<PAGE>
As filed with the Securities and Exchange Commission on August 22, 1996
Registration No. 33-__________
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
DELPHOS CITIZENS BANCORP, INC.
CITIZENS FEDERAL SAVINGS AND LOAN ASSOCIATION OF DELPHOS 401(K) PLAN
(exact name of registrant as specified in its certificate of incorporation)
<TABLE>
<S> <C> <C>
DELAWARE 6035
(state or other jurisdiction of (Primary Standard BEING APPLIED FOR
incorporation or organization) Classification Code Number) (IRS Employer Identification No.)
</TABLE>
114 EAST 3RD STREET
DELPHOS, OHIO 45833
(419) 692-2010
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
JOSEPH R. REINEMEYER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CITIZENS FEDERAL SAVINGS AND LOAN ASSOCIATION OF DELPHOS
DELPHOS, OHIO 45833
(419) 692-2010
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
WILLIAM E. DONNELLY, ESQUIRE
KENT M. KRUDYS, ESQUIRE
MULDOON, MURPHY & FAUCETTE
5101 WISCONSIN AVENUE, N.W.
WASHINGTON, D.C. 20016
(202) 362-0840
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO 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 /
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF AMOUNT TO PURCHASE PRICE AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE PRICE (1) FEE
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
Common Stock 2,049,875
$.01 par Value Shares $10.00 $20,498,750 $7,069
- --------------------------------------------------------------------------------------------------------------
Participation 16,000
Interests Shares ------- ------- (2)
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) The securities of Delphos Citizens Bancorp, Inc. to be purchased by the
Citizens Federal Savings and Loan Association 401(k) Plan are included in
the amount shown for Common Stock. Accordingly, no separate fee is
required for the participation interests. In accordance with Rule 457(h)
of the Securities Act of 1933, as amended, the registration fee has been
calculated on the basis of the number of shares of Common Stock that may
be purchased with the current assets of such Plan.
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 SECTION 8(a), MAY
DETERMINE.
<PAGE>
DELPHOS CITIZENS BANCORP, INC.
Cross Reference Sheet Showing Location in the Subscription and Community
Offering Prospectus ("Prospectus") of Information Required by Items of Form S-l:
REGISTRATION STATEMENT ITEM AND CAPTION PROSPECTUS HEADINGS
--------------------------------------- -------------------
l. Forepart of the Registration Statement Front Cover Page
and Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Page Inside Front and Outside Back
of Prospectus Cover Pages
3. Summary Information, Risk Factors and Summary; Risk Factors
Ratio of Earnings to Fixed Charges
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price The Conversion-- Stock Pricing
6. Dilution Not Applicable
7. Selling Security Holders Not Applicable
8. Plan of Distribution Front Cover Page; The
Conversion -- Subscription
Offering and Subscription
Rights; --Community Offering;
--Syndicated Community
Offering
9. Description of Securities to be Registered The Conversion -- Certain
Restrictions on Purchases or
Transfer of Shares After
Conversion; Restrictions on
Acquisition of the Company and
the Association; Description
of the Capital Stock of the
Company; Description of the
Capital Stock of the
Association
10. Interests of Named Experts and Counsel Not Applicable
11. Information with Respect to the Registrant Front Cover Page; Delphos
Citizens Bancorp, Inc.;
Citizens Federal Savings and
Loan Association of Delphos;
Dividend Policy; Consolidated
Statements of Operations;
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations of the Association;
Business of the Association;
Regulation; The Board of
Directors and Management of
the Company; The Board of
Directors and Management of
the Association; The
Conversion; Description of the
Capital Stock; Financial
Statements
12. Disclosure of Commission Position on Not Applicable
Indemnification for Securities Act
Liabilities
<PAGE>
[To be used in connection with the Syndicated Community Offering only]
SYNDICATED PROSPECTUS SUPPLEMENT
DELPHOS CITIZENS BANCORP, INC.
(PROPOSED HOLDING COMPANY FOR CITIZENS BANK OF DELPHOS, NOW
KNOWN AS CITIZENS FEDERAL SAVINGS AND LOAN ASSOCIATION
OF DELPHOS)
__________ SHARES OF COMMON STOCK
Delphos Citizens Bancorp, Inc. (the "Company"), a Delaware corporation, is
offering for sale in a syndicated community offering (the "Syndicated Community
Offering") __________ shares, at a per share price of $10.00, of its common
stock, par value $.01 per share (the "Common Stock"), to be issued upon the
conversion of Citizens Federal Savings and Loan Association of Delphos, Delphos,
Ohio (the "Association") from a federally chartered mutual savings association
to a federally chartered stock savings bank, to be known as Citizens Bank of
Delphos, and the issuance of the Association's outstanding capital stock to the
Company pursuant to a plan of conversion (the "Plan of Conversion"). The
remaining __________ shares of the Common Stock have been subscribed for in
subscription and community offerings (the "Subscription and Community
Offerings") by the Association's holders of deposit accounts with the
Association with a balance of $50 or more as of December 31, 1994, by the
Citizens Bank of Delphos Employee Stock Ownership Plan, a tax-qualified employee
benefit plan, and related trust (the "ESOP"), by holders of deposit accounts
with a balance of $50 or more as of _______, 199_, by certain other account
holders and borrowers of the Association and then by certain members of the
general public. See "The Conversion - General." Contained herein is the
Prospectus in the form used in the Subscription and Community Offerings. The
purchase price for all shares purchased in the Syndicated Community Offering
will be the same as the price paid by subscribers in the Subscription and
Community Offerings (the "Purchase Price"). The Purchase Price of $10.00 per
share is the amount to be paid for each share at the time a purchase order is
submitted. See the cover page of the Prospectus and the table below for
information as to the method by which the range within which the number of
shares offered may vary and the method of subscribing for shares of the Common
Stock.
Funds submitted to the Association with purchase orders will earn interest
at the Association's passbook rate of interest from the date of receipt until
completion or termination of the Conversion. The Syndicated Community Offering
will expire no later than _______________, 1996, unless extended by the
Association and the Company with the approval of the Office of Thrift
Supervision (the "OTS"). Such extensions may not go beyond _______________,
1998. If an extension of time has been granted, all subscribers will be
notified of such extension, and of their rights to confirm their subscriptions,
or to modify or rescind their subscriptions and have their funds returned
promptly with interest, and of the time period within which the subscriber must
notify the Association of his intention to confirm, modify or rescind his
subscription. If an affirmative response to any resolicitation is not received
by the Association and the Company from subscribers, such orders will be
rescinded and all funds will be returned promptly with interest. The minimum
number of shares which may be purchased is 25 shares. Except for the ESOP,
which may purchase up to 10% of the total number of shares of Common Stock
issued in the Conversion, no person, together with associates of and persons
acting in concert with such person, may purchase more than the total number of
shares offered in the Community Offering and the Syndicated Community Offering
that could be purchased for $_______ at the Purchase Price and no person,
together with associates of and persons acting in concert with such person, may
purchase more than 0.5% of the total number of shares issued in the Conversion.
See "Plan of Conversion - Subscription Rights and Limitations on Common Stock
Purchases." The Company reserves the right, in its absolute discretion, to
accept or reject, in whole or in part, any or all subscriptions in the
Syndicated Community Offering.
<PAGE>
The Company and the Association have engaged Charles Webb & Company
("Webb"), a Division of Keefe, Bruyette & Woods, Inc., to assist them in the
sale of the Common Stock in the Syndicated Community Offering. It is
anticipated that Webb will use the services of other registered broker-dealers
("Selected Dealers") and that fees to Webb and such Selected Dealers will be
_____% of the aggregate Purchase Price of the shares sold in the Syndicated
Community Offering. Neither Webb nor any Selected Dealer shall have any
obligation to take or purchase any shares of Common Stock in the Syndicated
Community Offering.
The Common Stock has been approved for quotation upon issuance on the
National Association of Securities Dealers Automated Quotation ("Nasdaq")
National Market under the symbol "DCBI." Prior to this offering, there has not
been a public market for the Common Stock, and there can be no assurance that an
active and liquid trading market for the Common Stock will develop. The absence
or discontinuance of a market may have an adverse impact on both the price and
liquidity of the stock.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION, DEPARTMENT OF THE
TREASURY, OR ANY OTHER FEDERAL AGENCY OR ANY STATE SECURITIES COMMISSION, NOR
HAS SUCH COMMISSION, OFFICE, 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 SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR DEPOSITS
AND ARE NOT FEDERALLY INSURED OR GUARANTEED.
2
<PAGE>
<TABLE>
<CAPTION>
Estimated Estimated Net Proceeds
Underwriting Estimated Net of Subscription,
Commissions Proceeds of Community
Syndicated and Offer Syndicated and Syndicated
Community Fees and Community Community
Offering Price Expenses(1) Offering Offerings(2)(3)
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Minimum Per Share $10.00 $ $ $
- --------------------------------------------------------------------------------------------------------------
Midpoint Per Share $10.00 $ $ $
- --------------------------------------------------------------------------------------------------------------
Maximum Per Share $10.00 $ $ $
- --------------------------------------------------------------------------------------------------------------
Total Minimum(4) $ $ $ $
- --------------------------------------------------------------------------------------------------------------
Total Midpoint $ $ $ $
- --------------------------------------------------------------------------------------------------------------
Total Maximum(4) $ $ $ $
- --------------------------------------------------------------------------------------------------------------
Total Maximum, As Adjusted(5) $ $ $ $
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
(1) Consists of a pro rata allocation of estimated expenses of the Association
and the Company in connection with the Conversion (other than estimated
fees to be paid to Webb for services in connection with the Subscription
and Community Offerings) and estimated compensation of Webb and Selected
Dealers in connection with the sale of the remaining shares in the
Syndicated Community Offering which fees are estimated to be $__________
million and $__________ million at the minimum and the maximum of the
estimated price range and may be deemed to be underwriting fees. The
information under "Pro Forma Data" in the Prospectus was based on the
assumptions stated therein, which may differ from the estimates used for
this table. See "The Conversion - Marketing and Underwriting Arrangements"
for a more detailed discussion of fee arrangements.
(2) The Company applied to retain up to 50% of the net proceeds. The balance
of the net proceeds will be transferred to the Association in exchange for
all of the capital stock of the Association to be issued in connection with
the Conversion.
(3) The net proceeds of the Subscription and Community Offerings (based upon
the sale of the __________ shares subscribed for at a price of $10.00 per
share and after allocation of a pro rata portion of the estimated expenses
relating to the Conversion) are estimated to be $__________.
(4) Based on an estimated price range of $__________ to $__________ at $10.00
per share (the "Estimated Price Range). The Total Minimum reflects the
sale of __________ shares at a per share price of $10.00, leaving a total
of __________ shares to be sold in the Syndicated Community Offering.
(5) Gives effect to an increase in the number of shares which could occur due
to an increase in the Estimated Price Range of up to 15% to reflect changes
in market and financial conditions following commencement of the offerings.
See "The Conversion - Stock Pricing." For a discussion of the distribution
and allocation of the additional shares, see "The Conversion - Subscription
Rights and Limitations on Common Stock Purchases."
CHARLES WEBB & COMPANY,
A DIVISION OF KEEFE, BRUYETTE & WOODS, INC.
-------------------------------
The date of this Prospectus Supplement is _______________, 1996
3
<PAGE>
PROSPECTUS
DELPHOS CITIZENS BANCORP, INC.
(Proposed Holding Company for Citizens Bank of Delphos, now known as Citizens
Federal Savings and Loan Association of Delphos)
Up to 1,782,500 Shares of Common Stock
$10.00 Purchase Price Per Share
Delphos Citizens Bancorp, Inc. (the "Company" or "Delphos Citizens"), a
Delaware corporation, is offering up to 1,782,500 shares of its common stock,
par value $.01 per share (the "Common Stock"), in connection with the conversion
of Citizens Federal Savings and Loan Association of Delphos (the "Association"
or "Citizens Federal") from a federally chartered mutual savings and loan
association to a federally chartered stock savings bank to be known as Citizens
Bank of Delphos pursuant to the Association's plan of conversion (the "Plan" or
"Plan of Conversion"). The simultaneous conversion of the Association to stock
form, the issuance of the Association's stock to the Company and the offer and
sale of the Common Stock by the Company are herein referred to as the
"Conversion." In certain circumstances, the Company may increase the amount of
Common Stock offered hereby to 2,049,875 shares. See Footnote 5 to the table
below.
FOR ADDITIONAL INFORMATION ON HOW TO SUBSCRIBE FOR COMMON STOCK, PLEASE
CALL THE STOCK INFORMATION CENTER AT 419-____-____.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY EACH
PROSPECTIVE INVESTOR, SEE "RISK FACTORS" BEGINNING ON PAGE 12.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT ACCOUNTS OR DEPOSITS AND
ARE NOT FEDERALLY INSURED OR GUARANTEED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION, OR ANY OTHER
FEDERAL AGENCY OR ANY STATE SECURITIES COMMISSION, NOR HAS SUCH
COMMISSION, OFFICE OR 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.
<TABLE>
<CAPTION>
ESTIMATED UNDERWRITING
SUBSCRIPTION AND OTHER FEES AND ESTIMATED
PRICE(1) EXPENSES(2) NET PROCEEDS(3)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share(4) . . . . . . . . . . . . . . . . . $10.00 $0.33 $9.67
Total Minimum(1) . . . . . . . . . . . . . . . $13,175,000 $480,000 $12,695,000
Total Midpoint(1) . . . . . . . . . . . . . . . $15,500,000 $513,000 $14,987,000
Total Maximum(1) . . . . . . . . . . . . . . . $17,825,000 $544,000 $17,281,000
Total Maximum, as adjusted(5) . . . . . . . . . $20,498,750 $581,000 $19,917,750
</TABLE>
(1) Determined in accordance with an independent appraisal prepared by Keller &
Company, Inc. ("Keller") dated August 9, 1996, which states that the
estimated aggregate pro forma market value of the Common Stock ranged from
$13.2 million to $17.8 million, with a midpoint of $15.5 million (the
"Valuation Range"). Based on the Valuation Range, the Boards of Directors
of the Company and the Association established the estimated price range of
$13.2 million to $17.8 million (the "Estimated Price Range"), or between
1,317,500 and 1,782,500 shares of Common Stock at a price of $10.00 per
share (the "Purchase Price") to be paid for each share of Common Stock
subscribed for or purchased in the offerings. Keller'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 nor 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) Consists of the estimated costs to the Association and the Company arising
from the Conversion, including estimated fixed expenses and marketing fees
to be paid to Charles Webb & Company ("Webb"), a Division of Keefe,
Bruyette & Woods, Inc. ("KBW") in connection with the Subscription and
Community Offerings as hereafter defined, which fees are estimated to be
$171,315 and $235,485 at the minimum and the maximum of the Estimated Price
Range, respectively. See "The Conversion - Marketing and Underwriting
Arrangements." Webb may be deemed to be an underwriter, and certain
amounts to be paid to Webb may be deemed to be underwriting fees for
purposes of the Securities Act of 1933, as amended (the "Securities Act").
See "Pro Forma Data" for the assumptions used to arrive at these estimates.
The actual fees and expenses may vary from the estimates.
(3) Actual net proceeds may vary substantially from estimated amounts depending
on the number of shares sold in each of the offerings and other factors.
Includes the purchase of shares of Common Stock by the Citizens Bank of
Delphos Employee Stock Ownership Plan and related trust (the "ESOP") funded
by a loan from the Company to the ESOP, which will initially be deducted
from the Company's stockholders' equity. See "Use of Proceeds," "Pro Forma
Data" and "The Conversion - Stock Pricing."
(4) Based on the midpoint of the Valuation Range. The estimated net proceeds
per share at the minimum, maximum and maximum, as adjusted, are expected to
be $9.64, $9.69 and $9.72, respectively.
(5) As adjusted to reflect the sale of up to an additional 15% of the Common
Stock which may be offered at the Purchase Price, without resolicitation of
subscribers or any right of cancellation, due to regulatory considerations,
changes in market conditions or general financial and economic conditions.
See "Pro Forma Data" and "The Conversion - Stock Pricing." For a
discussion of the distribution and allocation of the additional shares, if
any, see "The Conversion - Subscription Offering and Subscription Rights,"
"- Community Offering" and "- Limitations on Common Stock Purchases."
CHARLES WEBB & COMPANY
A DIVISION OF KEEFE, BRUYETTE & WOODS, INC.
THE DATE OF THIS PROSPECTUS IS ________ __, 1996.
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
NON-TRANSFERABLE RIGHTS TO SUBSCRIBE FOR THE COMMON STOCK IN A SUBSCRIPTION
OFFERING (THE "SUBSCRIPTION OFFERING") HAVE BEEN GRANTED, IN ORDER OF PRIORITY,
TO EACH OF THE ASSOCIATION'S ELIGIBLE ACCOUNT HOLDERS, THE ESOP, THE
ASSOCIATION'S SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS, AND CERTAIN OTHER MEMBERS,
(EACH AS DEFINED IN THE PLAN OF CONVERSION). SUBSCRIPTION RIGHTS ARE
NON-TRANSFERABLE. PERSONS FOUND TO BE TRANSFERRING SUBSCRIPTION RIGHTS WILL BE
SUBJECT TO THE FORFEITURE OF SUCH RIGHTS AND POSSIBLE FURTHER SANCTIONS AND
PENALTIES IMPOSED BY THE OFFICE OF THRIFT SUPERVISION ("OTS"). Concurrently,
and subject to the prior rights of holders of subscription rights, the Company
is offering the shares of Common Stock not subscribed for in the Subscription
Offering for sale in a community offering (the "Community Offering") to certain
members of the general public, with preference given to natural persons residing
in postal zip code 45833, which generally encompasses the city of Delphos in the
State of Ohio (the Subscription Offering and Community Offering are referred to
collectively as the "Subscription and Community Offerings"). Depending on
market conditions, the shares may be offered for sale to certain members of the
public on a best efforts basis through a syndicate of registered broker-dealers
be coordinated by Webb (the "Syndicated Community Offering") (the Subscription
and Community Offerings and the Syndicated Community Offering are referred to
collective as the "Offerings"). See "The Conversion - Subscription Offering and
Subscription Rights," "- Community Offering," "-Syndicated Community Offering"
"- Restrictions on Transfer of Subscription Rights and Shares" and
"- Limitations on Common Stock Purchases."
Except for the ESOP, which intends to subscribe for 8.0% of the total
number of shares of Common Stock issued in the Conversion, no Eligible Account
Holder, Supplemental Eligible Account Holder or Other Member may, in their
capacity as such, subscribe in the Subscription Offering for more than 0.5%
(8,912 shares based on the issuance of 1,782,500 shares) of the total number of
shares of Common Stock offered in the Conversion; no person, together with
associates of and persons acting in concert with such person, may purchase in
the Community Offering and the Syndicated Community Offering more than 0.5%
(8,912 shares based on the issuance of 1,782,500 shares) of the total number of
shares of Common Stock offered in the Conversion; and no person, together with
associates of and persons acting in concert with such person, may purchase in
the Offerings more than the overall maximum purchase limitation of 1.0% (17,825
shares based on the issuance of 1,782,500 shares) of the total number of shares
of Common Stock to be issued in the Conversion, in each case, exclusive of any
shares issued pursuant to an increase in the Estimated Price Range of up to 15%;
provided, however, that the overall maximum purchase limitation may be increased
and the amount that may be subscribed for may be increased or decreased in the
sole discretion of the Association or the Company without further approval of
the Association's members. See "The Conversion - Subscription Offering and
Subscription Rights," - "Community Offering" and "- Limitations on Common Stock
Purchases." The minimum purchase is 25 shares. The Company and the Association
reserve the right, in their absolute discretion, to accept or reject, in whole
or in part, any or all subscriptions in the Community Offering, either at the
time of receipt of an order or as soon as practicable following the termination
of the Offerings.
The Association has engaged Webb to consult with and advise the Company and
the Association with respect to the Offerings and Webb has agreed to assist the
Company with the solicitation of subscriptions and purchase orders for shares of
Common Stock in the Offerings. Neither Webb nor any other registered broker-
dealer is obligated to take or purchase any shares of Common Stock in the
Offerings. The Association and the Company will pay a fee to Webb which will be
based on the aggregate Purchase Price of the Common Stock sold in the Offerings.
The Company and the Association have agreed to indemnify Webb against certain
liabilities arising under the Securities Act. See "The Conversion - Marketing
and Underwriting Arrangements."
THE SUBSCRIPTION AND COMMUNITY OFFERINGS WILL TERMINATE AT ________,
EASTERN TIME, ON ________, 1996 (THE "EXPIRATION DATE") UNLESS EXTENDED BY THE
ASSOCIATION AND THE COMPANY, WITH APPROVAL OF THE OTS, IF NECESSARY.
Subscriptions paid by cash, check, bank draft or money order will be placed in a
segregated account at the Association and will earn interest at the
Association's passbook rate of interest from the date of receipt until
completion or termination of the Conversion. Payments authorized by withdrawal
from deposit accounts at the Association will continue to earn interest at the
contractual rate until the Conversion is completed or terminated; these funds
will be otherwise unavailable to the depositor until such time. Orders
submitted are irrevocable until the completion of the Conversion; provided that,
if the Conversion is not completed within 45 days after the close of the
Subscription and Community Offerings, unless such period has been extended with
the consent of the OTS, if necessary, all subscribers will have their funds
returned promptly with interest, and all withdrawal authorizations will be
cancelled. If an extension of time has been granted, all subscribers will be
notified of such extension, and of any rights to confirm their subscriptions, or
to modify or rescind their subscriptions and have their funds returned promptly
with interest, and of the time period within which the subscriber must notify
the Association of his intention to confirm, modify or rescind his subscription.
A resolicitation of subscribers will also be made if the pro forma market value
of the Common Stock is either more then 15% above the maximum of the Estimated
Price Range or less than the minimum of the Estimated Price Range. If an
affirmative response to any resolicitation is not received by the Company from a
subscriber, such order will be rescinded and all funds will be returned promptly
with interest. Such extensions may not go beyond _____, 1998. See "The
Conversion - Subscription Offering and Subscription Rights," "- Community
Offering" and "- Procedure for Purchasing Shares in Subscription and Community
Offerings."
The Company has received conditional approval from the Nasdaq National
Market ("Nasdaq") to have its Common Stock quoted on the Nasdaq under the symbol
"DCBI" upon completion of the Conversion. Prior to this offering there has not
been a public market for the Common Stock, and there can be no assurance that an
active and liquid trading market for the Common Stock will develop or that the
Common Stock will trade at or above the Purchase Price. The absence or
discontinuance of a market may have an adverse impact on both the price and
liquidity of the Common Stock. See "Risk Factors - Absence of Market for Common
Stock" and "Market for Common Stock." KBW has advised the Company that upon
completion of the Conversion, it intends to act as a market maker in the Common
Stock, depending on the volume of trading and subject to compliance with
applicable laws and regulatory requirements. Webb also will assist the Company
in obtaining additional market makers.
2
<PAGE>
[MAP GOES HERE]
3
<PAGE>
SUMMARY
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION
AND CONSOLIDATED FINANCIAL STATEMENTS OF THE ASSOCIATION AND NOTES THERETO
APPEARING ELSEWHERE IN THIS PROSPECTUS.
DELPHOS CITIZENS BANCORP, INC.
Delphos Citizens is a Delaware corporation recently organized by the
Association for the purpose of acquiring all of the capital stock of the
Association to be issued in the Conversion. Immediately following the
Conversion, the only significant assets of the Company will be the capital stock
of the Association, the Company's loan to the ESOP, and the net proceeds of the
Offerings retained by the Company. The Company will purchase all of the capital
stock of the Association to be issued upon the Conversion in exchange for 50% of
the net proceeds with the remaining net proceeds to be retained by the Company.
Net proceeds retained by the Company will be used for general business
activities, including a loan by the Company directly to the ESOP to enable the
ESOP to purchase 8.0% of the Common Stock issued in the Conversion. On an
interim basis, the net proceeds are expected to be invested in short to
intermediate-term investment securities and mortgage-backed securities. See
"Use of Proceeds," "Business of the Association" and "Regulation - Holding
Company Regulation."
The Company's executive offices are located at the home office of the
Association at 114 East 3rd Street, Delphos, Ohio, 45833 (419) 692-2010.
CITIZENS FEDERAL SAVINGS AND LOAN ASSOCIATION OF DELPHOS
The Association conducts business from its home office in Delphos, Ohio.
At May 31, 1996, the Association had total assets of $91.7 million, loans
receivable of $69.6 million, total deposits of $79.1 million, and total equity
of $11.4 million. The Association's deposits are insured up to the maximum
allowable amount by the Savings Association Insurance Fund ("SAIF") of the
Federal Deposit Insurance Corporation ("FDIC").
The Association is a community-oriented savings institution and, as such,
its primary business consists of accepting deposits from customers within its
market area and making conventional mortgage loans secured by one -to four-
family residences within its market area, which it retains within its portfolio.
At May 31, 1996, 83.35% of Citizens Federal's total gross loan portfolio
consisted of one- to four-family mortgage loans. To a significantly lesser
extent, the Association invests in construction and land loans (primarily to
individual borrowers for the construction of owner-occupied residential
properties), commercial real estate loans, multi-family loans and consumer
loans. In addition to its lending activities, Citizens Federal also invests in
mortgage-backed and investment securities, primarily those insured or guaranteed
by governmental agencies. At May 31, 1996, mortgage-backed and other securities
totalled $16.2 million, or 17.7% of total assets, and total loans totalled $69.6
million, or 75.9% of total assets. Citizens Federal's primary source of funds
is deposit accounts, which totalled $79.1 million, or 86.3% of total liabilities
at May 31, 1996. Certificate accounts represented 72.2% of the Association's
total deposits.
Financial highlights of Citizens Federal include the following:
- ASSET QUALITY. The Association has historically maintained low levels of
non-performing assets, primarily due to management's emphasis upon one- to
four-family mortgage lending and conservative underwriting standards. The
Association's ratio of non-performing assets to total assets was 0.35% at
May 31, 1996 and was 0.28%, 0.33%, 0.41%, 0.50% and 0.76% at
4
<PAGE>
September 30, 1995, 1994, 1993, 1992 and 1991, respectively. See "Business
of the Association - Lending Activities - Non-Performing Assets." The
Association's total loan charge-offs for the five-year period ended
September 30, 1995 amounted to $22,000.
- - PROFITABILITY. The Association has maintained consistent levels of
profitability, earning $582,000 for the eight months ended May 31, 1996 and
$944,000, $912,000, $971,000, $909,000 and $709,000 for the years ended
September 30, 1995, 1994, 1993, 1992 and 1991. The Association's return on
average assets for the eight months ended May 31, 1996 was 0.97%
(annualized) and has averaged 1.22% over the five year period ended
September 30, 1995. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
- - CAPITAL STRENGTH. The Association's regulatory capital ratios exceeded
required minimum levels at May 31, 1996 with tangible, core and risk-based
capital ratios of 12.41%, 12.41% and 27.01%, respectively, as compared to
required minimum ratios of 1.50%, 3.00% and 8.00%, respectively. Assuming
the Company utilizes 50% of the net proceeds from the sale of the Common
Stock at the midpoint of the Estimated Price Range to purchase the
Association's capital stock, the Association's pro forma tangible, core and
risk-based capital levels at May 31, 1996 would be 18.0%, 18.0%, and 40.5%,
respectively. See "Regulatory Capital Compliance."
THE CONVERSION AND THE SUBSCRIPTION AND COMMUNITY OFFERINGS
On June 11, 1996, the Board of Directors of the Association adopted the
Plan of Conversion. Pursuant to the Plan, the Association is converting from a
federally chartered mutual savings and loan association to a federally chartered
stock savings bank to be known as Citizens Bank of Delphos. The Common Stock of
the Company will be offered and sold hereby and all of the outstanding capital
stock of the Association will be acquired by the Company in exchange for 50% of
the net proceeds of the Offering. The Conversion and the Offerings are subject
to OTS approval, which was received on _______________, 1996, and approval of
the Association's members at a special meeting to be held on ________, 1996 (the
"Special Meeting"). See "The Conversion - General."
The Association is converting to the stock form to increase its capital and
structure itself in a form used by banks, a growing number of savings
institutions and other business entities. The Conversion will enhance the
Association's ability to access capital markets, expand its current operations,
acquire other financial institutions or branch offices or diversify into other
financial services, to the extent allowable by applicable law and regulation.
See "The Conversion - Purposes of Conversion." The holding company form of
organization will provide additional flexibility to diversify the Association's
business activities through existing or newly formed subsidiaries, or through
acquisitions of or mergers with other financial institutions, or other
companies. Although there are no current arrangements, understandings or
agreements regarding any such opportunities, the Company will be better
positioned after the Conversion, subject to regulatory limitations and the
Company's financial position, to take advantage of any such opportunities that
may arise. The holding company form of organization also provides certain
anti-takeover protection. See "Risk Factors - Certain Anti-Takeover
Provisions." The Plan provides that the Board of Directors of the Association
may, at any time prior to the issuance of the Common Stock and for any reason,
decide not to use a holding company form. See "The Conversion - General".
Common Stock offered in the Subscription Offering will be offered in the
following order of priority: (1) depositors whose accounts with the Association
totalled $50 or more on December 31, 1994 ("Eligible Account Holders"); (2) the
ESOP; (3) depositors whose accounts with the Association totalled $50 or more on
____________ ("Supplemental Eligible Account Holders"); and (4) other members of
the
5
<PAGE>
Association, consisting of depositors of the Association as of ___________, the
voting record date ("Voting Record Date") for the Special Meeting and borrowers
with loans outstanding as of May 20, 1996 which continue to be outstanding as of
the Voting Record Date, other than those members who otherwise qualify as
Eligible Account Holders or Supplemental Eligible Account Holders ("Other
Members"). Subject to the prior rights of holders of subscription rights,
Common Stock not subscribed for in the Subscription Offering is being
concurrently offered in the Community Offering to certain members of the general
public, with preference given to natural persons residing in postal zip code
45833, which generally encompasses the City of Delphos in the State of Ohio.
The Company and Webb may also agree to utilize a Syndicated Community Offering
in connection with the sale of shares of Common Stock not subscribed for in the
Subscription and Community Offering. The Company and the Association reserve
the right, in their absolute discretion, to reject or accept, in whole or in
part, any orders in the Community Offering, either at the time of receipt of an
order or as soon as practicable following the Expiration Date. If an order is
rejected, the funds submitted with such order will be returned promptly.
Subscription rights will expire if not exercised by _________, Eastern Time, on
________, 1996, unless extended by the Association and the Company. See "The
Conversion - Subscription Offering and Subscription Rights," "- Community
Offering" and "- Marketing and Underwriting Arrangements."
PROSPECTUS DELIVERY AND PROCEDURE FOR PURCHASING SHARES
To ensure that each purchaser receives a Prospectus at least 48 hours prior
to the Expiration Date in accordance with Rule 15c2-8 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), no Prospectus will be mailed any
later than five days prior to the Expiration Date or hand delivered any later
than two days prior to such date. Order forms will only be distributed with a
Prospectus. Execution of the order form will confirm receipt of the Prospectus
in accordance with Rule 15c2-8. The Association and the Company are not
obligated to accept orders not submitted on original order forms. Order forms
unaccompanied by an executed acknowledgment form will not be accepted. Payment
by check, money order, bank draft, cash or debit authorization to an existing
account at the Association must accompany the order and acknowledgment forms.
No wire transfers will be accepted. The Association is prohibited from lending
funds to any person or entity for the purpose of purchasing shares of Common
Stock in the Conversion.
In order to ensure that Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members are properly identified as to their stock
purchase priorities, such depositors and borrowers must list all deposit and/or
loan accounts on the order form, giving all names on each account and the
account numbers. Failure to properly list all account numbers may result in the
inability of the Company or the Association to fill all or part of a
subscription order. In addition, registration of shares in a name or title
different from the names or titles listed on the account may adversely affect
such subscriber's purchase priority. See "The Conversion - Procedure for
Purchasing Shares in Subscription and Community Offerings."
RESTRICTIONS ON TRANSFER OF SUBSCRIPTION RIGHTS AND SHARES
Prior to the completion of the Conversion, no person may transfer or enter
into any agreement or understanding to transfer the legal or beneficial
ownership of the subscription rights issued under the Plan or the shares of
Common Stock to be issued upon their exercise. Each person exercising
subscription rights will be required to certify that a purchase of Common Stock
is solely for the purchaser's own account and that there is no agreement or
understanding regarding the sale or transfer of such shares. The Company and
the Association will pursue any and all legal and equitable remedies in the
event they become aware of the transfer of subscription rights and will not
honor orders known by them to involve
6
<PAGE>
the transfer of such rights. See "The Conversion - Restrictions on Transfer of
Subscription Rights and Shares."
Following the Conversion there generally will be no restrictions on the
transfer or sale of shares by purchasers other than affiliates of the Company
and the Association. See "Regulation - Federal Securities Laws" and "The
Conversion - Certain Restrictions on Purchase or Transfer of Shares After
Conversion."
