, executive compensation or other benefit programs, including but not
limited to compensation plans involving stock options, stock appreciation
rights, restricted stock grants, employee recognition programs and the like.
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XVII. Amendment or Termination of Plan
If necessary or desirable, the Plan may be amended by a two-thirds vote of
the Savings Bank's Board of Directors, at any time prior to submission of the
Plan and proxy materials to the Members. At any time after submission of the
Plan and proxy materials to the Members, the Plan may be amended by a two-thirds
vote of the Board of Directors only with the concurrence of the OTS. The Plan
may be terminated by a two-thirds vote of the Board of Directors at any time
prior to the Special Meeting, and at any time following such Special Meeting
with the concurrence of the OTS. In its discretion, the Board of Directors may
modify or terminate the Plan upon the order of the regulatory authorities
without a resolicitation of proxies or another meeting of the Members.
In the event that mandatory new regulations pertaining to conversions are
adopted by the OTS prior to the completion of the Conversion, the Plan shall be
amended to conform to the new mandatory regulations without a resolicitation of
proxies or another meeting of Members. In the event that new conversion
regulations adopted by the OTS prior to completion of the Conversion contain
optional provisions, the Plan may be amended to utilize such optional provisions
at the discretion of the Board of Directors without a resolicitation of proxies
or another meeting of Members.
By adoption of the Plan, the Members authorize the Board of Directors to
amend and/or terminate the Plan under the circumstances set forth above.
XVIII. Expenses of the Conversion
The Holding Company and the Savings Bank shall use their best efforts to
assure that expenses incurred in connection with the Conversion shall be
reasonable.
XIX. Contributions to Tax-Qualified Plans
The Holding Company and/or the Savings Bank may make discretionary
contributions to the Tax-Qualified Employee Stock Benefit Plans, provided such
contributions do not cause the Savings Bank to fail to meet its regulatory
capital requirements.
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EXHIBIT B
FEDERAL STOCK CHARTER
FULTON SAVINGS BANK, FSB
SECTION 1. CORPORATE TITLE. The full corporate title of the bank is
Fulton Savings Bank, FSB ("Savings Bank").
SECTION 2. OFFICE. The home office shall be located in the City of
Fulton, the County of Callaway, in the State of Missouri.
SECTION 3. DURATION. The duration of the Savings Bank is perpetual.
SECTION 4. PURPOSE AND POWERS. The purpose of the Savings Bank is to
pursue any or all of the lawful objectives of a Federal savings and loan
association chartered under section 5 of the Home Owners' Loan Act and to
exercise all of the express, implied, and incidental powers conferred thereby
and by all acts amendatory thereof and supplemental thereto, subject to the
Constitution and laws of the United States as they are now in effect, or as they
may hereafter be amended, and subject to all lawful and applicable rules,
regulations, and orders of the Office of Thrift Supervision ("Office").
SECTION 5. CAPITAL STOCK. The total number of shares of all classes of
the capital stock which the Savings Bank has authority to issue is 10,000 of
which 1,000 shares shall be common stock, of par value of $1.00 per share and of
which 9,000 shares shall be serial preferred stock having no par value. The
shares may be issued from time to time as authorized by the board of directors
without the approval of its shareholders except as otherwise provided in this
Section 5 or to the extent that such approval is required by governing law,
rule, or regulation. The consideration for the issuance of the shares shall be
paid in full before their issuance and shall not be less than the par value.
Neither promissory notes nor future services shall constitute payment or part
payment for the issuance of shares of the Savings Bank. The consideration for
the shares shall be cash, tangible or intangible property (to the extent direct
investment in such property would be permitted to the Savings Bank), labor or
services actually performed for the Savings Bank, or any combination of the
foregoing. In the absence of actual fraud in the transaction, the value of such
property, labor, or services, as determined by the board of directors of the
Savings Bank, shall be conclusive. Upon payment of such consideration, such
shares shall be deemed to be fully paid and nonassessable. In the case of a
stock dividend, that part of the surplus of the Savings Bank which is
transferred to stated capital upon the issuance of shares as a share dividend
shall be deemed to be the consideration for their issuance.
Except for shares issuable in connection with the conversion of the Savings
Bank from the mutual to stock form of capitalization, no shares of common stock
(including shares issuable upon conversion, exchange or exercise of other
securities) shall be issued, directly or indirectly, to officers, directors, or
controlling persons of the Savings Bank other than as part of a general public
offering or as qualifying shares to a director, unless their issuance or the
plan under which they would be issued has been approved by a majority of the
total votes eligible to be cast at a legal meeting.
Nothing contained in this section 5 (or in any supplementary sections
hereto) shall entitle the holders of any class or series of capital stock to
vote as a separate class or series or to more than one vote per share, except as
to the cumulation of votes for the election of directors: Provided, that this
restriction on voting separately by class or series shall not apply:
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(i) To any provision which would authorize the holders of preferred
stock, voting as a class or series, to elect some members of the board of
directors, less than a majority thereof, in the event of default in the
payment of dividends on any class or series of preferred stock;
(ii) To any provision which would require the holders of preferred
stock, voting as a class or series, to approve the merger or consolidation
of the Savings Bank with another corporation or the sale, lease, or
conveyance (other than by mortgage or pledge) of properties or business in
exchange for securities of a corporation other than the Savings Bank if the
preferred stock is exchanged for securities of such other corporation:
Provided, that no provision may require such approval for transactions
undertaken with the assistance or pursuant to the direction of the Office,
Federal Deposit Insurance Corporation or the Resolution Trust Corporation;
(iii) To any amendment which would adversely change the specific
terms of any class or series of capital stock as set forth in this Section
5 (or in any supplementary sections hereto), including any amendment which
would create or enlarge any class or series ranking prior thereto in rights
and preferences. An amendment which increases the number of authorized
shares of any class or series of capital stock, or substitutes the
surviving Savings Bank in a merger or consolidation for the Savings Bank,
shall not be considered to be such an adverse change.
A description of the different classes and series, if any, of the Savings
Bank's capital stock and a statement of the designations, and the relative
rights, preferences, and limitations of the shares of each class of and series,
if any, of capital stock are as follows:
A. COMMON STOCK. Except as provided in this Section 5 (or in any
supplementary sections thereto) the holders of common stock shall exclusively
possess all voting power. Each holder of shares of common stock shall be
entitled to one vote for each share held by such holder, except as to the
cumulation of votes for the election of directors.
Whenever there shall have been paid, or declared and set aside for payment,
to the holders of the outstanding shares of any class of stock having preference
over the common stock as to the payment of dividends, the full amount of
dividends and of sinking fund, retirement fund, or other retirement payments, if
any, to which such holders are respectively entitled in preference to the common
stock, then dividends may be paid on the common stock and on any class or series
of stock entitled to participate therewith as to dividends out of any assets
legally available for the payment of dividends.
In the event of any liquidation, dissolution, or winding up of the Savings
Bank, the holders of the common stock (and the holders of any class or series of
stock entitled to participate with the common stock in the distribution of
assets) shall be entitled to receive, in cash or in kind, the assets of the
Savings Bank available for distribution remaining after: (i) payment or
provision for payment of the Savings Bank's debts and liabilities; (ii)
distributions or provision for distributions in settlement of its liquidation
account; and (iii) distributions or provision for distributions to holders of
any class or series of stock having preference over the common stock in the
liquidation, dissolution, or winding up of the Savings Bank. Each share of
common stock shall have the same relative rights as and be identical in all
respects with all the other shares of common stock.
B. PREFERRED STOCK. The Savings Bank may provide in supplementary
sections to its charter for one or more classes of preferred stock, which shall
be separately identified. The shares of any class may be divided into and
issued in series, with each series separately designated so as to distinguish
the shares thereof from the shares of all other series and classes. The terms
of each series shall be set forth in a supplementary section to the charter.
All shares of the same class shall be identical except as to the following
relative rights and preferences, as to which there may be variations between
different series:
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(a) The distinctive serial designation and the number of shares
constituting such series;
(b) The dividend rate or the amount of dividends to be paid on the shares
of such series, whether dividends shall be cumulative and, if so, from which
date(s) the payment date(s) for dividends, and the participating or other
special rights, if any, with respect to dividends;
(c) The voting powers, full or limited, if any, of shares of such series;
(d) Whether the shares of such series shall be redeemable and, if so, the
price(s) at which, and the terms and conditions on which such shares may be
redeemed;
(e) The amount(s) payable upon the shares of such series in the event of
voluntary or involuntary liquidation, dissolution, or winding up of the Savings
Bank;
(f) Whether the shares of such series shall be entitled to the benefit of
a sinking or retirement fund to be applied to the purchase or redemption of such
shares, and if so entitled, the amount of such fund and the manner of its
application, including the price(s) at which such shares may be redeemed or
purchased through the application of such fund;
(g) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes of stock of the Savings
Bank and, if so, the conversion price(s) or the rate(s) of exchange, and the
adjustments thereof, if any, at which such conversion or exchange may be made,
and any other terms and conditions of such conversion or exchange;
(h) The price or other consideration for which the shares of such series
shall be issued; and
(i) Whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of serial preferred
stock and whether such shares may be reissued as shares of the same or any other
series of serial preferred stock.
Each share of each series of serial preferred stock shall have the same
relative rights as and be identical in all respects with all the other shares of
the same series.
The board of directors shall have authority to divide, by the adoption of
supplementary charter sections, any authorized class of preferred stock into
series, and, within the limitations set forth in this section and the remainder
of this charter, fix and determine the relative rights and preferences of the
shares of any series so established.
Prior to the issuance of any preferred shares of a series established by a
supplementary charter section adopted by the board of directors, the Savings
Bank shall file with the secretary to the board a dated copy of that
supplementary section of this charter establishing and designating the series
and fixing and determining the relative rights and preferences thereof.
SECTION 6. PREEMPTIVE RIGHTS. Holders of the capital stock of the Savings
Bank shall not be entitled to preemptive rights with respect to any shares of
the Savings Bank which may be issued.