PURCHASE LIMITATIONS
The minimum purchase in the Subscription and Community Offerings is 25
shares. The ESOP intends to subscribe for 8.0% of the shares of Common Stock
issued in the Conversion pursuant to the subscription rights granted under the
Plan. No Eligible Account Holder, Supplemental Eligible Account Holder or Other
Member, in their capacity as such, may subscribe in the Subscription Offering
for more than 0.5% (8,912 shares based on the issuance of 1,782,500 shares) of
the Common Stock to be issued; no person, together with associates of or persons
acting in concert with such person, may purchase in the Community Offering and
the Syndicated Community Offering in the aggregate more than 0.5% (8,912 shares
based on the issuance of 1,782,500 shares) of the Common Stock issued; and no
person, together with associates of or persons acting in concert with such
person, may purchase in the Offerings more than the overall maximum purchase
limitation of 1.0% (17,825 shares based on the issuance of 1,782,500 shares) of
the total number of shares of Common Stock to be issued in the Conversion, in
each case, exclusive of any shares issued pursuant to an increase in the
Estimated Price Range of up to 15%. At any time during the Conversion and
without further approval by the Association's members, the Company and the
Association may in their sole discretion decrease the maximum purchase
limitation below 0.5% (8,912 shares based on the issuance of 1,782,500 shares)
of the Common Stock to be issued in the Subscription and Community Offerings.
Additionally, at any time during the Conversion and without further approval by
the Association's members or the resolicitation of subscribers, the Company and
the Association may in their sole discretion increase the overall maximum
purchase limitation and/or increase the amount that may be subscribed for in the
Subscription and Community Offerings up to 5.0% of the shares to be issued in
the Conversion. Prior to consummation of the Conversion, if the maximum
purchase limitation is increased, subscribers for the maximum amount will be,
and certain other large subscribers in the sole discretion of the Association
may be, given the opportunity to increase their subscriptions up to the then
applicable limit. See "The Conversion - Limitations on Common Stock Purchases."
In the Community Offering, a preference will be given to natural persons
residing in postal zip code 45833, which generally encompasses the City of
Delphos in the State of Ohio. See "The Conversion - Community Offering." In
the event of an increase in the Estimated Price Range, the additional shares
will be distributed and allocated to fill unfilled orders in the Subscription
and Community Offerings, with priority given to the ESOP, without any
resolicitation of subscribers, as described in "The Conversion - Subscription
Offering and Subscription Rights," "- Community Offering" and "- Limitations on
Common Stock Purchases."
STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED IN THE CONVERSION
Federal regulations require that the aggregate purchase price of the Common
Stock to be issued in the Conversion be consistent with an independent appraisal
of the estimated pro forma market value of the Common Stock giving effect to the
Conversion. Keller & Company, Inc., an independent appraiser, has advised the
Association that in its opinion, dated August 9, 1996, the estimated aggregate
pro forma market value of the Common Stock ranged from $13.2 million to $17.8
million, with a midpoint of $15.5 million.
7
<PAGE>
THE APPRAISAL OF THE COMMON STOCK IS NOT INTENDED AND SHOULD NOT BE
CONSTRUED AS A RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF PURCHASING
SUCH STOCK NOR CAN ANY ASSURANCE BE GIVEN THAT PURCHASERS OF THE COMMON STOCK IN
THE CONVERSION WILL BE ABLE TO SELL SUCH SHARES AT OR ABOVE THE PURCHASE PRICE
AFTER THE COMPLETION OF THE CONVERSION.
Based upon the above Valuation Range, the Board of Directors of the
Association has established the Estimated Price Range of $13.2 million to $17.8
million, or between 1,317,500 and 1,782,500 shares of Common Stock at the
Purchase Price of $10.00 per share. All shares of Common Stock issued in the
Conversion will be sold at the Purchase Price of $10.00 per share, as determined
by the Association and approved by the Company. The actual number of shares to
be issued in the Conversion will be determined by the Company and the
Association based upon the final updated estimate at the completion of the
Offerings of the aggregate pro forma market value of the Common Stock giving
effect to the Conversion. The maximum of the Estimated Price 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 up to 2,049,875 shares due to regulatory
considerations, 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 Price Range. See "Risk
Factors - Possible Increase in Estimated Price Range and Number of Shares
Issued," "Pro Forma Data," and "The Conversion - Stock Pricing" and "- Number of
Shares to be Issued."
USE OF PROCEEDS
Net proceeds from the sale of the Common Stock are estimated to be between
$12.7 million and $17.3 million (or $19.9 million if the Estimated Price Range
is increased by 15%) depending on the number of shares sold and the expenses of
the Conversion. See "Pro Forma Data." The Company will purchase all of the
outstanding capital stock of the Association to be issued upon Conversion in
exchange for 50% of the net proceeds with the remaining net proceeds to be
retained by the Company. In determining the amount of net proceeds to be used
for the purchase of the capital stock of the Association, consideration was
given to such factors as the regulatory capital position of the Association
(both before and after giving effect to the Conversion) and the rules and
regulations of the OTS governing the amount of proceeds which may be retained by
the Company. Net proceeds to be retained by the Company after the purchase of
the capital stock of the Association, and including the loan to the ESOP, are
estimated to be between $6.3 million and $8.6 million (or $10.0 million if the
Estimated Price Range is increased by 15%). The Company will be unable to
utilize any of the net proceeds until the close of the Offerings.
Net proceeds retained by the Company will be used for general business
purposes, including a loan by the Company directly to the ESOP and, subject to
applicable limitations, may be used for the possible payment of dividends and
repurchases of Common Stock. The Board of Directors of the Company does not
intend to initially pay dividends on the Common Stock. The Board of Directors
may consider a policy of paying dividends on the Common Stock in the future. No
decision has been made as to the amount or timing of any such dividends, if any.
See "Dividend Policy." Assuming the acquisition by the ESOP of 8.0% of the
shares to be issued in the Conversion, the amount of the loan to the ESOP is
estimated to be between $1.1 million and $1.4 million (or $1.6 million if the
Estimated Price Range is increased by 15%) to be repaid over a 17 year period at
an interest rate of 8.25%. See "The Board of Directors and Management of the
Association - Benefits - Employee Stock Ownership Plan and Trust." Funds
received by the Association from the Company's purchase of its capital stock
will be used for general business purposes. See "Business of the Association."
The Company and the Association may also use such funds to expand operations
through the acquisition or establishment of branch offices and the acquisition
of other financial institutions. Neither the Company nor the Association has
any pending agreements or
8
<PAGE>
understandings regarding acquisitions of any specific financial institutions or
branch offices. On an interim basis, the net proceeds are expected to be
invested in short to intermediate-term investment securities and mortgage-backed
securities. See "Use of Proceeds."
DIVIDEND POLICY
The Board of Directors of the Company intends to consider a policy of
paying cash dividends on the Common Stock. However, no decision has been made
as to the amount or timing of such dividends, if any. See "Dividend Policy."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered by prospective investors. The factors discussed therein include:
Potential Impact of Changes in Interest Rates, Concentration in Real Estate
Lending in Northwestern Ohio, Increased Credit Risks Associated with Multi-
Family and Commercial Real Estate Loans, Competition, Benefits to Management and
Directors, Possible Dilutive Effect of Stock Programs and Stock Options, Certain
Anti-Takeover Provisions, Absence of Market for Common Stock, Possible Increase
in Estimated Price Range and Number of Shares Issued, Financial Institution
Regulation and Possible Legislation, Recapitalization of SAIF and Its Impact on
SAIF Premiums, Possible Adverse Income Tax Consequences of the Distribution of
Subscription Rights and Risk of Delayed Offering.
9
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF THE ASSOCIATION
The selected consolidated financial and other data of the Association set
forth below is derived in part from, and should be read in conjunction with, the
Consolidated Financial Statements of the Association and Notes thereto presented
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
At MAY 31, AT SEPTEMBER 30,
----------------------------------------------------------------------
1996(1) 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Total assets . . . . . . . . . . . . $ 91,697 $ 88,022 $ 82,613 $ 77,608 $ 68,322 $ 64,973
Cash and cash equivalents . . . . . 4,830 4,257 6,331 16,969 9,628 9,162
Investment securities(2) . . . . . . 500 500 500 500 1,000 541
Mortgage-backed securities(2). . . . 14,921 17,421 17,755 10,875 9,705 10,561
FHLB Stock - at cost . . . . . . . . 764 726 570 543 516 488
Loans receivable, net(3) . . . . . . 69,637 64,043 56,451 47,747 46,563 43,479
Deposits . . . . . . . . . . . . . . 79,097 76,664 72,255 68,241 59,973 57,776
Total Equity . . . . . . . . . . . . 11,367 10,799 9,855 8,943 7,972 6,739
</TABLE>
<TABLE>
<CAPTION>
FOR THE EIGHT MONTHS ENDED
MAY 31, FOR THE YEAR ENDED SEPTEMBER 30,
-------------------------- ----------------------------------------------------------
1996(1) 1995(1) 1995 1994 1993 1992 1991
------------ ------------- ------ ------ ------ ------ -------
(DOLLARS IN THOUSANDS)
SELECTED OPERATING DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income. . . . . . . . . . . . . . . $ 4,417 $ 4,060 $ 6,217 $ 5,424 $ 5,382 $ 5,682 $ 5,801
Interest expense . . . . . . . . . . . . . . 2,676 2,325 3,601 2,952 3,027 3,391 3,860
------- ------- ------- ------- ------- ------- -------
Net interest income. . . . . . . . . . . . 1,741 1,735 2,616 2,472 2,355 2,291 1,941
Provision for loan losses. . . . . . . . . . -- -- -- 60 25 -- --
------- ------- ------- ------- ------- ------- -------
Net interest income after
provision for loan losses. . . . . . . . 1,741 1,735 2,616 2,412 2,330 2,291 1,941
Non-interest income. . . . . . . . . . . . . 159 88 151 261 335 285 58
Non-interest expense . . . . . . . . . . . . 1,018 885 1,342 1,284 1,230 1,057 913
------- ------- ------- ------- ------- ------- -------
Income before income taxes . . . . . . . . . 882 938 1,425 1,389 1,435 1,519 1,086
Income taxes . . . . . . . . . . . . . . . . 300 319 481 477 464 610 377
------- ------- ------- ------- ------- ------- -------
Net income . . . . . . . . . . . . . . . . . $ 582 $ 619 $ 944 $ 912 $ 971 $ 909 $ 709
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE
EIGHT MONTHS ENDED AT OR FOR THE YEAR ENDED
-------------------- SEPTEMBER 30,
MAY 31, MAY 31, ----------------------------------------------
1996(1) 1995(1) 1995 1994 1993 1992 1991
---------- --------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS AND OTHER
DATA(4):
PERFORMANCE RATIOS:
Return on average assets . . . . . . . . . . . . . . .97% 1.09% 1.10% 1.14% 1.32% 1.36% 1.16%
Return on average equity . . . . . . . . . . . . . . 7.68 8.95 8.94 9.84 12.77 13.61 12.81
Average equity to average assets . . . . . . . . . . 12.59 12.22 12.30 11.62 10.30 10.01 9.05
Equity to total assets at end of period. . . . . . . 12.40 12.00 12.27 11.93 11.52 11.67 10.37
Average interest rate spread(5). . . . . . . . . . . 2.41 2.57 2.54 2.68 2.75 2.86 2.48
Net interest margin(6) . . . . . . . . . . . . . . . 2.97 3.11 3.10 3.15 3.25 3.49 3.22
Average interest-earning assets to
average interest-bearing liabilities . . . . . . . 112.37 112.92 112.20 112.61 111.98 112.18 111.47
Efficiency ratio(7). . . . . . . . . . . . . . . . . 58.47 51.00 51.29 51.93 52.21 46.12 47.03
Non-interest expense to average assets . . . . . . . 1.69 1.56 1.56 1.61 1.67 1.58 1.49
REGULATORY CAPITAL RATIOS(8):
Tangible capital . . . . . . . . . . . . . . . . . . 12.41 12.00 12.27 11.93 11.52 11.67 10.37
Core capital . . . . . . . . . . . . . . . . . . . . 12.41 12.00 12.27 11.93 11.52 11.67 10.37
Risk-based capital . . . . . . . . . . . . . . . . . 27.01 28.12 27.90 28.45 27.57 26.98 23.98
ASSET QUALITY RATIOS:
Non-performing loans as a percent of
gross loans receivable(9)(10). . . . . . . . . . . 0.43 0.30 0.37 0.46 0.63 0.70 0.67
Non-performing assets as a percent of
total assets(10) . . . . . . . . . . . . . . . . . 0.35 0.21 0.28 0.33 0.41 0.50 0.76
Allowance for loan losses as a percent of
gross loans receivable(9). . . . . . . . . . . . . 0.13 0.15 0.14 0.16 0.06 0.06 0.05
Allowance for loan losses as a percent of
non-performance loans(10). . . . . . . . . . . . . 29.19 49.45 36.99 34.17 10.16 8.43 7.63
</TABLE>
- -----------------------------
(1) Financial information at May 31, 1996 and for the eight month periods
ended May 31, 1996 and May 31, 1995 is derived from unaudited financial
data, but in the opinion of management, reflects all adjustments
(consisting only of normal recurring adjustments) which are necessary to
present fairly the results for such interim periods. Ratio data for the
eight month periods ended May 31, 1996 and May 31, 1995 are annualized.
Interim results at and for the eight months ended May 31, 1996 are not
necessarily indicative of the results that may be expected for the year
ending September 30, 1996.
(2) The Association adopted Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS No. 115"), effective as of October 1, 1994. Prior to
the adoption of SFAS No. 115, investment securities and mortgage-backed
securities held for sale were carried at the lower of amortized cost or
market value, as adjusted for amortization of premiums and accretion of
discounts over the remaining terms of the securities from the dates of
purchase.
(3) Loans receivable are shown net of loans in process, net deferred loan
origination fees and the allowance for loan losses.
(4) Asset Quality Ratios and Regulatory Capital Ratios are end of period
ratios. With the exception of end of period ratios, all ratios are based
on average monthly balances during the indicated periods and are
annualized where appropriate.
(5) The average interest rate spread represents the difference between the
weighted average yield on interest-earning assets and the weighted
average cost of interest-bearing liabilities.
(6) The net interest margin represents net interest income as a percent of
average interest-earning assets.
(7) The efficiency ratio represents non-interest expense as a percent of net
interest income before provision for loan losses and non-interest income.
(8) For definitions and further information relating to the Association's
regulatory capital requirements, see "Regulation - Federal Savings
Institution Regulation - Capital Requirements." See "Regulatory Capital
Compliance" for the Association's pro forma capital levels as a result of
the Offerings.
(9) Gross loans receivable are stated at unpaid principal balances.
(10) Non-performing assets consist of non-performing loans and real estate
owned ("REO"). Non-performing loans consist of all loans 90 days or more
past due and all other non-accrual loans. The Association generally
ceases accruing interest on loans 90 days or more past due. See
"Business of the Association - Non-Performing Assets" and "- Real
Estate."
11
<PAGE>
RISK FACTORS
The following risk factors, in addition to those discussed elsewhere in
this Prospectus, should be considered by investors in deciding whether to
purchase the Common Stock offered hereby.
POTENTIAL IMPACT OF CHANGES IN INTEREST RATES
The Association's profitability, like that of most financial institutions,
is dependent to a large extent upon 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. A significant portion of the Association's assets
consist of fixed-rate residential mortgage loans. At May 31, 1996, the
Association had $49.0 million of fixed-rate mortgage loans, or 66.8% of the
Association's gross loans receivable, with average weighted maturities of 16.4
years. The Association emphasizes fixed-rate mortgage loans due to the consumer
preference for fixed-rate mortgage loans in the Association's market area. The
Association also retains in its portfolio all of the loans that it originates,
including fixed-rate mortgage loans. Investment in fixed-rate mortgage loans
generally results in increased interest rate risk as such loans generally do not
reprice as quickly as adjustable-rate mortgage loans during periods of rising
interest rates. In addition, the Association generally has accepted deposits
for considerably shorter terms than its fixed-rate mortgage loans. At May 31,
1996, the Association had $43.9 million of certificate accounts maturing in less
than twelve months. Consequently, management expects that the yield on
interest-earning assets of the Association will adjust to changes in interest
rates at a slower rate than the cost of the Association's interest-bearing
liabilities, and that any significant increase in interest rates will have an
adverse effect on the Association's results of operations. The Association
attempts to offset the risks associated with its predominantly fixed-rate loan
portfolio by investing in adjustable-rate mortgage-backed and other securities
and by maintaining a strong level of capital, although the Association also
invests in fixed-rate mortgage-backed and other securities.
Increases in the level of interest rates also may adversely affect the
amount of loans originated by the Association, as well as the value of the
Association's securities and other interest-earning assets and the resultant
ability to realize gains on the sale of such assets. The value of fixed-rate
instruments fluctuates inversely with changes in interest rates. As a result,
increases in interest rates could result in decreases in the carrying value of
interest-earning assets which could adversely affect the Company's and
Association's results of operations if such assets were sold. Increases in
interest rates also can adversely affect the type (fixed-rate or adjustable-
rate) of loans originated by the Association and the average life of loans and
securities, which can adversely impact the yields earned on the Association's
loan and securities portfolio. In periods of decreasing interest rates, the
average life of loans held by the Association may be shortened to the extent
increased prepayment activity occurs during such periods which may result in the
Association investing funds from such prepayments in lower yielding assets.
Accordingly, the Association's results of operations and financial condition are
largely dependent on movements in market interest rates and its ability to
manage its assets and liabilities in response to such movements. In addition,
fluctuations in interest rates may also result in disintermediation, which is
the flow of funds away from depository institutions into direct investments
which pay a higher rate of return, and may adversely affect the value of the
Association's investment securities and other interest-earning assets. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Management of Interest Rate Risk" and "Regulation and Supervision -
Capital Requirements."
CONCENTRATION IN REAL ESTATE LENDING IN NORTHWESTERN OHIO
At May 31, 1996, 97.34% of the Association's total gross loan portfolio was
secured by real estate, substantially all of which is located in the
Association's primary market area in Northwestern Ohio.
12
<PAGE>
The Association's primary market area includes the city of Lima, which has
experienced increases in unemployment in the last several years due to the
closing of several large industrial plants. See "Business of the Association
- - Market Area and Competition" and "- Lending Activities." Accordingly, a
substantial decline in real estate values or the onset of other recessionary
economic conditions in the Association's primary market area could adversely
affect the Association's operating results and financial condition by, among
other things, requiring increased provisions for loan losses and increased
non-interest expense associated with the management and disposition of real
estate owned as well as decreasing demand for one- to four-family mortgage
loans.
INCREASED CREDIT RISKS ASSOCIATED WITH MULTI-FAMILY AND COMMERCIAL REAL ESTATE
LOANS
At May 31, 1996, $1.4 million, or 1.88%, of the Association's total gross
loan portfolio consisted of multi-family loans and $5.1 million, or 6.96%, was
secured by commercial real estate loans. Multi-family and commercial real
estate loans are generally considered to involve a higher degree of credit risk,
to be more vulnerable to deteriorating economic conditions than one- to four-
family residential mortgage loans and typically involve higher loan principal
amounts. Income producing property values are also subject to greater
volatility than owner-occupied residential property values. Repayment of multi-
family and commercial real estate loans generally is dependent, in large part,
on sufficient income from the property to cover operating expenses and debt
service. The Association currently originates loans secured by multi-family and
commercial real estate properties on a limited basis. The Association attempts
to offset the risks associated with multi-family and commercial real estate
lending by primarily lending to individuals who will be actively involved in the
management of the property and who have proven management experience. 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. See "Business of the Association -
Lending Activities - Multi-family Lending and - Commercial Real Estate Lending."
COMPETITION
The Association faces significant competition in its market area both in
attracting deposits and in originating loans. The Association's primary market
area is a competitive market for financial services. The Association faces
direct competition from a number of financial institutions, many with a
state-wide or regional presence, and, in some cases, a national presence. This
competition arises from other savings institutions, commercial banks, credit
unions and other providers of financial services, many of which are
significantly larger than the Association and therefore have greater financial
and marketing resources than the Association. See "Business of the
Association - Market Area and Competition."
BENEFITS TO MANAGEMENT AND DIRECTORS
STOCK PROGRAMS. The Company intends to seek stockholder approval of a
performance-based stock program or programs (the "Stock Programs") for the
benefit of directors, officers and employees of the Company and the Association
at a meeting of stockholders following the Conversion, which, under current OTS
regulations, may be held no earlier than six months after completion of the
Conversion. Assuming the receipt of stockholder approval, a trustee is expected
to acquire Common Stock on behalf of the Stock Programs in an amount equal to
4.0% of the Common Stock issued in the Conversion, or 52,700 shares and 71,300
shares at the minimum and maximum of the Estimated Price Range, respectively.
These shares will be acquired either through open market purchases, if
permissible, or from authorized but unissued Common Stock. See "- Possible
Dilutive Effect of Stock Programs and Stock Options." Although no specific
award determinations have been made, the Company anticipates that, if
stockholder approval is obtained, it will provide awards to its directors,
officers and key employees to the extent
13
<PAGE>
permitted by applicable regulations. Current OTS regulations provide that no
individual may receive more than 25% of the shares of any plan and
non-employee directors may not receive more than 5.0% individually, or 30% in
the aggregate, of the shares awarded under any plan. These shares will be
awarded at no cost to the recipients. Under the terms of the Stock Programs,
the trustee will vote unallocated shares in the same proportion as it
receives instructions from recipients with respect to allocated shares which
have not been earned and distributed. The trustee will not vote allocated
shares which have not been distributed if it does not receive instructions
from the recipient. See "The Board of Directors and Management of the
Association - Benefits - Stock Programs."
STOCK OPTION PLANS. The Company also intends to seek stockholder approval
of a benefit plan or plans which would provide options to purchase Common Stock
to non-employee directors, officers and employees (the "Stock Option Plans") at
a meeting of stockholders following the Conversion, which under current OTS
regulations may be held no earlier than six months after completion of the
Conversion. Although no specific determinations have been made, assuming the
receipt of stockholder approval, the Company expects that directors, officers
and key employees will be granted options to purchase an amount of authorized
but unissued Common Stock or treasury stock, if any, equal to 10% of the Common
Stock issued in the Conversion, or 131,750 shares and 178,250 shares at the
minimum and maximum of the Estimated Price Range. Under the Stock Option Plans,
the exercise price will be equal to the fair market value of the underlying
Common Stock on the date of grant. Such options will permit such officers and
directors to benefit from any increase in the market value of the shares in
excess of the exercise price at the time of exercise. Officers and directors
receiving such options will not be required to pay for the shares until the date
of exercise. See "The Board of Directors and Management of the Association -
Benefits - Stock Option Plans."
CHANGE IN CONTROL PROVISIONS. Upon completion of the Conversion, and
subject to the approval of the OTS, the Company and the Association intend to
enter into employment agreements with the President. See "The Board of
Directors and Management of the Association - Employment Agreements." Such
employment or severance agreements provide for benefits and cash payments in the
event of a change in control of the Company or the Association. These
provisions may have the effect of increasing the cost of acquiring the Company,
thereby discouraging future attempts to take over the Company or the
Association. Based on current salaries, cash payments to be paid in the event
of a change in control pursuant to the employment agreements would be
approximately $210,000. However, the actual amount to be paid in the event of a
change in control of the Association or the Company cannot be estimated at this
time because the actual amount is based on the average salary of the employee
and other factors existing at the time of the change in control which cannot be
determined at this time. See "Restrictions on Acquisition of the Company and
the Association - Restrictions in the Company's Certificate of Incorporation and
Bylaws," "The Board of Directors and Management of the Association - Employment
Agreements," "- Benefits - Stock Option Plans" and "- Benefits - Stock
Programs."
POSSIBLE DILUTIVE EFFECT OF STOCK PROGRAMS AND STOCK OPTIONS
Following the Conversion, the Stock Programs, if approved by the
stockholders of the Company, will acquire an amount of shares equal to 4.0% of
the shares of Common Stock issued in the Conversion, either through open market
purchases, if permissible, or the issuance of authorized but unissued shares of
Common Stock from the Company. If the Stock Programs are funded by the issuance
of authorized but unissued shares, the voting interests of existing shareholders
will be diluted by approximately 3.9%. Also following the Conversion,
directors, officers and employees will be granted options, if the Stock Option
Plans are approved by the stockholders of the Company. Although no specific
determinations have been made, the Company expects that executive officers and
directors will be granted options to purchase authorized but unissued shares in
an amount equal to 10% of the Common Stock issued in the Conversion.
14
<PAGE>
Under certain circumstances, such options may be exercised and sold on the
same day, thereby eliminating any risk to officers and directors in
exercising options in the event that the market price exceeds the exercise
price. If all of the options were to be exercised using authorized but
unissued Common Stock, the voting interests of existing stockholders would be
diluted by approximately 9.9%.
CERTAIN ANTI-TAKEOVER PROVISIONS
PROVISIONS IN THE COMPANY'S AND THE ASSOCIATION'S GOVERNING INSTRUMENTS.
Certain provisions of the Company's Certificate of Incorporation and Bylaws,
particularly a provision limiting voting rights, and the Association's Stock
Charter and Bylaws, as well as certain federal regulations, assist the Company
in maintaining its status as an independent publicly owned corporation. These
provisions provide for, among other things, supermajority voting on certain
matters, staggered terms for directors, non-cumulative voting for directors,
limits on the calling of special meetings, limits on voting shares in excess of
10% of the outstanding shares, and certain uniform price provisions for certain
business combinations. The Association's Stock Charter also prohibits, for five
years, the acquisition or offer to acquire, directly or indirectly, the
beneficial ownership of more than 10% of the Association's equity securities.
Any person violating this restriction may not vote the Association's securities
in excess of 10%. These provisions in the Association's and the Company's
governing instruments may discourage potential proxy contests and other
potential takeover attempts, particularly those which have not been negotiated
with the Board of Directors, and thus, generally may serve to perpetuate current
management. For a more detailed discussion of these provisions, see
"Restrictions on Acquisition of the Company and the Association."
VOTING CONTROL OF OFFICERS AND DIRECTORS. Directors and executive officers
of the Association and the Company expect to purchase between approximately
4.93% and 3.65% of the shares of Common Stock to be issued in the Conversion,
based upon the minimum and the maximum of the Estimated Price Range,
respectively, exclusive of shares that may be attributable to directors and
officers through the Stock Programs, the Stock Options Plans and the ESOP. See
"Risk Factors - Benefits to Management and Directors," "The Board of Directors
and Management of the Association - Benefits - Stock Option Plans," "- Benefits
- - Stock Programs" and "- Benefits - Employee Stock Ownership Plan and Trust."
Management's potential voting control could, together with additional
stockholder support, defeat stockholder proposals requiring 80% approval of
stockholders. As a result, this potential voting control may preclude takeover
attempts that certain stockholders deem to be in their best interest and may
tend to perpetuate existing management. See "Restrictions on Acquisition of the
Company and the Association - Restrictions in the Company's Certificate of
Incorporation and Bylaws."
ABSENCE OF MARKET FOR COMMON STOCK
The Company and the Association have never issued capital stock. The
Company has received conditional approval from the Nasdaq to have its Common
Stock quoted on the Nasdaq National Market under the symbol "DCBI" upon
completion of the Conversion. However, there can be no assurance that an active
and liquid trading market for the Common Stock will develop, or, once developed,
will continue, nor can there be any assurances that purchasers of the Common
Stock will be able to sell their shares at or above the Purchase Price. The
absence or discontinuance of a market for the Common Stock may have an adverse
impact on both the price and liquidity of the Common Stock. See "Market for the
Common Stock."
POSSIBLE INCREASE IN ESTIMATED PRICE RANGE AND NUMBER OF SHARES ISSUED
The number of shares to be sold in the Conversion may be increased as a
result of an increase in the Estimated Price Range of up to 15% due to
regulatory considerations, changes in market conditions
15
<PAGE>
or general financial and economic conditions following the commencement of
the Subscription and Community Offerings. In the event that the Estimated
Price Range is so increased, it is expected that the Company will issue up to
2,049,875 shares of Common Stock at the Purchase Price for an aggregate price
of up to $20,498,750. An increase in the number of shares issued will
decrease a subscriber's pro forma net earnings per share and stockholders'
equity per share and will increase the Company's pro forma consolidated
stockholders' equity and net earnings. Such an increase will also increase
the Purchase Price as a percentage of pro forma stockholders' equity per
share and as a multiple of pro forma net earnings per share.
FINANCIAL INSTITUTION REGULATION AND POSSIBLE LEGISLATION
The Association is subject to extensive regulation and supervision as a
federal savings association. In addition, the Company, as a savings association
holding company, is subject to extensive regulation and supervision. Such
regulations, which affect the Association on a daily basis, may be changed at
any time, and the interpretation of the relevant law and regulations is also
subject to change by the authorities who examine the Association and interpret
those laws and regulations. Any change in the regulatory structure or the
applicable statutes or regulations, whether by the OTS, the FDIC or the
Congress, could have a material impact on the Company, the Association, its
operations or the Association's Conversion. See "Regulation."
Congress currently has under consideration various proposals to eliminate
the federal thrift charter and abolish the OTS. Several of the bills presently
pending in Congress would require that all federal savings associations convert
to national or state banks by no later than January 1, 1998 and would treat all
state savings associations as state banks for purposes of federal banking laws
as of that date. Subject to a narrow grandfathering, all savings and loan
holding companies would become bank holding companies under the pending
legislative proposals and would be subject to the activities restrictions
applicable to bank holding companies. Under the pending bills, any lawful
activity in which a savings association was engaged on September 13, 1995 would
be grandfathered for up to 2 years following the effective date of its
conversion to a bank charter, plus two additional one year extensions at the
discretion of the regulator, and existing thrift intrastate and interstate
branches which were operated as branches on September 13, 1995 would also be
grandfathered. The legislative proposals would also abolish the OTS and
transfer its functions to three federal bank regulators and to the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board") with
respect to the regulation of holding companies. All state savings and loan
associations would be regulated as state banks by the FDIC. Legislation
regarding bad debt recapture has been passed by Congress and sent to the
President for signature. The legislation requires recapture of reserves
accumulated after 1987. The recapture tax on post 1987 reserves must be paid
over a six year period starting in 1996. The payment of the tax can be deferred
in each of 1996 and 1997 if an institution originates at least the same average
annual principal amount of mortgage loans that it originated in the six years
prior to 1996. See "Federal and State Taxation - Federal Taxation - Bad Debt
Reserve."
The outcome of any pending legislation ais uncertain. Therefore, the
Association is unable to determine the extent to which such legislation, if
enacted, would affect its business.
RECAPITALIZATION OF SAIF AND ITS IMPACT ON SAIF PREMIUMS
Deposits of the Association are presently insured by the SAIF. Both the
SAIF and the Bank Insurance Fund ("BIF"), the deposit insurance fund that covers
most commercial bank deposits, are statutorily required to be recapitalized to a
1.25% of insured deposits ratio. The BIF achieved the required ratio in 1995
but the SAIF is not expected to achieve the ratio until after the year 2000,
largely because
16
<PAGE>
a portion of the insurance assessment paid by SAIF members is required by
statute to be used to make payments on bonds issued by the Financing
Corporation ("FICO") which were issued in the late 1980's to recapitalize the
predecessor to the SAIF.
Until recently, members of the SAIF and BIF were paying deposit insurance
premiums of between 23 and 31 basis points. For 1996, in view of the BIF's
achieving the 1.25% ratio, the FDIC adopted a new assessment rate schedule of
0 to 27 basis points for BIF members. Under that schedule, approximately 92% of
BIF members are required to pay only $2,000 per year, the legal minimum, in
insurance premiums. With respect to SAIF member institutions, the existing
assessment rate schedule applicable to SAIF member institutions of 23 to 31
basis points was retained. Consequently, there is a significant differential in
the insurance premiums paid BIF and SAIF members. As long as the premium
differential continues, it may place SAIF members, such as the Association, at a
substantial competitive disadvantage to BIF members with respect to pricing of
loans and deposits and the ability to achieve lower operating costs.
Several bills have been introduced in Congress to mitigate the effect of
the BIF/SAIF premium disparity. Among other things, these bills would impose a
special assessment on SAIF-member institutions, including the Association, to
recapitalize the SAIF fund and would spread the FICO payments across all BIF and
SAIF members. It is presently estimated that the amount of the one-time fee
would range from 79 to 85 basis points on the amount of deposits held by SAIF-
members institutions as of March 31, 1995. Certain pending legislation would
also require the BIF and the SAIF to be merged by January 1, 1998 provided that
subsequent legislation is adopted to eliminate the federal thrift charter. The
payment of the special assessment would have the effect of immediately reducing
the capital of SAIF-member institutions by the amount of the fee, net of any tax
effect. See "Regulatory Capital Compliance" and "Regulation - Insurance of
Deposit Accounts." Management cannot predict whether legislation imposing such
a special assessment will be enacted, or, if enacted, the amount of any such
assessment, whether such assessment will be calculated based on the amount of
deposits held by the institution on March 31, 1995 or some other date, or
whether ongoing SAIF premiums will be reduced to a level equal to that of BIF
premiums or whether the BIF and SAIF will eventually be merged.