SECTION 7. LIQUIDATION ACCOUNT. Pursuant to the requirements of the
Office's Regulations (12 CFR Subchapter D), the Savings Bank shall establish and
maintain a liquidation account for the benefit of its savings account holders as
of December 31, 1994 and June 30, 1996. In the event of a complete liquidation
of the Savings Bank, it shall comply with such regulations with respect to the
amount and the priorities on liquidation of each of the Savings Bank's eligible
savers' inchoate interest in the liquidation account, to the extent it is still
in existence: Provided, that an eligible savers' inchoate interest in the
liquidation account shall not entitle such eligible saver to any voting rights
at meetings of the Savings Bank's stockholders.
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SECTION 8. DIRECTORS. The Savings Bank shall be under the direction of a
Board of Directors. The authorized number of directors, as stated in the Savings
Bank's bylaws, shall not be fewer than five nor more than fifteen except when a
greater number is approved by the Director of the Office.
SECTION 9. AMENDMENT OF CHARTER. Except as provided in Section 5, no
amendment, addition, alteration, change, or repeal of this charter shall be
made, unless such is first proposed by the Board of Directors of the Savings
Bank, then preliminarily approved by the Office, which preliminary approval may
be granted by the Office pursuant to regulations specifying preapproved charter
amendments, and thereafter approved by the shareholders by a majority of the
total votes eligible to be cast at a legal meeting. Any amendment, addition,
alteration, change, or repeal so acted upon shall be effective upon filing with
the Office in accordance with regulatory procedures or on such other date as the
Office may specify in its preliminary approval.
Attest: By:
--------------------------- ----------------------------
Secretary Chief Executive Officer
Fulton Savings Bank, FSB Fulton Savings Bank, FSB
Declared effective this ____ day of _________________, 1996.
Office of Thrift Supervision
By: By:
------------------------------- ----------------------------
Secretary Director
Office of Thrift Supervision Office of Thrift Supervision
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EXHIBIT C
BYLAWS
FULTON SAVINGS BANK, FSB
ARTICLE I - HOME OFFICE
The home office of Fulton Savings Bank, FSB ("Savings Bank"), shall be
located at 427 Monroe Street, in the City of Fulton, the County of Callaway, in
the State of Missouri.
ARTICLE II - SHAREHOLDERS
SECTION 1. PLACE OF MEETINGS. All annual and special meetings of
shareholders shall be held at the home office of the Savings Bank or at such
other place in the State of Missouri as the Board of Directors may determine.
SECTION 2. ANNUAL MEETING. A meeting of the shareholders of the Savings
Bank for the election of directors and for the transaction of any other business
of the Savings Bank shall be held annually within 120 days after the end of the
Savings Bank's fiscal year on the third Wednesday of August, if not a legal
holiday, and if a legal holiday, then on the next day following which is not a
legal holiday, at 10:00 a.m., Central Time, or at such other date and time
within such 120-day period as the Board of Directors may determine.
SECTION 3. SPECIAL MEETINGS. Special meetings of the shareholders for
any purpose or purposes, unless otherwise prescribed by the regulations of the
Office of Thrift Supervision ("Office"), may be called at any time by the
Chairman of the Board, the President, or a majority of the Board of Directors,
and shall be called by the Chairman of the Board, the President, or the
Secretary upon the written request of the holders of not less than one-tenth of
all of the outstanding capital stock of the Savings Bank entitled to vote at the
meeting. Such written request shall state the purpose or purposes of the meeting
and shall be delivered to the home office of the Savings Bank addressed to the
Chairman of the Board, the President, or the Secretary.
SECTION 4. CONDUCT OF MEETINGS. Annual and special meetings shall be
conducted in accordance with rules and procedures adopted by the Board of
Directors. The Board of Directors shall designate, when present, either the
Chairman of the Board or President to preside at such meetings.
SECTION 5. NOTICE OF MEETINGS. Written notice stating the place, day,
and hour of the meeting and the purpose(s) for which the meeting is called shall
be delivered not fewer than 10 nor more than 50 days before the date of the
meeting, either personally or by mail, by or at the direction of the Chairman of
the Board, the President, or the Secretary, or the directors calling the
meeting, to each shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the mail,
addressed to the shareholder at the address as it appears on the stock transfer
books or records of the Savings Bank as of the record date prescribed in Section
6 of this Article II with postage prepaid. When any shareholders' meeting,
either annual or special, is adjourned for 30 days or more, notice of the
adjourned meeting shall be given as in the case of an original meeting. It shall
not be necessary to give any notice of the time and place of any meeting
adjourned for less than 30 days or of the business to be transacted at the
meeting, other than an announcement at the meeting at which such adjournment is
taken.
SECTION 6. FIXING OF RECORD DATE. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment, or shareholders entitled to receive payment of any dividend, or
in order to make a determination of shareholders for any other proper purpose,
the Board of Directors shall fix in advance a date as the record date for any
such determination of shareholders. Such date in any case shall be not more than
60 days and, in case of a meeting of shareholders, not fewer than 10 days prior
to the date on which the particular action requiring such determination of
shareholders is to be taken. When a determination of
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shareholders entitled to vote at any meeting of shareholders has been made as
provided in this section, such determination shall apply to any adjournment.
SECTION 7. VOTING LISTS. At least 20 days before each meeting of the
shareholders, the officer or agent having charge of the stock transfer books for
shares of the Savings Bank shall make a complete list of the shareholders
entitled to vote at such meeting, or any adjournment, arranged in alphabetical
order, with the address and the number of shares held by each. This list of
shareholders shall be kept on file at the home office of the Savings Bank and
shall be subject to inspection by any shareholder at any time during usual
business hours for a period of 20 days prior to such meeting. Such list shall
also be produced and kept open at the time and place of the meeting and shall be
subject to inspection by any shareholder during the entire time of the meeting.
The original stock transfer book shall constitute prima facie evidence of the
shareholders entitled to examine such list or transfer books or to vote at any
meeting of shareholders.
In lieu of making the shareholder list available for inspection by
shareholders as provided in the preceding paragraph, the Board of Directors may
perform such acts as required by paragraphs (a) and (b) of Rule 14a-7 of the
General Rules and Regulations under the Securities Exchange Act of 1934, as may
be duly requested in writing, with respect to any matter which may be properly
considered at a meeting of shareholders, by any shareholder who is entitled to
vote on such matter and who shall defray the reasonable expenses to be incurred
by the Savings Bank in performance of the act or acts required.
SECTION 8. QUORUM. A majority of the outstanding shares of the Savings
Bank entitled to vote, represented in person or by proxy, shall constitute a
quorum at a meeting of shareholders. If less than a majority of the outstanding
shares is represented at a meeting, a majority of the shares so represented may
adjourn the meeting from time to time without further notice. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to constitute less than a quorum.
SECTION 9. PROXIES. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or by his or her duly
authorized attorney in fact. Proxies solicited on behalf of the management shall
be voted as directed by the shareholder or, in the absence of such direction, as
determined by a majority of the Board of Directors. No proxy shall be valid more
than eleven months from the date of its execution except for a proxy coupled
with an interest.
SECTION 10. VOTING OF SHARES IN THE NAME OF TWO OR MORE PERSONS. When
ownership stands in the name of two or more persons, in the absence of written
directions to the Savings Bank to the contrary, at any meeting of the
shareholders of the Savings Bank any one or more of such shareholders may cast,
in person or by proxy, all votes to which such ownership is entitled. In the
event an attempt is made to cast conflicting votes, in person or by proxy, by
the several persons in whose names shares of stock stand, the vote or votes to
which those persons are entitled shall be cast as directed by a majority of
those holding such shares and present in person or by proxy at such meeting, but
no votes shall be cast for such stock if a majority cannot agree.
SECTION 11. VOTING OF SHARES BY CERTAIN HOLDERS. Shares standing in the
name of another corporation may be voted by any officer, agent, or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the Board of Directors of such corporation may determine. Shares held by an
administrator, executor, guardian, or conservator may be voted by him, either in
person or by proxy, without a transfer of such shares into his or her name.
Shares standing in the name of a trustee may be voted by him or her, either in
person or by proxy, but no trustee shall be entitled to vote shares held by him
or her without a transfer of such shares into his name. Shares standing in the
name of a receiver may be voted by such receiver, and shares held by or under
the control of a receiver may be voted by such receiver without the transfer
into his name if authority to do so is contained in an appropriate order of the
court or other public authority by which such receiver was appointed.
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A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the Savings Bank nor
shares held by another corporation, if a majority of the shares entitled to vote
for the election of directors of such other corporation are held by the Savings
Bank, shall be voted at any meeting or counted in determining the total number
of outstanding shares at any given time for purposes of any meeting.
SECTION 12. CUMULATIVE VOTING. Unless otherwise provided in the Savings
Bank's charter, every shareholder entitled to vote at an election for directors
shall have the right to vote, in person or by proxy, the number of shares owned
by the shareholder for as many persons as there are directors to be elected and
for whose election the shareholder has a right to vote, or to cumulate the votes
by giving one candidate as many votes as the number of such directors to be
elected multiplied by the number of shares shall equal or by distributing such
votes on the same principle among any number of candidates.
SECTION 13. INSPECTORS OF ELECTION. In advance of any meeting of
shareholders, the Board of Directors may appoint any persons other than nominees
for office as inspectors of election to act at such meeting or any adjournment.
The number of inspectors shall be either one or three. Any such appointment
shall not be altered at the meeting. If inspectors of election are not so
appointed, the Chairman of the Board or the President may, or on the request of
not fewer than 10 percent of the votes represented at the meeting shall, make
such appointment at the meeting. If appointed at the meeting, the majority of
the votes present shall determine whether one or three inspectors are to be
appointed. In case any person appointed as inspector fails to appear or fails or
refuses to act, the vacancy may be filled by appointment by the Board of
Directors in advance of the meeting or at the meeting by the Chairman of the
Board or the President.
Unless otherwise prescribed by regulations of the Office, the duties of
such inspectors shall include: determining the number of shares and the voting
power of each share, the shares represented at the meeting, the existence of a
quorum, and the authenticity, validity and effect of proxies; receiving votes,
ballots, or consents; hearing and determining all challenges and questions in
any way arising in connection with the rights to vote; counting and tabulating
all votes or consents; determining the result; and such acts as may be proper to
conduct the election or vote with fairness to all shareholders.
SECTION 14. NOMINATING COMMITTEE. The Board of Directors shall act as a
nominating committee for selecting the management nominees for election as
directors. Except in the case of a nominee substituted as a result of the death
or other incapacity of a management nominee, the nominating committee shall
deliver written nominations to the secretary at least 20 days prior to the date
of the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the Savings Bank. No nominations for
directors except those made by the nominating committee shall be voted upon at
the annual meeting unless other nominations by shareholders are made in writing
and delivered to the Secretary of the Savings Bank at least five days prior to
the date of the annual meeting. Upon delivery, such nominations shall be posted
in a conspicuous place in each office of the Savings Bank. Ballots bearing the
names of all persons nominated by the nominating committee and by shareholders
shall be provided for use at the annual meeting. However, if the nominating
committee shall fail or refuse to act at least 20 days prior to the annual
meeting, nominations for directors may be made at the annual meeting by any
shareholder entitled to vote and shall be voted upon.
SECTION 15. NEW BUSINESS. Any new business to be taken up at the annual
meeting shall be stated in writing and filed with the Secretary of the Savings
Bank at least five days before the date of the annual meeting, and all business
so stated, proposed, and filed shall be considered at the annual meeting; but no
other proposal shall be acted upon at the annual meeting. Any shareholder may
make any other proposal at the annual meeting and the same may be discussed and
considered, but unless stated in writing and filed with the Secretary at least
five days before the meeting, such proposal shall be laid over for action at an
adjourned, special, or annual meeting of the shareholders taking place 30 days
or more thereafter. This provision shall not prevent the consideration and
approval
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or disapproval at the annual meeting of reports of officers, directors, and
committees; but in connection with such reports, no new business shall be acted
upon at such annual meeting unless stated and filed as herein provided.
SECTION 16. INFORMAL ACTION BY SHAREHOLDERS. Any action required to be
taken at a meeting of the shareholders, or any other action which may be taken
at a meeting of shareholders, may be taken without a meeting if consent in
writing, setting forth the action so taken, shall be given by all of the
shareholders entitled to vote with respect to the subject matter.
ARTICLE III - BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the Savings Bank
shall be under the direction of its Board of Directors. The Board of Directors
shall annually elect a Chairman of the Board and a President from among its
members and shall designate, when present, either the Chairman of the Board or
the President to preside at its meetings.
SECTION 2. NUMBER AND TERM. The Board of Directors shall consist of seven
members and shall be divided into three classes as nearly equal in number as
possible. The members of each class shall be elected for a term of three years
and until their successors are elected and qualified. One class shall be elected
by ballot annually.
SECTION 3. REGULAR MEETINGS. A regular meeting of the Board of Directors
shall be held without other notice than this bylaw immediately after, and at the
same place as, the annual meeting of shareholders. The Board of Directors may
provide, by resolution, the time and place, within the Savings Bank's normal
lending territory, for the holding of additional regular meetings without other
notice than such resolution.
SECTION 4. QUALIFICATION. Each director shall at all times be the
beneficial owner of not less than 100 shares of capital stock of the Savings
Bank unless the Savings Bank is a wholly owned subsidiary of a holding company.
SECTION 5. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by or at the request of the Chairman of the Board, the President,
or one-third of the directors. The persons authorized to call special meetings
of the Board of Directors may fix any place, within the Savings Bank's normal
lending territory, as the place for holding any special meeting of the Board of
Directors called by such persons.
Members of the Board of Directors may participate in special meetings by
means of conference telephone or similar communications equipment by which all
persons participating in the meeting can hear each other. Such participations
shall constitute presence in person but shall not constitute attendance for the
purpose of compensation pursuant to Section 12 of this Article.
SECTION 6. NOTICE. Written notice of any special meeting shall be given
to each director at least two days prior thereto when delivered personally or by
telegram or at least five days prior thereto when delivered by mail at the
address at which the director is most likely to be reached. Such notice shall be
deemed to be delivered when deposited in the mail so addressed, with postage
prepaid if mailed or when delivered to the telegraph company if sent by
telegram. Any director may waive notice of any meeting by a writing filed with
the Secretary. The attendance of a director at a meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any meeting of the Board of Directors need be
specified in the notice of waiver of notice of such meeting.
SECTION 7. QUORUM. A majority of the number of directors fixed by Section
2 of this Article III shall constitute a quorum for the transaction of business
at any meeting of the Board of Directors; but if less than such majority is
present at a meeting, a majority of the directors present may adjourn the
meeting from time to time. Notice of any adjourned meeting shall be given in the
same manner as prescribed by Section 6 of this Article III.
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SECTION 8. MANNER OF ACTING. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors, unless a greater number is prescribed by regulation of the Office
or by these bylaws.
SECTION 9. ACTION WITHOUT A MEETING. Any action required or permitted to
be taken by the Board of Directors at a meeting may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the directors.
SECTION 10. RESIGNATION. Any director may resign at any time by sending a
written notice of such resignation to the home office of the Savings Bank
addressed to the Chairman of the Board or the President. Unless otherwise
specified, such resignation shall take effect upon receipt by the Chairman of
the Board or the President. More than three consecutive absences from regular
meetings of the Board of Directors, unless excused by resolution of the Board of
Directors, shall automatically constitute a resignation, effective when such
resignation is accepted by the Board of Directors.
SECTION 11. VACANCIES. Any vacancy occurring on the Board of Directors
may be filled by the affirmative vote of a majority of the remaining directors
although less than a quorum of the Board of Directors. A director elected to
fill a vacancy shall be elected to serve until the next election of directors by
the shareholders. Any directorship to be filled by reason of an increase in the
number of directors may be filled by election by the Board of Directors for a
term of office continuing only until the next election of directors by the
shareholders.
SECTION 12. COMPENSATION. Directors, as such, may receive a stated salary
for their services. By resolution of the Board of Directors, a reasonable fixed
sum, and reasonable expenses of attendance, if any, may be allowed for actual
attendance at each regular or special meeting of the Board of Directors. Members
of either standing or special committees may be allowed such compensation for
actual attendance at committee meetings as the Board of Directors may determine.
SECTION 13. PRESUMPTION OF ASSENT. A director of the Savings Bank who is
present at a meeting of the Board of Directors at which action on any
Association matter is taken shall be presumed to have assented to the action
taken unless his or her dissent or abstention shall be entered in the minutes of
the meeting or unless he or she shall file a written dissent to such action with
the person acting as the secretary of the meeting before the adjournment thereof
or shall forward such dissent by registered mail to the Secretary of the Savings
Bank within five days after the date a copy of the minutes of the meeting is
received. Such right to dissent shall not apply to a director who voted in favor
of such action.
SECTION 14. REMOVAL OF DIRECTORS. At a meeting of shareholders called
expressly for that purpose, any director may be removed for cause by a vote of
the holders of a majority of the shares then entitled to vote at an election of
directors. If less than the entire board is to be removed, no one of the
directors may be removed if the votes cast against the removal would be
sufficient to elect a director if then cumulatively voted at an election of the
class of directors of which such director is a part. Whenever the holders of the
shares of any class are entitled to elect one or more directors by the
provisions of the charter or supplemental sections thereto, the provisions of
this section shall apply, in respect to the removal of a director or directors
so elected, to the vote of the holders of the outstanding shares of that class
and not to the vote of the outstanding shares as a whole.
ARTICLE IV - EXECUTIVE AND OTHER COMMITTEES
SECTION 1. APPOINTMENT. The Board of Directors, by resolution adopted by
a majority of the full board, may designate the chief executive officer and two
or more of the other directors to constitute an executive committee. The
designation of any committee pursuant to this Article IV and the delegation of
authority shall not operate to relieve the Board of Directors, or any director,
of any responsibility imposed by law or regulation.
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SECTION 2. AUTHORITY. The executive committee, when the Board of
Directors is not in session, shall have and may exercise all of the authority of
the Board of Directors except to the extent, if any, that such authority shall
be limited by the resolution appointing the executive committee; and except also
that the executive committee shall not have the authority of the Board of
Directors with reference to: the declaration of dividends; the amendment of the
charter or bylaws of the Savings Bank, or recommending to the shareholders a
plan of merger, consolidation, or conversion; the sale, lease, or other
disposition of all or substantially all of the property and assets of the
Savings Bank otherwise than in the usual and regular course of its business; a
voluntary dissolution of the Savings Bank; a revocation of any of the foregoing;
or the approval of a transaction in which any member of the executive committee,
directly or indirectly, has any material beneficial interest.
SECTION 3. TENURE. Subject to the provisions of Section 8 of this Article
IV, each member of the executive committee shall hold office until the next
regular annual meeting of the Board of Directors following his or her
designation and until a successor is designated as a member of the executive
committee.
SECTION 4. MEETINGS. Regular meetings of the executive committee may be
held without notice at such times and places as the executive committee may fix
from time to time by resolution. Special meetings of the executive committee may
be called by any member thereof upon not less than one day's notice stating the
place, date, and hour of the meeting, which notice may be written or oral. Any
member of the executive committee may waive notice of any meeting and no notice
of any meeting need be given to any member thereof who attends in person. The
notice of a meeting of the executive committee need not state the business
proposed to be transacted at the meeting.
SECTION 5. QUORUM. A majority of the members of the executive committee
shall constitute a quorum for the transaction of business at any meeting
thereof, and action of the executive committee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.
SECTION 6. ACTION WITHOUT A MEETING. Any action required or permitted to
be taken by the executive committee at a meeting may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the members of the executive committee.
SECTION 7. VACANCIES. Any vacancy in the executive committee may be
filled by a resolution adopted by a majority of the full Board of Directors.
SECTION 8. RESIGNATIONS AND REMOVAL. Any member of the executive
committee may be removed at any time with or without cause by resolution adopted
by a majority of the full Board of Directors. Any member of the executive
committee may resign from the executive committee at any time by giving written
notice to the President or Secretary of the Savings Bank. Unless otherwise
specified, such resignation shall take effect upon its receipt; the acceptance
of such resignation shall not be necessary to make it effective.