The Association's assessment rate for 1995 was 23 basis points and the
premiums paid for the year ended September 30, 1995 were $166,000. A
significant increase in SAIF insurance premiums or a significant special
assessment to recapitalize the SAIF would have an adverse effect on the
operating expenses and results of operations of the Association. Based on the
Association's deposit insurance assessment base as of September 30, 1995, a 79
to 85 basis point assessment to recapitalize the SAIF would result in a $600,000
to $650,000 payment on a pre-tax basis. If the Association had been required to
pay the special assessment of 79 to 85 basis points on September 30, 1995, the
Association's after-tax income would have been reduced by $400,000 to $430,000
for the year ended September 30, 1995.
POSSIBLE ADVERSE INCOME TAX CONSEQUENCES OF THE DISTRIBUTION OF SUBSCRIPTION
RIGHTS
The Association has received an opinion from Keller which states that,
pursuant to Keller's valuation, subscription rights granted to Eligible Account
Holders, Supplemental Eligible Account Holders and Other Members have no value.
However, such valuation is not binding on the Internal Revenue Service ("IRS").
If the subscription rights granted to Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members are deemed to have an ascertainable
value, such rights may be taxable as ordinary income or capital gain 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 Association could recognize a gain for tax purposes on
such distribution.
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<PAGE>
Whether subscription rights are considered to have ascertainable value is an
inherently factual determination. See "The Conversion - Effects of
Conversion" and "- Tax Aspects."
RISK OF DELAYED OFFERING
The Company and the Association expect to complete the Conversion within
the time periods indicated in this Prospectus. Nevertheless, it is possible,
although not anticipated, that adverse market, economic or regulatory
conditions, or other factors could significantly delay the completion of the
Conversion and result in increased Conversion costs or in changes in the
Conversion valuation. The Subscription and Community Offerings could be
extended to _________________________, 1996 before subscribers would have the
right to confirm, modify or rescind their subscriptions. If the Subscription
and Community Offerings are extended beyond __________________________, 1996,
all subscribers will have the right to confirm, modify or rescind their
subscriptions and to have their subscription funds returned promptly, with
interest at a rate equal to the Association's interest rate paid on passbook
accounts, or to have their withdrawal authorization terminated. See "The
Conversion."
18
<PAGE>
DELPHOS CITIZENS BANCORP, INC.
The Company was recently organized at the direction of the Board of
Directors of the Association for the purpose of acquiring all of the capital
stock to be issued by the Association. The Company has applied to the OTS to
become a savings and loan holding company, and, as such, will be subject to
regulation by the OTS. See "The Conversion - General." After completion of the
Conversion, the Company will conduct business initially as a unitary savings and
loan holding company. See "Regulation - Holding Company Regulation." Upon
consummation of the Conversion, the Company's assets will consist of all of the
outstanding shares of the Association's capital stock issued to the Company in
the Conversion and that portion of the net proceeds of the Offerings retained by
the Company. The Company intends to use part of the net proceeds it retains to
make a loan directly to the ESOP to enable the ESOP to purchase 8% of the Common
Stock in the Conversion. See "Use of Proceeds." The Company will have no
significant liabilities. The management of the Company is set forth under "The
Board of Directors and Management of the Company." Initially, the Company will
neither own nor lease any property, but will instead use the premises, equipment
and furniture of the Association. At the present time, the Company does not
intend to employ any persons other than officers, but will utilize the support
staff of the Association from time to time. Additional employees will be hired
as appropriate to the extent the Company expands its business in the future.
Management believes that the holding company structure will provide the
Company with additional flexibility to diversify, should it decide to do so, its
business activities through existing or newly-formed subsidiaries, or through
acquisitions of other financial institutions and financial services related
companies. Although there are no current arrangements, understandings or
agreements, written or oral, regarding any such opportunities or transactions,
the Company will be in a position after the Conversion, subject to regulatory
limitations and the Company's financial position, to take advantage of any such
acquisition and expansion opportunities that may arise. The initial activities
of the Company are anticipated to be funded by the net proceeds retained by the
Company and earnings thereon or, alternatively, through dividends from the
Association.
The Company's executive offices are located at the home office of the
Association at 114 East 3rd Street, Delphos, Ohio 45833. The Company's
telephone number is (419) 692-2010.
CITIZENS FEDERAL SAVINGS AND LOAN ASSOCIATION
The Association has operated for over one hundred years as a community-
oriented savings institution. The Association's primary market area consists of
the areas in and surrounding the city of Delphos and includes portions of the
counties of Allen, Putnam and Van Wert in Northwestern Ohio. The Association's
primary market area also includes the city of Lima, located in Allen County.
The Association conducts its business from its home office located in Delphos,
Ohio.
The Association's business has been and continues to be attracting deposits
from the general public in its primary market area and investing such deposits
and other funds, generated from operations and borrowings, primarily in
conventional mortgage loans secured by one- to four-family residences. At May
31, 1996, $61.2 million, or 83.35%, of the Association's gross loans receivable
consisted of one- to four-family mortgage loans. To a significantly lesser
extent, the Association invests in multi-family, commercial real estate,
construction (primarily to individual borrowers for the construction of owner-
occupied residential properties) and land, and consumer loans. In addition to
its lending activities, the Association also invests in mortgage-backed
securities, primarily those guaranteed by governmental
19
<PAGE>
agencies such as the Government National Mortgage Association ("GNMA") and
the Federal Home Loan Mortgage Corporation ("FHLMC") and investment
securities.
The Association is subject to extensive regulation, supervision and
examination by the OTS, its primary regulator, and the FDIC, which insures its
deposits. As of May 31, 1996, the Association exceeded all regulatory capital
requirements with tangible, core and risk-based capital of $11.4 million, $11.4
million and $11.5 million, respectively. Additionally, the Association's
regulatory capital was in excess of the amount necessary to be
"well-capitalized" under the Federal Deposit Insurance Corporation Improvement
Act of 1992 ("FDICIA"). See "Regulatory Capital Compliance" and "Regulation."
The Association is a member of the Federal Home Loan Bank of Cincinnati ("FHLB -
Cincinnati") which is one of the twelve regional banks which comprise the FHLB
system.
The Association's executive offices are located at its home office at 114
East 3rd Street, Delphos, Ohio. The Association's telephone number is (419)
692-2010.
20
<PAGE>
REGULATORY CAPITAL COMPLIANCE
At May 31, 1996, the Association exceeded all regulatory capital
requirements. See "Regulation - Federal Savings Institution Regulation -
Capital Requirements." Set forth below is a summary of the Association's
compliance with regulatory capital standards as of May 31, 1996, on a historical
and pro forma basis assuming that the indicated number of shares were sold as of
such date and receipt by the Association of 50% of the net proceeds and that
such net proceeds are invested in assets that carry a 20% risk-weighting, such
as short-term interest-bearing deposits. For purposes 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 Stock Programs are deducted from pro forma regulatory
capital.
<TABLE>
<CAPTION>
PRO FORMA BASED UPON SALE AT $10.00 PER SHARE
----------------------------------------------------------------------------
2,049,875 SHARES
1,317,500 SHARES 1,550,000 SHARES 1,782,500 SHARES (15% ABOVE
(MINIMUM OF (MIDPOINT OF (MAXIMUM OF MAXIMUM
HISTORICAL ESTIMATED ESTIMATED ESTIMATED OF ESTIMATED
PRICE RANGE) PRICE RANGE) PRICE RANGE) PRICE RANGE)(1)
----------------- ----------------- ----------------- ----------------- -----------------
PERCENT PERCENT PERCENT PERCENT PERCENT
OF OF OF OF OF
AMOUNT ASSETS(2) AMOUNT ASSETS(2) AMOUNT ASSETS(2) AMOUNT ASSETS(2) AMOUNT ASSETS(2)
------ --------- ------ --------- ------ --------- ------ --------- ------ ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP Capital . . . . $11,367 12.40% $16,134 16.7% $17,000 17.5% $17,869 18.2% $18,867 19.0%
------- ----- ------- ---- ------- ---- ------- ---- ------- ----
------- ----- ------- ---- ------- ---- ------- ---- ------- ----
Tangible Capital:
Capital Level(3) . $11,380 12.41% $16,148 16.7% $17,014 17.5% $17,883 18.2% $18,881 19.0%
Requirement . . . 1,376 1.50 1,447 1.5 1,460 1.5 1,473 1.5 1,488 1.5
------- ----- ------- ---- ------- ---- ------- ---- ------- ----
Excess . . . . . . $10,006 10.91% $14,701 15.2% $15,554 16.0% $16,410 16.7% $17,393 17.5%
------- ----- ------- ---- ------- ---- ------- ---- ------- ----
------- ----- ------- ---- ------- ---- ------- ---- ------- ----
Core Capital:
Capital Level(3) . $11,380 12.41% $16,148 16.7% $17,014 17.5% $17,883 18.2% $18,881 19.0%
Requirement(4) . . 2,752 3.00 2,894 3.0 2,920 3.0 2,946 3.0 2,976 3.0
------- ----- ------- ---- ------- ---- ------- ---- ------- ----
Excess . . . . . . $ 8,628 9.41% $13,254 13.7% $14,094 14.5% $14,937 15.2% $15,905 16.0%
------- ----- ------- ---- ------- ---- ------- ---- ------- ----
------- ----- ------- ---- ------- ---- ------- ---- ------- ----
Total Risk-Based Capital:
Capital Level(3) . $11,474 27.01% $16,226 37.5% $17,092 39.1% $17,961 40.7% $18,959 42.6%
Requirement . . . 3,398 8.00 3,464 8.0 3,495 8.0 3,527 8.0 3,562 8.0
------- ----- ------- ---- ------- ---- ------- ---- ------- ----
Excess . . . . . . $ 8,076 19.01% $12,762 29.5% $13,597 31.1% $14,434 32.7% $15,397 34.6%
------- ----- ------- ---- ------- ---- ------- ---- ------- ----
------- ----- ------- ---- ------- ---- ------- ---- ------- ----
</TABLE>
- ---------------------------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Price Range of up to 15% as
a result of regulatory considerations, changes in market conditions or
general financial and economic conditions following the commencement of the
Subscription and Community Offerings.
(2) 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.
(3) Certain deductions and additions are made to equity as calculated under
generally accepted accounting principles ("GAAP") to determine regulatory
capital. See Footnote 12 to the Financial Statements for a description of
the additions to (reductions from) GAAP capital to determine regulatory
tangible and core capital. The general valuation allowance of $92,000 is
added to GAAP capital to arrive at total risk-based capital.
(4) 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 4% to 5% core capital ratio requirement for all other
thrifts. See "Regulation - Federal Savings Institution Regulation -
Capital Requirements."
21
<PAGE>
USE OF PROCEEDS
Although the actual net proceeds from the sale of the Common Stock cannot
be determined until the Conversion is completed, it is presently anticipated
that the net proceeds from the sale of the Common Stock will be between $12.7
million and $17.3 million (or $19.9 million if the Estimated Price Range is
increased by 15%). See "Pro Forma Data" and "The Conversion - Stock Pricing" as
to the assumptions used to arrive at such amounts. The Company will be unable
to utilize any of the net proceeds of the Offerings until the consummation of
the Conversion.
The Company will purchase all of the outstanding capital stock of the
Association to be issued upon Conversion in exchange for 50% of the net proceeds
of the Offering. Such proceeds will be added to the Association's general funds
to be used for general corporate purposes, including investment in one- to
four-family residential mortgage loans and other loans and investment in short-
to intermediate-term securities and mortgage-backed securities. The Association
may also use such funds to expand operations through acquisitions of other
financial institutions, branch offices or other financial services companies.
The Association has no current arrangements, understandings or agreements
regarding any such transactions.
Net proceeds to be retained by the Company after the purchase of the
capital stock of the Association, and including the loan to the ESOP, are
estimated to be between $6.3 million and $8.6 million (or $10.0 million if the
Estimated Price Range is increased by 15%). The net proceeds retained by the
Company will initially be invested primarily in short- to intermediate-term
securities and mortgage-backed securities. The Company intends to use a portion
of the net proceeds to make a loan directly to the ESOP to enable the ESOP to
purchase 8.0% of the Common Stock issued in the Conversion. Based upon the
issuance of 1,317,500 shares and 1,782,500 shares at the minimum and maximum of
the Estimated Price Range, the amount of the loan to the ESOP would be $1.1
million or $1.4 million, respectively (or $1.6 million if the Estimated Price
Range is increased by 15%) to be repaid over a 17-year period at an interest
rate of 8.25%. See "The Board of Directors and Management of the Association -
Benefits - Employee Stock Ownership Plan and Trust."
The net proceeds retained by the Company may also be used to support the
future expansion of operations through the acquisition of other savings
associations and commercial banks or diversification into other banking related
businesses. The Company may use a portion of the net proceeds to fund the Stock
Programs. The Company has no current arrangements, understandings or agreements
regarding any such transactions. The Company, upon the Conversion, will be a
unitary savings and loan holding company, which under existing laws would
generally not be restricted as to the types of business activities in which it
may engage, provided that the Association continues to be a qualified thrift
lender ("QTL"). See "Regulation - Holding Company Regulation" for a description
of certain regulations and proposed regulations applicable to the Company.
Upon completion of the Conversion, the Board of Directors of the Company
will have the authority to adopt stock repurchase plans, subject to statutory
and regulatory requirements. Unless approved by the OTS, the Company, pursuant
to OTS regulations, will be prohibited from repurchasing any shares of the
Common Stock for three years except (i) for an offer to all stockholders on a
pro rata basis, (ii) for the repurchase of qualifying shares of a director, or
(iii) a purchase in the open market by an employee stock benefit plan.
Notwithstanding the foregoing and except as provided below, beginning one year
following completion of the Conversion, the Company may repurchase its Common
Stock so long as (i) the repurchases within the following two years are part of
an open-market program not involving greater than 5% of its outstanding capital
stock during a twelve-month period, (ii) the repurchases do not cause the
Association to become "undercapitalized" within the meaning of the OTS
22
<PAGE>
prompt corrective action regulation, and (iii) the Company provides to the
Regional Director of the OTS no later than 10 days prior to the commencement
of a repurchase program written notice containing a full description of the
program to be undertaken and such program is not disapproved by the Regional
Director. See "Regulation - Prompt Corrective Regulatory Action." In
addition, under current OTS policies, repurchases may be allowed in the first
year following Conversion and in amounts greater than 5% in the second and
third years following Conversion provided there are valid and compelling
business reasons for such repurchases and the OTS does not object to such
repurchases.
Based upon facts and circumstances following Conversion and subject to
applicable regulatory requirements, the Board of Directors may determine to
repurchase stock in the future. Such facts and circumstances may include but
not be 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 opportunity to improve the
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 circumstances in which
repurchases would be in the best interests of the Company and its shareholders.
In the event the Company determines to repurchase stock, such repurchases may be
made at market prices which may be in excess of the Purchase Price in the
Conversion.
Any stock repurchases will be subject to the determination of the Board of
Directors that both the Company and the Association will be capitalized in
excess of all applicable regulatory requirements after any such repurchases and
that such capital will be adequate, taking into account, among other things, the
level of non-performing and other risk assets, the Company's and the
Association's current and projected results of operations and asset/liability
structure, the economic environment and tax and other considerations. See "The
Conversion - Certain Restrictions on Purchase or Transfer of Shares after
Conversion."
While the Company's Board of Directors intends to consider a policy of
paying dividends in the future, the Board has not currently formulated a policy
with respect to the payment of dividends. The payment of dividends or
repurchase of stock, however, would be prohibited if stockholders' equity would
be reduced below the amount required to maintain the Association's liquidation
account. See "Dividend Policy" and "The Conversion - Liquidation Rights" and "-
Certain Restrictions on Purchase or Transfer of Shares After Conversion."
DIVIDEND POLICY
Upon Conversion, the Board of Directors of the Company will have the
authority to declare dividends on the Common Stock, subject to statutory and
regulatory requirements. The Company is newly formed and has conducted no
operations to date. The Board of Directors intends to consider a policy of
paying dividends on the Common Stock in the future. No decision has been made
as to the amount or timing of such dividends, if any. Declarations of dividends
by the Board of Directors will depend upon a number of factors, including the
amount of net proceeds retained by the Company in the Conversion, investment
opportunities available to the Company or the Association, capital requirements,
regulatory limitations, the Company's and the Association's financial condition
and results of operations, tax considerations and general economic conditions.
No assurances can be given, however, that any dividends will be paid or, if
commenced, will continue to be paid.
The Association will not be permitted to pay dividends on its capital stock
if its stockholders' equity would be reduced below the amount required for the
liquidation account. See "The Conversion -
23
<PAGE>
Liquidation Rights." For information concerning federal regulations which
apply to the Association in determining the amount of proceeds which may be
retained by the Company and regarding a savings institution's ability to make
capital distributions including payment of dividends to its holding company,
see "Federal and State Taxation - Federal Taxation - Distributions" and
"Regulation - Federal Savings Institution Regulation - Limitation on Capital
Distributions."
Unlike the Association, the Company is not subject to OTS regulatory
restrictions on the payment of dividends to its stockholders. The Company is
subject, however, to the requirements of Delaware law, which generally limit
dividends to an amount equal to the excess of the net assets of the Company (the
amount by which total assets exceed total liabilities) over its statutory
capital, (generally defined as the aggregate par value of the outstanding shares
of the Company's capital stock having a par value plus the amount of the
consideration paid for shares of the Company's capital stock without par value)
or, if there is no such excess, to its net profits for the current and/or
immediately preceding fiscal year. Since the Company initially will have no
significant source of income other than dividends from the Association and
earnings from the net proceeds retained by the Company, the payment of dividends
by the Company may be dependent, in part, upon dividends from the Association
which is subject to various tax and regulatory restrictions on the payment of
dividends.
MARKET FOR THE COMMON STOCK
The Company and Association have not previously issued capital stock, and,
consequently, there is no established market for the Common Stock. The Company
has received conditional approval from the Nasdaq to have its Common Stock
quoted on the Nasdaq National Market System under the symbol "DCBI" upon
completion of the Conversion. One of the requirements for continued quotation
of the Common Stock on the Nasdaq is that there be at least two market makers
for the Common Stock. The Company will seek to encourage at least two market
makers to make a market in its 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. KBW has advised the Company
that upon completion of the Conversion, it intends to act as a market maker in
the Common Stock, depending on the volume of trading and subject to compliance
with applicable laws and regulatory requirements. Webb also will assist the
Company in obtaining additional market makers. The development of a public
market having the desirable characteristics of depth, liquidity and orderliness,
however, depends on the presence in the marketplace of a sufficient number of
willing buyers and sellers at any given time, over which the Company, the
Association nor any market maker has any control. Accordingly, there can be no
assurance that an established and liquid trading market for the Common Stock
will develop or that, if developed, it will continue. Furthermore, there can be
no assurance that persons purchasing shares will be able to sell them at or
above the Purchase Price or that quotations will be available on the Nasdaq as
contemplated. The absence or discontinuance of a market for the Common Stock
may have an adverse impact on both the price and the liquidity of the Common
Stock. The Company and the Association will make reasonable efforts to comply
with the securities law of all states in the United States in which persons
entitled to subscribe for stock pursuant to the Plan reside; however, the
Company and the Association are not required to offer stock in the Subscription
Offering to any person who resides in a state of the United States with respect
to which the Company or the Association determine that compliance with the
securities laws of such state would be impracticable for reasons of cost or
otherwise.
24
<PAGE>
CAPITALIZATION
The following table presents the unaudited historical consolidated
capitalization of the Association at May 31, 1996, and the pro forma
consolidated capitalization of the Company after giving effect to the
Conversion, based upon the sale of the number of shares indicated in the
table and the other assumptions set forth under "Pro Forma Data."
<TABLE>
<CAPTION>
COMPANY PRO FORMA BASED UPON SALE AT $10.00 PER SHARE
------------------------------------------------------------
2,049,875
1,317,500 1,550,000 1,782,500 SHARES
SHARES SHARES SHARES (15% ABOVE
(MINIMUM OF (MIDPOINT OF (MAXIMUM OF MAXIMUM OF
ASSOCIATION ESTIMATED ESTIMATED ESTIMATED ESTIMATED
HISTORICAL PRICE RANGE) PRICE RANGE) PRICE RANGE) PRICE RANGE)(1)
----------- ------------ ------------ ------------ ---------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Total deposits . . . . . . . . . . . . . . $79,097 $79,097 $79,097 $79,097 $79,097
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Stockholders' equity:
Preferred Stock, $0.01 par value,
1,000,000 shares authorized;
none to be issued . . . . . . . . . . . $ -- $ -- $ -- $ -- $ --
Common Stock, $0.01 par value,
4,000,000 shares authorized;
shares to be issued as reflected . . . . -- 13 16 18 20
Additional paid-in capital(3) . . . . . . -- 12,682 14,971 17,263 19,898
Retained earnings(4) . . . . . . . . . . 11,381 11,381 11,381 11,381 11,381
Unrealized loss on securities
available for sale . . . . . . . . . . (14) (14) (14) (14) (14)
Common Stock acquired by the
ESOP(5) . . . . . . . . . . . . . . . . -- (1,054) (1,240) (1,426) (1,639)
Common Stock acquired by the
Stock Programs(6) . . . . . . . . . . . -- (527) (620) (713) (820)
------- ------- ------- ------- -------
Total stockholders' equity . . . . . . . . $11,367 $22,481 $24,494 $26,509 $28,826
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
25
<PAGE>
________________________
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Price Range of up to 15% as
a result of regulatory considerations, or changes in market conditions or
general financial and economic conditions following the commencement of the
Subscription and Community Offerings.
(2) Does not reflect withdrawals from deposit accounts for the purchase of
Common Stock in the Conversion. Such withdrawals would reduce pro forma
deposits by the amount of such withdrawals.
(3) No effect has been given to the issuance of additional shares of Common
Stock pursuant to the Stock Option Plans intended to be adopted by the
Company and presented for approval of stockholders at a meeting of
stockholders following the Conversion. If approved by the stockholders of
the Company, an amount equal to 10% of the shares of Common Stock issued in
the Conversion will be reserved for issuance upon the exercise of options
to be granted under the Stock Option Plans. See "Risk Factors - Possible
Dilutive Effect of Stock Programs and Stock Options," Footnote 3 to the
tables under "Pro Forma Data" and "The Board of Directors and Management of
the Association - Benefits - Stock Option Plans."
(4) The retained earnings of the Association will be substantially restricted
after the Conversion. See "The Conversion - Liquidation Rights" and
"Regulation - Federal Savings Institution Regulation - Limitations on
Capital Distributions." Does not reflect the payment of any possible
future dividends. See "Dividend Policy."
(5) Assumes that 8.0% of the shares offered for sale in the Conversion will be
purchased by the ESOP and that the funds used to acquire such shares will
be borrowed from the Company. The Common Stock acquired by the ESOP is
reflected as a reduction of stockholders' equity. See "The Board of
Directors and Management of the Association - Benefits - Employee Stock
Ownership Plan and Trust."
(6) Assumes that an amount equal to 4.0% of the shares of Common Stock issued
in the Conversion is purchased by the Stock Programs subsequent to the
Conversion through open market purchases. The Common Stock purchased by
the Stock Programs is reflected as a reduction of stockholder's equity.
Implementation of the Stock Programs is subject to the approval of the
Company's stockholders at a meeting following the Conversion. See "Risk
Factors - Possible Dilutive Effect of Stock Programs and Stock Options,"
Footnote 2 to the tables under "Pro Forma Data" and "The Board of Directors
and Management of the Association - Benefits - Stock Programs."
26
<PAGE>
PRO FORMA DATA
The actual net proceeds from the sale of the Common Stock cannot be
determined until the Conversion is completed. However, net proceeds are
currently estimated to be between $12.7 million and $17.3 million (or $19.9
million in the event the Estimated Price Range is increased by 15%) based upon
the following assumptions: (i) all of the shares of Common Stock will be sold
in the Subscription and Community Offerings; (ii) directors, officers and
employees of the Association and members of their immediate families
(collectively, "Affiliates") will purchase an aggregate of 70,000 shares of
Common Stock; (iii) Webb will receive a fee equal to 1.5% of the aggregate
Purchase Price of the shares sold in the Subscription and Community Offerings up
to the maximum of the Estimated Price Range, excluding shares purchased by
Affiliates and the ESOP for which there is no fee; and (iv) Conversion expenses,
excluding the marketing fees paid to Webb, will be approximately $309,000.
Actual Conversion expenses may vary from those estimated.
Pro forma consolidated net earnings of the Company for the eight months
ended May 31, 1996, and for the year ended September 30, 1995, have been
calculated as if the Common Stock had been sold at the beginning of the
respective periods and the net proceeds had been invested at 5.91% and 5.45%,
respectively, the arithmetic average of the weighted average yield earned by the
Association on its interest-earning assets and the weighted average rate paid on
its deposits during such periods (as required by OTS regulations). The tables
below do not reflect the effect of withdrawals from deposit accounts for the
purchase of Common Stock or the effect of any possible use of the net conversion
proceeds. The pro forma after-tax yields for the Company and the Association
are assumed to be 3.90% for the eight months ended May 31, 1996, based on an
effective tax rate of 34%, and 3.60% for the year ended September 30, 1995,
based on an effective tax rate of 34%. Historical and pro forma net earnings
per share amounts have been calculated by dividing historical and pro forma
amounts by the indicated number of shares of Common Stock issued, as adjusted to
give effect to the purchase of shares by the ESOP. Historical and pro forma
stockholders' equity per share amounts have been calculated by dividing
historical and pro forma amounts by the indicated number of shares of Common
Stock issued. No effect has been given in the pro forma stockholders' equity
calculations for the assumed earnings on the net proceeds.
The following pro forma information may not be representative of the
financial effects of the foregoing transactions at the dates on which such
transactions actually occur and should not be taken as indicative of future
results of operations. Pro forma consolidated stockholders' equity represents
the difference between the stated amount of assets and liabilities of the
Company computed in accordance with GAAP. 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.
The following tables summarize historical data of the Association and
pro forma data of the Company at or for the eight months ended May 31, 1996, and
at or for the year ended September 30, 1995, based on the assumptions set forth
above and in the table and should not be used as a basis for projections of
market value of the Common Stock following the Conversion. The tables below
give effect to the Stock Programs, which are expected to be adopted by the
Company following the Conversion and presented to stockholders for approval at a
meeting of stockholders. See Footnote 2 to the tables and "The Board of
Directors and Management of the Association - Benefits - Stock Programs." No
effect has been given in the tables to the possible issuance of additional
shares reserved for future issuance pursuant to the Stock Option Plans which are
expected to be adopted by the Board of Directors of the Company and presented to
stockholders for approval at a meeting of stockholders, nor does book value give
any effect to the liquidation account to be established for the benefit of
Eligible Account Holders and Supplemental Eligible Account Holders or the bad
debt reserve in liquidation. See Footnote 3 to the tables below, "The
Conversion - Liquidation Rights" and "The Board of Directors and Management of
the Association - Benefits - Stock Option Plans."
27
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE EIGHT MONTHS ENDED MAY 31, 1996
----------------------------------------------------------------------------
1,317,500 1,550,000 1,782,500 2,049,875
SHARES SOLD SHARES SOLD SHARES SOLD SHARES SOLD
AT $10.00 AT $10.00 AT $10.00 AT $10.00
PER SHARE PER SHARE PER SHARE PER SHARE (15%
(MINIMUM (MIDPOINT (MAXIMUM ABOVE MAXIMUM
OF ESTIMATED OF ESTIMATED OF ESTIMATED OF ESTIMATED
PRICE RANGE) PRICE RANGE) PRICE RANGE) PRICE RANGE)(5)
------------ ------------ ------------ ---------------
(Dollars in Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds . . . . . . . . . . . . . . . $13,175 $15,500 $17,825 $20,499
Less: Offering expenses and
commissions . . . . . . . . . . . . . . . (480) (513) (544) (581)
------- ------- ------- -------
Estimated net proceeds . . . . . . . . . . . 12,695 14,987 17,281 19,918
Less: Common Stock acquired by ESOP . . . . (1,054) (1,240) (1,426) (1,640)
Common Stock acquired by
Stock Programs . . . . . . . . . . (527) (620) (713) (820)
------- ------- ------- -------
Estimated net proceeds, as adjusted . . . . $11,114 $13,127 $15,142 $17,458
------- ------- ------- -------
------- ------- ------- -------
Consolidated net earnings:
Historical . . . . . . . . . . . . . . . . $ 582 $ 582 $ 582 $ 582
Pro forma adjustments:
Net income from proceeds . . . . . . . . 289 341 394 454
ESOP . . . . . . . . . . . . . . . . . . (66) (77) (89) (102)
Stock programs . . . . . . . . . . . . . (46) (55) (63) (72)
------- ------- ------- -------
Pro forma net income . . . . . . . . . $ 759 $ 791 $ 824 $ 862
------- ------- ------- -------
------- ------- ------- -------
Net income per share:
Historical . . . . . . . . . . . . . . . . $ 0.48 $ 0.41 $ 0.35 $ 0.31
Pro forma adjustments:
Net income from proceeds . . . . . . . . 0.24 0.24 0.24 0.24
ESOP . . . . . . . . . . . . . . . . . . (0.05) (0.05) (0.05) (0.05)
Stock programs . . . . . . . . . . . . . (0.04) (0.04) (0.04) (0.04)
------- ------- ------- -------
Pro forma net income . . . . . . . . . $ 0.63 $ 0.56 $ 0.50 $ 0.46
------- ------- ------- -------
------- ------- ------- -------
Stockholders' equity:
Historical . . . . . . . . . . . . . . . . $11,367 $11,367 $11,367 $11,367
Estimated net conversion proceeds . . . . . 12,695 14,987 17,281 19,918
Less: Common Stock acquired by ESOP(1) . . (1,054) (1,240) (1,428) (1,640)
Common Stock acquired
by Stock Programs(2) . . . . . . . (527) (620) (713) (820)
------- ------- ------- -------
Pro forma stockholders' equity(2)(3)(4) . . $22,481 $24,494 $26,509 $28,826
------- ------- ------- -------
------- ------- ------- -------
Stockholders' equity per share:
Historical . . . . . . . . . . . . . . . . $ 8.64 $ 7.34 $ 6.38 $ 5.55
Estimated net conversion proceeds . . . . . 9.64 9.67 9.69 9.72
Less: Common Stock acquired
by ESOP(1) . . . . . . . . . . . . (0.80) (0.80) (0.80) (0.80)
Common Stock acquired
by Stock Programs(2) . . . . . . . (0.40) (0.40) (0.40) (0.40)
------- ------- ------- -------
Pro forma stockholders' equity
per share(2)(3)(4) . . . . . . . . . . $ 17.08 $ 15.81 $ 14.87 $ 14.07
------- ------- ------- -------
------- ------- ------- -------
Purchase price as a percentage of
pro forma stockholders' equity
per share . . . . . . . . . . . . . . . . 58.55% 63.25% 67.25% 71.07%
Purchase price to pro forma net
earnings per share . . . . . . . . . . . . 10.58x 11.91x 13.33x 14.49x
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
28
<PAGE>
________________________
(1) It is assumed that 8.0% of the shares of Common Stock offered in the
Conversion will be purchased by the ESOP. For purposes of this table, the
funds used to acquire such shares are assumed to have been borrowed by the
ESOP from the Company. The amount borrowed is reflected as a reduction of
stockholders' equity. The Association intends to make annual contributions
to the ESOP in an amount at least equal to the principal and interest
requirement of the debt. The Association's total annual payment of the
ESOP debt is based upon seventeen equal annual installments of principal
and interest with an assumed annual interest rate of 8.25%. The pro forma
net earnings assumes: (i) that the Association's contribution to the ESOP
is equivalent to the debt service requirement for the eight months ended
May 31, 1996, and was made at the end of the period; (ii) that 4,133, 4,863,
5,592 and 6,431 shares at the minimum, midpoint, maximum and 15% above the
maximum of the range, respectively, were committed to be released during the
eight months ended May 31, 1996, at an average fair value of $10.00 per
share in accordance with Statement of Position ("SOP") 93-6; and (iii) only
the ESOP shares committed to be released were considered outstanding for
purposes of the net earnings per share calculations. See "The Board of
Directors and Management of the Association - Benefits - Employee Stock
Ownership Plan and Trust." Under SOP 93-6, the Company will recognize
compensation cost equal to the fair value of the ESOP shares during the
periods in which they become committed to be released. To the extent that
the fair value of the Association's ESOP shares differs from the cost of
such shares, this differential will be charged or credited to equity.
(2) Gives effect to the Stock Programs expected to be adopted by the Company
following the Conversion and presented for approval at a meeting of
stockholders. If the Stock Programs are approved by stockholders, the
Stock Programs intend to acquire an amount of Common Stock equal to 4.0% of
the shares of Common Stock issued in the Conversion, or 52,700, 62,000,
71,300 and 81,995 shares of Common Stock at the minimum, midpoint, maximum
and 15% above the maximum of the Estimated Price Range, respectively,
either through open market purchases, if permissible, or from authorized
but unissued shares of Common Stock or treasury stock of the Company, if
any. Funds used by the Stock Programs to purchase the shares will be
contributed to the Stock Programs by the Association. In calculating the
pro forma effect of the Stock Programs, it is assumed that the required
stockholder approval has been received, that the shares were acquired by
the Stock Programs at the beginning of the period presented in open market
purchases at the Purchase Price and that 13.2% of the amount contributed
was an amortized expense during such period. The issuance of authorized
but unissued shares of the Company's Common Stock to the Stock Programs
instead of open market purchases would dilute the voting interests of
existing stockholders by approximately 3.9% and pro forma net earnings per
share would be $0.61, $0.54, $0.49 and $0.45 at the minimum, midpoint,
maximum and 15% above the maximum of the range, respectively, and pro forma
stockholders' equity per share would be $16.80, $14.74, $13.89 and $13.15
at the minimum, midpoint, maximum and 15% above the maximum of the range,
respectively. There can be no assurance that stockholder approval of the
Stock Programs will be obtained, or that the actual purchase price of the
shares will be equal to the Purchase Price. See "The Board of Directors
and Management of the Association - Benefits - Stock Programs."
(3) No effect has been given to the issuance of additional shares of Common
Stock pursuant to the Stock Option Plans expected to be adopted by the
Company following the Conversion. The Company expects to present the Stock
Option Plans for approval at a meeting of stockholders. If the Stock
Option Plans are approved by stockholders, an amount equal to 10% of the
Common Stock issued in the Conversion, or 131,750, 155,000, 178,250 and
204,987 shares at the minimum, midpoint, maximum and 15% above the maximum
of the Estimated Price Range, respectively, will be reserved for future
issuance upon the exercise of options to be granted under the Stock Option
Plans. The issuance of Common Stock pursuant to the exercise of options
under the Stock Option Plans will result in the dilution of existing
stockholders' interests. Assuming stockholder approval of the Stock Option
Plans and all options were exercised at the end of the period at an
exercise price of $10.00 per share, the pro forma net earnings per share
would be $0.56, $0.50, $0.45 and $0.41, respectively, and the pro forma
stockholders' equity per share would be $16.43, $15.28, $14.44 and $13.70,
respectively. See "The Board of Directors and Management of the
Association - Benefits - Stock Option Plans."
(4) The retained earnings of the Association will continue to be substantially
restricted after the Conversion. See "Dividend Policy," "The Conversion -
Liquidation Rights" and "Regulation - Federal Savings Institution
Regulation - Limitation on Capital Distributions."
(5) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Price Range of up to 15% as
a result of regulatory considerations, changes in market conditions or
general financial and economic conditions following the commencement of the
Subscription and Community Offerings.
29
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED SEPTEMBER 30, 1995
------------------------------------------------------------------------------
1,317,500 1,550,000 1,782,500 2,049,875
SHARES SOLD SHARES SOLD SHARES SOLD SHARES SOLD
AT $10.00 AT $10.00 AT $10.00 AT $10.00 PER
PER SHARE PER SHARE PER SHARE SHARE (15%
(MINIMUM (MIDPOINT (MAXIMUM ABOVE MAXIMUM
OF ESTIMATED OF ESTIMATED OF ESTIMATED OF ESTIMATED
PRICE RANGE) PRICE RANGE) PRICE RANGE) PRICE RANGE)(5)
------------ ------------ ------------ ---------------
(Dollars in Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds . . . . . . . . . . . . . . . $13,175 $15,500 $17,825 $20,499
Less: Offering expenses and commission . . . (480) (513) (544) (581)
------- ------- ------- -------
Estimated net proceeds . . . . . . . . . . . 12,695 14,987 17,281 19,918
Less: Common Stock acquired by ESOP . . . . (1,054) (1,240) (1,426) (1,640)
Common Stock acquired by
Stock Programs . . . . . . . . . . (527) (620) (713) (820)
------- ------- ------- -------
Estimated net proceeds, as adjusted . . . . $11,114 $13,127 $15,142 $17,458
------- ------- ------- -------
------- ------- ------- -------
Consolidated net earnings:
Historical . . . . . . . . . . . . . . . . $ 944 $ 944 $ 944 $ 944
Pro forma adjustments:
Net income from proceeds . . . . . . . . 400 472 545 628
ESOP . . . . . . . . . . . . . . . . . . (98) (116) (133) (153)
Stock programs . . . . . . . . . . . . . (70) (82) (94) (108)
------- ------- ------- -------
Pro forma net income . . . . . . . . . . $ 1,176 $ 1,218 $ 1,262 $ 1,311
------- ------- ------- -------
------- ------- ------- -------
Net earnings per share:
Historical . . . . . . . . . . . . . . . . $ 0.77 $ 0.66 $ 0.57 $ 0.50
Pro forma adjustments:
Net income from proceeds . . . . . . . . 0.33 0.33 0.33 0.33
ESOP . . . . . . . . . . . . . . . . . . (0.08) (0.08) (0.08) (0.08)
Stock programs . . . . . . . . . . . . . (0.06) (0.06) (0.06) (0.06)
------- ------- ------- -------
Pro forma net income . . . . . . . . . . $ 0.96 $ 0.85 $ 0.76 $ 0.69
------- ------- ------- -------
------- ------- ------- -------
Stockholders' equity:
Historical . . . . . . . . . . . . . . . . $10,799 $10,799 $10,799 $10,799
Estimated net conversion proceeds . . . . . 12,695 14,987 17,281 19,918
Less: Common Stock acquired
by ESOP(1) . . . . . . . . . . . . (1,054) (1,240) (1,426) (1,640)
Common Stock acquired
by Stock Programs(2) . . . . . . . (527) (620) (713) (820)
------- ------- ------- -------
Pro forma stockholders'
equity(2)(3)(4) . . . . . . . . . . . . $21,913 $23,926 $25,941 $28,257
------- ------- ------- -------
------- ------- ------- -------
Stockholders' equity per share:
Historical . . . . . . . . . . . . . . . . $ 8.20 $ 6.97 $ 6.06 $ 5.27
Estimated net conversion proceeds . . . . . 9.64 9.67 9.69 9.72
Less: Common Stock acquired
by ESOP(1) . . . . . . . . . . . . (0.80) (0.80) (0.80) (0.80)
Common Stock acquired
by Stock Programs(2) . . . . . . . (0.40) (0.40) (0.40) (0.40)
------- ------- ------- -------
Pro forma stockholders' equity
per share(2)(3)(4) . . . . . . . . . . $ 16.64 $ 15.44 $ 14.55 $ 13.79
------- ------- ------- -------
------- ------- ------- -------
Purchase price as a percentage of
pro forma stockholders' equity
per share . . . . . . . . . . . . . . . . 60.10% 64.77% 68.73% 72.52%
Purchase price to pro forma
net earnings per share . . . . . . . . . . 10.42x 11.76x 13.16x 14.49x
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
30
<PAGE>
________________________
(1) It is assumed that 8.0% of the shares of Common Stock offered in the
Conversion will be purchased by the ESOP. For purposes of this table, the
funds used to acquire such shares are assumed to have been borrowed by the
ESOP from the Company. The amount borrowed is reflected as a reduction of
stockholders' equity. The Association intends to make annual contributions
to the ESOP in an amount at least equal to the principal and interest
requirement of the debt. The Association's total annual payment of the
ESOP debt is based upon seventeen equal annual installments of principal
and interest, with an assumed annual interest rate of 8.25%. The pro forma
net earnings assumes: (i) that the Association's contribution to the ESOP
is equivalent to the debt service requirement for the year ended September
30, 1995, and was made at the end of the period; (ii) that 6,200, 7,294,
8,388 and 9,647 shares at the minimum, midpoint, maximum and 15% above the
maximum of the range, respectively, were committed to be released during
the year ended September 30, 1995, at an average fair value of $10.00 per
share in accordance with Statement of Position ("SOP") 93-6; and (iii) only
the ESOP shares committed to be released were considered outstanding for
purposes of the net earnings per share calculations. See "The Board of
Directors and Management of the Association - Benefits - Employee Stock
Ownership Plan and Trust." Under SOP 93-6, the Company will recognize
compensation cost equal to the fair value of the ESOP shares during the
periods in which they become committed to be released. To the extent that
the fair value of the Association's ESOP shares differs from the cost of
such shares, this differential will be charged or credited to equity.
(2) Gives effect to the Stock Programs expected to be adopted by the Company
following the Conversion and presented for approval at a meeting of
stockholders. If the Stock Programs are approved by stockholders, the
Stock Programs intend to acquire an amount of Common Stock equal to 4.0% of
the shares of Common Stock issued in the Conversion, or 52,700, 62,000,
71,300 and 81,995 shares of Common Stock at the minimum, midpoint, maximum
and 15% above the maximum of the Estimated Price Range, respectively,
either through open market purchases, if permissible, or from authorized
but unissued shares of Common Stock or treasury stock of the Company, if
any. Funds used by the Stock Programs to purchase the shares will be
contributed to the Stock Programs by the Association. In calculating the
pro forma effect of the Stock Programs, it is assumed that the required
stockholder approval has been received, that the shares were acquired by
the Stock Programs 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 Company's Common Stock to the Stock Programs instead
of open market purchases would dilute the voting interests of existing
stockholders by approximately 3.9% and pro forma net earnings per share
would be $0.94, $0.83, $0.75 and $0.68 at the minimum, midpoint, maximum
and 15% above the maximum of the range, respectively, and pro forma
stockholders' equity per share would be $16.38, $15.23, $14.38 and $13.64
at the minimum, midpoint, maximum and 15% above the maximum of the range,
respectively. There can be no assurance that stockholder approval of the
Stock Programs will be obtained, or that the actual purchase price of the
shares will be equal to the Purchase Price. See "The Board of Directors
and Management of the Association - Benefits - Stock Programs."
(3) No effect has been given to the issuance of additional shares of Common
Stock pursuant to the Stock Option Plans expected to be adopted by the
Company following the Conversion. The Company expects to present the Stock
Option Plans for approval at a meeting of stockholders. If the Stock
Option Plans are approved by stockholders, an amount equal to 10% of the
Common Stock issued in the Conversion, or 131,750, 155,000, 178,250 and
204,987 shares at the minimum, midpoint, maximum and 15% above the maximum
of the Estimated Price Range, respectively, will be reserved for future
issuance upon the exercise of options to be granted under the Stock Option
Plans. The issuance of Common Stock pursuant to the exercise of options
under the Stock Option Plans will result in the dilution of existing
stockholders' interests. Assuming stockholder approval of the Stock Option
Plans and all options were exercised at the end of the period at an
exercise price of $10.00 per share, the pro forma net earnings per share
would be $0.88, $0.77, $0.69, and $0.63, respectively, and the pro forma
stockholders' equity per share would be $16.03, $14.94, $14.14 and $13.44,
respectively. See "The Board of Directors and Management of the
Association - Benefits - Stock Option Plans."
(4) The retained earnings of the Association will continue to be substantially
restricted after the Conversion. See "Dividend Policy," "The Conversion -
Liquidation Rights" and "Regulation - Federal Savings Institution
Regulation - Limitation on Capital Distributions."
(5) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Price Range of up to 15% as
a result of regulatory considerations, changes in market conditions or
general financial and economic conditions following the commencement of the
Subscription and Community Offerings.
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The condensed operating data presented below is derived in part from, and
should be read in conjunction with, the Financial Statements and related notes
of Citizens Federal Savings and Loan Association presented elsewhere in the
prospectus. The operating data for the eight-month periods ended May 31, 1996
and May 31, 1995 are derived from unaudited financial data, but, in the opinion
of management reflects all adjustments (consisting of only normal recurring
adjustments) which are necessary to present fairly the results for such interim
periods. The results of operations for the eight months ended May 31, 1996 are
not necessarily indicative of the results of operations that may be expected for
the year ended September 30, 1996.
<TABLE>
<CAPTION>
EIGHT MONTHS ENDED YEAR ENDED SEPTEMBER 30,
----------------------------- -------------------------------------------
MAY 31, MAY 31, 1995 1994 1993
1996 1995
------------- ------------- ------------- ------------- -------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income:
Loans receivable . . . . . . . . . . . . . . . $ 3,402 $ 2,980 $ 4,587 $ 4,000 $ 4,050
Securities . . . . . . . . . . . . . . . . . 853 886 1,336 1,036 1,000
Other interest-earning assets . . . . . . . . . 162 194 294 388 332
-------- ------- ------- ------- -------
Total interest income . . . . . . . . . . . . 4,417 4,060 6,217 5,424 5,382
Interest expense:
Deposits . . . . . . . . . . . . . . . . . . . 2,676 2,325 3,601 2,952 3,027
-------- ------- ------- ------- -------
Net interest income . . . . . . . . . . . . . . 1,741 1,735 2,616 2,472 2,355
Provision for loan losses . . . . . . . . . . . -- -- -- 60 25
-------- ------- ------- ------- -------
Net interest income after provision
for loan losses . . . . . . . . . . . . . . 1,741 1,735 2,616 2,412 2,330
Noninterest income:
Service charges and fees . . . . . . . . . . . 134 70 124 221 279
Gain on sale of securities . . . . . . . . . . 8 -- -- -- --
Other non-interest income . . . . . . . . . . . 17 18 27 40 56
-------- ------- ------- ------- -------
Total non-interest income . . . . . . . . . 159 88 151 261 335
Non-interest expense:
Compensation and benefits . . . . . . . . . . 441 381 552 524 497
Occupancy and equipment . . . . . . . . . . . 49 47 88 79 106
FDIC premium . . . . . . . . . . . . . . . . . 118 110 167 156 133
Other non-interest expense . . . . . . . . . . 410 347 535 525 494
-------- ------- ------- ------- -------
Total non-interest expense . . . . . . . . 1,018 885 1,342 1,284 1,230
Income before income taxes . . . . . . . . . . . 882 938 1,425 1,389 1,435
Income taxes . . . . . . . . . . . . . . . . . . 300 319 481 477 464
-------- ------- ------- ------- -------
Net income . . . . . . . . . . . . . . . . . . . $ 582 $ 619 $ 944 $ 912 $ 971
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
</TABLE>
32
<PAGE>
GENERAL
The Company has only recently been formed and, accordingly, has no results
of operations. The Association's results of operations are dependent primarily
on net interest income, which is the difference between the interest income
earned on the Association's interest-earning assets, such as loans and
investments, and the interest expense on its interest-bearing liabilities, such
as deposits and borrowings. The Association also generates non-interest income
such as income from loan origination and other fees. The Association's non-
interest expenses primarily consist of employee compensation and benefits,
occupancy and equipment expenses, federal deposit insurance premiums and other
operating expenses. The Association's results of operations are also
significantly affected by general economic and competitive conditions,
particularly changes in market interest rates, government policies and actions
of regulatory agencies. The Association exceeded all of its regulatory capital
requirements at May 31, 1996. See "Regulatory Capital Compliance" for a
discussion of the historical and pro forma capital of the Association and
capital requirements. See also "Regulation - Federal Savings Institution
Regulation - Capital Requirements."
MANAGEMENT STRATEGY
Management's primary goals have been and continue to be to maintain the
Association's profitability and high level of asset quality while serving the
residential mortgage lending and deposit needs of its local community. In
furtherance of these goals, the Association has employed an operating strategy
which: (i) emphasizes the origination of conventional one- to four-family fixed-
rate mortgage loans secured by properties in its market area for retention in
its portfolio; (ii) utilizes conservative underwriting standards to maintain
asset quality; (iii) seeks to limit interest rate risk by maintaining high
levels of liquidity through the purchase of adjustable rate mortgage-backed
securities and other short- and intermediate-term securities; and (iv) maintains
a low level of non-interest expense. The foregoing operating strategies have
enabled the Association to maintain consistent profitability over the past five
years. However, there can be no assurance that this operating strategy will
continue to be successful in future periods. In particular, the Association's
net interest income, which is the primary component of its net income, remains
vulnerable to increases in market interest rates due to the Association's
emphasis upon the origination of fixed-rate mortgage loans for retention in its
portfolio. See "Management of Interest Rate Risk."
MANAGEMENT OF INTEREST RATE RISK
The principal objective of the Association's interest rate risk management
function is to evaluate the interest rate risk included in certain balance sheet
accounts, determine the level of risk appropriate given the Association's
business focus, operating environment, capital and liquidity requirements and
performance objectives, and manage the risk consistent with Board approved
guidelines. Through such management, the Association seeks to reduce the
vulnerability of its operations to changes in interest rates. The Association
monitors its interest rate risk as such risk relates to its operating
strategies. The Association's executive committee meets regularly and reviews
the Association's interest rate risk position and makes recommendations for
adjusting such position. In addition, the Association's Board of Directors
reviews on a quarterly basis the Association's asset/liability position,
including simulations of the effect on the Association's capital of various
interest rate scenarios.
Historically, the Association has emphasized the origination of fixed-rate
residential mortgage loans as a result of market conditions and consumer
preference for such loans in its primary market area. At May 31, 1996, fixed-
rate mortgage loans totalled $49.0 million, or 66.8% of gross loans receivable.
Management believes that investing in fixed-rate mortgage loans results in a
higher net interest margin
33
<PAGE>
than investment in adjustable-rate mortgage loans. However, investment in
fixed-rate mortgage loans generally results in increased interest rate risk
as such loans generally do not reprice as quickly as adjustable-rate mortgage
loans during periods of rising interest rates. Management of the Association
seeks to limit interest rate risk by maintaining a high level of capital and
through the purchase of adjustable-rate mortgage-backed securities and other
short and intermediate-term securities. At May 31, 1996, adjustable-rate
mortgage-backed securities and other securities totalled $6.8 million, or
7.4% of total assets.
NET PORTFOLIO VALUE. The Association's interest rate sensitivity is
monitored by management through the use of a model which estimates the change in
net portfolio value ("NPV") over a range of interest rate scenarios. NPV is the
present value of expected cash flows from assets, liabilities and off-balance
sheet contracts. An NPV Ratio, in any interest rate scenario, is defined as the
NPV in that scenario divided by the market value of assets in the same scenario.
The Sensitivity Measure is the decline in the NPV Ratio, in basis points, caused
by a 200 basis point (one basis point equals 0.01%) increase or decrease in
rates, whichever produces a larger decline. The higher an institution's
Sensitivity Measure is, the greater its exposure to interest rate risk is
considered to be. The Association utilizes a market value model prepared by the
OTS (the "OTS NPV model"), which is prepared quarterly, based on the
Association's quarterly Thrift Financial Reports filed with the OTS. The OTS
NPV model measures the Association's interest rate risk by approximating the
Association's NPV under various market interest rate scenarios which range from
a 400 basis point increase to a 400 basis point decrease in market interest
rates. The OTS has incorporated an interest rate risk component into its
regulatory capital rule. Under the rule, an institution whose sensitivity
measure exceeds 200 basis points would be required to deduct an interest rate
risk component in calculating its total capital for purpose of the risk-based
capital requirement. See "Regulation - Federal Savings Institution Regulation."
As of March 31, 1996, the most recent date for which the relevant data is
available, the Association's sensitivity measure, as measured by the OTS,
resulting from a 200 basis point increase in interest rates was (3.61)% and
would result in a $3.8 million reduction in the NPV of the Association.
Accordingly, increases in interest rates would be expected to have a negative
impact on the Association's operating results and decreases in interest rates
would be expected to have a positive impact on the Association's operating
results. In addition, if the Association had been subject to the interest rate
risk component of the OTS capital regulations, the Association would have been
required to deduct $973,000 from its risk-weighted capital at March 31, 1996 but
would have continued to exceed its risk-based capital requirement by $7.0
million. See "Regulation - Federal Savings Institution Regulation."
Certain shortcomings are inherent in the methodology used in the above
interest rate risk measurements. Modeling changes in NPV requires the making of
certain assumptions that may tend to oversimplify the manner in which actual
yields and costs respond to changes in market interest rates. First, the models
assume that the composition of the Association's interest sensitive assets and
liabilities existing at the beginning of a period remains constant over the
period being measured. Second, the models assume that a particular change in
interest rates is reflected uniformly across the yield curve regardless of the
duration to maturity or repricing of specific assets and liabilities. Third,
the models do not take into account the impact of the Association's business or
strategic plans on the structure of interest-earning assets and interest-bearing
liabilities. Accordingly, although the NPV measurement provides an indication
of the Association's interest rate risk exposure at a particular point in time,
such measurement is not intended to and does not provide a precise forecast of
the effect of changes in market interest rates on the Association's net interest
income and will differ from actual results. The results of this modeling are
monitored by management and presented to the Board of Directors quarterly.
34
<PAGE>
The following table shows the NPV and projected change in the NPV of the
Association at March 31, 1996 assuming an instantaneous and sustained change in
market interest rates of 100, 200, 300 and 400 basis points, as calculated by
the OTS.
<TABLE>
<CAPTION>
NET PORTFOLIO VALUE NPV AS % OF PORTFOLIO VALUE
OF ASSETS
------------------------------------------------------------ ----------------------------------------
CHANGE
IN RATES $ AMOUNT $ CHANGE % CHANGE NPV RATIO CHANGE(1)
---------- ---------- ---------- ---------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
400 $4,630 $ (7,906) (63)% 5.50% $(792)
300 6,668 (5,868) (47) 7.70 (571)
200 8,721 (3,815) (30) 9.80 (361)
100 10,734 (1,802) (14) 11.75 (166)
Static 12,536 0 0 13.41
(100) 13,918 1,381 11 14.62 121
(200) 14,594 2,058 16 15.17 176
(300) 14,926 2,390 19 15.41 200
(400) 15,557 3,021 24 15.91 250
</TABLE>
- ---------------------------
(1) Based on the portfolio value of the Association's assets assuming no change
in interest rates.
35
<PAGE>
AVERAGE BALANCE SHEETS. The following table sets forth certain
information relating to the Association at May 31, 1996, and for the eight
months ended May 31, 1996 and May 31, 1995 and the years ended September 30,
1995, 1994 and 1993. The yields and costs are derived by dividing income or
expense by the average balance of assets or liabilities, respectively, for the
periods shown. Average balances are derived from average month-end balances.
Management does not believe that the use of average monthly balances instead of
average daily balances has caused any material differences in the information
presented. Average balances of loans receivable include loans on which the
Association has discontinued accruing interest. The yields and costs include
amortized and deferred fees and costs which are considered adjustments to
yields.
<TABLE>
<CAPTION>
EIGHT MONTHS ENDED
AT MAY 31, 1996 MAY 31, 1996
------------------------- ---------------------------------------
AVERAGE
YIELD/ AVERAGE YIELD/
BALANCE COST BALANCE INTEREST COST
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS: (DOLLARS IN THOUSANDS)
Interest-earning assets:
Interest-bearing deposits in other banks . . . $ 3,218 5.18% $ 3,979 $ 162 6.11%
Investment securities, net(1). . . . . . . . . 1,265 4.92 1,247 55 6.62
Loans receivable, net (2). . . . . . . . . . . 69,637 7.63 66,780 3,402 7.64
Mortgage-backed securities, net(1) . . . . . . 14,921 7.34 16,022 798 7.47
--------- --------- -----
Total interest-earning assets. . . . . . . 89,041 7.45 88,028 4,417 7.53
-----
Non-interest-earning assets. . . . . . . . . . 2,656 2,360
--------- ---------
Total assets.. . . . . . . . . . . . . . . . . $ 91,697 $ 90,388
--------- ---------
--------- ---------
LIABILITIES AND EQUITY:
Interest-bearing liabilities:
Passbook savings accounts. . . . . . . . . . . $ 8,792 2.92 $ 8,502 168 2.96
Money market accounts. . . . . . . . . . . . . 8,645 3.19 8,677 179 3.09
NOW accounts . . . . . . . . . . . . . . . . . 4,502 1.78 4,561 61 2.01
Certificate accounts . . . . . . . . . . . . . 57,122 5.88 56,601 2,268 6.01
--------- --------- ---------
Total interest-bearing liabilities.. . . . . . 79,061 5.02 78,341 2,676 5.12
Non-interest-bearing liabilities. . . . . . . . 1,269 668
-------- --------- ---------
Total liabilities. . . . . . . . . . . . . . . 80,330 79,009
Equity . . . . . . . . . . . . . . . . . . . . . 11,367 11,379
--------- ---------
Total liabilities and equity.. . . . . . . . . $ 91,697 $ 90,388
--------- ---------
--------- ---------
Net interest income. . . . . . . . . . . . . . . $ 1,741
---------
---------
Net interest rate spread(3). . . . . . . . . . . 2.43% 2.41%
---- ----
---- ----
Net interest margin(4) . . . . . . . . . . . . . 2.97%
----
----
Ratio of interest-earning assets to
interest-bearing liabilities. . . . . . . . . . 112.37%
-------
-------
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------
EIGHT MONTHS ENDED
--------------------------------------------
MAY 31, 1995
AVERAGE
AVERAGE YEILD/
BALANCE INTEREST COST
---------- ---------- ----------
<S> <C> <C> <C>
ASSETS:
Interest-earning assets:
Interest-bearing deposits in other banks . . . $ 5,995 $ 194 5.85%
Investment securities, net(1). . . . . . . . . 1,124 41 5.47
Loans receivable, net (2). . . . . . . . . . . 58,604 2,980 7.63
Mortgage-backed securities, net(1) . . . . . . 17,975 845 7.05
-------- -------
Total interest-earning assets. . . . . . . . . 83,698 4,060 7.28
Non-interest-earning assets. . . . . . . . . . 1,360 -------
--------
Total assets.. . . . . . . . . . . . . . . . . $ 85,058
--------
--------
LIABILITIES AND EQUITY:
Interest-bearing liabilities:
Passbook savings accounts. . . . . . . . . . . $ 8,562 199 3.49
Money market accounts. . . . . . . . . . . . . 12,851 296 3.45
NOW accounts . . . . . . . . . . . . . . . . . 4,482 78 2.61
Certificate accounts . . . . . . . . . . . . . 48,225 1,752 5.45
-------- --------
Total interest-bearing liabilities.. . . . . . 74,120 2,325 4.71
Non-interest-bearing liabilities. . . . . . . . 541 --------
--------
Total liabilities. . . . . . . . . . . . . . . 74,661
Equity . . . . . . . . . . . . . . . . . . . . . 10,397
--------
Total liabilities and equity.. . . . . . . . . $ 85,058
--------
--------
Net interest income. . . . . . . . . . . . . . . $ 1,735
--------
--------
Net interest rate spread(3). . . . . . . . . . . 2.57%
-----
-----
Net interest margin(4) . . . . . . . . . . . . . 3.11%
-----
-----
Ratio of interest-earning assets to
interest-bearing liabilities . . . . . . . . . 112.92%
--------
--------
</TABLE>
_______________
(1) Includes unamortized discounts and premiums.
(2) Amount is net of loans in process, net deferred loan origination fees and
allowance for estimated loan losses and includes non-performing loans. See
"Business of the Association - Lending Activities."
(3) Net interest rate spread represents the difference between the yield on
interest-earning assets and the cost of interest-bearing liabilities.
(4) Net interest margin represents net interest income divided by average
interest-earning assets.
36
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------------------------------------
1995 1994 1993
---------------------------- --------------------------- -----------------------------
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>
ASSETS:
Interest-earning assets:
Interest-bearing deposits in other
banks . . . . . . . . . . . . . . . . . . $ 5,658 $ 294 5.20% $11,867 $ 388 3.27% $13,182 $ 332 2.52%
Securities, net(1) . . . . . . . . . . 1,154 60 5.20 1,058 44 4.16 1,339 69 5.15
Loans receivable, (2) . . . . . . . . 59,832 4,587 7.67 52,119 4,000 7.67 47,470 4,050 8.53
Mortgage-backed securities, net(1) . . 17,872 1,276 7.14 13,465 992 7.37 10,533 931 8.84
------- ------ ------ ----- ------- -----
Total interest-earning assets . . . 84,516 6,217 7.36 78,509 5,424 6.91 72,524 5,382 7.42
------ ----- -----
Non-interest-earning assets . . . . . . 1,372 1,267 1,301
------- ------- -------
Total assets . . . . . . . . . . . . $85,888 $79,776 $73,825
------- ------- -------
------- ------- -------
LIABILITIES AND EQUITY:
Interest-bearing liabilities:
Passbook accounts . . . . . . . . . . $ 8,582 287 3.34 $ 9,358 329 3.52 $ 8,060 323 4.01
Money market savings accounts . . . . 11,933 400 3.35 19,981 761 3.81 15,333 645 4.21
NOW accounts . . . . . . . . . . . . . 4,470 109 2.44 4,044 116 2.87 3,766 132 3.51
Certificate accounts . . . . . . . . . 49,770 2,805 5.64 36,332 1,746 4.81 37,605 1,927 5.12
------- ----- ------ ----- ------- -----
Total interest-bearing liabilities . 74,755 3,601 4.82 69,715 2,952 4.23 64,764 3,027 4.67
----- ----- -----
Non-interest-bearing liabilities . . . 572 788 1,461
------- ------ -------
Total liabilities . . . . . . . . . 75,327 70,503 66,225
Equity . . . . . . . . . . . . . . . . 10,561 9,273 7,600
------- ------ -------
Total liabilities and equity . . . . $85,888 $79,776 $73,825
------- ------- -------
------- ------- -------
Net interest income before provision
for estimated loan losses . . . . . $2,616 $2,472 $2,355
------ ------ ------
------ ------ ------
Net interest rate spread(3) . . . . . . 2.54% 2.68% 2.75%
---- ---- ----
---- ---- ----
Net interest margin(4) . . . . . . . . 3.10% 3.15% 3.25%
---- ---- ----
---- ---- ----
Ratio of interest-earning assets to
interest-bearing liabilities . . . . . 112.20% 112.61% 111.98%
------ ------ ------
------ ------ ------
</TABLE>
- ----------------------------
(1) Includes unamortized discounts and premiums.
(2) Amount is net of loans in process, net deferred loan origination fees and
allowance for loan losses and includes non-performing loans. See "Business
of the Association - Lending Activities."
(3) Net interest rate spread represents the difference between the yield on
interest-earning assets and the cost of interest-bearing liabilities.
(4) Net interest margin represents net interest income divided by average
interest-earning assets.
37
<PAGE>
RATE/VOLUME ANALYSIS. The following table presents the extent to which
changes in interest rates and changes in the volume of interest-earning assets
and interest-bearing liabilities have affected the Association's interest income
and interest expense during the periods indicated. Information is provided in
each category with respect to: (i) changes attributable to changes in volume
(changes in volume multiplied by prior rate); (ii) changes attributable to
changes in rate (changes in rate multiplied by prior volume); and (iii) the net
change. The changes attributable to the combined impact of volume and rate have
been allocated proportionately to the changes due to volume and the changes due
to rate.
<TABLE>
<CAPTION>
EIGHT MONTHS ENDED
MAY 31, 1996
COMPARED TO YEAR ENDED SEPTEMBER 30, 1995 YEAR ENDED SEPTEMBER 30, 1994
EIGHT MONTHS ENDED COMPARED TO COMPARED TO
MAY 31, 1995 YEAR ENDED SEPTEMBER 30, 1994 YEAR ENDED SEPTEMBER 30, 1993
----------------------------- --------------------------- -------------------------------
INCREASE (DECREASE) INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO DUE TO DUE TO
------------------ ------------------ ------------------
VOLUME RATE NET VOLUME RATE NET VOLUME RATE NET
-------- ------- -------- ------- ------- ------- ------- ------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Interest-earning deposits and
other investments . . . . . . . $ (65) $ 33 $ (32) $ (259) $ 165 $ (94) $ (36) $ 92 $ 56
Investment securities, net . . . 4 10 14 5 11 16 (13) (12) (25)
Loans receivable, net . . . . . . 416 6 422 591 (4) 587 377 (427) (50)
Mortgage-backed securities, net . (92) 45 (47) 316 (32) 284 232 (171) 61
------ ------ ------ ------ ------ ------ ------ ------ ------
Total change in interest income 263 94 357 653 140 793 560 (518) 42
------ ------ ------ ------ ------ ------ ------ ------ ------
INTEREST-BEARING LIABILITIES:
Passbook savings accounts . . . . (1) (30) (31) (26) (16) (42) 48 (42) 6
Money market accounts . . . . . . (96) (21) (117) (278) (83) (361) 181 (65) 116
NOW accounts . . . . . . . . . . 1 (18) (17) 11 (18) (7) 9 (25) (16)
Certificate accounts . . . . . . 304 212 516 722 337 1,059 (63) (118) (181)
------ ------ ------ ------ ------ ------ ------ ------ ------
Total change in interest expense 208 143 351 429 220 649 175 (250) (75)
------ ------ ------ ------ ------ ------ ------ ------ ------
Net change in net interest income . $ 55 $ (49) $ 6 $ 224 $ (80) $ 144 $ 385 $ (268) $ 117
------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------
</TABLE>
38
<PAGE>
COMPARISON OF OPERATING RESULTS FOR THE EIGHT MONTHS ENDED MAY 31, 1996 AND MAY
31, 1995
GENERAL
Net income for the eight months ended May 31, 1996 decreased by $37,000, or
6.0%, from $619,000 for the eight months ended May 31, 1995. The decline in net
income between the two eight month periods was due primarily to a $133,000
increase in non-interest expense, which more than offset a $71,000 increase in
non-interest income. Net interest income was essentially unchanged between the
two periods.