SECTION 9. PROCEDURE. The executive committee shall elect a presiding
officer from its members and may fix its own rules of procedure which shall not
be inconsistent with these bylaws. It shall keep regular minutes of its
proceedings and report the same to the Board of Directors for its information at
the meeting held next after the proceedings shall have occurred.
SECTION 10. OTHER COMMITTEES. The Board of Directors may by resolution
establish an audit, loan, or other committee composed of directors as they may
determine to be necessary or appropriate for the conduct of the business of the
Savings Bank and may prescribe the duties, constitution, and procedures thereof.
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ARTICLE V - OFFICERS
SECTION 1. POSITIONS. The officers of the Savings Bank shall be a
President, one or more Vice Presidents, a Secretary, and a Treasurer, each of
whom shall be elected by the Board of Directors. The Board of Directors may also
designate the Chairman of the Board as an officer. The President shall be the
Chief Executive Officer unless the Board of Directors designates the Chairman of
the Board as Chief Executive Officer. The President shall be a Director of the
Savings Bank. The offices of the Secretary and Treasurer may be held by the same
person and a Vice President may also be either the Secretary or the Treasurer.
The Board of Directors may designate one or more vice presidents as Executive
Vice President or Senior Vice President. The Board of Directors may also elect
or authorize the appointment of such other officers as the business of the
Savings Bank may require. The officers shall have such authority and perform
such duties as the Board of Directors may from time to time authorize or
determine. In the absence of action by the Board of Directors, the officers
shall have such powers and duties as generally pertain to their respective
offices.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the Savings Bank
shall be elected annually at the first meeting of the Board of Directors held
after each annual meeting of the stockholders. If the election of officers is
not held at such meeting, such election shall be held as soon thereafter as
possible. Each officer shall hold office until a successor has been duly elected
and qualified or until the officer's death, resignation, or removal in the
manner hereinafter provided. Election or appointment of an officer, employee, or
agent shall not of itself create contractual rights. The Board of Directors may
authorize the Savings Bank to enter into an employment contract with any officer
in accordance with regulations of the Office; but no such contract shall impair
the right of the Board of Directors to remove any officer at any time in
accordance with Section 3 of this Article V.
SECTION 3. REMOVAL. Any officer may be removed by the Board of Directors
whenever in its judgment the best interests of the Savings Bank will be served
thereby, but such removal, other than for cause, shall be without prejudice to
any contractual rights, if any, of the person so removed.
SECTION 4. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise may be filled by the Board
of Directors for the unexpired portion of the term.
SECTION 5. REMUNERATION. The remuneration of the officers shall be fixed
from time to time by the Board of Directors.
ARTICLE VI - CONTRACTS, LOANS, CHECKS, AND DEPOSITS
SECTION 1. CONTRACTS. To the extent permitted by regulations of the
Board, and except as otherwise prescribed by these bylaws with respect to
certificates for shares, the Board of Directors may authorize any officer,
employee, or agent of the Savings Bank to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the Savings Bank. Such
authority may be general or confined to specific instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of the Savings
Bank and no evidence of indebtedness shall be issued in its name unless
authorized by the Board of Directors. Such authority may be general or confined
to specific instances.
SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts, or other orders for
the payment of money, notes, or other evidences of indebtedness issued in the
name of the Savings Bank shall be signed by one or more officers, employees, or
agents of the Savings Bank in such manner as shall from time to time be
determined by the Board of Directors.
SECTION 4. DEPOSITS. All funds of the Savings Bank not otherwise employed
shall be deposited from time to time to the credit of the Savings Bank in any
duly authorized depositories as the Board of Directors may select.
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ARTICLE VII - CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares of
capital stock of the Savings Bank shall be in such form as shall be determined
by the Board of Directors and approved by the Office. Such certificates shall be
signed by the Chief Executive Officer or by any other officer of the Savings
Bank authorized by the Board of Directors, attested by the Secretary or an
Assistant Secretary, and sealed with the corporate seal or a facsimile thereof.
The signatures of such officers upon a certificate may be facsimiles if the
certificate is manually signed on behalf of a transfer agent or a registrar
other than the Savings Bank itself or one of its employees. Each certificate for
shares of capital stock shall be consecutively numbered or otherwise identified.
The name and address of the person to whom the shares are issued, with the
number of shares and date of issue, shall be entered on the stock transfer books
of the Savings Bank. All certificates surrendered to the Savings Bank for
transfer shall be canceled and no new certificate shall be issued until the
former certificate for a like number of shares has been surrendered and
canceled, except that in the case of a lost or destroyed certificate, a new
certificate may be issued upon such terms and indemnity to the Savings Bank as
the Board of Directors may prescribe.
SECTION 2. TRANSFER OF SHARES. Transfer of shares of capital stock of the
Savings Bank shall be made only on its stock transfer books. Authority for such
transfer shall be given only by the holder of record or by his legal
representative, who shall furnish proper evidence of such authority, or by his
attorney authorized by a duly executed power of attorney and filed with the
Savings Bank. Such transfer shall be made only on surrender for cancellation of
the certificate for such shares. The person in whose name shares of capital
stock stand on the books of the Savings Bank shall be deemed by the Savings Bank
to be the owner for all purposes.
ARTICLE VIII - FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the Savings Bank shall end on the 30th day of April of
each year. The Savings Bank shall be subject to an annual audit as of the end of
its fiscal year by independent public accountants appointed by and responsible
to the Board of Directors. The appointment of such accountants shall be subject
to annual ratification by the shareholders.
ARTICLE IX - DIVIDENDS
Subject to the terms of the Savings Bank's charter and the regulations and
orders of the Office, the Board of Directors may, from time to time, declare,
and the Savings Bank may pay, dividends on its outstanding classes of capital
stock.
ARTICLE X - CORPORATE SEAL
The Board of Directors shall provide a Savings Bank seal which shall be two
concentric circles between which shall be the name of the Savings Bank. The year
of incorporation or an emblem may appear in the center.
ARTICLE XI - AMENDMENTS
These bylaws may be amended in a manner consistent with regulations of the
Office at any time by a majority vote of the full Board of Directors or by a
majority vote of the votes cast by the stockholders of the Savings Bank at any
legal meeting.
C-8
<PAGE>
PROSPECTUS SUPPLEMENT EXHIBIT 99.6
FULTON BANCORP, INC.
FULTON SAVINGS BANK, FSB
RETIREMENT TRUST
This Prospectus Supplement relates to the offer and sale to participants
(the "Participants") in the Fulton Savings Bank, FSB Retirement Trust (the
"Plan" or the "401(k) Plan") of participation interests and shares of Fulton
Bancorp, Inc. common stock, par value $.01 per share (the "Common Stock"), as
set forth herein.
In connection with the proposed conversion of Fulton Savings Bank, FSB (the
"Savings Bank" or "Employer") from a federally chartered mutual savings bank to
a federally chartered stock savings bank, a holding company, Fulton Bancorp,
Inc. (the "Holding Company"), has been formed. The simultaneous conversion of
the Savings Bank to stock form, the issuance of the Savings Bank's common stock
to the Holding Company and the offer and sale of the Holding Company's Common
Stock to the public are herein referred to as the "Conversion." The Board of
Directors of the Savings Bank has amended the 401(k) Plan to permit a one-time
investment of the Plan assets in Common Stock of the Holding Company. The Plan
will permit Participants to direct the trustee of the Plan to purchase Common
Stock with amounts in the Plan attributable to such Participants to a maximum of
__% of a Participant's vested account balance at December 31, 1995. This
Prospectus Supplement relates to the election of a Participant to direct the
purchase of Common Stock in connection with the Conversion.
The Prospectus dated _________, 1996 of the Holding Company (the
"Prospectus") which is attached to this Prospectus Supplement includes detailed
information with respect to the Conversion, the Common Stock and the financial
condition, results of operation and business of the Savings Bank and the Holding
Company. This Prospectus Supplement, which provides detailed information with
respect to the Plan, should be read only in conjunction with the Prospectus.
Terms not otherwise defined in this Prospectus Supplement are defined in the
Plan or the Prospectus.
A PARTICIPANT'S ELIGIBILITY TO PURCHASE COMMON STOCK IN THE CONVERSION
THROUGH THE PLAN IS SUBJECT TO THE PARTICIPANT'S GENERAL ELIGIBILITY TO PURCHASE
SHARES OF COMMON STOCK IN THE CONVERSION AND THE MAXIMUM AND MINIMUM LIMITATIONS
SET FORTH IN THE PLAN OF CONVERSION. SEE "THE CONVERSION" AND "--LIMITATIONS ON
PURCHASES OF SHARES" IN THE PROSPECTUS.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY EACH
PARTICIPANT, SEE "RISK FACTORS" IN THE PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION ("SEC"), THE OFFICE OF THRIFT
SUPERVISION ("OTS"), THE FEDERAL DEPOSIT INSURANCE CORPORATION
("FDIC") OR ANY OTHER FEDERAL AGENCY OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SEC, THE OTS, THE FDIC OR ANY OTHER
AGENCY OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus Supplement is ____________, 1996.
<PAGE>
No person has been authorized to give any information or to make any
representations other than those contained in the Prospectus or this Prospectus
Supplement in connection with the offering made hereby, and, if given or made,
such information and representations must not be relied upon as having been
authorized by the Holding Company, the Savings Bank or the Plan. This Prospectus
Supplement does not constitute an offer to sell or solicitation of an offer to
buy any securities in any jurisdiction to any person to whom it is unlawful to
make such offer or solicitation in such jurisdiction. Neither the delivery of
this Prospectus Supplement and the Prospectus nor any sale made hereunder shall
under any circumstances create any implication that there has been no change in
the affairs of the Savings Bank or the Plan since the date hereof, or that the
information herein contained or incorporated by reference is correct as of any
time subsequent to the date hereof. This Prospectus Supplement should be read
only in conjunction with the Prospectus that is attached herein and should be
retained for future reference.