INTEREST INCOME
Total interest income for the eight months ended May 31, 1996 increased by
$357,000, or 8.8%, to $4.4 million from $4.1 million for the eight months ended
May 31, 1995. The increase in total interest income resulted primarily from a
$4.3 million increase in the average balance of interest-earning assets, and to
a lesser extent, a 25 basis point increase in the average yield on interest-
earning assets. The increase also reflected a higher average balance of loans
receivable net, which generally produce higher yields than other types of
interest-earning assets. The average balance of loans receivable, net
increased by $8.2 million between the two periods.
INTEREST EXPENSE
Total interest expense for the eight months ended May 31, 1996 increased by
$351,000, or 15.1%, to $2.7 million from $2.3 million for the eight months ended
May 31, 1995. The increase in total interest expense was primarily attributable
to the combined effect of a $4.2 million increase in the average balance of
interest-bearing liabilities and a 41 basis point increase in the average cost
of interest-bearing liabilities. The most significant factor in the increase in
the average cost of interest-bearing liabilities was a change in the composition
of the Association's deposits as the average balance of relatively higher cost
certificate accounts increased by $8.4 million and the average balance of
relatively lower cost money market accounts decreased by $4.2 million. The
Association has conducted various promotional activities from time to time in
recent years in an effort to retain maturing certificate accounts. Management
believes that the increase in the average balance of certificate accounts
resulted primarily from such promotional activities.
NET INTEREST INCOME
Net interest income remained essentially unchanged at $1.7 million for the
eight month periods ended May 31, 1995 and May 31, 1996. The Association's net
interest rate spread decreased by 16 basis points from 2.57% for the eight
months ended May 31, 1995 to 2.41% for the eight months ended May 31, 1996. The
Association's net interest margin decreased by 14 basis points from 3.11% for
the eight months ended May 31, 1995 to 2.97% for the eight months ended May 31,
1996.
PROVISION FOR LOAN LOSSES
The Association did not make a provision for loan losses during the eight
months ended May 31, 1996 or the eight months ended May 31, 1995. The amount of
the provision for loan losses, if any, is based upon management's periodic
analysis of the adequacy of the allowance for loan losses. The Association has
historically experienced very low levels of loan losses. Based upon recent
increases in the size of the Association's loan portfolio, management intends to
begin making additional provisions
39
<PAGE>
for loan losses during the quarter ending September 30, 1996. See "Business of
the Association - Lending Activity - Allowance for Loan Losses."
NON-INTEREST INCOME
For the eight months ended May 31, 1996, non-interest income increased by
$71,000, or 79.9%, to $159,000 from $88,000 for the eight months ended May 31,
1995. The increase in non-interest income between the two periods primarily
resulted from a $65,000 increase in service charges and fees, which resulted
primarily from an increase in the volume of transactions between the two
periods. The Association's loan fees included in non-interest income consist of
appraisal fees, document preparation fees, recording fees and other direct
origination-related fees, which are substantially offset by origination costs.
See "Business of the Association - Lending Activity - Origination and Purchase
of Loans."
NON-INTEREST EXPENSE
Non-interest expense increased by $133,000, or 15.0%, from $885,000 for the
eight months ended May 31, 1995 to $1.0 million for the eight months ended May
31, 1996. The increase is non-interest expense primarily resulted from a
$61,000 increase in compensation and benefit expense, a $17,000 increase in data
processing and maintenance expense and a $35,000 increase in other non-interest
expense. The increase in compensation and benefit expense was primarily due to
an increase in the year-end bonus accrual of $33,000, an increase in the 401(k)
profit sharing plan accrual of $16,000 and normal inflationary increases to
salaries and benefits.
INCOME TAXES
Income tax expense for the Association decreased $19,000, or 6.0%, from
$319,000 for the eight months ended May 31, 1995 to $300,000 for the eight
months ended May 31, 1996. The decrease in income tax expense between the two
periods resulted from a $57,000 decrease in income before income taxes.
COMPARISON OF FINANCIAL CONDITION AT MAY 31, 1996 AND SEPTEMBER 30, 1995
The Association's total assets increased by $3.7 million, or 4.2%, to $91.7
million at May 31, 1996 from $88.0 million at September 30, 1995. The major
component of the increase in total assets between the two periods was an
increase of $5.6 million in loans receivable, net, of which $4.6 million were
one- to four-family residential mortgage loans, which more than offset a $3.4
million decrease in mortgage-backed securities. The Association's total
liabilities increased by $3.1 million, or 4.0%, to $80.3 million at May 31, 1996
from $77.2 million at September 30, 1995. The major component of this increase
was a $2.4 million increase in deposits, due primarily to a $3.2 million
increase in certificates of deposit. Total equity increased by $568,000 between
the two periods, which reflects net income of $582,000, which was partially
offset by a $14,000 net unrealized loss on securities available for sale.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED SEPTEMBER 30, 1995 AND
SEPTEMBER 30, 1994
GENERAL
Net income for the year ended September 30, 1995 increased by $32,000, or
3.5%, to $944,000 from $912,000 for the year ended September 30, 1995. The
increase in net income resulted primarily from a $203,000 increase in net
interest income after provision for loan losses, which more than offset
40
<PAGE>
a $110,000 decrease in non-interest income and a $58,000 increase in
non-interest expense between the two periods.
INTEREST INCOME
Total interest income for the year ended September 30, 1995 increased by
$793,000, or 14.6%, to $6.2 million from $5.4 million for the year ended
September 30, 1994. The increase in total interest income was due primarily to
a $6.0 million increase in the average balance of interest-earning assets and a
45 basis point increase in the average yield on interest-earning assets between
the two years. The increase in the average balance of interest-earning assets
reflected a $7.7 million increase in net loans receivable and a $4.4 million
increase in mortgage-backed securities, net, which more than offset a $6.2
million decrease in the average balance of interest-bearing deposits in other
banks.
INTEREST EXPENSE
The Association's total interest expense increased by $650,000, or 22.0%,
from $3.0 million for the year ended September 30, 1994 to $3.6 million for the
year ended September 30, 1995. The increase in total interest expense reflects
the combined effect of a $5.0 million increase in the average balance of
interest-bearing liabilities and a 59 basis point increase in the average cost
of interest-bearing liabilities. A significant factor in the increase in total
interest expense was a $13.4 million increase in the average balance of
certificate accounts, which was responsible for the increase in the
Association's cost of funds, because certificate accounts generally are a
higher-cost source of funds than other types of deposit accounts and because the
average cost of the Association's certificate accounts increased by 83 basis
points between the two years. The average cost of the Association's other types
of deposit accounts declined by varying amounts between the two years.
NET INTEREST INCOME
Net interest income increased by $144,000, or 5.8%, from $2.5 million for
the year ended September 30, 1994 to $2.6 million for the year ended September
30, 1995. The increase reflected an increase in the average balance of
interest-earning assets that was $1.0 million larger than the increase in the
average balance of interest-bearing liabilities between the two years. The
Association's average interest rate spread declined by 14 basis points from
2.68% to 2.54% and net interest margin declined by 5 basis points from 3.15% to
3.10% between the year ended September 30, 1994 to the year ended September 30,
1995.
PROVISION FOR LOAN LOSSES
The Association did not make a provision for loan losses for the year ended
September 30, 1995 as compared to a $60,000 provision for loan losses for the
year ended September 30, 1994. The amount of the provision for loan losses, if
any, is based upon management's periodic analysis of the adequacy of the
allowance for loan losses. The Association has historically experienced very
low levels of loan losses. See "Business of the Association - Lending Activity
- - Allowance for Loan Losses."
NON-INTEREST INCOME
Non-interest income decreased by $110,000, or 42.2%, from $261,000 for the
year ended September 30, 1994 to $151,000 for the year ended September 30, 1995.
The decrease in non-interest income was due primarily to a $97,000 decrease in
service charges and fee income between the two years,
41
<PAGE>
which reflected a decrease in the volume of activity from the year ended
September 30, 1994 to the year ended September 30, 1995.
NON-INTEREST EXPENSE
Total non-interest expense increased by $58,000, or 4.5%, from $1.28
million for the year ended September 30, 1994 to $1.34 million for the year
ended September 30, 1995. The primary component of this increase was a $28,000
increase in compensation and benefits expense with the remaining $30,000 of the
increase spread over several categories of non-interest expense.
INCOME TAXES
The Association's income tax expense was essentially unchanged for the year
ended September 30, 1994 to the year ended September 30, 1995. The
Association's effective tax rate was 33.7% for the year ended September 30,
1995, as compared to 34.4% for the year ended September 30, 1994.
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1994
The Association's total assets grew by $5.4 million, or 6.5%, from $82.6
million at September 30, 1994 to $88.0 million at September 30, 1995. The
primary component in the increase in total assets was a $7.6 million increase in
one- to four-family residential mortgage loans, which more than offset a $2.1
million decrease in cash and cash equivalents. Total liabilities increased by
$4.5 million, or 6.1%, from $72.8 million at September 30, 1994 to $77.2 million
at September 30, 1995. Almost the entire increase represented an increase in
total deposits, which, in turn, resulted from a $10.1 million increase in
certificate accounts. Total equity increased by $944,000 from $9.9 million at
September 30, 1994 to $10.8 million at September 30, 1995, which represented the
Association's net income for the year ended September 30, 1995.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED SEPTEMBER 30, 1994 AND
SEPTEMBER 30, 1993
GENERAL
The Association's net income decreased by $59,000, or 6.0%, to $912,000 for
the year ended September 30, 1994 from $971,000 for the year ended September 30,
1993. The decrease in net income was due primarily to a $74,000 decrease in
non-interest income, coupled with a $54,000 increase in non-interest expense,
which more than offset an $83,000 increase in net interest income after
provision for loan losses between the two years.
INTEREST INCOME
Total interest income for the year ended September 30, 1994 increased by
$42,000, or 0.8%, to $5.4 million from $5.4 million for the year ended September
30, 1993. The increase in total interest income resulted from a $6.0 million
increase in the average balance of interest-earning assets, which more than
offset a 51 basis point decline in the average yield on interest-earning assets
from 7.42% to 6.91% between the two years. In particular, the average yield on
the Association's loan portfolio declined 86 basis points from 8.53% to 7.67%
and the average yield on the Association's portfolio of mortgage-backed
securities declined 147 basis points from 8.84% to 7.37% between the two years.
The Association experienced declines in the average yields earned on loans and
mortgage-backed securities between the two years despite the increase in market
interest rates during the second half of the year ended September
42
<PAGE>
30, 1994 because of high levels of refinancing activity which resulted in older,
higher-yielding loans being replaced by new loans originated at relatively lower
market interest rates.
INTEREST EXPENSE
Total interest expense decreased by $76,000, or 2.5%, from $3.0 million for
the year ended September 30, 1993 to $2.9 million for the year ended September
30, 1994. The decrease in total interest expense was due to a 44 basis point
decline in the average cost of interest-bearing liabilities, which more than
offset a $5.0 million increase in the average balance of interest-bearing
liabilities between the two years.
NET INTEREST INCOME
Net interest income for the year ended September 30, 1994 increased by
$117,000, or 5.0%, to $2.5 million from $2.4 million for the year ended
September 30, 1993. The Association's average interest rate spread decreased by
7 basis points, from 2.75% to 2.68%, and the net interest margin decreased by 10
basis points, from 3.25% to 3.15% between the two years.
PROVISION FOR LOAN LOSSES
The provision for loan losses increased by $35,000, or 140%, from $25,000
for the year ended September 30, 1993 to $60,000 for the year ended September
30, 1994. The amount of provision for loan losses, if any, is based upon
management's periodic analysis of the adequacy of the allowance for loan losses.
The Association adopted a revised methodology for analyzing the adequacy of the
allowance for loan losses during the year ended September 30, 1994 which placed
greater emphasis upon levels of classified assets. Among other factors
affecting management's decision to increase the provision for loan losses for
the year ended September 30, 1994 were recommendations made by the OTS regarding
the methodology for analyzing the adequacy of the allowance for loan losses.
The OTS, as an integral part of its examination process, periodically reviews
the Association's allowance for loan losses and may require the Association to
make additional provisions for loan losses based upon information available at
the time of the review. See "Business of the Association - Lending Activity -
Allowance for Loan Losses."
NON-INTEREST INCOME
Non-interest income decreased $74,000, or 22.0%, to $261,000 for the year
ended September 30, 1994 from $335,000 for the year ended September 30, 1993.
The primary component of the decrease in non-interest income between the two
periods was a $58,000 decrease in service charges and fees. The decrease
resulted primarily from a decrease in the service charges and fees charged to
meet competition in the Association's market area in order to generate
greater loan volume.
NON-INTEREST EXPENSE
Non-interest expense increased $54,000, or 4.4%, to $1.3 million for the
year ended September 30, 1994 from $1.2 million for the year ended September 30,
1993. The major elements of the increase in non-interest expense between the
two years were a $27,000 increase in compensation and benefits, a $23,000
increase in FDIC premium expense and a $13,000 increase in data processing and
maintenance expense, which more than offset a $27,000 decrease in occupancy and
equipment expense.
43
<PAGE>
INCOME TAXES
Income tax expense increased $13,000, or 2.8%, to $478,000 for the year
ended September 30, 1994 from $465,000 for the year ended September 30, 1993.
Effective October 1, 1993, the Association adopted SFAS No. 109 "Accounting For
Income Taxes ("SFAS 109"). The adoption of SFAS 109 did not have a material
effect upon the Association's net income or financial condition.
LIQUIDITY AND CAPITAL RESOURCES
The Association's primary sources of funds are deposits, principal and
interest payments on loans and securities, and proceeds from the maturation of
securities. While maturities and scheduled amortization of loans and securities
are predictable sources of funds, deposit flows and mortgage prepayments are
greatly influenced by general interest rates, economic conditions and
competition. The Association maintains a liquidity ratio above the regulatory
requirement. This requirement, which may be varied at the direction of the OTS
depending upon economic conditions and deposit flows, is based upon a percentage
of deposits and short-term borrowings. The required ratio is currently 5%. The
Association's average regulatory liquidity ratios were 7.68%, 11.26%, 26.20%,
18.40% and 17.29% for the years ended September 30, 1995, 1994, 1993, 1992 and
1991, and 6.72% and 9.12% for the eight months ended May 31, 1996 and May 31,
1995, respectively. Management expects the Association's regulatory liquidity
ratio to increase immediately after the consummation of the Conversion because
the bulk of the net conversion proceeds will initially be invested in short-term
investment securities.
The Association's cash flows are comprised of three primary
classifications: cash flows from operating activities, investing activities and
financing activities. Cash flows provided by operating activities were $1.2
million and $1.0 million for the eight months ended May 31, 1996 and May 31,
1995, respectively, and were $904,000, $968,000 and $1.0 million for the years
ended September 30, 1995, 1994 and 1993, respectively. Net cash from investing
activities consisted primarily of disbursements for loan originations and the
purchase of investments and mortgage-backed securities, offset by principal
collections on loans and proceeds from maturation of investments and paydowns on
mortgage-backed securities. Net cash from financing activities consisted
primarily of activity in deposit accounts. The net increase in deposits was
$2.4 million and $3.5 million for the eight months ended May 31, 1996 and May
31, 1995, respectively, and $4.4 million, $4.0 million and $8.3 million for the
years ended September 30, 1995, 1994 and 1993, respectively.
At May 31, 1996, the Association exceeded all of its regulatory capital
requirements with a tangible capital level of $11.4 million, or 12.41%, of
adjusted total assets, which is above the required level of $1.4 million, or
1.50%; core capital of $11.4 million, or 12.41%, of adjusted total assets, which
is above the required level of $2.8 million, or 3.00%; and risk-based capital of
$11.5 million, or 27.01%, of risk-weighted assets, which is above the required
level of $3.4 million, or 8.00%. See "Regulatory Capital Compliance."
The Association's most liquid assets are cash and short-term investments.
The levels of these assets are dependent on the Association's operating,
financing, lending and investing activities during any given period. At May 31,
1996, cash and short-term investments totalled $5.3 million. The Association
has other sources of liquidity if a need for additional funds arises, including
securities maturing within one year and the repayment of loans. The Association
may also utilize FHLB advances or the sale of securities available for sale as a
source of funds. At May 31, 1996, the Association had no advances outstanding
from the FHLB and $775,000 of mortgage-backed securities available for sale.
44
<PAGE>
At May 31, 1996, the Association had outstanding commitments to originate
mortgage loans of $2.1 million compared to $2.0 million at September 30, 1995.
The Association anticipates that it will have sufficient funds available to meet
its current loan origination commitments. See "Business of the Association -
General." Certificate accounts which are scheduled to mature in less than one
year from May 31, 1996 totalled $43.9 million. The Association expects that a
substantial portion of the maturing certificate accounts will be retained by the
Association at maturity. However, if a substantial portion of these deposits
are not retained, the Association may utilize Federal Home Loan Bank advances,
or raise interest rates on deposits to attract new accounts, which may result in
higher levels of interest expense.
IMPACT OF INFLATION AND CHANGING PRICES
The Financial Statements and Notes thereto presented herein have been
prepared in accordance with GAAP, which require the measurement of financial
position and operating results in terms of historical dollar amounts without
considering the changes in the relative purchasing power of money over time due
to inflation. The impact of inflation is reflected in the increased cost of the
Association's operations. Unlike industrial companies, nearly all of the assets
and liabilities of the Association are monetary in nature. As a result,
interest rates have a greater impact on the Association's performance than do
the effects of general levels of inflation. Interest rates do not necessarily
move in the same direction or to the same extent as the price of goods and
services.
IMPACT OF NEW ACCOUNTING STANDARDS
In May 1993, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 114, "Accounting by Creditors for Impairment of a Loan" ("SFAS No.
114"), which has been amended by SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosure (SFAS No. 118"). Under
the provisions of SFAS No. 114, as amended, a loan is considered impaired when,
based on current information and events, it is probable that a creditor will be
unable to collect all amounts due according to the contractual terms of the loan
agreement. SFAS No. 114 requires creditors to measure impairment of a loan
based on the present value of expected future cash flows discounted at the
loan's effective interest rate or, as a practical expedient, at the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. If the measure of the impaired loan is less than the
recorded investment in the loan, a creditor shall recognize an impairment by
recording a valuation allowance with a corresponding charge to the provision for
loan losses. The Association adopted the provisions of SFAS No. 114 and SFAS
No. 118 effective October 1, 1995. The adoption of SFAS No. 114 and SFAS No.
118 did not have a material impact on the results of operations or financial
condition of the Association.
In November 1993, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 93-6 "Employers' Accounting For Employee
Stock Ownership Plans" ("SOP 93-6"). SOP 93-6 addresses the accounting for
shares of stock issued to employees by an employee stock ownership plan
("Employee Plan"). SOP 93-6 requires that the employer record compensation
expense in an amount equal to the fair value of shares committed to be released
to employees from the Employee Plan to employees. Assuming shares of Common
Stock appreciate in value over time, the adoption of SOP 93-6 will likely
increase compensation expense relative to the Employee Plan to be established in
the Conversion, as compared with prior guidance which required the recognition
of compensation expense based on the cost of shares acquired by the Employee
Plan. However, the amount of the increase has not been determined as the
expense will be based on the fair value of the shares committed to be released
to employees, which is not yet determinable.
45
<PAGE>
In May 1995, the FASB issued Statement of Financial Accounting Standards
No. 122 "Accounting for Mortgage Servicing Rights ("SFAS No. 122")." SFAS No.
122 requires an institution that purchases or originates mortgage loans and
sells or securitizes those loans with servicing rights retained to allocate the
total cost of the mortgage loans to the mortgage servicing rights and the loans
(without the mortgage servicing rights) based on their relative fair values. In
addition, institutions are required to assess impairment of the capitalized
mortgage servicing portfolio based on the fair value of those rights. SFAS No.
122 is effective for fiscal years beginning after December 15, 1995. Adoption
of this statement is not expected to have a material impact on the Association's
net income or financial condition.
In November 1995, the FASB issued SFAS No. 123, "Accounting for Stock Based
Compensation" ("SFAS No. 123"). This statement establishes financial accounting
standards for stock-based employee compensation plans. SFAS No. 123 permits the
Association to choose either a new fair value based method or the current APB
Opinion 25 intrinsic value based method of accounting for its stock-based
compensation arrangements. SFAS No. 123 requires pro forma disclosures of net
earnings and earnings per share computed as if the fair value based method had
been applied in financial statements of companies that continue to follow
current practice in accounting for such arrangements under Opinion 25. The
disclosure provisions of SFAS No. 123 are effective for fiscal years beginning
after December 15, 1995. Any effect that this statement will have on the
Association will be applicable upon the consummation of the Conversion.
BUSINESS OF THE ASSOCIATION
GENERAL
The Association's principal business is to operate a community-oriented
savings and loan association. The Association attracts retail deposits from the
general public in the area surrounding its office and invests those deposits,
together with funds generated from operations, primarily in fixed-rate one- to
four-family residential mortgage loans and investment and mortgage-backed
securities. The Association invests, on a limited basis, in multi-family
mortgage, commercial real estate, construction and land and consumer loans. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Management Strategy." The Association's revenues are derived
principally from interest on its mortgage loans, and interest and dividends on
its investment and mortgage-backed securities. The Association's primary
sources of funds are deposits and principal and interest payments on loans and
securities.
MARKET AREA AND COMPETITION
The Association's primary deposit gathering area is concentrated in Delphos
and the other communities surrounding its office, while its lending activities
primarily include areas throughout Allen, Putnam and Van Wert Counties in
Northwestern Ohio. The tri-county area includes the city of Lima, Ohio, which
has a population of approximately 45,000 and is located approximately 15 miles
southeast of Delphos in Allen County.
The Association's market area is located within 250 miles of several of the
largest metropolitan areas in the United States, including, Chicago, Detroit,
Pittsburgh, Cleveland, Cincinnati, and Indianapolis. There are approximately
150 manufacturing firms located in the tri-county area and manufacturing
accounts for one-third of the employment sector. Wholesale and retail trade is
the second largest employment sector in the tri-county area accounting for 24%
of employment. The City of Lima has
46
<PAGE>
experienced increases in unemployment in recent years due to the closing of
several large industrial plants. See "Risk Factors - Concentration in Real
Estate Lending in Northwestern Ohio."
The Association's primary market area is a competitive market for financial
services and the Association faces significant competition both in making loans
and in attracting deposits. The Association faces direct competition from a
number of financial institutions operating in its market area, many with a
state-wide or regional presence, and in some cases, a national presence. Many
of these financial institutions are significantly larger and have greater
financial resources than the Association. The Association's competition for
loans comes principally from savings institutions, mortgage banking companies,
commercial banks and credit unions. Its most direct competition for deposits
has historically come from savings institutions and commercial banks. In
addition, the Association faces increasing competition for deposits and other
financial products from non-bank institutions such as brokerage firms and
insurance companies in such areas as short-term money market funds, corporate
and government securities funds, mutual funds and annuities. Competition may
also increase as a result of the lifting of restrictions on the interstate
operations of financial institutions.
LENDING ACTIVITIES
LOAN PORTFOLIO COMPOSITION. The Association's loan portfolio consists
primarily of conventional first mortgage loans secured by one- to four-family
residences. At May 31, 1996, the Association had gross loans receivable of
$73.4 million, of which $61.2 million were one- to four-family, residential
mortgage loans, or 83.35% of the Association's gross loans receivable. The
remainder of the portfolio consists of: $1.4 million of multi-family mortgage
loans, or 1.88% of gross loans receivable; $5.1 million of commercial real
estate loans, or 6.96% of gross loans receivable; $3.8 million of construction
and land loans, or 5.15% of gross loans receivable; and consumer loans of $2.0
million, or 2.66% of gross loans receivable. At that same date, 66.8% of the
Association's loan portfolio had fixed interest rates. The Association had no
loans held for sale at May 31, 1996.
The types of loans that the Association may originate are subject to
federal and state law and regulations. Interest rates charged by the
Association on loans are affected by the demand for such loans and the supply of
money available for lending purposes and the rates offered by competitors.
These factors are, in turn, affected by, among other things, economic
conditions, fiscal policies of the federal government, the monetary policies of
the Federal Reserve Board, and legislative tax policies.
47
<PAGE>
The following table sets forth the composition of the Association's loan
portfolio in dollar amounts and as a percentage of the portfolio at the dates
indicated.
<TABLE>
<CAPTION>
AT MAY 31, AT SEPTEMBER 30,
---------------- ----------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
---------------- ---------------- --------------- ---------------- -------------- -----------------
PERCENT PERCENT PERCENT PERCENT PERCENT PERCENT
OF OF OF OF OF OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
------- ------- ------- ------- ------- ------ -------- ------ ------ ----- ------- ------
(Dollars in thousands)
Real estate:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family . . $61,173 83.35% $56,556 83.28% $49,424 83.32% $41,793 82.78% $41,315 84.57% $37,607 82.61%
Multi-family . . . . . 1,379 1.88 1,521 2.24 1,276 2.15 771 1.53 729 1.49 244 0.54
Commercial real estate 5,109 6.96 3,901 5.74 3,706 6.25 3,720 7.37 3,856 7.89 3,574 7.85
Construction and land . 3,785 5.15 3,808 5.61 3,081 5.19 2,780 5.51 1,473 3.02 2,432 5.34
Consumer . . . . . . . . 1,951 2.66 2,128 3.13 1,833 3.09 1,422 2.81 1,478 3.03 1,669 3.66
------- ----- ------ ----- ------- ----- ------ ----- ------ ----- ------ -----
Gross loans receivable 73,397 100.00% 67,914 100.00% 59,320 100.00% 50,486 100.00% 48,851 100.00% 45,526 100.00%
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
Undisbursed loan funds (3,620) (3,732) (2,728) (2,659) (2,167) (1,872)
Deferred loan
origination fees . . (48) (47) (49) (48) (92) (155)
Allowance for estimated
loan losses . . . . (92) (92) (92) (32) (29) (29)
------ ----- ----- ----- ----- -----
Loans receivable, net . $69,637 $64,043 $56,451 $47,747 $46,563 $43,470
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
</TABLE>
48
<PAGE>
LOAN MATURITY. The following table shows the contractual maturity of the
Association's gross loans receivable May 31, 1996. There were no loans held for
sale at May 31, 1996. The table does not include principal prepayments.
<TABLE>
<CAPTION>
AT MAY 31, 1996
-------------------------------------------------------------------------------------
ONE- TO COMMERCIAL GROSS
FOUR- MULTI- REAL CONSTRUCTION LOANS
FAMILY FAMILY ESTATE AND LAND CONSUMER RECEIVABLE
---------- ----------- ---------- ------------ ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Amounts due:
One year or less . . . . . . . . . . . $ 650 $ -- $ 35 $ 182 $ 1,361 $ 2,228
After one year:
More than one year to three years . . 371 -- 16 34 138 559
More than three years to
five years . . . . . . . . . . . . 1,184 10 -- 118 238 1,550
More than five years to 10 years . . 8,228 323 474 12 162 9,199
More than 10 years to 20 years . . . 33,226 569 2,910 736 52 37,493
More than 20 years . . . . . . . . . 17,514 477 1,674 2,703 -- 22,368
------ ---- ----- ----- ---- ------
Total due after
May 31, 1997 . . . . . . . . . . . 60,523 1,379 5,074 3,603 590 71,169
------ ---- ----- ----- ---- ------
Gross loans receivable . . . . . $61,173 $1,379 $5,109 $3,785 $1,951 $73,397
------ ---- ----- ----- ---- ------
------ ---- ----- ----- ---- ------
</TABLE>
The following table sets forth at May 31, 1996, the dollar amount of gross
loans receivable contractually due after May 31, 1997, and whether such loans
have fixed interest rates or adjustable interest rates.
DUE AFTER MAY 31, 1997
------------------------------------
FIXED ADJUSTABLE TOTAL
---------- ------------ --------
(In thousands)
Real estate loans:
Residential:
One- to four-family . . . . . . . . $42,550 $17,973 $60,523
Multi-family . . . . . . . . . . . . 934 445 1,379
Commercial real estate . . . . . . . . 624 4,450 5,074
Construction and land . . . . . . . . 3,211 392 3,603
Consumer . . . . . . . . . . . . . . . 590 -- 590
------- ------- -------
Total . . . . . . . . . . . . . . $47,909 $23,260 $71,169
------- ------- -------
------- ------- -------
49
<PAGE>
ORIGINATION AND PURCHASE OF LOANS. The Association's mortgage lending
activities are conducted through its home office. Although the Association may
originate both adjustable-rate and fixed-rate mortgage loans, a substantial
majority of the Association's loan originations have been fixed-rate mortgage
loans. The Association's ability to originate loans is dependent upon the
relative customer demand for fixed-rate or adjustable-rate mortgage loans, which
is affected by the current and expected future level of interest rates. The
Association has not emphasized the origination of adjustable-rate mortgage loans
due to the relatively low demand for such loans in the Association's primary
market area. The Association retains for its portfolio all of the mortgage
loans that it originates. At May 31, 1996, there were no loans categorized as
held for sale. In addition, the Association also emphasizes the origination of
construction loans secured primarily by owner-occupied properties. From time to
time the Association has participated in loans originated by other institutions
based upon the Association's investment needs and market opportunities.
The following tables set forth the Association's loan originations and
principal repayments for the periods indicated:
<TABLE>
<CAPTION>
FOR THE EIGHT MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30,
--------------------------- ---------------------------------------
MAY 31, 1996 MAY 31, 1995 1995 1994 1993
------------ ------------ ----------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Beginning balance, net . . . . . . . . $ 64,043 $ 56,451 $ 56,451 $ 47,747 $ 46,563
Loans originated:
One- to four-family . . . . . . 13,510 6,382 12,116 20,788 19,642
Multi-family. . . . . . . . . . -- 222 423 862 449
Commercial real estate. . . . . 1,929 543 733 862 1,390
Construction and land . . . . . 3,441 2,416 5,033 4,788 3,183
Consumer. . . . . . . . . . . . 1,508 1,767 2,608 2,068 1,560
--------- --------- --------- --------- ---------
Total loans originated. . . 20,388 11,330 20,913 29,368 26,224
Principal prepayments . . . . . . . (14,908) (7,377) (12,319) (20,534) (24,589)
Transfer to REO . . . . . . . . . . -- -- -- -- --
Change in undisbursed loan funds(1) 113 298 (1,004) (69) (492)
Change in unearned origination fees 1 (1) 2 (1) 45
Change in allowance for estimated
loan losses . . . . . . . . . . -- -- -- (60) (4)
--------- --------- --------- --------- ---------
Ending balance, net. . . . . . . . . . $ 69,637 $ 60,701 $ 64,043 $ 56,451 $ 47,747
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
____________________
(1) Represents change in loans in process from first day to last day of the
period.
50
<PAGE>
ONE- TO FOUR-FAMILY MORTGAGE LENDING. The primary lending activity of the
Association has been and continues to be the origination of permanent
conventional mortgage loans secured by one- to four-family residences located in
the Association's primary market area, which the Association retains in its
portfolio. The Association's loans generally do not conform to secondary market
standards because the Association does not require title insurance or a survey.
Management believes that the Association's policy of not selling the loans that
it originates provides the Association with a competitive advantage in the
origination of loans in its primary market area. Loan originations are obtained
from the Association's loan officers and their contacts with the local real
estate industry, existing or past customers, and members of the local
communities. The Association primarily originates fixed-rate loans, but also
offers adjustable-rate mortgage ("ARM") loans. At May 31, 1996, one- to four-
family mortgage loans totalled $61.2 million, or 83.35% of total loans at such
date. Of the Association's mortgage loans secured by one- to four-family
residences, $43.2 million, or 70.6%, were fixed-rate loans.
The Association's policy is to originate one- to four-family residential
mortgage loans in amounts up to 80% of the appraised value of the property
securing the loan, up to 85% of the appraised value if the loan is co-signed by
a person approved by the Board of Directors and up to 90% of the appraised value
if private mortgage insurance is obtained. Mortgage loans originated by the
Association generally include due-on-sale clauses which provide the Association
with the contractual right to deem the loan immediately due and payable in the
event the borrower transfers ownership of the property without the Association's
consent. Due-on-sale clauses are an important means of adjusting the rates on
the Association's fixed-rate mortgage loan portfolio and the Association
exercises its rights under these clauses. The residential mortgage loans
originated by the Association are generally for terms to maturity of up to 30
years.
The Association offers several adjustable rate loan programs with terms of
up to 30 years and interest rates that adjust either annually or every three
years. Of the Association's mortgage loans secured by one- to four-family
residences, $18.0 million, or 29.4%, had adjustable rates. The Association's
one year ARM loan has a maximum adjustment limitation of 1.5% per year and a
5.0% lifetime cap on adjustments. The Association's three-year ARM loan has a
maximum adjustment limitation of 2.0% per change and a 5.0% lifetime cap. The
index for substantially all of the Association's ARM loans is the Federal Home
Loan Bank System's National Average Mortgage Rate for Previously-Occupied Homes.
The volume and types of ARM loans originated by the Association have been
affected by such market factors as the level of interest rates, consumer
preferences, competition and the availability of funds. In recent years, demand
for ARM loans in the Association's primary market area has been weak due to the
low interest rate environment and consumer preference for fixed-rate loans.