S-2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
The Offering
Securities Offered...................................................... S-4
Election to Purchase Common Stock in the Conversion..................... S-4
Value of Participation Interests........................................ S-4
Method of Directing Transfer............................................ S-4
Time for Directing Transfer............................................. S-4
Irrevocability of Transfer Direction.................................... S-5
Purchase Price of Common Stock.......................................... S-5
Nature of a Participant's Interest in the Holding Company Common Stock.. S-5
Voting and Tender Rights of Common Stock................................ S-5
Description of the Plan
Introduction............................................................ S-5
Eligibility and Participation........................................... S-6
Contributions Under the Plan............................................ S-6
Limitations and Contributions........................................... S-7
Investments of Contributions............................................ S-8
Benefits Under the Plan................................................. S-9
Withdrawals and Distributions from the Plan............................. S-9
Administration of the Plan.............................................. S-10
Reports to Plan Participants............................................ S-10
Plan Administrator...................................................... S-10
Amendment and Termination............................................... S-10
Merger, Consolidation or Transfer....................................... S-11
Federal Income Tax Consequences......................................... S-11
Restrictions on Resale.................................................. S-13
Legal Opinions............................................................... S-13
Investment Form.............................................................. S-14
</TABLE>
S-3
<PAGE>
THE OFFERING
SECURITIES OFFERED
The securities offered hereby are participation interests in the Plan and
up to _______ shares, at the actual purchase price of $10.00 per share, of
Common Stock which may be acquired by the Plan for the accounts of employees
participating in the Plan. The Holding Company is the issuer of the Common
Stock. Only employees and former employees of the Savings Bank and their
beneficiaries may participate in the Plan. Information with regard to the Plan
is contained in this Prospectus Supplement and information with regard to the
Conversion and the financial condition, results of operations and business of
the Savings Bank and the Holding Company is contained in the attached
Prospectus. The address of the principal executive office of the Savings Bank is
410 Market Street, P.O. Box 700, Fulton, Missouri 65251-0700. The Savings Bank's
telephone number is (573) 642-6618.
ELECTION TO PURCHASE COMMON STOCK IN THE CONVERSION
In connection with the Savings Bank's Conversion, the Savings Bank has
amended the 401(k) Plan to permit each Participant to direct the trustees of the
Plan ("Trustees") to permit the creation of an Employer Stock Fund (the
"Employer Stock Fund") and authorized, at the election of a Participant,
transfer up to __% of a Participant's vested beneficial interest in the assets
of the Plan at December 31, 1995 to the Employer Stock Fund and to use such
funds to purchase Common Stock issued in connection with the Conversion. Amounts
transferred will include salary deferral, Employer Matching and profit sharing
contributions. The Employer Stock Fund will consist of investments in the Common
Stock made on or after the effective date of the Conversion. Funds not
transferred to the Employer Stock Fund will remain in the other investment pool
of the Plan (the "General Fund") as directed by an investment committee
authorized by the Board of Directors of the Savings Bank. A PARTICIPANT'S
ABILITY TO TRANSFER FUNDS TO THE EMPLOYER STOCK FUND IN THE CONVERSION IS
SUBJECT TO THE PARTICIPANT'S GENERAL ELIGIBILITY TO PURCHASE SHARES OF COMMON
STOCK IN THE CONVERSION. FOR GENERAL INFORMATION AS TO THE ABILITY OF THE
PARTICIPANTS TO PURCHASE SHARES IN THE CONVERSION, SEE "THE CONVERSION -- THE
SUBSCRIPTION, DIRECT COMMUNITY AND PUBLIC OFFERINGS" IN THE ATTACHED PROSPECTUS.
VALUE OF PARTICIPATION INTERESTS
The assets of the Plan are valued on an ongoing basis and each Participant
is informed of the value of his or her beneficial interest in the Plan an annual
basis. This value represents the market value of past contributions to the Plan
by the Savings Bank and by the Participants and earnings thereon, less previous
withdrawals.
METHOD OF DIRECTING TRANSFER
The last page of this Prospectus Supplement is an investment form to direct
a transfer to the Employer Stock Fund (the "Investment Form"). If a Participant
wishes to transfer up to ___% of the Participant's vested beneficial interest in
the assets of the Plan at December 31, 1995 to the Employer Stock Fund to
purchase Common Stock issued in connection with the Conversion, the Participant
should indicate that decision in Part 2 of the Investment Form. If a
Participant does not wish to make such an election, he or she does not need to
take any action.
TIME FOR DIRECTING TRANSFER
The deadline for submitting a direction to transfer amounts to the Employer
Stock Fund in order to purchase Common Stock issued in connection with the
Conversion is ______, 1996. The Investment Form should be returned to
__________________________________________________ by the close of business on
such date.
S-4
<PAGE>
IRREVOCABILITY OF TRANSFER DIRECTION
A Participant's direction to transfer amounts credited to such
Participant's account in the Plan to the Employer Stock Fund in order to
purchase shares of Common Stock in connection with the Conversion shall be
irrevocable. Participants, however, will be able to direct the sale of Common
Stock, as explained below. Special restrictions may apply to transfers directed
by those Participants who are executive officers, directors and principal
shareholders of the Holding Company who are subject to the provisions of Section
16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
PURCHASE PRICE OF COMMON STOCK
The funds transferred to the Employer Stock Fund for the purchase of Common
Stock in connection with the Conversion will be used by the Trustees to purchase
shares of Common Stock. The price paid for such shares of Common Stock will be
the same price as is paid by all other persons who purchase shares of Common
Stock in the Conversion.
NATURE OF A PARTICIPANT'S INTEREST IN THE HOLDING COMPANY STOCK
The Holding Company Stock purchased for an account of a Participant will be
held in the name of the Trustee of the Plan in the Employer Stock Fund. Any
earnings, losses or expenses with respect to the Holding Company Stock,
including dividends and appreciation or depreciation in value, will be credited
or debited to the account and will not be credited to or borne by any other
accounts.
VOTING AND TENDER RIGHTS OF COMMON STOCK
The Trustees generally will exercise voting and tender rights attributable
to all Common Stock held by the Trust as directed by Participants with an
interest in the Employer Stock Fund. With respect to each matter as to which
holders of Common Stock have the right to vote, each Participant will be
allocated a number of voting instruction rights reflecting such participant's
proportionate interest in the Employer Stock Fund. The percentage of shares of
Common Stock held in the Employer Stock Fund that are voted in the affirmative
or negative on each matter shall be the same percentage of the total number of
voting instruction rights that are exercised in either the affirmative or
negative, respectively.
DESCRIPTION OF THE PLAN
INTRODUCTION
One December 22, 1992, The Savings Bank adopted the Plan, which amended and
restated an earlier retirement plan established on January 1, 1990. The Plan
was amended effective _______, 1996 to permit participants to direct the
investment of Plan assets in the Employer Stock Fund. The Plan is a cash or
deferred arrangement established in accordance with the requirement under
Section 401(a) and Section 401(k) of the Internal Revenue Code of 1986, as
amended (the "Code").
The Savings Bank intends that the Plan, in operation, will comply with the
requirements under Section 401(a) and Section 401(k) of the Code. The Savings
Bank will adopt any amendments to the Plan that may be necessary to ensure the
qualified status of the Plan under the Code and applicable Treasury Regulations.
The Savings Bank has received a determination from the Internal Revenue Service
("IRS") that the Plan is qualified under Section 401(a) of the Code and that it
satisfies the requirements for a qualified cash or deferred arrangement under
Section 401(k) of the Code.
S-5
<PAGE>
EMPLOYEE RETIREMENT INCOME SECURITY ACT. The Plan is an "individual
account plan" other than a "money purchase pension plan" within the meaning of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). As
such, the Plan is subject to all of the provisions of Title I (Protection of
Employee Benefit Rights) and Title II (Amendments to the Internal Revenue Code
Relating to Retirement Plans) of ERISA, except the funding requirements
contained in Part 3 of Title I of ERISA, which by their terms do not apply to an
individual account plan (other than a money purchase pension plan). The Plan is
not subject to Title IV (Plan Termination Insurance) of ERISA. Neither the
funding requirements contained in Title IV of ERISA nor the plan termination
insurance provisions contained in Title IV will be extended to Participants or
beneficiaries under the Plan.
APPLICABLE FEDERAL LAW REQUIRES THE PLAN TO IMPOSE SUBSTANTIAL RESTRICTIONS
ON THE RIGHT OF A PLAN PARTICIPANT TO WITHDRAW AMOUNTS HELD FOR HIS OR HER
BENEFIT UNDER THE PLAN PRIOR TO THE PARTICIPANT'S TERMINATION OF EMPLOYMENT WITH
THE SAVINGS BANK. A SUBSTANTIAL FEDERAL TAX PENALTY MAY ALSO BE IMPOSED ON
WITHDRAWALS MADE PRIOR TO THE PARTICIPANT'S ATTAINMENT OF AGE 59 1/2, UNLESS A
PARTICIPANT RETIRES AS PERMITTED UNDER THIS PLAN REGARDLESS OF WHETHER SUCH A
WITHDRAWAL OCCURS DURING HIS OR HER EMPLOYMENT WITH THE SAVINGS BANK OR AFTER
TERMINATION OF EMPLOYMENT.
REFERENCE TO FULL TEXT OF PLAN. The following statements are summaries of
certain provisions of the Plan. They are not complete and are qualified in
their entirety by the full text of the Plan, which is filed as an exhibit to the
registration statement filed with the SEC. Copies of the Plan are available to
all employees by filing a request with the Plan Administrator. Each Employee is
urged to read carefully the full text of the Plan.
ELIGIBILITY AND PARTICIPATION
Any employee of the Savings Bank is eligible to participate and will become
a Participant in the Plan on the first day of the month coinciding with or next
following completion of a minimum of 1,000 hours of service with the Savings
Bank within a consecutive 12 month period of employment and the attainment of
age 19. The Plan fiscal year is the calendar year ("Plan Year"). Directors who
are not employees of the Savings Bank are not eligible to participate in the
Plan.
During 1995, approximately ___ employees elected to contribute to the Plan.
CONTRIBUTIONS UNDER THE PLAN
PARTICIPANT CONTRIBUTIONS. Each Participant in the Plan is permitted to
elect to reduce such Participant's Compensation (as defined below) pursuant to a
salary reduction agreement and have that amount contributed to the Plan on such
Participant's behalf. Such amounts are credited to the Participant's "Deferral
Contributions Account." For purposes of the Plan, "Compensation" means a
Participant's total amount of earnings reportable W-2 wages for federal income
tax withholding purposes plus a Participant's elective deferrals pursuant to a
salary reduction agreement under the Plan or any elective deferrals to a Section
125 plan. Due to statutory changes, effective January 1, 1994, the annual
Compensation of each Participant taken into account under the Plan is limited to
$150,000 (adjusted for cost of living as permitted by the Code). A Participant
may elect to modify the amount contributed to the Plan under the participant's
salary reduction agreement during the Plan Year. Deferral contributions are
generally transferred by the Savings Bank to the Trustee of the Plan on a
periodic basis.
EMPLOYER CONTRIBUTIONS. The Savings Bank currently makes an annual
contribution to the Plan of an amount equal to __% of each Participant's annual
salary reduction contributions, up to a maximum of __% of each Participant's
annual compensation. Such amounts are credited to the Participant's
"Nonelective Contributions Account."
S-6
<PAGE>
DISCRETIONARY CONTRIBUTIONS. The Savings Bank may also make discretionary
contributions to the Plan for each Plan Year. Participants who are in service
on the last day of the Plan Year and have completed 1,000 hours of service
during the Plan Year are eligible to share in the allocation of the
discretionary contributions (if any) for the Plan Year. The Savings Bank's
discretionary contributions are allocated among Participants eligible to share
in the allocation according to the relationship of each such Participant's
Compensation for the Plan Year to the Total Compensation of all such
Participants for such Plan Year. In addition, the Savings Bank may make
discretionary contributions on behalf of certain non-highly compensated
employees to the extent necessary to satisfy the Code's nondiscrimination
requirements (see below).
LIMITATIONS ON CONTRIBUTIONS
LIMITATIONS ON ANNUAL ADDITIONS AND BENEFITS. Pursuant to the requirements
of the Code, the Plan provides that the amount of contributions allocated to
each Participant's Account during any Plan Year may not exceed the lesser of 25%
of the Participant's "Section 415 Compensation" for the Plan Year or $30,000
(adjusted for increases in cost of living as permitted by the Code). A
Participant's "Section 415 Compensation" is a Participant's Compensation,
excluding any amount contributed to the Plan under a compensation reduction
agreement or any employer contribution to the Plan or to any other plan or
deferred compensation or any distributions from a plan of deferred compensation.
In addition, annual additions shall be limited to the extent necessary to
prevent the limitations for the combined plans of the Savings Bank from being
exceeded. To the extent that these limitations would be exceeded by reason of
excess annual additions to the Plan with respect to a Participant, such excess
will be reallocated to the remaining Participants who are eligible for an
allocation of Employer contributions for the Plan Year.
LIMITATION ON 401(K) PLAN CONTRIBUTIONS. The annual amount of deferred
compensation of a Participant (when aggregated with any elective deferrals of
the Participant under any other employer plan, a simplified employee pension
plan or a tax-deferred annuity) may not exceed $7,000, adjusted for increases in
the cost of living as permitted by the Code (the limitation for 1996 is $9,500).
Contributions in excess of this limitation ("excess deferrals") will be included
in the Participant's gross federal income tax purposes in the year they are
made. In addition, any such excess deferral will again be subject to federal
income tax when distributed by the Plan to the Participant, unless the excess
deferral (together with any income allocable thereto) is distributed to the
Participant not later than the first April 15th following the close of the
taxable year in which the excess deferral is made. Any income on the excess
deferral that is distributed not later than such date shall be treated, for
federal income tax purposes, as earned and received by the Participant in the
taxable year in which the excess deferral is made.
LIMITATION ON PLAN CONTRIBUTIONS FOR HIGHLY COMPENSATED EMPLOYEES.
Sections 401(k) and 401(m) of the Code limit the amount of deferred compensation
contributed to the Plan in any Plan Year on behalf of Highly Compensated
Employees (defined below) in relation to the amount of deferred compensation
contributed by or on behalf of all other employees eligible to participate in
the Plan. Specifically, the actual deferral percentage for a Plan Year (i.e.,
the average of the ratios, calculated separately for each eligible employee in
each group, by dividing the amount of Deferral Contributions credited to the
Deferral Contributions Account of such eligible employee by such employee's
compensation for the Plan Year) of the Highly Compensated Employees may not
exceed the greater of (a) 125% of the actual deferred percentage of all other
eligible employees, or (b) the lesser of (i) 200% of the actual deferred
percentage of all other eligible employees, or (ii) the actual deferral
percentage of all other eligible employees plus two percentage points. In
addition, the actual contribution percentage for a Plan Year (i.e., the average
of the ratios calculated separately for each eligible employee in each group, by
dividing the amount of employer contributions credited to the Matching
Contributions Account of such eligible employee by each eligible employee's
compensation for the Plan Year) of the Highly Compensated Employees may not
exceed the greater of (a) 125% of the actual contribution percentage of all
other eligible employees, or (b) the lesser of (i) 200% of the actual
contributions percentage of all other eligible employees, or (ii) the actual
contribution percentage of all other eligible employees plus two percentage
points.
S-7
<PAGE>
In general, a Highly Compensated Employee includes any employee who, during
the Plan Year or the preceding Plan Year, (1) was at any time a 5% owner (i.e.,
owns directly or indirectly more than 5% of the stock of the Employer, or stock
possessing more than 5% of the total combines voting power of all stock of the
Employer), (2) received compensation from the Employer is excess of $100,000,
(3) received compensation from the Employer in excess of $66,000 and was in the
group consisting of the top 20% of employees when ranked on the basis of
compensation paid during the Plan Year, or (4) was at any time an officer of the
Employer and received compensation in excess of $60,000 (a "Highly Compensated
Employee"). These dollar amounts subject to adjustment annually by the IRS. Such
amounts are adjusted annually to reflect increase in the cost of living. If the
employer does not have at least one officer whose annual compensation is in
excess of $60,000, then the highest paid officer of the Employer will be treated
as a Highly Compensated Employee.
In order to prevent disqualification of the plan, any amounts contributed
by Highly Compensated Employees that exceed the average deferral limitation in
any Plan Year ("excess contributions"), together with any income allocable
thereto, must be distributed to such Highly Compensated Employees before the
close of the following Plan Year. However, the Savings Bank will be subject to
a 10% excise tax on any excess contributions unless such excess contributions,
together with any income allocable thereto, either are recharacterized or are
distributed before the close of the first 2 1/2 months following the Plan Year
to which such excess contributions relate. In addition, in order to avoid
disqualification of the Plan, any contributions by Highly Compensated Employees
that exceed the average contribution limitation in any Plan Year ("excess
aggregate contributions") together with any income allocable thereto, must be
distributed to such Highly Compensated Employees before the close of the
following Plan Year. However, the 10% excise tax will be imposed on the Savings
Bank with respect to any excess aggregate contributions, unless such amounts,
plus any income allocable thereto, are distributed within 2 1/2 months following
the close of the Plan Year in which they arose.
TOP-HEAVY PLAN REQUIREMENTS. If, for any Plan Year, the Plan is a Top-
Heavy Plan (as defined below), then (i) the Savings Bank may be required to make
certain minimum contributions to the Plan on behalf of non-key employees (as
defined below), and (ii) certain additional restrictions would apply with
respect to the combination of annual additions to the Plan and projected annual
benefits under any defined plan maintained by the Savings Bank.
In general, the Plan will be regarded as a "Top-Heavy Plan" for any Plan
Year, if as of the last day of the preceding Plan Year, the aggregate balance of
the accounts of all Participants who are key Employees exceeds 60% of the
aggregate balance of the Accounts of the Participants. "Key Employees"
generally include any employee, who at any time during the Plan Year or any
other the four preceding Plan Years, if (1) an officer of the Savings Bank
having annual compensation in excess of $60,000 who is in administrative or
policy-making capacity, (2) one of the ten employees having annual compensation
in excess of $30,000 and owing, directly or indirectly , the largest interest in
the employer, (3) a 5% owner of the employer (i.e., owns directly or indirectly
more than 5% of the stock of the employer, or stock possessing more than 5% of
the total combined voting power of all stock of the employer), or (4) a 1% of
owner of the employer having compensation in excess of $150,000.
INVESTMENT OF CONTRIBUTIONS
All amounts credited to Participants' account under the Plan are held in
the Trust which is administered by the Trustees. The Trustees are appointed by
the Savings Bank's Board of Directors.
The net gain (or loss) in the account from investments other than the
Employer Stock Fund (including interest payments, dividends, realized and
unrealized gains and losses on securities, and expenses paid from the trust) are
determined annually at the end of the Plan Year.
In connection with the Conversion, Participants in the Plan may make a one-
time election to invest up to __% of the vested portion of their accounts in
Common Stock. If an account is invested in Common Stock, the shares will be
held in the Employer Stock Fund as a separate investment. Any earnings, losses
or expenses with respect to the Holding Company Stock held in the account,
including, without limitation, dividends and appreciation
S-8
<PAGE>
or depreciation of the value of the shares, will be credited or debited to the
account and will not be credited to or borne by any other account of any other
Participants. Any cash dividends and other cash distributions paid on any
Common Stock will be reinvested by the trustees as directed by each Participant
under the Plan, and may not be reinvested in additional Common Stock. A
Participant may at any time direct the Trustees to sell all or any of the shares
of Common Stock held in his or her Plan accounts. If Common Stock is sold, the
proceeds will be credited to the account from which the shares were sold and
thereafter invested by the Trustees as part of the remainder of the general fund
under the Plan. Accounts which are invested in Common Stock will continue to be
invested in such shares until the Participant directs the Trustees to sell the
shares.