Consequently, in recent years the Association has not originated a significant
amount of ARM loans as compared to its originations of fixed-rate loans. The
ARM loans offered by the Association do not provide for initial deep discount
interest rates or for negative amortization. Although the Association will
continue to offer ARM loans, there can be no assurance that in the future the
Association will be able to originate a sufficient volume of ARM loans to
constitute a significant portion of the Association's loan portfolio.
MULTI-FAMILY LENDING. On a limited basis, the Association originates
multi-family mortgage loans generally secured by properties located in the
Association's primary market area. In reaching its decision on whether to make
a multi-family loan, the Association considers a number of factors including:
the net operating income of the mortgaged premises before debt service and
depreciation; the debt service ratio (the ratio of net operating income to debt
service); and the ratio of loan amount to appraised value. Pursuant to the
Association's current underwriting policies, a multi-family mortgage loan may be
made in an amount up to 80% of the appraised value of the underlying property.
In addition, the Association
51
<PAGE>
generally requires a debt service ratio of 120%. Properties securing a
multi-family loan are appraised by an independent appraiser.
When evaluating a multi-family loan, the Association also considers the
financial resources and income level of the borrower, the borrower's experience
in owning or managing similar property, and the Association's lending experience
with the borrower. The Association's underwriting policies require that the
borrower be able to demonstrate strong management skills and the ability to
maintain the property from current rental income. The borrower is required to
present evidence of the ability to repay the mortgage and a satisfactory credit
history. In making its assessment of the creditworthiness of the borrower, the
Association generally reviews the financial statements, employment and credit
history of the borrower, as well as other related documentation.
Loans secured by multi-family residential properties generally involve a
greater degree of risk than one- to four-family residential mortgage loans.
Because payments on loans secured by multi-family properties are often dependent
on successful operation or management of the properties, repayment of such loans
may be subject to a greater extent to adverse conditions in the real estate
market or the economy. The Association seeks to minimize these risks through
its underwriting policies, which require such loans to be qualified at
origination on the basis of the property's income and debt coverage ratio.
The Association's multi-family loan portfolio at May 31, 1996 totalled $1.4
million or 1.88% of gross loans receivable. The Association's largest
multi-family loan at May 31, 1996, had an outstanding balance of $236,000, is
secured by eleven units and is current as to the repayment of principal and
interest.
COMMERCIAL REAL ESTATE LENDING. On a limited basis, the Association
originates and participates in commercial real estate loans that are generally
secured by properties used for business or religious purposes such as farms,
churches, nursing homes, small office buildings or retail facilities located in
its primary market area. The Association's underwriting procedures provide that
commercial real estate loans may be made in amounts up to 80% of the appraised
value of the property. The Association's underwriting standards and procedures
are similar to those applicable to its multi-family loans, whereby the
Association considers the net operating income of the property, the debt service
ratio and the borrower's expertise, credit history and profitability. The
largest commercial real estate loan in the Association's portfolio at May 31,
1996 was a $1.5 million participation in a $5.0 million mortgage and is secured
by a nursing home. The loan was current and performing in accordance with its
contractual terms at May 31, 1996. At May 31, 1996 the Association's commercial
real estate loan portfolio was $5.1 million, or 6.96% of gross loans receivable.
Loans secured by commercial real estate properties, similar to multi-family
loans, are generally larger and involve a greater degree of risk than one- to
four-family residential mortgage loans. Because payments on loans secured by
commercial real estate properties are often dependent on successful operation or
management of the properties, repayment of such loans may be subject to a great
extent to adverse conditions in the real estate market or the economy. The
Association seeks to minimize these risks through its underwriting standards.
CONSTRUCTION AND LAND LENDING. The Association generally originates
construction and land development loans to contractors and individuals in its
primary market area. The Association's construction loans primarily are made to
finance the construction of owner-occupied one- to four-family residential
properties and to a significantly lesser extent, real estate developments. The
Association's construction loans to individuals are primarily fixed-rate loans
with maturities of six months which, upon completion of construction, convert to
permanent loans with maturities of up to 30 years. The
52
<PAGE>
Association's policies provide that construction loans may be made in amounts up
to 80% of the appraised value of the property for construction of one- to
four-family residences. The Association requires an independent appraisal of
the property. Loan proceeds are disbursed in increments as construction
progresses and as inspections warrant. The Association requires regular
inspections to monitor the progress of construction. Land loans are determined
on an individual basis, but generally they do not exceed 75% of the actual cost
or current appraised value of the property, whichever is less. The largest
construction and land loan in the Association's portfolio at May 31, 1996 had a
balance of $334,000 and is secured by a single family residence. This loan is
currently performing in accordance with its terms. At May 31, 1996, the
Association has $3.8 million of construction and land loans totalling 5.15% of
the Association's gross loans receivable.
Construction and land financing is considered to involve a higher degree of
credit risk than long-term financing on improved, owner-occupied real estate.
Risk of loss on a construction loan is dependent largely upon the accuracy of
the initial estimate of the property's value at completion of construction or
development compared to the estimated cost (including interest) of construction.
If the estimate of value proves to be inaccurate, the Association may be
confronted with a project, when completed, having a value which is insufficient
to assure full repayment.
CONSUMER AND OTHER LENDING. The Association's originated consumer loans
generally consist of automobile loans, second mortgage loans, home equity loans,
mobile home loans and loans secured by deposits. At May 31, 1996, the
Association's consumer loan portfolio was $2.0 million, or 2.66% of gross loans
receivable.
LOAN APPROVAL PROCEDURES AND AUTHORITY. The Board of Directors establishes
the lending policies of the Association. Loans in amounts up to $50,000 may be
approved by the Association's loan officers. Loans in excess of $50,000 and up
to $250,000 must be approved by the Loan Committee which consists of two senior
officer/directors and one outside director. Loans in excess of $250,000 must be
approved by the Board of Directors. Pursuant to OTS regulations, loans to one
borrower cannot exceed 15% of the Association's unimpaired capital and surplus.
The Association will not make loans to one borrower that are in excess of
regulatory limits.
DELINQUENCIES AND CLASSIFIED ASSETS. The Board of Directors performs a
monthly review of all delinquent loans thirty days or more past due. The
procedures taken by the Association with respect to delinquencies vary depending
on the nature of the loan and period of delinquency. When a borrower fails to
make a required payment on a loan, the Association takes a number of steps to
have the borrower cure the delinquency and restore the loan to current status.
The Association sends the borrower a written notice of non-payment after the
loan is first past due. In the event payment is not then received, additional
letters are sent and phone calls are made. If management believes that the loan
is well-secured, the Association generally will try to work with the borrower to
have the loan brought current. If the loan is still not brought current and it
becomes necessary for the Association to take legal action, the Association will
commence foreclosure proceedings against any real property that secures the
loan. If a foreclosure action is instituted and the loan is not brought
current, paid in full, or refinanced before the foreclosure sale, the real
property securing the loan is foreclosed upon and sold at sheriff's sale.
Federal regulations and the Association's Classification of Assets Policy
require that the Association utilize an internal asset classification system as
a means of reporting problem and potential problem assets. The Association has
incorporated the OTS internal asset classifications as a part of its credit
monitoring system. The Association currently classifies problem and potential
problem assets as "Substandard," "Doubtful" or "Loss" assets. An asset is
considered "Substandard" if it is inadequately protected by the current net
worth and paying capacity of the obligor or of the collateral pledged, if any.
53
<PAGE>
"Substandard" assets include those characterized by the "distinct possibility"
that the insured institution will sustain "some loss" if the deficiencies are
not corrected. Assets classified as "Doubtful" have all of the weaknesses
inherent in those classified "Substandard" with the added characteristic that
the weaknesses present make "collection or liquidation in full," on the basis of
currently existing facts, conditions, and values, "highly questionable and
improbable." Assets classified as "Loss" are those considered "uncollectible"
and of such little value that their continuance as assets without the
establishment of a specific loss allowance is not warranted. Assets which do
not currently expose the insured institution to sufficient risk to warrant
classification in one of the aforementioned categories but possess weaknesses
are required to be designated "Special Mention."
When an insured institution classifies one or more assets, or portions
thereof, as Substandard or Doubtful, under current OTS policy the Association is
required to consider establishing a general valuation allowance in an amount
deemed prudent by management. The general valuation allowance, which is a
regulatory term, represents a loss allowance which has been established to
recognize the inherent credit risk associated with lending and investing
activities, but which, unlike specific allowances, has not been allocated to
particular problem assets. When an insured institution classifies one or more
assets, or portions thereof, as "Loss," it is required either to establish a
specific allowance for losses equal to 100% of the amount of the asset so
classified or to charge off such amount.
A savings institution's determination as to the classification of its
assets and the amount of its valuation allowances is subject to review by the
OTS which can order the establishment of additional general or specific loss
allowances. The OTS, in conjunction with the other federal banking agencies,
has adopted an interagency policy statement on the allowance for loan and lease
losses. The policy statement provides guidance for financial institutions on
both the responsibilities of management for the assessment and establishment of
adequate allowances and guidance for banking agency examiners to use in
determining the adequacy of general valuation allowances. Generally, the policy
statement recommends that institutions have effective systems and controls to
identify, monitor and address asset quality problems; that management has
analyzed all significant factors that affect the collectibility of the portfolio
in a reasonable manner; and that management has established acceptable allowance
evaluation processes that meet the objectives set forth in the policy statement.
As a result of the declines in local and regional real estate market values and
the significant losses experienced by many financial institutions, there has
been a greater level of scrutiny by regulatory authorities of the loan
portfolios of financial institutions undertaken as part of the examination of
institutions by the OTS and the FDIC. While the Association believes that it
has established an adequate allowance for estimated loan losses, there can be no
assurance that regulators, in reviewing the Association's loan portfolio, will
not request the Association to materially increase its allowance for loan
losses, thereby negatively affecting the Association's financial condition and
earnings. Although management believes that an adequate allowance for loan
losses has been established, actual losses are dependent upon future events and,
as such, further additions to the level of allowances for estimated loan losses
may become necessary.
The Association's management reviews and classifies the Association's
assets quarterly and reports the results of its review to the Board of
Directors. The Association classifies assets in accordance with the management
guidelines described above. REO is classified as Substandard. At May 31, 1996,
the Association had $9,000 of assets classified as Special Mention, $845,000 of
assets classified as Substandard, and $1,000 of assets classified as Doubtful
and no amount classified as Loss.
54
<PAGE>
NON-PERFORMING ASSETS. The following table sets forth information
regarding non-accrual loans, accruing loans which are contractually past due 90
days or more and REO. The Association generally ceases accruing interest on
loans 90 days or more past due. For the eight months ended May 31, 1996 and May
31, 1995 and the years ended September 30, 1995, 1994, 1993, 1992 and 1991,
respectively, the amount of interest income that would have been recognized on
nonaccrual loans if such loans had continued to perform in accordance with their
contractual terms was $6,599, $4,482, $5,780, $15,142, $15,158, $10,302, and
$7,776, none of which was recognized.
<TABLE>
<CAPTION>
AT MAY AT MAY
31, 31, AT SEPTEMBER 30,
-------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- --------- ------- ------- ------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Non-accrual loans:
Residential real estate:
One- to four-family . . . . . . $316 $ 89 $150 $169 $239 $253 $287
Multi-family. . . . . . . . . . -- -- -- -- -- -- --
Commercial real estate. . . . . . . -- 98 98 100 76 76 80
Construction and land . . . . . . . -- -- -- -- -- -- --
Consumer. . . . . . . . . . . . . . -- -- 2 1 4 12 10
---- ---- ---- ---- ---- ---- ----
Total non-accrual loans . . . . 316 187 250 270 319 341 377
Loans contractually past due more
than 90 days and accruing interest -- -- -- -- -- -- --
---- ---- ---- ---- ---- ---- ----
Total non-performing loans. . . 316 187 250 270 319 341 377
REO, net . . . . . . . . . . . . . . -- -- -- -- -- -- 114
---- ---- ---- ---- ---- ---- ----
Total non-performing
assets. . . . . . . . . . . . $316 $187 $250 $270 $319 $341 $491
---- ---- ---- ---- ---- ---- ----
---- ---- ---- ---- ---- ---- ----
Allowance for loan losses as a
percent of gross loans receivable . 0.13% 0.15% 0.14% 0.16% 0.06% 0.06% 0.05%
Allowance for loan losses as a
percent of total non-performing
loans(1). . . . . . . . . . . . . . 29.19 49.45 36.99 34.17 10.16 8.43 7.63
Non-performing loans
as a percent of gross loans
receivable(1) . . . . . . . . . . . 0.43 0.30 0.37 0.46 0.63 0.70 0.67
Non-performing assets
as a percent of total
assets(1) . . . . . . . . . . . . . 0.35 0.21 0.28 0.33 0.41 0.50 0.76
</TABLE>
________________________
(1) Non-performing assets consist of non-performing loans and REO.
Non-performing loans consist of all accruing loans 90 days or more past due
and all non-accrual loans.
55
<PAGE>
The following table sets forth delinquencies in the Association's loan
portfolio as of the dates indicated:
<TABLE>
<CAPTION>
AT MAY 31, 1996 AT SEPTEMBER 30, 1995
----------------------------------------------- ----------------------------------------------
68-89 DAYS 90 DAYS OR MORE(1) 60-89 DAYS 90 DAYS OR MORE(1)
---------------------- ----------------------- ---------------------- ----------------------
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
NUMBER BALANCE NUMBER BALANCE NUMBER BALANCE NUMBER BALANCE
OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS
---------- ---------- ---------- ----------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family. . . . . . 3 $ 139 6 $ 316 7 $ 165 5 $ 150
Multi-family . . . . . . . . . -- -- -- -- -- -- -- --
Commercial real estate . . . . -- -- -- -- -- -- 1 98
Construction and land. . . . . -- -- -- -- -- -- -- --
Consumer . . . . . . . . . . . 3 8 -- -- -- -- 1 2
--- ----- --- ----- --- ----- --- -----
Total. . . . . . . . . . . . . 6 $ 147 6 $ 316 7 $ 165 7 $ 250
--- ----- --- ----- --- ----- --- -----
--- ----- --- ----- --- ----- --- -----
Delinquent loans to gross
loans receivable . . . . . .20% .43% .24% .37%
AT SEPTEMBER 30, 1994 AT SEPTEMBER 30, 1993
----------------------------------------------- ----------------------------------------------
68-89 DAYS 90 DAYS OR MORE(1) 60-89 DAYS 90 DAYS OR MORE(1)
---------------------- ----------------------- ---------------------- ----------------------
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
NUMBER BALANCE NUMBER BALANCE NUMBER BALANCE NUMBER BALANCE
OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS
---------- ---------- ---------- ----------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family. . . . . . 4 $ 92 7 $ 169 9 $ 186 11 $ 239
Multi-family . . . . . . . . . -- -- -- -- -- -- -- --
Commercial real estate . . . . -- -- 1 100 -- -- 1 76
Construction and land. . . . . -- -- -- -- -- -- -- --
Consumer loans . . . . . . . . 1 1 1 1 2 4 2 4
--- ----- --- ----- --- ----- --- -----
Total. . . . . . . . . . . . . 5 $ 93 9 $ 270 11 $ 190 14 $ 319
--- ----- --- ----- --- ----- --- -----
--- ----- --- ----- --- ----- --- -----
Delinquent loans to gross
loans receivable . . . . . .16% .46% .38% .63%
</TABLE>
______________________
(1) Loans 90 days or more past due are included in non-accrual loans. See "Non-
Performing Assets."
56
<PAGE>
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the
risks inherent in the Association's loan portfolio and the general economy. The
allowance for loan losses is maintained at an amount management considers
adequate to cover estimated losses in loans receivable which are deemed probable
and estimable. The allowance is based upon a number of factors, including
current economic conditions, actual loss experience and industry trends. In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review the Association's allowance for loan losses. Such
agencies may require the Association to make additional provisions for loan
losses based upon information available at the time of the review. As of May
31, 1996, the Association's allowance for loan losses was 0.13% of gross loans
receivable as compared to 0.14% as of September 30, 1995. The Association had
non-accrual loans of $316,000 and $250,000 at May 31, 1996 and September 30,
1995, respectively. At May 31, 1996, the Association had no loans classified as
"impaired." The Association will continue to monitor and modify its allowances
for loan losses as conditions dictate.
The following table sets forth activity in the Association's allowance for
loan losses for the periods set forth in the table.
<TABLE>
<CAPTION>
AT OR FOR THE EIGHT
MONTHS ENDED AT OR FOR THE YEAR ENDED SEPTEMBER 30,
------------------- ----------------------------------------------
MAY 31, MAY 31,
1996 1995 1995 1994 1993 1992 1991
-------- --------- ------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of
period . . . . . . . . . . . . . $ 92 $ 92 $ 92 $ 32 $ 29 $29 $ 29
Provision for loan losses. . . . . -- -- --- 60 25 -- --
Charge-offs:
Real Estate:
One- to four-family. . . . . -- -- -- -- 22 -- --
Multi-family . . . . . . . . -- -- -- -- -- -- --
Commercial real estate . . . -- -- -- -- -- -- --
Construction and land. . . . -- -- -- -- -- -- --
Consumer. . . . . . . . . . . . -- -- -- -- -- -- --
Recoveries . . . . . . . . . . . . -- -- -- -- -- -- --
----- ----- ----- ----- ----- ----- -----
Balance at end of period . . . . . $ 92 $ 92 $ 92 $ 92 $ 32 $ 29 $ 29
----- ----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- ----- -----
Net charge-offs to average
gross loans receivable. . . . . -- -- -- -- .04% -- --
</TABLE>
57
<PAGE>
The following tables set forth the amount of the Association's allowance
for loan losses, the percent of the allowance for loan losses to the total
allowance and the percent of gross loans to gross loans receivable in each of
the categories listed at the dates indicated.
<TABLE>
<CAPTION>
AT MAY 31, 1996
----------------------------------------------------------------
PERCENT OF
GROSS LOANS
IN
PERCENT OF EACH
ALLOWANCE CATEGORY TO
TO TOTAL GROSS LOANS
AMOUNT ALLOWANCE RECEIVABLE
-------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
One- to four-family. . . . . . . . $ 65 70.35% 83.35%
Multi-family . . . . . . . . . . . 3 3.30 1.88
Commercial real estate . . . . . . 6 6.31 6.96
Construction and Land. . . . . . . 2 2.25 5.15
Consumer . . . . . . . . . . . . . 5 5.38 2.66
Unallocated. . . . . . . . . . . . 11 12.41 --
------ ------- -------
Total allowance for loan losses. $ 92 100.00% 100.00%
------ ------- -------
------ ------- -------
<CAPTION>
AT SEPTEMBER 30,
-----------------------------------------------------------------------------------------
1995 1994
------------------------------------------ -------------------------------------------
PERCENT OF PERCENT OF
GROSS LOANS GROSS LOANS
IN EACH IN EACH
PERCENT OF CATEGORY PERCENT OF CATEGORY
ALLOWANCE TO ALLOWANCE TO
TO TOTAL GROSS LOANS TO TOTAL GROSS LOANS
AMOUNT ALLOWANCE RECEIVABLE AMOUNT ALLOWANCE RECEIVABLE
------ --------- ---------- ------ --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
One- to four-
family . . . . $63 68.21% 83.28% $62 67.58 83.32%
Multi-family . . 3 3.25 2.24 4 4.36 2.15
Commercial real
estate. . . . . 4 5.03 5.74 4 4.75 6.25
Construction
and land. . . . 6 6.25 5.61 5 5.75 5.19
Consumer . . . . 5 5.26 3.13 5 5.20 3.09
Unallocated. . . 11 12.00 -- 12 12.36 --
-------- ------- ------- ----- ------- ------
Total allowance
for loan losses $92 100.00% 100.00% $ 92 100.00% 100.00%
-------- ------- ------- ----- ------- ------
-------- ------- ------- ----- ------- ------
<CAPTION>
AT SEPTEMBER 30,
---------------------------------------------------------------------------------------
1993 1992
---------------------------------------- --------------------------------------------
PERCENT OF PERCENT OF
GROSS LOANS GROSS LOANS
IN EACH IN EACH
PERCENT OF CATEGORY PERCENT OF CATEGORY
ALLOWANCE TO ALLOWANCE TO
TO TOTAL GROSS LOANS TO TOTAL GROSS LOANS
AMOUNT ALLOWANCE RECEIVABLE AMOUNT ALLOWANCE RECEIVABLE
------ --------- ---------- ------ ---------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
One- to four-
family . . . . $23 70.24% 82.78% $20 68.28% 84.57%
Multi-family . . 1 2.78 1.53 1 2.94 1.49
Commercial real
estate. . . . . 3 7.75 7.37 2 8.26 7.89
Construction
and land. . . . 1 3.80 5.51 1 3.75 3.02
Consumer . . . . 1 4.84 2.81 2 5.41 1.03
Unallocated. . . 3 10.59 -- 3 11.36 --
--- ------- ------- --- ------- ------
Total allowance
for loan losses $32 100.00% 100.00% $29 100.00% 100.00%
--- ------- ------- --- ------- ------
--- ------- ------- --- ------- ------
AT SEPTEMBER 30,
---------------------------------------------
1991
---------------------------------------------
PERCENT OF
GROSS LOANS
IN EACH
PERCENT OF CATEGORY
ALLOWANCE TO
TO TOTAL GROSS LOANS
AMOUNT ALLOWANCE RECEIVABLE
------- ---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
One- to four-
family . . . . $19 67.25% 82.61%
Multi-family . . 1 3.75 .54
Commercial real
estate. . . . . 3 8.25 7.85
Construction
and land. . . . 1 4.25 5.34
Consumer . . . . 2 5.76 3.66
Unallocated. . . 3 10.74 --
--- ------- -------
Total allowance
for loan losses $29 100.00% 100.00%
--- ------- -------
--- ------- -------
</TABLE>
58
<PAGE>
REAL ESTATE OWNED
At May 31, 1996, the Association had no REO. If the Association acquires
any REO, it is initially recorded at fair value less costs to sell and
thereafter REO is recorded at the lower of the recorded investment in the loan
or the fair value of the related assets at the date of foreclosure, less costs
to sell. Thereafter, REO is valued at the lower of the recorded investment or
the fair value of the property less costs to sell. If there is a further
deterioration in value, the Association provides for a specific valuation
allowance.
INVESTMENT ACTIVITIES
Federally chartered savings institutions have the authority to invest in
various types of liquid assets, including United States Treasury obligations,
securities of various federal agencies, certificates of deposit of insured banks
and savings institutions, bankers' acceptances and federal funds. Subject to
various restrictions, federally chartered savings institutions may also invest
their assets in commercial paper, investment-grade corporate debt securities and
mutual funds whose assets conform to the investments that a federally chartered
savings institution is otherwise authorized to make directly. Additionally, the
Association must maintain minimum levels of investments that qualify as liquid
assets under OTS regulations. See "Regulation - Federal Savings Institution
Regulation - Liquidity." Historically, the Association has maintained liquid
assets above the minimum OTS requirements and at a level considered to be more
than adequate to meet its normal daily activities.
The investment policy of the Association as established by the Board of
Directors attempts to provide and maintain liquidity, generate a favorable
return on investments without incurring undue interest rate and credit risk, and
complement the Association's lending activities. The Association's policies
generally limit investments to government and federal agency securities. The
Association's policies provide the authority to invest in U.S. Treasury and
federal agency securities meeting the Association's guidelines and in mortgage-
backed securities guaranteed by the U.S. government and agencies thereof. At
May 31, 1996, the Association had investment and mortgage-backed securities with
a carrying value of $15.4 million and a market value of $15.6 million. At May
31, 1996, the Association had $775,000 in mortgage-backed securities classified
as available for sale and $14.6 million in investment and mortgage-backed
securities classified as held to maturity. $6.5 million of the Association's
mortgage-backed securities had adjustable rates at May 31, 1996.
At May 31, 1996, all of the Association's mortgage-backed securities were
insured or guaranteed by either the GNMA or FHLMC. Investments in
mortgage-backed securities involve a risk that actual prepayments will be
greater than estimated prepayments over the life of the security which may
require adjustments to the amortization of any premium or accretion of any
discount relating to such instruments thereby reducing or increasing,
respectively, the net yield on such securities. There is also the risk
associated with the necessity to reinvest the cash flows from such securities at
market interest rates which may be lower than the interest rates received on
such securities. In addition, the market value of such securities may be
adversely affected by changes in interest rates.
59
<PAGE>
The following table sets forth certain information regarding the carrying
and fair values of the Association's investment securities and mortgage-backed
securities at the dates indicated:
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
-------------------------------------------------------------
AT MAY 31,
1996 1995 1994
--------------------------- ---------------------------- ---------------------
CARRYING FAIR CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE VALUE VALUE
--------- --------- ---------- -------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Securities:
Available for sale:
GNMA certificates . . . . . $ 775 $ 775 -- -- -- --
------ ------- ------- ------- ------- -------
Total available for sale . $ 775 $ 775 -- -- -- --
------ ------- ------- ------- ------- -------
Held to maturity:
FHLB debt securities . . . $ 500 $ 500 $ 500 $ 505 $ 500 $ 503
GNMA certificates. . . . . 13,917 14,040 17,133 17,529 17,404 16,803
FHLMC certificates . . . . 229 239 287 300 351 361
------ ------- ------- ------- ------- -------
Total held to
maturity . . . . . . .. . 14,646 14,779 17,920 18,334 18,255 17,667
------ ------- ------- ------- ------- -------
FHLB stock . . . . . . . . 764 764 726 726 570 570
------ ------- ------- ------- ------- -------
Total securities . . . . . $16,185 $16,318 $18,646 $19,060 $18,825 $18,237
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
<CAPTION>
AT SEPTEMBER 30,
------------------------
1993
-----------------------
CARRYING FAIR
VALUE VALUE
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Securities:
Available for sale:
GNMA certificates . . . . . -- --
-------- -------
Total available for sale . -- --
-------- -------
Held to maturity:
FHLB debt securities . . . $ 500 $ 488
GNMA certificates. . . . . 10,339 11,053
FHLMC certificates . . . . 536 551
------- -------
Total held to
maturity . . . . . . .. . 11,375 12,092
------- -------
FHLB stock . . . . . . . . 543 543
------- -------
Total securities . . . . . $11,918 $12,635
------- -------
------- -------
</TABLE>
60
<PAGE>
The table below sets forth certain information regarding the carrying
value, weighted average yields and contractual maturities of the Association's
investment securities and mortgage-backed securities as of May 31, 1996.
<TABLE>
<CAPTION>
AT MAY 31, 1996
-------------------------------------------------------------------------------------
MORE THAN ONE MORE THAN FIVE
ONE YEAR OR LESS YEAR TO FIVE YEARS YEARS TO TEN YEARS
----------------------- -------------------------- --------------------------
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>
Securities:
Held to maturity:
FHLB debt securities . . . . . . . . $ 500 4.65% -- -- -- --
---- ---- -----
Total debt securities .. . . . . . . $ 500 4.65% -- -- -- --
---- ---- -----
---- ---- -----
Mortgage-backed securities:
Available for sale:
GNMA . . . . . . . . . . . . . . . .
Total available for sale . . . . .
Held to maturity:
GNMA . . . . . . . . . . . . . . . . -- -- $ 7 8.00% $ 22 8.19%
FHLMC . . . . . . . . . . . . . . . -- -- -- -- 187 8.30
---- ---- -----
Total held to maturity . . . . . . . -- -- 7 8.00 209 8.29
---- ---- -----
Total mortgage-backed securities . -- -- $ 7 8.00% $ 209 8.29%
---- ----- -----
---- ----- -----
<CAPTION>
AT MAY 31, 1996
--------------------------------------------------------
MORE THAN TEN YEARS TOTAL
------------------------ -------------------------
WEIGHTED WEIGHTED
CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD
-------- ------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Securities:
Held to maturity:
FHLB debt securities . . . . . . . . -- -- $ 500 4.65%
------- -------
Total debt securities .. . . . . . . . -- -- $ 500 4.65
------- -------
------- -------
Mortgage-backed securities:
Available for sale:
GNMA . . . . . . . . . . . . . . . . . $ 775 6.46% $ 775 6.46%
------- -------
Total available for sale . . . . . . . 775 6.46 775 6.46
Held to maturity:
GNMA . . . . . . . . . . . . . . . . . 13,888 7.33% 13,917 7.33%
FHLMC . . . . . . . . . . . . . . . . 42 12.31 229 9.04
------- -------
Total held to maturity . . . . . . . . 13,930 7.35 14,146 7.36
Total mortgage-backed securities. . . $14,705 7.30% $14,921 7.31%
------- -------
------- -------
</TABLE>
61
<PAGE>
SOURCES OF FUNDS
GENERAL. Deposits, loan repayments and prepayments and cash flows
generated from operations are the primary sources of the Association's funds for
use in lending, investing and for other general purposes. The Association has
historically not used FHLB advances or other borrowings as a source of funds.
DEPOSITS. The Association offers a variety of deposit accounts with a
range of interest rates and terms. The Association's deposits consist of
savings and club accounts, NOW accounts, money market accounts and certificates
of deposit. For the eight months ended May 31, 1996, certificates of deposit
constituted 72.2% of total average deposits. The term of the certificates of
deposit offered by the Association vary from six months to five years and the
offering rates are established by the Association on a weekly basis. Once a
certificate account is established, no additional amounts are permitted to be
deposited in that account, with the exception of Individual Retirement Account
certificates. Specific terms of an individual account vary according to the
type of account, the minimum balance required, the time period funds must remain
on deposit and the interest rate, among other factors. The flow of deposits is
influenced significantly by general economic conditions, changes in money market
rates, prevailing interest rates and competition. At May 31, 1996, the
Association had $43.9 million of certificate accounts maturing in less than one
year. The Association's deposits are obtained predominantly from the area in
which its banking office is located. The Association relies primarily on a
willingness to pay market-competitive interest rates to attract and retain these
deposits. Accordingly, rates offered by competing financial institutions
significantly affect the Association's ability to attract and retain deposits.
See Note 7 to the Financial Statements for a discussion of the types of deposit
accounts offered by the Association.
The following table presents the deposit activity of the Association for
the periods indicated:
<TABLE>
<CAPTION>
FOR THE EIGHT MONTHS FOR THE YEAR ENDED SEPTEMBER 30,
------------------------ ------------------------------------
MAY 31, MAY 31,
1996 1995 1995 1994 1993
--------- ------------ --------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Beginning balance. . . . . . . . . . . . . . $76,664 $72,255 $72,255 $68,241 $59,973
Net deposits (withdrawals) . . . . . . . . . 217 1,573 809 1,057 5,210
Interest credited on deposit accounts. . . . 2,216 1,913 3,600 2,957 3,058
------- -------- ------- ------- -------
Ending balance. . . . . . . . . . . . . . . $79,097 $75,741 $76,664 $72,255 $68,241
------- -------- ------- ------- -------
------- -------- ------- ------- -------
</TABLE>
At May 31, 1996, the Association had approximately $4.1 million in
certificate accounts in amounts of $100,000 or more maturing as follows:
<TABLE>
<CAPTION>
WEIGHTED
MATURITY PERIOD AMOUNT AVERAGE RATE
-------------------------------------- -------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Three months or less. . . . . . . . . . $ 692 5.83%
Over three through six months . . . . . 1,010 6.40
Over six through 12 months . . . . . . 1,728 5.88
Over 12 months . . . . . . . . . . . . 629 5.50
---------
Total . . . . . . . . . . . . . . . . . $ 4,059 5.94%
---------
---------
</TABLE>
62
<PAGE>
The following table sets forth the distribution of the Association's
deposit accounts for the periods indicated.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
SEPTEMBER 30,
FOR THE EIGHT MONTHS ENDED ----------------------------
MAY 31, 1996 1995
----------------------------- ----------------------------
PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
--------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Savings and club accounts. . . . . . . . . . $ 8,792 11.11% $ 8,303 10.83%
Money market accounts. . . . . . . . . . . . 8,645 10.93 9,493 12.38
NOW accounts . . . . . . . . . . . . . . . . 4,502 5.69 4,718 6.15
Non-interest bearing accounts. . . . . . . . 36 0.05 185 0.24
------ ----- ------ ------
Total . . . . . . . . . . . . . . . . . . 21,975 27.78 22,699 29.60
Certificate accounts:
3.00% to 3.99%. . . . . . . . . . . . . 15 .02 14 .02
4.00% to 4.99%. . . . . . . . . . . . . 3,626 4.58 3,595 4.69
5.00% to 5.99%. . . . . . . . . . . . . 29,420 37.20 16,711 21.80
6.00% to 6.99%. . . . . . . . . . . . . 19,878 25.13 29,403 38.35
7.00% to 7.99%. . . . . . . . . . . . . 4,150 5.25 4,205 5.49
8.00% to 8.99%. . . . . . . . . . . . . 33 0.04 37 0.05
------ ----- ------ ------
Total certificate accounts. . . . . . 57,122 72.22 53,965 70.40
-------- ------- ------- ------
Total deposits. . . . . . . . . . . . . $79,097 100.00% $76,664 100.00%
-------- ------ ------- ------
-------- ------ ------- ------
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------
1994 1993
-------------------------------- -------------------------
PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
---------- --------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Savings and club accounts. . . . . . . . . . $ 8,832 12.22% $ 9,297 13.62%
Money market accounts. . . . . . . . . . . . 15,387 21.30 20,713 30.35
NOW accounts . . . . . . . . . . . . . . . . 4,148 5.74 3,773 5.53
Non-interest bearing accounts. . . . . . . . 39 0.06 38 0.06
------ ----- ------- ------
Total . . . . . . . . . . . . . . . . . . 28,406 39.32 33,821 49.56
Certificate accounts:
3.00% to 3.99%. . . . . . . . . . . . . 6,636 9.18 11,783 17.27
4.00% to 4.99%. . . . . . . . . . . . . 7,084 9.80 1,873 2.74
5.00% to 5.99%. . . . . . . . . . . . . 22,842 31.61 15,304 22.43
6.00% to 6.99%. . . . . . . . . . . . . 6,903 9.55 3,414 5.00
7.00% to 7.99%. . . . . . . . . . . . . 275 0.38 1,190 1.74
8.00% to 8.99%. . . . . . . . . . . . . 109 0.16 856 1.26
------- ------ ------- -----
Total certificate accounts. . . . . . 43,849 60.68 34,420 50.44
------- ------ ------- -----
Total deposits. . . . . . . . . . . . . $72,255 100.00% $68,241 100.00%
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
63
<PAGE>
The following table presents, by various rate categories, the amount of
certificate accounts outstanding at the dates indicated and the periods to
maturity of the certificate accounts outstanding at May 31, 1996.