To the extent dividends are not paid on Common Stock held in the Employer
Stock Fund, the return on any investment in the Employer Stock Fund will consist
only of the market value appreciation of the Common Stock subsequent to its
purchase. Following the Conversion, the Board of the Holding Company may
consider a policy of paying dividends on the Common Stock, however, no decision
has been made by the Board of the Holding Company regarding the amount or timing
of dividends, if any.
As of the date of the Prospectus Supplement, none of the shares of Common
Stock have been issued or are outstanding and there is no established market for
the Common Stock. Accordingly, there is no record of the historical performance
of the Employer Stock Fund.
INVESTMENTS IN THE EMPLOYER STOCK FUND MAY INVOLVE CERTAIN SPECIAL RISKS
ASSOCIATED WITH INVESTMENTS IN COMMON STOCK OF THE HOLDING COMPANY. FOR A
DISCUSSION OF THESE RISK FACTORS, SEE "RISK FACTORS" IN THE PROSPECTUS.
BENEFITS UNDER THE PLAN
VESTING. A Participant, has at all times a fully vested, nonforfeitable
interest in all of his or her Deferred Contributions and the earnings thereon
under the Plan. A Participant is 100% vested in his or her Matching
Contributions Account and employer discretionary contributions after the
completion of seven years of service under the Plan's seven-year-graded vesting
schedule (20% per year beginning after three years of service).
WITHDRAWALS AND DISTRIBUTIONS FROM THE PLAN
APPLICABLE FEDERAL LAW REQUIRES THE PLAN TO IMPOSE SUBSTANTIAL RESTRICTIONS
ON THE RIGHT OF A PLAN PARTICIPANT TO WITHDRAW AMOUNTS HELD FOR HIS OR HER
BENEFIT UNDER THE PLAN PRIOR TO THE PARTICIPANT'S ATTAINMENT OF AGE 59 1/2
UNLESS A PARTICIPANT RETIRES AS PERMITTED UNDER THE PLAN REGARDLESS OF WHETHER
SUCH A WITHDRAWAL OCCURS DURING HIS OR HER EMPLOYMENT WITH THE SAVINGS BANK.
DISTRIBUTION UPON RETIREMENT, DISABILITY OR TERMINATION OF EMPLOYMENT.
Payment of benefits to a Participant who retires, incurs a disability, or
otherwise terminates employment generally shall be made in a lump sum cash
payment. At the request of the Participant, the distribution may include an in-
kind distribution of Common Stock of the Holding Company credited to the
Participant's Account. A Participant whose total vested account balance equals
or exceeds $3,500 at the time of termination, may elect, in lieu of a lump sum
payments, to be paid in annual installments over a period not exceeding the life
expectancy of the Participant or the joint life expectancies of the Participant
and his or her designated beneficiary. Benefits payments ordinarily shall be
made not later than 60 days following the end of the Plan Year in which occurs
later of the Participant's: (i) termination of employment; (ii) attainment of
age 65; or (iii) tenth anniversary of commencement of participation in the Plan;
but in no event later than April 1 following the calendar year in which the
Participant attains age 70 1/2. However, if the vested portion of the
Participant's Account balances exceeds $3,500, no distribution shall be made
from the Plan prior to the Participant's attaining age 65 unless the Participant
consents to an earlier distribution. Special restrictions may apply to the
distribution of Common Stock of the Holding Company to those Participants who
are executive officers,
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directors and principal shareholders of the Holding Company who are subject to
the provisions of Section 16(b) of the Exchange Act.
DISTRIBUTION UPON DEATH. A Participant who dies prior to the benefit
commencement date for retirement, disability or termination of employment, and
who has a surviving spouse, shall have his or her benefits paid to the surviving
spouse in a lump sum, or if the payment of his or her benefits had commenced
before his or her death, in accordance with the distribution method in effect at
his or her death. With respect to an unmarried Participant, and in the case of
a married Participant with spousal consent to the designation of another
beneficiary, payment of benefits to the beneficiary, payments of benefits to the
beneficiary of a deceased Participant shall be made in the form of a lump sum
payment in cash or in Common Stock, or if the payment of his or her benefit had
commenced before his or her death, in accordance with the distribution method if
effect at death.
NONALIENATION OF BENEFITS. Except with respect to federal income tax
withholding and as provided with respect to a qualified domestic relations order
(as defined in the Code), benefits payable under the Plan shall not be subject
in any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, charge, garnishment, execution, or levy of any kind, either
voluntary or involuntary, and any attempt to anticipate, alienate, sell,
transfer, assign, pledge, encumber, charge or otherwise dispose of any rights to
benefits payable under the Plan shall be void.
ADMINISTRATION OF THE PLAN
TRUSTEES. The Trustees with respect to the Plan are currently Kermit D.
Gohring, Richard W. Gohring and Bonnie K. Smith, all of whom are officers of the
Savings Bank.
The Trustees must render periodic reports to the Savings Bank and to the
Participants in such form and containing information that the Trustees deems
necessary.
REPORTS TO PLAN PARTICIPANTS
The administrator will furnish to each Participant a statement at least
semiannually showing (i) the balance in the Participant's Account as of the end
of that period, (ii) the amount of contributions allocated to such Participant's
Account for that period, and (iii) the adjustments to such Participant's Account
to reflect earnings or losses (if any).
PLAN ADMINISTRATOR
Pursuant to the terms of the Plan, the Plan Administrator is the Savings
Bank. A committee of the Savings Bank has been designated by the Board of
Directors of the Savings Bank to act on the Savings Bank's behalf as the Plan
Administrator. The name, address and telephone number of the current Plan
Administrator is Fulton Savings Bank, FSB, 410 Market Street, P.O. Box 700,
Fulton, Missouri 65251-0700. The Savings Bank's telephone number is (573) 642-
6618. The Administrator is responsible for the administration of the Plan,
interpretation of the provisions of the Plan, prescribing procedures for filing
applications for benefits, preparation and distribution of information
explaining the Plan, maintenance of plan records, books of account and all other
data necessary for the proper administration of the Plan, and preparation and
filing of all returns and reports relating to the Plan which are required to be
filed with the U.S. Department of Labor and the IRS, and for all disclosures
required to be made to Participants, beneficiaries and others under Sections 104
and 105 of ERISA.
AMENDMENT AND TERMINATION
The Savings Bank may terminate the Plan at any time. If the Plan is
terminated in whole or in part, then regardless of other provisions in the Plan,
each employee who ceases to be a Participant shall have a fully vested interest
in his or her Account. The Savings Bank reserves the right to make, from time
to time, any amendment or
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amendments to the Plan which do not cause any part of the Trust to be used for,
or diverted to, any purpose other than the exclusive benefit of the Participants
or their beneficiaries.
MERGER, CONSOLIDATION OR TRANSFER
In the event of the merger or consolidation of the Plan with another plan,
or the transfer of the Trust to another plan, the Plan requires that each
Participant (if either the Plan or the other plan then terminated) receive a
benefit immediately after the merger, consolidation or transfer which is equal
to or greater than the benefit he or she would have been entitled to receive
immediately before the merger, consolidation or transfer (if the Plan had then
terminated).
FEDERAL INCOME TAX CONSEQUENCES
THE FOLLOWING IS ONLY A BRIEF SUMMARY OF CERTAIN FEDERAL INCOME TAX ASPECTS
OF THE PLAN WHICH ARE OF GENERAL APPLICATION UNDER THE CODE AND IS NOT INTENDED
TO BE A COMPLETE OR DEFINITIVE DESCRIPTION OF THE FEDERAL INCOME TAX
CONSEQUENCES OF PARTICIPATING IN OR RECEIVING DISTRIBUTIONS FROM THE PLAN. THE
SUMMARY IS NECESSARILY GENERAL IN NATURE AND DOES NOT PURPORT TO BE COMPLETE.
MOREOVER, STATUTORY PROVISIONS ARE SUBJECT TO CHANGE, AS ARE THEIR
INTERPRETATIONS, AND THEIR APPLICATION MAY VARY IN INDIVIDUAL CIRCUMSTANCES.
FINALLY, THE CONSEQUENCES UNDER APPLICABLE STATE AND LOCAL INCOME TAX LAWS MAY
NOT BE THE SAME AS UNDER THE FEDERAL INCOME TAX LAWS.
PARTICIPANTS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO ANY
DISTRIBUTION FROM THE PLAN AND TRANSACTIONS INVOLVING THE PLAN.
The Plan has received a determination from the IRS that it is qualified
under Section 401(a) and 401(k) of the Code, and that the related Trust is
exempt from tax under Section 501(a) of the Code. A plan that is "qualified"
under these sections of the Code is afforded special tax treatment which include
the following: (1) The sponsoring employer is allowed an immediate tax deduction
for the amount contributed to the Plan of each year; (2) Participants pay no
current income tax on amounts contributed by the employer on their behalf; and
(3) Earnings of the Plan are tax-exempt thereby permitting the tax-free
accumulation of income and gains on investments. The Plan will be administered
to comply in operation with the requirements of the Code as of the applicable
effective date of any change in the law. The Savings Bank expects to timely
adopt any amendments to the Plan that may be necessary to maintain the qualified
status of the Plan under the Code. Following such an amendment, the Plan will
be submitted to the IRS for a determination that the Plan, as amended, continues
to qualify under Sections 401(a) and 501(a) of the Code and that it continues to
satisfy the requirements for a qualified cash or deferred arrangement under
Section 401(k) of the Code.
Assuming that the Plan is administered in accordance with the requirements
of the Code, participation in the Plan under existing federal income tax laws
will have the following effects:
(a) Amounts contributed to a Participant's 401(k) account and the
investment earnings are actually distributed or withdrawn from the Plan.
Special tax treatment may apply to the taxable portion of any distribution that
includes Common Stock or qualified as a "Lump Sum Distribution" (as described
below).
(b) Income earned on assets held by the Trust will not be taxable to the
Trust.
LUMP SUM DISTRIBUTION. A distribution from the Plan to a Participant or
the beneficiary of a Participant will qualify as a "Lump Sum Distribution" if it
is made: (i) within a single taxable year of the Participant or beneficiary;
(ii) on account of the Participant's death or separation from service, or after
the Participant attains age 59 1/2; and (iii) consists of the balance to the
credits of the Participant under the Plan and all other profit sharing plans, if
any, maintained by the Savings Bank. The portion of any Lump Sum Distribution
that is required to be included in the Participant's or beneficiary's taxable
income for federal income tax purposes (the "total taxable amount")
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consists of the entire amount of such Lump Sum Distribution less the amount of
after-tax contributions, if any, made by the Participant to any other profit
sharing plans maintained by the Savings Bank which is included in such
distribution.
AVERAGING RULES. The portion of the total taxable amount of a Lump Sum
Distribution (the "ordinary income portion") will be taxable generally as
ordinary income for federal income tax purposes. However, a Participant who has
completed at least five years of participation in the Plan before the taxable
year in which the distribution is made, or a beneficiary who receives a Lump Sum
Distribution on account of the Participant's death (regardless of the period of
the Participant's participation in the Plan or any other profit sharing plan
maintained by the Employer), may elect to have the ordinary income portion of
such Lump Sum Distribution taxed according to a special averaging rule ("five-
year averaging"). The election of the special averaging rules may apply only to
one Lump Sum Distribution received by the Participant or beneficiary, provided
such amount is received on or after the Participant turns 59 1/2 and the
recipient elects to have any other Lump Sum Distribution from a qualified plan
received in the same taxable year taxed under the special averaging rule. Under
a special grandfather rule, individuals who turned 50 by 1986 may elect to have
their Lump Sum Distribution taxed under either the five-year averaging rule
under the prior law ten-year averaging rule. Such individuals also may elect to
have that portion of the Lump Sum Distribution attributable to the Participant's
pre-1974 participation in the Plan taxed at a flat 20% rate as gain from the
sale of a capital asset.
COMMON STOCK INCLUDED IN LUMP SUM DISTRIBUTION. If a Lump Sum Distribution
includes Common Stock, the distribution generally will be taxed in the manner
described above, except that the total taxable amount will be reduced by the
amount of any net unrealized appreciation with respect to such Common Stock,
i.e., the excess of the value of such Common Stock at the time of the
distribution over its cost to the Plan. The tax basis of such Common Stock to
the Participant or beneficiary for purposes of computing gain or loss on its
subsequent sale will be the value of the Common Stock at the time of
distribution less the amount of net unrealized appreciation. Any gain on a
subsequent sale or other taxable disposition of such Common Stock, to the extent
of the amount of net unrealized appreciation at the time of distribution, will
be considered long-term capital gain regardless of the holding period of such
Common Stock. Any gain on a subsequent sale or other taxable disposition of the
Common Stock in excess of the amount of net unrealized appreciation at the time
of distribution will be considered either short-term capital gain or long-term
capital gain depending upon the length of the holding period of the Common
Stock. The recipient of a distribution may elect to include the amount of any
net unrealized appreciation in the total taxable amount of such distribution to
the extent allowed by the regulations by the IRS.
DISTRIBUTIONS: ROLLOVERS AND DIRECT TRANSFERS TO ANOTHER QUALIFIED PLAN OR
TO AN IRA. Pursuant to a change in the law, effective January 1, 1993,
virtually all distributions from the Plan may be rolled over to another
qualified Plan or to an individual retirement account ("IRA") without regard to
whether the distribution is a Lump Sum Distribution or Partial Distribution.
Effective January 1, 1993, Participants have the right to elect to have the
Trustee transfer all or any portion of an "eligible rollover distribution"
directly to another plan qualified under Section 401(a) of the Code or to an
IRA. If the Participant does not elect to have an "eligible rollover
distribution" transferred directly to another qualified plan of to an IRA, the
distribution will be subject to a mandatory federal withholding tax equal to 20%
of the taxable distribution. An "eligible rollover distribution" means any
amount distributed from the Plan except: (1) a distribution that is (a) one of
a series of substantially equal periodic payments made (not less frequently than
annually) over the Participant's life of the joint life of the Participant and
the Participant's designated beneficiary, or (b) for a specified period of ten
years or more; (2) any amount that is required to be distributed under the
minimum distribution rules; and (3) any other distributions excepted under
applicable federal law. The tax law change described above did not modify the
special tax treatment of Lump Sum Distributions, that are not rolled over or
transferred, i.e., forward averaging, capital gains tax treatment and the
nonrecognition of net unrealized appreciation, discussed earlier.
ADDITIONAL TAX ON EARLY DISTRIBUTIONS. A Participant who receives a
distribution from the Plan prior to attaining age 59 1/2 will be subject to an
additional income tax equal to 10% of the taxable amount of the distribution.
The 10% additional income tax will not apply, however, to the extent the
distribution is rolled or onto an IRA or
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another qualified plan or the distribution is (i) made to a beneficiary (or to
the estate of a Participant) on or after the death of the Participant, (ii)
attributable to the Participant's being disabled within the meaning of Section
72(m)(7) of the Code, (iii) part of a series of substantially equal periodic
payments (not less frequently than annually) made for the life (or life
expectancy) of the Participant or the joint lives (or joint life expectancies)
of the Participant and his or her beneficiary, (iv) made to the Participant
after separation from service on account of early retirement under the Plan
after attainment of age 55, (v) made to pay medical expenses to the extent
deductible for federal income tax purposes, (vi) pursuant to a qualified
domestic relations order, or (vii) made to effect the distribution of excess
contributions or excess deferrals.
THE FOREGOING IS ONLY A BRIEF SUMMARY OF CERTAIN FEDERAL INCOME TAX ASPECTS
OF THE PLAN WHICH ARE OF GENERAL APPLICATION UNDER THE CODE AND IS NOT INTENDED
TO BE A COMPLETE OR DEFINITIVE DESCRIPTION OF THE FEDERAL INCOME TAX
CONSEQUENCES OF PARTICIPATING IN OR RECEIVING DISTRIBUTIONS FROM THE PLAN.
ACCORDINGLY, EACH PARTICIPANT IS URGED TO CONSULT A TAX ADVISOR CONCERNING THE
FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF PARTICIPATING IN AND RECEIVING
DISTRIBUTIONS FROM THE PLAN.
RESTRICTIONS ON RESALE
Any person receiving shares of the Common Stock under the Plan who is an
"affiliate" of the Savings Bank or the Holding Company as the term "affiliate"
is used in Rules 144 and 405 under the Securities Act of 1933, as amended
("Securities Act") (e.g., directors, officers and substantial shareholders of
the Savings Bank) may reoffer or resell such shares only pursuant to a
registration statement filed under the Securities Act (the Holding Company and
the Savings Bank having no obligation to file such registration statement) or,
assuming the availability thereof, pursuant to Rule 144 or some other exemption
from the registration requirements of the Securities Act. Any person who may be
an "affiliate" of the Savings Bank of the Holding Company may wish to consult
with counsel before transferring any Common Stock owned by him. In addition,
Participants are advised to consult with counsel as to the applicability of the
reporting and short-swing profit liability rules of Section 16 of the Exchange
Act which may affect the purchase and sale of the Common Stock where acquired
under the Plan, or other sales of the Common Stock.
LEGAL OPINIONS
The validity of the issuance of the Common Stock will be passed upon by
Breyer & Aguggia, Washington, D.C., which firm is acting as special counsel for
the Holding Company in connection with the Savings Bank's Conversion from a
federally mutual savings bank to a federally stock savings bank and the
concurrent formation of the Holding Company.
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Investment Form
(Employer Stock Fund)
FULTON SAVINGS BANK, FSB
RETIREMENT TRUST
Name of
Participant:
------------------------------------------------------
Social Security
Number:
-----------------------------------------------------------
1. Instructions. In connection with the proposed conversion of Fulton
Savings Bank, FSB (the "Savings Bank") to a stock capital savings bank and the
simultaneous formation of a holding company (the "Conversion"), participants in
the Fulton Savings Bank, FSB Retirement Trust (the "Plan") may make a one-time
election to direct the investment of up to ___% of the vested portion of their
December 31, 1995 account balances into the Employer Stock Fund (the "Employer
Stock Fund"). Amounts transferred at the direction of Participants into the
Employer Stock Fund will be used to purchase shares of common stock of Fulton
Bancorp, Inc. (the "Common Stock"), the proposed holding company for the Savings
Bank. A PARTICIPANT'S ELIGIBILITY TO PURCHASE SHARES OF COMMON STOCK IS SUBJECT
TO THE PARTICIPANT'S GENERAL ELIGIBILITY TO PURCHASE SHARES OF COMMON STOCK IN
THE CONVERSION AND THE MAXIMUM AND MINIMUM LIMITATIONS SET FORTH IN THE PLAN
CONVERSION. SEE THE PROSPECTUS FOR ADDITIONAL INFORMATION.
You may use this form to direct a transfer of funds credited to your
account to the Employer Stock Fund, to be used to purchase Common Stock in the
Conversion. To direct such a transfer to the Employer Stock Fund, you should
complete and file this form with the Savings Bank's __________________________,
no later than the close of business on ______, 1996. The Plan Administrator (or
representative) will keep a copy of this form and return a copy to you. (If you
need assistance in completing this form, please contact the
__________________________.
2. Transfer Direction. I hereby direct the Plan Administrator to
transfer $__________ (in increments of $10) from the vested portion of my Plan
account balance as of December 31, 1995 (not in excess of __% of your vested
account balance at December 31, 1995) to the Employer Stock Fund.
3. Effectiveness of Direction. I understand that this Investment Form
shall be subject to all of the terms and conditions of the Plan and the terms
and conditions of the Conversion. I acknowledge that I have received a copy of
the Prospectus and the Prospectus Supplement.
- ------------------------------ ------------------------------------
Signature Date
* * * * *
4. Acknowledgement of Receipt. This Transfer Direction Form was received
by the Plan Administrator and will become effective on the date noted below.
- ------------------------------ ------------------------------------
Plan Administrator Date
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