<TABLE>
<CAPTION>
PERIOD TO MATURITY FROM MAY 31, 1996
---------------------------------------------------------------------------------------------------
LESS THAN ONE TO TWO TO THREE TO FOUR TO MORE THAN
ONE YEAR TWO YEARS THREE YEARS FOUR YEARS FIVE YEARS FIVE YEARS TOTAL
--------- --------- ----------- ---------- ----------- ----------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Certificate accounts:
0 to 3.99% . . . . . . . . $ 15 $ -- $ -- $ -- $ -- $ -- $ 15
4.00 to 4.99%. . . . . . . 3,626 -- -- -- -- -- 3,626
5.00 to 5.99%. . . . . . . 17,779 7,024 4,342 25 250 -- 29,420
6.00 to 6.99% . . . . . . 18,460 796 15 509 98 -- 19,878
7.00 to 7.99% . . .. . . . 4,029 64 52 5 -- -- 4,150
8.00 to 8.99% . . .. . . . -- -- -- -- -- 33 33
-------- ------ ------ ----- ---- --- -------
Total . . . . . . . . . . $43,909 $7,884 $4,409 $539 $348 $33 $57,122
-------- ------ ------ ----- ---- --- -------
-------- ------ ------ ----- ---- --- -------
<CAPTION>
AT SEPTEMBER 30,
------------------------------------
1995 1994 1993
----- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Certificate accounts:
0 to 3.99% . . . . . . . . $ 14 $ 6,636 $11,783
4.00 to 4.99%. . . . . . . 3,595 7,084 1,873
5.00 to 5.99%. . . . . . . 16,711 22,842 15,304
6.00 to 6.99% . . . . . . 29,403 6,903 3,414
7.00 to 7.99% . . .. . . . 4,205 275 1,190
8.00 to 8.99% . . .. . . . 37 109 856
------- ------- -------
Total . . . . . . . . . $53,965 $43,849 $34,420
------- ------- -------
------- ------- -------
</TABLE>
64
<PAGE>
SUBSIDIARY ACTIVITIES
The Association has one wholly-owned subsidiary, Delphos Service
Corporation, which currently does not conduct any activities.
PROPERTIES
The Association conducts its business through a single banking office
located at 114 East 3rd Street in Delphos, Ohio. The Company believes that
the current facilities are adequate to meet the present and immediately
foreseeable needs of the Association and the Company. The Association's
office was constructed in 1955 and was most recently remodelled in 1992. The
Association's office had a net book value of $601,000 at May 31, 1996.
LEGAL PROCEEDINGS
At May 31, 1996, the Association was not involved in any pending legal
proceedings. However, from time to time, the Association is involved in
legal proceedings occurring in the ordinary course of business.
PERSONNEL
As of May 31, 1996, the Association had 19 full-time employees and 4
part-time employees. The employees are not represented by a collective
bargaining unit and the Association considers its relationship with its
employees to be good. See "The Board of Directors and Management of the
Association - Benefits" for a description of certain compensation and benefit
programs offered to the Association's employees.
FEDERAL AND STATE TAXATION
FEDERAL TAXATION
GENERAL. The Company and the Association will report their income on a
calendar 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 Association'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 Association or the Company.
The statute of limitations has closed all years for Federal purposes through
the 1992 tax year and for Ohio purposes through the 1993 tax year.
BAD DEBT RESERVE. Historically, savings institutions such as the
Association which met certain definitional tests primarily related to their
assets and the nature of their business ("qualifying thrifts") were permitted
to establish a reserve for bad debts and to make annual additions thereto,
which may have been deducted in arriving at their taxable income. The
Association's deductions with respect to "qualifying real property loans,"
which are generally loans secured by certain interest in real property, were
computed using an amount based on the Association's actual loss experience,
or a percentage equal to 8% of the Association's taxable income, computed
with certain modifications and reduced by the amount of any permitted
addition to the non-qualifying reserve. Due to the Association's loss
experience, the Association generally recognized a bad debt deduction equal
to 8% of taxable income.
65
<PAGE>
In August, 1996, legislation repealing the current thrift bad debt rules
were passed by Congress. See "Risk Factors - Financial Institution
Regulation and Possible Legislation." The new rules eliminate the 8% of
taxable income method for deducting additions to the tax bad debt reserves
for all thrifts for tax years beginning after December 31, 1995. These rules
also require that all thrift institutions recapture all or a portion of their
bad debt reserves added since the base year (last taxable year beginning
before January 1, 1988). The Association has previously recorded a deferred
tax liability equal to the bad debt recapture and as such, the new rules will
have no effect on net income or federal income tax expense.
For tax years beginning after December 31, 1995, the Association is
permitted to maintain a tax reserve equal to the greater of the base year
reserve of the reserve calculated using the experience method available to
small (average assets less than $500 million) commercial banks as of the year
of the change. Any excess of the reserve as of the year of the change over
the allowable reserves must be recaptured into taxable income evenly over a
period of six years beginning in 1996 taxable year subject to the suspension
rule described below. As of December 31, 1995, the Association has an excess
amount subject to recapture equal to $634,000.
The experience method allows an institution to maintain a bad debt
reserve equal to the ratio of the net charge-offs for the last six years
divided by total loans for those years multiplied by the total loans
outstanding at the end of the current year. However, this method permits the
institution to maintain a minimum reserve balance equal to its reserve
balance at the end of its base year, adjusted for declines in the loan
portfolio for the base year. Although deductions are allowed for the
calculated addition to the bad debt reserve, net recoveries are not taken
into taxable income.
As a practical matter, converted institutions that are permitted to use
the experience method for deducting bad debts will be entitled to deduct net
charge-offs under the new method if their loss experience in prior years was
relatively low and a large base year reserve was accumulated under the
percentage of taxable income method previously used. This results from the
base year reserve being well in excess of the experience reserve and when net
charge-offs are applied to the base year reserve balance, a corresponding
deduction is permitted for the addition to restore the reserve to the base
year level. The Association anticipates that future bad debt deductions will
be equal to net charge-offs.
The new rules allow an institution to suspend the bad debt reserve
recapture for the 1996 and 1997 tax years if the institution's lending
activity for those years is equal to or greater than the institutions average
mortgage lending activity for the six taxable years preceding 1996 adjusted
for inflation. For this purpose, only home purchase and home improvement
loans are included and the institution can elect to have the tax years with
the highest and lowest lending activity removed from the average calculation.
If an institution is permitted to postpone the reserve recapture, it must
begin its six year recapture no later than the 1998 tax year. The
unrecaptured base year reserves will not be subject to recapture as long as
the institution continues to carry on the business of banking. In addition,
the balance of the pre-1988 bad debt reserves continue to be subject to
provision of present law referred to below that require recapture in the case
of certain excess distributions to shareholders.
DISTRIBUTIONS. To the extent that the Association makes "non-dividend
distributions" to the 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 Association's taxable income.
Non-dividend distributions include distributions in excess of the
Association'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 Association's current or accumulated
earnings and profits,
66
<PAGE>
as calculated for federal income tax purposes, will not be considered to
result in a distribution from the Association's bad debt reserve. Thus, any
dividends to the Company that would reduce amounts appropriated to the
Association's bad debt reserve and deducted for federal income tax purposes
would create a tax liability for the Association. The amount of additional
taxable income created from 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 Association makes a
"non-dividend distribution," then approximately one and one-half times the
amount so used would be includable in gross income for federal income tax
purposes, assuming a 34% corporate income tax rate (exclusive of state and
local taxes). See "Regulation" and "Dividend Policy" for limits on the
payment of dividends of the Association. The Association does not intend to
pay dividends that would result in a recapture of any portion of its bad debt
reserve.
CORPORATE ALTERNATIVE MINIMUM TAX. The Internal Revenue Code of 1986,
as amended (the "Code") imposes a tax on alternative minimum taxable income
("AMTI") at a rate of 20%. The excess of the 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. Only 90% of AMTI can be offset by
net operating loss carryovers of which the Association currently has none.
AMTI is increased by an amount equal to 75% of the amount by which the
Association's adjusted current earnings exceeds its AMTI (determined without
regard to the reduction for net operating losses). The Association does not
expect to be subject to the AMTI.
DIVIDENDS RECEIVED DEDUCTION AND OTHER MATTERS. The Company may exclude
from its income 100% of dividends received from the Association 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 Company and the Association will not
file a consolidated tax return, except that if the Company or the Association
own more than 20% of the stock of a corporation distributing a dividend then
80% of any dividends received may be deducted.
STATE AND LOCAL TAXATION
STATE OF OHIO. The Association is a "financial institution" for State
of Ohio tax purposes. As such, it is subject to the Ohio corporate franchise
tax on "financial institutions," which is imposed annually at a rate of 1.5%
of the Association's book net worth determined in accordance with GAAP. As a
"financial institution," the Association is not subject to any tax based upon
net income or net profits imposed by the State of Ohio.
The Company is subject to the Ohio corporation franchise tax, which, as
applied to the Company, is a tax measured by both net earnings and net worth.
The rate of tax is the greater of (i) 5.1% on the first $50,000 of computed
Ohio taxable income and 8.9% of computed Ohio taxable income in excess of
$50,000 or (ii) 0.582% times taxable net worth.
In computing its tax under the net worth method, the Company may exclude
100% of its investment in the capital stock and indebtedness of the
Association after the Conversion, as reflected on the balance sheet of the
Company, as long as it owns at least 25% of the issued and outstanding
capital stock of the Association. The calculation of the exclusion from net
worth is based on the ratio of the excludable investment (net of any
appreciation or goodwill included in such investment) to total assets
multiplied by the net value of the stock. As a holding company, the Company
may be entitled to various other deductions in computing taxable net worth
that are not generally available to operating companies.
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A special litter tax is also applicable to all corporations, including
the Company, subject to the Ohio corporation franchise tax other than
"financial institutions." If the franchise tax is paid on the net income
basis, the litter tax is equal to 0.11% of the first $50,000 of computed Ohio
taxable income and 0.22% of computed Ohio taxable income in excess of
$50,000. If the franchise tax is paid on the net worth basis, the litter tax
is equal to 0.014% times taxable net worth.
DELAWARE TAXATION. As a Delaware holding company not earning income in
Delaware, the 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.
REGULATION
GENERAL
The Association is subject to extensive regulation, examination and
supervision by the OTS, as its chartering agency, and the FDIC, as the
deposit insurer. The Association is a member of the FHLB System. The
Association's deposit accounts are insured up to applicable limits by the
SAIF managed by the FDIC. The Association 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 test the
Association's compliance with various regulatory requirements. This
regulation and supervision establishes a comprehensive framework of
activities in which an institution can engage and is intended primarily for
the protection of the insurance fund and depositors. 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 the Congress,
could have a material adverse impact on the Company, the Association and
their operations. Assuming that the holding company form of organization is
utilized, the 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 and of the Securities and Exchange Commission (the
"SEC") under the federal securities laws.
Any change in the regulatory structure or the applicable statutes or
regulations, whether by the OTS, the FDIC or the Congress, could have a
material impact on the Company, the Association, its operations or the
Association's Conversion. Congress currently has under consideration various
proposals to eliminate the federal thrift charter and abolish the OTS. The
outcome of such legislation is uncertain. Therefore, the Association is
unable to determine the extent to which legislation, if enacted, would affect
its business. See "Risk Factors - Financial Institution Regulation and
Possible Legislation."
Certain of the regulatory requirements applicable to the Association and
to the Company are referred to below or elsewhere herein. The description of
statutory provisions and regulations applicable to savings associations set
forth in this Prospectus do not purport to be complete descriptions of such
statutes and regulations and their effects on the Association and the Company
and is qualified in its entirety by reference to such statutes and
regulations.
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FEDERAL SAVINGS INSTITUTION REGULATION
BUSINESS ACTIVITIES. 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 ("FDI Act") and the
regulations issued by the agencies to implement these statutes. These laws
and regulations delineate the nature and extent of the activities in which
federal associations may engage. In particular, many types of lending
authority for federal associations, e.g., commercial, non-residential real
property loans and consumer loans, are limited to a specified percentage of
the institution's capital or assets.
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 Association'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. At May 31, 1996, the
Association's limit on loans-to-one borrower was $2.7 million. At May 31,
1996, the Association's largest aggregate amount of loans-to-one borrower
consisted of $1.5 million..
QTL TEST. The HOLA requires savings institutions to meet a QTL test.
Under the QTL test, a savings association is required to maintain at least
65% of its "portfolio assets" (total assets less: (i) specified liquid
assets up to 20% of total assets; (ii) intangibles, including goodwill; and
(iii) the value of property used to conduct business) in certain "qualified
thrift investments" (primarily residential mortgages and related investments,
including certain mortgage-backed and related securities) in at least 9
months out of each 12 month period. A savings association that fails the QTL
test must either convert to a bank charter or operate under certain
restrictions. As of May 31, 1996, the Association maintained 97.68% of its
portfolio assets in qualified thrift investments and, therefore, met the QTL
test. For a discussion of the impact of certain proposed legislation, "See
Risk Factors -- Financial Institution Regulation and Possible Legislation."
LIMITATION ON CAPITAL DISTRIBUTIONS. OTS regulations impose limitations
upon all capital distributions by a savings institution, such as cash
dividends, payments to repurchase or otherwise acquire its shares, payments
to shareholders of another institution in a cash-out merger and other
distributions charged against capital. The rule establishes three tiers of
institutions, which are based primarily on an institution's capital level.
An institution that exceeds all fully phased-in regulatory capital
requirements before and after a proposed capital distribution ("Tier 1 Bank")
and has not been advised by the OTS that it is in need of more than normal
supervision, could, after prior notice to, but without the approval of the
OTS, make capital distributions during a calendar year equal to the greater
of: (i) 100% of its net earnings to date during the calendar year plus the
amount that would reduce by one-half its "surplus capital ratio" (the excess
capital over its fully phased-in capital requirements) at the beginning of
the calendar year; or (ii) 75% of its net earnings for the previous four
quarters. Any additional capital distributions would require prior OTS
approval. In the event the Association's capital fell below its capital
requirements or the OTS notified it that it was in need of more than normal
supervision, the Association's ability to make capital distributions could be
restricted. In addition, the OTS could prohibit a proposed capital
distribution by any institution, which would otherwise be permitted by the
regulation, if the OTS determines that such distribution would constitute an
unsafe or unsound practice.
LIQUIDITY. The Association is required to maintain an average daily
balance of specified liquid assets equal to a monthly average of not less
than a specified percentage (currently 5%) of its net withdrawable deposit
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%) of the total of its net
withdrawable deposit accounts and borrowings payable in one year
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or less. Monetary penalties may be imposed for failure to meet these
liquidity requirements. The Association's average liquidity ratio for the
eight months ended May 31, 1996 was 6.72%, which exceeded the applicable
requirements. The Association has never been subject to monetary penalties
for failure to meet its liquidity requirements. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -
Asset/Liability Management" and "- Liquidity and Capital Reserves."
ASSESSMENTS. Savings institutions are required by regulation to pay
assessments to the OTS to fund the agency's operations. The general
assessment, paid on a semi-annual basis, is based upon the savings
institution's total assets, including consolidated subsidiaries, as reported
in the Association's latest quarterly Thrift Financial Report. The
assessments paid by the Association for the year ended September 30, 1995
totalled $28,000.
BRANCHING. OTS regulations permit federally chartered savings
associations to branch nationwide under certain conditions. Generally,
federal savings associations may establish interstate networks and
geographically diversify their loan portfolios and lines of business. The
OTS authority preempts any state law purporting to regulate branching by
federal savings associations. For a discussion of the impact of proposed
legislation, see "Risk Factors -Financial Institution Regulation and Possible
Legislation."
TRANSACTIONS WITH RELATED PARTIES. The Association's authority to
engage in transactions with related parties or "affiliates" (i.e., any
company that controls or is under common control with an institution,
including the Company and any non-savings institution subsidiaries that the
Company may establish) is limited by Sections 23A and 23B of the Federal
Reserve Act ("FRA"). Section 23A restricts the aggregate amount of covered
transactions with any individual affiliate to 10% of the capital and surplus
of the savings institution and also limits the aggregate amount of
transactions with all affiliates to 20% of the savings institution's capital
and surplus. Certain transactions with affiliates are required to be secured
by collateral in an amount and of a type described in Section 23A and the
purchase of low quality assets from affiliates is generally prohibited.
Section 23B generally requires that certain transactions with affiliates,
including loans and asset purchases, must be on terms and under
circumstances, including credit standards, that are substantially the same or
at least as favorable to the institution as those prevailing at the time for
comparable transactions with non-affiliated companies.
ENFORCEMENT. Under the FDI Act, the OTS has primary enforcement
responsibility over savings institutions and has the authority to bring
action against all "institution-affiliated parties," including stockholders,
and any attorneys, appraisers and accountants who knowingly or recklessly
participate in wrongful action likely to have an adverse effect on an insured
institution. Formal enforcement action may range from the issuance of a
capital directive or cease and desist order to removal of officers or
directors, receivership, conservatorship or termination of deposit insurance.
Civil penalties cover a wide range of violations and can amount to $25,000
per day, or $1 million per day in especially egregious cases. Under the FDI
Act, the FDIC has the authority to recommend to the Director of the OTS that
enforcement action be taken with respect to a particular savings institution.
If action is not taken by the Director, the FDIC has authority to take such
action under certain circumstances. Federal and state law also establishes
criminal penalties for certain violations.
CAPITAL REQUIREMENTS. The OTS capital regulations require savings
institutions to meet three capital standards: a 1.5% tangible capital
standard, a 3% leverage (core capital) ratio and an 8% risk based capital
standard. Core capital is defined as common stockholder's equity (including
retained earnings), certain non-cumulative perpetual preferred stock and
related surplus, minority interests in equity accounts of consolidated
subsidiaries less intangibles other than certain mortgage servicing rights
("MSRs") and credit card relationships. The OTS regulations require that, in
meeting the leverage ratio, tangible and risk-based capital standards
institutions generally must deduct investments in and loans to subsidiaries
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engaged in activities not permissible for a national bank. In addition, the
OTS prompt corrective action regulation provides that a savings institution
that has a leverage capital 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 "- Prompt
Corrective Regulatory Action."
The risk-based capital standard for savings institutions requires the
maintenance of total capital (which is defined as core capital and
supplementary capital) to risk-weighted assets of 8%. In determining the
amount of risk-weighted assets, all assets, including certain off-balance
sheet assets, are multiplied by a risk-weight of 0% to 100%, as assigned by
the OTS capital regulation based on the risks OTS believes are inherent in
the type of asset. The components of core capital are equivalent to those
discussed earlier under the 3% leverage standard. The components of
supplementary capital currently include cumulative preferred stock, long-term
perpetual preferred stock, mandatory convertible securities, subordinated
debt and intermediate preferred stock and, within specified limits, the
allowance for loan and lease losses. Overall, the amount of supplementary
capital included as part of total capital cannot exceed 100% of core capital.
The OTS has incorporated an interest rate risk component into its
regulatory capital rule. The final interest rate risk rule also adjusts the
risk-weighting for certain mortgage derivative securities. 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 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. The OTS has postponed the date that the component will
first be deducted from an institution's total capital to provide it with an
opportunity to review the interest rate risk proposals issued by the other
federal banking agencies.
At May 31, 1996, the Association met each of its capital requirements,
in each case on a fully phased-in basis. See "Regulatory Capital Compliance"
for a table which sets forth in terms of dollars and percentages the OTS
tangible, leverage and risk-based capital requirements, the Association's
historical amounts and percentages at May 31, 1996, and pro forma amounts and
percentages based upon the issuance of the shares within the Estimated Price
Range and assuming that a portion of the net proceeds are retained by the
Company.
PROMPT CORRECTIVE REGULATORY ACTION
Under the OTS prompt corrective action regulations, the OTS is required
to take certain supervisory actions against undercapitalized institutions,
the severity of which depends upon the institution's degree of
capitalization. Generally, a savings institution that has a total risk-based
capital of
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less than 8.0% or a leverage ratio or a Tier 1 capital ratio that is less
than 4.0% is considered to be undercapitalized. A savings institution that
has a total risk-based capital less than 6.0%, a Tier 1 risk-based capital
ratio of less than 3.0% or a leverage ratio that is less than 3.0% is
considered to be "significantly undercapitalized" and a savings institution
that has a tangible capital to assets ratio equal to or less than 2.0% is
deemed to be "critically undercapitalized." Subject to a narrow exception,
the banking regulator is required to appoint a receiver or conservator for an
institution that is critically undercapitalized. The regulation also
provides that a capital restoration plan must be filed with the OTS within 45
days of the date an association receives notice that it is
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." Compliance with the plan must be guaranteed by any parent
holding company. In addition, numerous mandatory supervisory actions may
become immediately applicable to the institution depending upon its category,
including, but not limited to, increased monitoring by regulators,
restrictions on growth, and capital distributions and limitations on
expansion. The OTS could also take any one of a number of discretionary
supervisory actions, including the issuance of a capital directive and the
replacement of senior executive officers and directors.
INSURANCE OF DEPOSIT ACCOUNTS
The FDIC has adopted a risk-based insurance assessment system. The FDIC
assigns an institution to one of three capital categories based on the
institution's financial information, as of the reporting period ending seven
months before the assessment period, consisting of (1) well capitalized, (2)
adequately capitalized or (3) undercapitalized, and one of three supervisory
subcategories within each capital group. The supervisory subgroup to which
an institution is assigned is based on a supervisory evaluation provided to
the FDIC by the institution's primary federal regulator and information which
the FDIC determines to be relevant to the institution's financial condition
and the risk posed to the deposit insurance funds. An institution's
assessment rate depends on the capital category and supervisory category to
which it is assigned. Assessment rates for SAIF member institutions
currently range from 23 basis points to 31 basis points. The FDIC is
authorized to raise the assessment rates in certain circumstances. The FDIC
has exercised this authority several times in the past and may raise
insurance premiums in the future. If such action is taken by the FDIC, it
could have an adverse effect on the earnings of the Association. The
Association's assessment rate for the years ended September 30, 1995, 1994
and 1993 was .23% of assessable deposits. See "Risk Factors -
Recapitalization of SAIF and Its Impact on SAIF Premiums."
Under the FDI Act, insurance of deposits may be terminated by the FDIC
upon a finding that the institution has engaged in unsafe or unsound
practices, is in an unsafe or unsound condition to continue operations or has
violated any applicable law, regulation, rule, order or condition imposed by
the FDIC or the OTS. The management of the Association does not know of any
practice, condition or violation that might lead to termination of deposit
insurance.
FEDERAL HOME LOAN BANK SYSTEM
The Association is a member of the FHLB System, which consists of 12
regional FHLBs. The FHLB provides a central credit facility primarily for
member institutions. The Association, as a member of the FHLB, is required
to acquire and hold shares of capital stock in the FHLB in an amount at least
equal to 1% of the aggregate principal amount of its unpaid residential
mortgage loans and similar obligations at the beginning of each year, or 1/20
of its advances (borrowings) from the FHLB, whichever is greater. The
Association was in compliance with this requirement with an investment in
FHLB stock at May 31, 1996. FHLB advances must be secured by specified types
of collateral and all long-term advances may only be obtained for the purpose
of providing funds for residential housing finance. At May 31, 1996, the
Association had no borrowings from the FHLB.
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The FHLBs are required to provide funds for the resolution of insolvent
thrifts and to contribute funds for affordable housing programs. These
requirements could reduce the amount of dividends that the FHLBs pay to their
members and could also result in the FHLBs imposing a higher rate of interest
on advances to their members. For the years ended September 30, 1995, 1994
and 1993, dividends from the FHLB to the Association amounted to
approximately $39,000, $27,000 and $23,000, respectively. If dividends were
reduced, the Association's net interest income would likely also be reduced.
Further, there can be no assurance that the impact of recent legislation on
the FHLBs will not also cause a decrease in the value of the FHLB stock held
by the Association.
FEDERAL RESERVE SYSTEM
The Federal Reserve Board regulations require savings institutions to
maintain non-interest-earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The Federal Reserve Board
regulations generally require that reserves be maintained against aggregate
transaction accounts as follows: for accounts aggregating $52.0 million or
less (subject to adjustment by the Federal Reserve Board) the reserve
requirement is 3%; and for accounts greater than $52.0 million, the reserve
requirement is $1.6 million plus 10% (subject to adjustment by the Federal
Reserve Board between 8% and 14%) against that portion of total transaction
accounts in excess of $52.0 million. The first $4.3 million of otherwise
reservable balances (subject to adjustments by the Federal Reserve Board) are
exempted from the reserve requirements. The Association is in compliance
with the foregoing requirements. Because required reserves must be maintained
in the form of either vault cash, a non-interest-bearing account at a Federal
Reserve Bank or a pass-through account as defined by the Federal Reserve
Board, the effect of this reserve requirement is to reduce the Association's
interest-earning assets. FHLB System members are also authorized to borrow
from the Federal Reserve "discount window," but Federal Reserve Board
regulations require institutions to exhaust all FHLB sources before borrowing
from a Federal Reserve Bank.
HOLDING COMPANY REGULATION
The Company, if utilized, will be a non-diversified unitary savings and
loan holding company within the meaning of the HOLA. As such, the Company
will be required to register with the OTS and will be subject to OTS
regulations, examinations, supervision and reporting requirements. In
addition, the OTS has enforcement authority over the Company and its
non-savings institution subsidiaries. Among other things, this authority
permits the OTS to restrict or prohibit activities that are determined to be
a serious risk to the subsidiary savings institution. The Association must
notify the OTS 30 days before declaring any dividend to the Company.
As a unitary savings and loan holding company, the Company generally
will not be restricted under existing laws as to the types of business
activities in which it may engage, provided that the Association continues to
be a QTL. See "- Federal Savings Institution Regulation - QTL Test" for a
discussion of the QTL requirements. Upon any non-supervisory acquisition by
the Company of another savings association, the Company would become a
multiple savings and loan holding company (if the acquired institution is
held as a separate subsidiary) and would be subject to extensive limitations
on the types of business activities in which it could engage. The HOLA
limits the activities of a multiple savings and loan holding company and its
non-insured institution subsidiaries primarily to activities permissible for
bank holding companies under Section 4(c)(8) of the BHC Act, subject to the
prior approval of the OTS, and to other activities authorized by OTS
regulation. Recently proposed legislation would treat all savings and loan
holding companies as bank holding companies and limit the activities of such
companies to those permissible for bank holding companies. See "Risk Factors
- - Financial Institution Regulation and Possible Legislation."
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The HOLA prohibits a savings and loan holding company, directly or
indirectly, or through one or more subsidiaries, from acquiring more than 5%
of the voting stock of another savings institution, or holding company
thereof, without prior written approval of the OTS; and from acquiring or
retaining, with certain exceptions, more than 5% of a non-subsidiary holding
company, or a non-subsidiary company engaged in activities other than those
permitted by the HOLA; or acquiring or retaining control of a depository
institution that is not insured by the FDIC. In evaluating applications by
holding companies to acquire savings institutions, the OTS must consider the
financial and managerial resources and future prospects of the company and
institution involved, the effect of the acquisition on the risk to the
insurance funds, the convenience and needs of the community and competitive
factors.
The OTS is prohibited from approving any acquisition that would result
in a multiple savings and loan holding company controlling savings
institutions in more than one state, except: (i) the approval of interstate
supervisory acquisitions by savings and loan holding companies, and (ii) the
acquisition of a savings institution in another state if the laws of the
state of the target savings institution specifically permit such
acquisitions. The states vary in the extent to which they permit interstate
savings and loan holding company acquisitions.
FEDERAL SECURITIES LAWS
The 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. Upon completion of the Conversion, the Company's Common
Stock will be registered with the SEC under the Exchange Act. The Company
will then be subject to the information, proxy solicitation, insider trading
restrictions and other requirements under the Exchange Act.
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 the Common Stock purchased by persons who are not affiliates of the
Company may be resold without registration. Shares purchased by an affiliate
of the Company will be subject to the resale restrictions of Rule 144 under
the Securities Act. If the Company meets the current public information
requirements of Rule 144 under the Securities Act, each affiliate of the
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 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 Company to permit
affiliates to have their shares registered for sale under the Securities Act
under certain circumstances.
THE BOARD OF DIRECTORS AND
MANAGEMENT OF THE COMPANY
The Board of Directors of the Company is divided into three classes,
each of which contains approximately one-third of the Board. The directors
shall be elected by the stockholders of the Company for staggered three year
terms, or until their successors are elected and qualified. One class of
directors, consisting of Ms. Nancy C. Rumschlag, has a term of office
expiring at the first annual meeting of stockholders; a second class,
consisting of Messrs. John F. Helmkamp and Joseph R. Reinemeyer, has a term
of office expiring at the second annual meeting of stockholders; and a third
class, consisting of Messrs. P. Douglas Harter and Robert L. Dillhoff, has a
term of office expiring at the third annual meeting
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of stockholders. Their names and biographical information are set forth
under "The Board of Directors and Management of the Association -Directors."
The following individuals are officers of the Company and hold the
offices set forth below opposite their names.
NAME POSITIONS HELD WITH COMPANY
------------------------ -----------------------------------------
Joseph R. Reinemeyer President and Chief Executive Officer
Nancy C. Rumschlag Vice President
Gary G. Ricker Corporate Secretary and Treasurer
The officers of the 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. Since the formation of the
Company, none of the executive officers, directors or other personnel has
received remuneration from the Company. Information concerning the principal
occupations, employment and compensation of the directors and officers of the
Company during the past five years is set forth under "The Board of Directors
and Management of the Association - Biographical Information."
THE BOARD OF DIRECTORS AND
MANAGEMENT OF THE ASSOCIATION
DIRECTORS
The following table sets forth certain information regarding the Board
of Directors of the Association.
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<TABLE>
<CAPTION>
POSITION(S) HELD WITH THE DIRECTOR TERM
NAME AGE(1) ASSOCIATION(2) SINCE EXPIRES
- ----------------------- -------- --------------------------------------------- ------------ ----------
<S> <C> <C> <C> <C>
Joseph R. Reinemeyer 47 Director, Chairman of the Board, President 1977 1998
and Chief Executive Officer
John F. Helmkamp 82 Director 1936 1998
Nancy C. Rumschlag 46 Director and Vice President 1987 1997
P. Douglas Harter 49 Director 1969 1999
Robert L. Dillhoff 49 Director 1991 1999
</TABLE>
- ------------------------
(1) As of May 31, 1996.
(2) All directors of the Association are also directors of the Company.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
The following table sets forth certain information regarding the executive
officer of the Association who is not also a director.
<TABLE>
<CAPTION>
NAME AGE(1) POSITION HELD WITH THE ASSOCIATION
----------------------- ------- -------------------------------------------
<S> <C> <C>
Gary G. Ricker 42 Secretary and Treasurer
</TABLE>
- -----------------
(1) As of May 31, 1996.
Each of the executive officers of the Association will retain his/her
office in the converted Association until the annual meeting of the Board of
Directors of the Association, held immediately after the first annual meeting
of stockholders subsequent to Conversion, and until their successors are
elected and qualified or until they are removed or replaced. Officers are
re-elected by the Board of Directors annually.
BIOGRAPHICAL INFORMATION
DIRECTORS
JOSEPH R. REINEMEYER is President, Chief Executive Officer and
Chairman of the Board. From 1982, through July, 1996, Mr. Reinemeyer served
as Executive Vice President and Managing Officer of the Association. Mr.
Reinemeyer was an employee of the Association from 1975 to 1982, during which
time he held various positions. Mr. Reinemeyer has been a Director of the
Association since 1977 and is a member of the Loan Committee.
JOHN F. HELMKAMP is a Director of the Association. Mr. Helmkamp
was elected to the Board of Directors in 1936 and served as President and
Chairman of the Board from 1976 through July, 1996. Mr. Helmkamp retired
from day-to-day management of the Association's affairs after Mr.
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Reinemeyer became Managing Officer in 1982. Mr. Helmkamp is a member of the
Loan Committee on a rotational basis.
NANCY C. RUMSCHLAG has served as a Director of the Association
since 1987 and has been Vice President of the Association since 1991. Ms.
Rumschlag serves as a member of the Loan Committee. Prior to joining the
Association, Ms. Rumschlag managed the H&R Block office located in Delphos,
Ohio.
P. DOUGLAS HARTER has served on the Board of Directors of the
Association since 1969. He is also a member of the Loan Committee on a
rotational basis. Mr. Harter is an associate of Harter and Son Funeral Home,
located in Delphos, Ohio.
ROBERT L. DILLHOFF was elected a Director of the Association in
1991 and serves on the Loan Committee on a rotational basis. Mr. Dillhoff
is District Highway Management Administrator for the Ohio Department of
Transportation.
EXECUTIVE OFFICER WHO IS NOT A DIRECTOR
GARY G. RICKER joined the Association in 1987 as
Secretary-Treasurer. Mr. Ricker also is a loan officer for the Association.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS OF THE ASSOCIATION AND COMPANY
The Board of Directors of the Association meets on a monthly basis and
may have additional special meetings from time to time. During the year
ended December 31, 1995, the Board of Directors met 14 times. Each director
attended all of the Board meetings held during this period.
The Board of Directors of the Association has established the
Association's three-member Loan Committee, which consists of Mr. Reinemeyer
and Ms. Rumschlag and, on a rotational basis, either Mr. Helmkamp, Mr. Harter
or Mr. Dillhoff. The purpose of this committee is to approve or reject loans,
review workout solutions of any problem loans and approve the classification
of assets and the establishment of adequate valuation allowances. This
Committee meets on a weekly basis.
Upon consummation of the Conversion, the Company intends to establish an
Audit Committee and a Compensation Committee. The Company has also
established a Pricing Committee consisting of the entire Board of Directors .
DIRECTORS' COMPENSATION
FEE ARRANGEMENTS. All outside Directors of the Association are
currently paid an annual retainer of $5,000 and receive a fee of $400 for
each regular monthly Board meeting held. Each director also receives a fee
of $400 for each Special Board meeting held. There were two Special Board
meetings for the year ended December 31, 1995. Outside Director members of
the Loan Committee receive a fee of $100 for each regular meeting attended.
From time to time, members of the Board will perform inspections of real
property for which the Board member receives a fee that ranges from $20 to
$30, depending upon the location of the inspected property. All of the
outside directors have received an annual bonus equal to the average bonus
paid to the officers and employees of the Association for that year as
calculated pursuant to the profit-sharing component of the Association's
401(k) Plan. The Board
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of Directors has determined that the outside directors will not receive such
a bonus in future years. See "Benefits - 401(k) Plan".
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EXECUTIVE COMPENSATION
CASH COMPENSATION. The following table sets forth the cash compensation
paid by the Association for services rendered in all capacities during the year
ended September 30, 1995, to the chief executive officer. No executive officer
of the Association received compensation in excess of $100,000 during the year
ended September 30, 1995.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
- ---------------------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------------------------- ----------------------- -------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL COMPENSATION AWARDS OPTIONS PAYOUTS COMPENSATION
POSITIONS YEAR SALARY($)(1) BONUS($) ($)(2) ($)(3) (#)(4) ($)(5) ($)(6)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Joseph R. Reinemeyer 1995 $52,569 $7,670 $8,029 -- -- -- $4,404
Executive Vice President (7)
(chief executive officer)
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
________________________
(1) Under Annual Compensation, the column titled "Salary" includes base salary
only.
(2) "Other Annual Compensation" includes meeting, valuation and inspection fees
received as a Director of the Association and remuneration for unused "sick
leave." For 1995, there were no (a) perquisites over the lesser of $50,000
or 10% of the individual's total salary and bonus for the year;
(b) payments of above-market preferential earnings on deferred
compensation; (c) payments of earnings with respect to long-term incentive
plans prior to settlement or maturation; (d) tax payment reimbursements; or
(e) preferential discounts on stock.
(3) Does not include awards pursuant to the Stock Programs, which may be
granted in conjunction with a meeting of stockholders of the Company, as
such awards were not earned, vested or granted in fiscal 1995. For a
discussion of the terms of the Stock Programs, see "- Benefits - Stock
Programs." For 1995, the Association had no restricted stock plans in
existence.
(4) Does not include options, which may be granted in conjunction with a
meeting of stockholders of the Company, as such options were not earned or
granted in 1995. For a discussion of the terms of the grants and vesting
of options, see "- Benefits - Stock Option Plans."
(5) For 1995, there were no long-term incentive plans in existence.
(6) Includes amounts contributed by the Association pursuant to the
Association's 401(k) Plan. See "Benefits - 401(k) Plan."
(7) Mr. Reinemeyer became President of the Association on August 1, 1996.
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EMPLOYMENT AGREEMENTS
Upon the Conversion, the Association and the Company intend to enter into
employment agreements with Mr. Reinemeyer, (the "Executive"). These agreements
are subject to the review and approval of the OTS and may be amended as a result
of such OTS review. These employment agreements are intended to ensure that the
Association and the Company will be able to maintain a stable and competent
management base after the Conversion. The continued success of the Association
and the Company depends to a significant degree on the skills and competence of
Mr. Reinemeyer.
The proposed employment agreements provide for a three-year term for Mr.
Reinemeyer. The Association employment agreements provide that, commencing on
the first anniversary date and continuing each anniversary date thereafter, the
Board of Directors may extend the agreement for an additional year so that the
remaining term shall be three years, unless written notice of non-renewal is
given by the Board of Directors after conducting a performance evaluation of the
Executive. The terms of the Company employment agreements shall be extended on
a daily basis unless written notice of non-renewal is given by the Board of the
Company. The agreements provide that the Executive's base salary will be
reviewed annually. The current base salary for Mr. Reinemeyer as President and
Chief Executive Officer of the Company and President and Chief Executive Officer
of the Association is $70,000. In addition to the base salary, the agreements
provide for, among other things, participation in stock benefits plans and other
fringe benefits applicable to executive personnel. The agreements provide for
termination by the Association or the Company for cause as defined in the
agreements at any time. In the event the Association or the Company chooses to
terminate the Executive's employment for reasons other than for cause, or in the
event of the Executive's resignation from the Association and the Company upon:
(i) failure to re-elect the Executive to his current offices; (ii) a material
change in the Executive's functions, duties or responsibilities; (iii) a
relocation of the Executive's principal place of employment by more than 25
miles; (iv) liquidation or dissolution of the Association or the Company; or
(v) a breach of the agreement by the Association or the Company, the Executive
or, in the event of death, his beneficiary would be entitled to receive an
amount equal to the remaining base salary payments due to the Executive and the
contributions that would have been made on the Executive's behalf to any
employee benefit plans of the Association or the Company during the remaining
term of the agreement. The Association and the Company would also continue and
pay for the Executive's life, health and disability coverage for the remaining
term of the Agreement. Upon any termination of the Executive, the Executive is
subject to a one year non-competition agreement.
Under the agreements, if voluntary or involuntary termination follows a
change in control of the Association or the Company, the Executive or, in the
event of the Executive's death, his beneficiary, would be entitled to a
severance payment equal to the greater of: (i) the payments due for the
remaining terms of the agreement; or (ii) three times the average of the five
preceding taxable years' annual compensation. The Association and the Company
would also continue the Executive's life, health, and disability coverage for
thirty-six months. Notwithstanding that both agreements provide for a severance
payment in the event of a change in control, the Executive would only be
entitled to receive a severance payment under one agreement.
Payments to the Executive under the Association's agreement will be
guaranteed by the Company in the event that payments or benefits are not paid by
the Association. Payment under the Company's agreement would be made by the
Company. All reasonable costs and legal fees paid or incurred by the Executive
pursuant to any dispute or question of interpretation relating to the Agreements
shall be paid by the Association or Company, respectively, if the Executive is
successful on the merits pursuant to a legal judgment, arbitration or
settlement. The employment agreements also provide that the Association and
Company shall indemnify the Executive to the fullest extent allowable under
federal and Delaware
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law, respectively. In the event of a change in control of the Association or
Company, the total amount of payments due under the Agreements, based solely
on the current salary of Mr. Reinemeyer and excluding any benefits under any
employee benefit plan which may be payable, would be approximately $210,000
in the aggregate.
INSURANCE PLANS
All full-time employees, after one month of employment with the
Association, are covered as a group for comprehensive hospitalization, including
major medical, long-term disability, accidental death and dismemberment
insurance and group term life insurance.
BENEFITS
401(k) PLAN. The Association maintains a tax-qualified salary reduction
plan under Section 401(k) of the Code (the "401(k) Plan"). The 401(k) Plan,
which was established in 1994, provides participants with retirement benefits
and may also provide benefits upon death, disability or termination of
employment with the Association. An employee who works at least 1,000 scheduled
hours per year is eligible to participate in the 401(k) Plan following the
completion of one year of service and attainment of age 21. A participant is
always 100% vested in his or her contributions. A participant must reach five
years of vesting service (total time employed) before attaining a vested
interest in the employer contribution. After five years of vesting service, the
employee is 100% vested in the employer contribution.
The funds included in the 401(k) Plan are administered by an independent
trustee. The 401(k) Plan currently provides participants with five investment
choices. The Association has amended the 401(k) Plan to offer stock in the
Company as an additional investment option. 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, for such purchase as if such participant had
elected to purchase Common Stock in the Conversion using funds not in the 401(k)
Plan. See "The Conversion - Limitations on Common Stock Purchases."
Participants may make salary reduction contributions to the 401(k) Plan up
to the lesser of 6% of annual base salary or the legally permissible limit
(currently $9,240). The Association matches 50% of the amount contributed by
the employee. All participants receive a quarterly detailed statement including
information regarding market value of the participant's investments and all
contributions made on his or her behalf. Any withdrawals prior to age 59 1/2
are subject to a 10% tax penalty. Participants may borrow against the vested
portion of their accounts. The Board of Directors may at any time discontinue
the Association's contributions to employee accounts. The 401(k) Plan has a
profit-sharing component in addition to the matched employee contribution. The
amount of the Association's annual profit sharing contribution is based on a
return on assets ("ROA") sliding scale ranging from 0.49 to 1.75. If the
Association's ROA is 0.49 or less, then no employer contribution is made to the
accounts of eligible employees. If the Association's ROA is 1.75 or greater,
then eligible employees receive a contribution equal to 25% of their base
salary. The amount of the Association's contribution will vary when
Association's ROA is between 0.50 and 1.74.
For the years ended September 30, 1995 and 1994, the Association made total
contributions of $31,000 and $26,000, respectively, to the 401(k) Plan. For the
year ended September 30, 1995, the Association contributed $4,404 to the 401(k)
Plan on behalf of Mr. Reinemeyer.
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST. The Association has established
for eligible employees an ESOP and related trust to become effective upon
Conversion. The trustee for the ESOP trust will be independent of the
Association and the Company. Full-time employees employed with the
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Association as of January 1, 1996 and full-time employees of the Company or
the Association employed after such date, who have attained the age of 21 and
have completed one (1) year of service with the Association (1,000 hours
within a twelve-month period) will become participants. The ESOP intends to
purchase 8% of the Common Stock issued in the Conversion. As part of the
Conversion and in order to fund the ESOP's purchase of the Common Stock to be
issued in the Conversion, the ESOP intends to borrow funds from the Company
equal to 100% of the aggregate purchase price of the Common Stock. The loan
will be repaid principally from the Company's or the Association's
contribution's to the ESOP over a period of 17 years and the collateral for
the loan will be the Common Stock purchased by the ESOP. Subject to receipt
of any necessary regulatory approvals or opinions, the Association may make
contributions to the ESOP for repayment of the loan since the participants
are all employees of the Association, or to reimburse the Company for
contributions made by it. Contributions to the ESOP will be discretionary;
however, the Company or the Association intend to make annual contributions
to the ESOP in an aggregate amount at least equal to the principal and
interest requirement on the debt. The interest rate for the loan is expected
to be 8.25%.
Shares purchased by the ESOP will initially be pledged as collateral for
the loan, and will be held in a suspense account until released for allocation
among participants as the loan is repaid. The pledged shares will be released
annually from the suspense account in an amount proportional to the repayment of
the ESOP loan for each plan year. The released shares will be allocated among
the accounts of participants on the basis of the participant's compensation for
the year of allocation. Participants generally become 100% vested in their ESOP
account after five years of credited service or if their service was terminated
due to death, retirement, permanent disability or a change in control. Prior to
the completion of five years of credited service, a participant who terminates
employment for reasons other than death, retirement, disability, or change in
control of the Association or Company will not receive any benefit. Forfeitures
will be reallocated among remaining participating employees, in the same
proportion as contributions. Benefits may be payable upon death, retirement,
early retirement, disability or separation from service.
In connection with the establishment of the ESOP, a Committee of the Board
of Directors was appointed to administer the ESOP (the "ESOP Committee"). An
unrelated corporate trustee for the ESOP will be appointed prior to the
Conversion and continuing thereafter. The ESOP Committee may instruct the
trustee regarding investment of funds contributed to the ESOP. The ESOP
trustee, subject to its fiduciary duty, must vote all allocated shares held in
the ESOP in accordance with the instructions of the participating employees.
Under the ESOP, unallocated shares will be voted in a manner calculated to most
accurately reflect the instructions it has received from participants regarding
the allocated stock provided that such vote is in accordance with the provisions
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
STOCK OPTION PLANS. Following the Conversion, the Board of Directors of
the Company intends to adopt stock-based benefit plans which would provide for
the granting of stock options to eligible officers, key employees and non-
employee directors of the Company and the Association. Stock options are
intended to be granted under either a separate stock option plan for officers
and employees (the "Incentive Option Plan") and a separate option plan for non-
employee directors (the "Directors' Option Plan") (collectively, the "Option
Plans") or under a single Master Stock-Based Benefit Plan which would
incorporate the benefits and features of the Incentive Option Plan and
Directors' Option Plan. At a meeting of stockholders of the Company following
the Conversion, which under applicable OTS regulations, may be held no earlier
than six months after the completion of the Conversion, the Board of Directors
intends to present the Option Plans or the Master Stock-Based Benefit Plan to
stockholders for approval and has reserved an amount equal to 10% of the shares
of Common Stock issued in the Conversion or 178,250 shares (based upon the
issuance of 1,782,500 shares), for issuance under the
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Option Plans or the Master Stock-Based Benefit Plan. OTS regulations provide
that no individual officer or employee of the Association may receive more
than 25% of the options granted under the Option Plans or Master Stock-Based
Benefit Plan and non-employee directors may not receive more than 5%
individually, or 30% in the aggregate of the options granted under the Option
Plans or the Master Stock-Based Benefit Plan.
The stock option benefits provided under the Incentive Option Plan or
Master Stock-Based Benefit Plan will be designed to attract and retain qualified
personnel in key positions, provide officers and key employees with a propriety
interest in the Company as an incentive to contribute to the success of the
Company and reward such employees for outstanding performance. All employees of
the Company and its subsidiaries will be eligible to participate in such plans.
The Incentive Option Plan or Master Stock-Based Benefit Plan will provide for
the grant of: (i) options to purchase the Company's Common Stock intended to
qualify as incentive stock options under Section 422 of the Code ("Incentive
Stock Options"); (ii) options that do not so qualify ("Non-Statutory Stock
Options"); and (iii) Limited Rights (discussed below) which will be exercisable
only upon a change in control of the Association or the Company. Unless sooner
terminated, the Incentive Option Plan or Master Stock-Based Benefit Plan will be
in effect for a period of ten years from the earlier of adoption by the Board of
Directors or approval by the Company's Stockholders. Subject to stockholder
approval, the Company intends to grant options with Limited Rights under the
Incentive Option Plan or Master Stock-Based Benefit Plan at an exercise price
equal to the fair market value of the underlying Common Stock on the date of
grant. Upon exercise of "Limited Rights" in the event of a change in control,
the employee will be entitled to receive a lump sum cash payment equal to the
difference between the exercise price of the related option and the fair market
value of the shares of common stock subject to the option on the date of
exercise of the right in lieu of purchasing the stock underlying the option. In
addition, the Company intends to provide a dividend equalization benefit which
will provide option holders a payment equal to the product of (i) the number of
shares upon which options are held, and (ii) the per share amounts of any
extraordinary dividends declared by the Board of Directors. It is anticipated
that all options granted to officers and employees contemporaneously with
stockholder approval of such plans will be intended to be Incentive Stock
Options to the extent permitted under Section 422 of the Code.
Under the Incentive Option Plan or Master Stock-Based Benefit Plan, it is
expected that the Compensation Committee of the Company's Board of Directors
will determine which officers and employees will be granted options and Limited
Rights, whether such options will be incentive or non-statutory stock options,
the number of shares subject to each option, the exercise price of each
non-statutory stock option, whether such options may be exercised by delivering
other shares of Common Stock and when such options become exercisable. It is
expected that the per share exercise price of an incentive stock option will be
required to be at least equal to the fair market value of a share of Common
Stock on the date the option is granted.
If the Incentive Option Plan or Master Stock-Based Benefit Plan is adopted
in the form described above, an employee will not be deemed to have received
taxable income upon grant or exercise of any Incentive Stock Option, provided
that such shares received through the exercise of such option are not disposed
of by the employee for at least one year after the date the stock is received in
connection with the option exercise and two years after the date of grant of the
option. No compensation deduction would be able to be taken by the Company as a
result of the grant or exercise of Incentive Stock Options, provided such shares
are not disposed of before the expiration of the period described above (a
"disqualifying disposition"). In the case of a Non-Statutory Stock Option and
in the case of a disqualifying disposition of an Incentive Stock Option, an
employee will be deemed to receive ordinary income upon exercise of the stock
option in an amount equal to the amount by which the exercise price is exceeded
by the fair market value of the Common Stock purchased by exercising the option
on the date
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of exercise. The amount of any ordinary income deemed to be received by an
optionee upon the exercise of a Non-Statutory Stock Option or due to a
disqualifying disposition of an Incentive Stock Option would be a deductible
expense for tax purposes for the Company. In the case of Limited Rights,
upon exercise or upon the payment of a dividend equalization benefit, the
option holder would have to include the amount paid to him or her upon
exercise in his gross income for federal income tax purposes in the year in
which the payment is made and the Company would be entitled to a deduction
for federal income tax purposes of the amount paid.
If the Incentive Option Plan or Master Stock-Based Benefit Plan is adopted
in the form described above, stock options would become vested and exercisable
in the manner specified by the Company, subject to applicable OTS regulations,
which require that options begin vesting no earlier than one year from the date
of shareholder approval of the Incentive Option Plan or Master Stock-Based
Benefit Plan and thereafter vest at a rate of no more than 20% per year.
Options granted in connection with the Incentive Option Plan or Master Stock-
Based Benefit Plan could be exercisable for three months following the date on
which the employee ceases to perform services for the Association or the
Company, except that in the event of death or disability, options accelerate and
become fully vested and may be exercisable for up to one year thereafter or such
longer period as determined by the Company. However, any Incentive Stock
Options exercised more than three months following the date the employee ceases
to perform services as an employee shall be treated as a Non-Statutory Stock
Option as described above. In the event of retirement, any unvested stock
options shall be terminated and remain unearned unless the optionee continues to
perform services on behalf of the Association, the Company or an affiliate, in
which case unvested options would continue to vest in accordance with their
original vesting schedule. If the Incentive Option Plan or Master Stock-Based
and Benefit Plan is adopted in the form described above, in the event of death,
disability or normal retirement, the Company, if requested by the optionee,
could elect, in exchange for vested options, to pay the optionee, or beneficiary
in the event of death, the amount by which the fair market value of the Common
Stock exceeds the exercise price of the options on the date of the employee's
termination of employment.
Under the Directors' Option Plan or Master Stock-Based Benefit Plan
contemplated, the exercise price per share of each option granted may be equal
to the fair market value of the shares of Common Stock on the date the option is
granted. All Options granted to outside directors under the Directors' Option
Plan would be Non-Statutory Stock Options and, pursuant to applicable OTS
regulations, would vest and become exercisable commencing one year after the
date of shareholder approval of the Directors Option Plan at the rate of 20% per
year, and would expire upon the earlier of ten years following the date of grant
or one year following the date the optionee ceases to be a director or
consulting director. In the event of the death or disability of a participant,
all previously granted options would immediately vest and become fully
exercisable.
Applicable OTS regulations currently do not permit accelerated vesting in
the event of a change in control of stock options granted under a plan adopted
within one year after conversion. If permitted by OTS regulations in effect at
the time a change in control occurs, the Incentive Option Plan and the Directors
Option Plan or Master Stock-Based Benefit Plan described above would provide for
accelerated vesting of previously granted options in the event of a change in
control of the Company or the Association. A change in control would be defined
in the contemplated Incentive Option Plan, Master Stock-Based Benefit Plan or
the Directors' Option Plan generally to occur when a person or group of persons
acting in concert acquires beneficial ownership of 20% or more of any class of
equity security of the Company or the Association or in the event of a tender or
exchange offer, merger or other form of business combination, sale of all or
substantially all of the assets of the Company or the Association or contested
election of directors which results in the replacement of a majority of the
Board of Directors by persons not nominated by the directors in office prior to
the contested election.
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STOCK PROGRAMS. Following the Conversion, the Company or the Association
intends to establish performance based Stock Programs as a method of providing
non-employee directors, officers and key employees of the Association and
Company with a proprietary interest in the Company in a manner designed to
encourage such persons to remain with the Association or the Company. The
benefits intended to be granted under the Stock Programs may be provided for
under either a separate plan for officers and employees and a separate plan for
outside directors or under the Master Stock-Based Benefit Plan which would
incorporate the benefits and features of such separate Stock Program plans and
the previously discussed Stock Option Plans. The Company intends to present the
Stock Programs or Master Stock-Based Benefit Plan for stockholder approval at a
meeting of stockholders, which pursuant to applicable OTS regulations, may be
held no earlier than six months after the completion of the Conversion.
Subject to stockholder approval, the Association or the Company expects to
contribute funds to the Stock Programs or Master Stock-Based Benefit Plan to
enable such plans to acquire, in the aggregate, an amount equal to 4% of the
shares of common Stock issued in the Conversion, or 71,300 shares (based upon
the issuance of 1,782,500 shares). These shares would be acquired through open
market purchases by a trustee for the plan or from authorized but unissued
shares. Although no specific award determinations have been made, the Company
anticipates that, if stockholder approval is obtained, it would provide awards
to its directors and employees to the extent permitted by applicable
regulations. OTS regulations provide that no individual employee may receive
more than 25% of the shares of any plan and non-employee directors may not
receive more than 5% of any plan individually or 30% in the aggregate for all
directors.
The Compensation Committee of the Association's Board of Directors would
administer the Stock Programs or Master Stock-Based Benefit Plan described
above. The Stock Programs or Master Stock-Based Benefit Plan are expected to be
self-administered for grants or allocations made to non-employee directors,
which would not be performance-based. Under the Stock Programs or Master Stock-
Based Benefit Plan, awards would be granted in the form of shares of Common
Stock held by such plans. Awards will be non-transferable and non-assignable.
Allocations and grants to officers and employees under the Stock Programs or
Master Stock-Based Benefit Plan may be made in the form of base grants and
allocations based on performance goals established by the Compensation
Committee. In establishing such goals, the Committee may utilize the annual
financial results of the Company and the Association, actual performance of the
Company and the Association as compared to targeted goals such as the ratio of
the Company and the Association's net worth to total assets, the Company's and
the Association's return on average assets, or such other performance standard
as determined by the Committee with the approval of the Board of Directors.
Performance allocations would be granted upon the achievement of performance
goals and base grants and performance allocations would vest in annual
installments established by the Committee. Pursuant to applicable OTS
regulations, base grants and allocations will commence vesting one year after
the date of shareholder approval of the plan and thereafter at the rate of 20%
per year.
In the event of death, grants would be 100% vested. In the event of
disability, grants would be 100% vested upon termination of employment of an
officer or employee, or upon termination of service as a director. In the event
of retirement, the participant continues to perform services on behalf of the
Association, the Company or an affiliate or, in the case of a retiring director,
continues to perform services, as a consulting director, unvested grants would
continue to vest in accordance with their original vesting schedule until the
recipient ceases to perform such services at which time any unvested grants
would lapse.
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Applicable OTS regulations currently do not permit accelerated vesting in
the event of a change in control of shares granted under the Stock Programs or
Master Stock-Based Benefit Plan described above. If permitted by OTS
regulations at the time a change in control occurs, the Stock Programs or Master
Stock-Based Benefit Plan would provide for accelerated vesting in the event of a
change in control of shares granted under the Stock Programs or Master Stock-
Based Benefit Plan. A change in control is expected to be defined in the Stock
Programs or Master Stock-Based Benefit Plan generally to occur when a person or
group of persons acting in concert acquires beneficial ownership of 20% or more
of a class of equity securities of the Company or the Association or in the
event of a tender or exchange offer, merger or other form of business
combination, sale of all or substantially all of the assets of the Company or
the Association or contested election of directors which results in the
replacement of a majority of the Board of Directors by persons not nominated by
the directors in office prior to the contested election.
When shares become vested in accordance with the Stock Programs or Master
Stock-Based Benefit Plan described above, the participants would recognize
income equal to the fair market value of the Common Stock at that time. The
amount of income recognized by the participants would be a deductible expense
for tax purposes for the Association and the Company. When shares become vested
and are actually distributed in accordance with the Stock Programs or Master
Stock-Based Benefit Plan, the participants would receive amounts equal to any
accrued dividends with respect thereto. Prior to vesting, recipients of grants
could direct the voting of the shares awarded to them. Shares not subject to
grants and shares allocated subject to the achievement of performance and high
performance goals will be voted by the trustee of the Stock Programs or Master
Stock-Based Benefit Plan in proportion to the directions provided with respect
to shares subject to grants. Vested shares are distributed to recipients as
soon as practicable following the day on which they are vested.
In the event that additional authorized but unissued shares are acquired by
the Stock Programs or Master Stock-Based Benefit Plan after the Conversion, the
interests of existing shareholders would be diluted. See "Pro Forma Data."
TRANSACTIONS WITH CERTAIN RELATED PERSONS
Applicable Federal law requires 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 the general public and must not involve more than
the normal risk of repayment or present other unfavorable features. In
addition, loans made to a director or executive officer in excess of the greater
of $25,000 or 5% of the Association'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.
The Association currently makes loans to executive officers and directors
on the same terms and conditions offered to the general public. The
Association's policy provides that all loans made by the Association to its
executive officers and directors be made in the ordinary course of business, on
substantially the same terms, including collateral, as those prevailing at the
time for comparable transactions with other persons and may not involve more
than the normal risk of collectibility or present other unfavorable features.
The Association makes loans to its other employees which are made on
substantially the same terms and conditions offered to the general public except
that employees are eligible to receive a one time 25 basis point discount on the
interest rate offered to the general public. All loans outstanding at May 31,
1996 to a director or executive officer of the Association were made by the
Association in the ordinary course of business, with no favorable terms and such
loans do not involve more than the normal risk of collectibility or present
other unfavorable features.
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The Company intends that all transactions in the future between the Company
and its executive officers, directors, holders of 10% or more of the shares of
any class of its common stock and affiliates thereof, will contain terms no less
favorable to the Company than could have been obtained by it in arm's-length
negotiations with unaffiliated persons and will be approved by a majority of
independent outside directors of the Company not having any interest in the
transaction.
SUBSCRIPTIONS BY EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the number of shares of Common Stock the
Association's executive officers and directors propose to purchase, assuming
shares of Common Stock are issued at the minimum and maximum of the Estimated
Price Range and that sufficient shares will be available to satisfy their
subscriptions. The table also sets forth the total expected beneficial
ownership of Common Stock as to all directors and executive officers as a group.
<TABLE>
<CAPTION>
AT THE MINIMUM AT THE MAXIMUM
OF THE ESTIMATED OF THE ESTIMATED
PRICE RANGE(1) PRICE RANGE(1)
------------------------- ------------------------
AS A PERCENT AS A PERCENT
NUMBER OF SHARES NUMBER OF SHARES
NAME AMOUNT(2) OF SHARES OFFERED OF SHARES OFFERED
- ------------------------------- --------- --------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C>
John F. Helmkamp $100,000 10,000 0.76% 10,000 0.56%
Joseph R. Reinemeyer 100,000 10,000 0.76 10,000 0.56
Nancy C. Rumschlag 150,000 15,000 1.14 15,000 0.84
P. Douglas Harter 200,000 20,000 1.52 20,000 1.12
Robert L. Dillhoff 110,000 11,000 0.83 11,000 0.62
Gary G. Ricker 40,000 4,000 0.30 4,000 0.22
-------- ------ ---- ------ ----
All Directors and Executive
Officers as a group
(6 persons). . . . . . . . . $700,000 70,000 5.31% 70,000 4.03%
-------- ------ ---- ------ ----
-------- ------ ---- ------ ----
</TABLE>
________________________
(1) Includes proposed subscriptions, if any, by associates. Also includes
funds from the Association's 401(k) plan which may be used to purchase
shares of Common Stock under such plan's new employer stock fund investment
option. See "- Benefits - 401(k) Plan." Does not include subscription
orders by the ESOP. Intended purchases by the ESOP are expected to be 8.0%
of the shares issued in the Conversion. See "- Directors' Compensation"
and "- Executive Compensation."
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THE CONVERSION
THE BOARD OF DIRECTORS OF THE ASSOCIATION AND THE OTS HAVE APPROVED THE
PLAN OF CONVERSION, SUBJECT TO APPROVAL BY THE MEMBERS OF THE ASSOCIATION
ENTITLED TO VOTE ON THE MATTER AND THE SATISFACTION OF CERTAIN OTHER CONDITIONS.
SUCH OTS APPROVAL, HOWEVER, DOES NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT
OF THE PLAN BY SUCH AGENCY.
GENERAL
On June 11, 1996, the Association's Board of Directors unanimously adopted,
subject to approval by the OTS, the Plan pursuant to which the Association will
be converted from a federally chartered mutual savings and loan association to a
federally chartered capital stock savings bank. It is currently intended that
all of the outstanding capital stock of the Association will be held by the
Company, which is incorporated under Delaware law. The Plan has been approved
by the OTS, subject to, among other things, approval of the Plan by the
Association's members. A special meeting of members has been called for this
purpose to be held on ________, 1996.
The Company filed an application with the OTS to become a savings and loan
holding company and to acquire all of the Common Stock of the Association to be
issued in the Conversion. The Company plans to use 50% of the net proceeds from
the sale of the Common Stock to purchase all of the then to be issued and
outstanding capital stock of the Association. The Conversion will be effected
only upon completion of the sale of all of the shares of Common Stock of the
Company to be issued pursuant to the Plan.
The Plan provides that the Board of Directors of the Association may, at
any time prior to the issuance of the Common Stock and for any reason, decide
not to use a holding company form. In the event such a decision is made, the
Association will withdraw the Company's registration statement from the SEC and
take steps necessary to complete the Conversion without the 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
Association determines not to complete the Conversion, if permitted by the OTS,
the Association will issue and sell the common stock of the Association and
subscribers will be notified of the elimination of a holding company and
resolicited (I.E., be permitted to affirm their orders, in which case they will
need to affirmatively reconfirm their subscriptions prior to the expiration of
the resolicitation offering or their funds will be promptly refunded with
interest at the Association's passbook rate of interest; or be permitted to
modify or rescind their subscriptions), and notified of the time period within
which the subscriber must affirmatively notify the Association of his intention
to affirm, modify or rescind his subscription. The following description of the
Plan assumes that a holding company form of organization will be used in the
Conversion. In the event that a holding company form of organization is not
used, all other pertinent terms of the Plan as described below will apply to the
conversion of the Association from the mutual to stock form of organization and
the sale of the Association's common stock.
The Plan provides generally that (i) the Association will convert from a
mutual savings and loan association to a capital stock savings bank and (ii) the
Company will offer shares of Common Stock for sale in the Subscription Offering
to the Association's Eligible Account Holders, the ESOP, Supplemental Eligible
Account Holders, and Other Members. Concurrently, shares will be offered in a
Community Offering to certain members of the general public, with preference
given to natural persons residing in postal zip code 45833, which generally
encompasses the City of Delphos in the State of Ohio, to whom
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a copy of the Prospectus and an order form have been delivered, subject to the
prior rights of holders of subscription rights. It is anticipated that all
shares not subscribed for in the Subscription and Community Offerings will be
offered for sale by the Company in the Syndicated Community Offering. The
Association has the right to accept or reject, in whole or in part, any orders
to purchase shares of the Common Stock received in the Community Offering or in
the Syndicated Community Offering. See "- Community Offering" and "- Syndicated
Community Offering."
The aggregate price of the shares of Common Stock to be issued in the
Conversion, currently estimated to be between $13.2 million and $17.8 million,
will be determined based upon an independent appraisal of the estimated
pro forma market value of the Common Stock of the Company given effect to the
Conversion. All shares of Common Stock to be issued and sold in the Conversion
will be sold at the same price. The independent appraisal will be affirmed or,
if necessary, updated at the completion of the Subscription and Community
Offerings, if all shares are subscribed for, or at the completion of the
Syndicated Community Offering. The appraisal has been performed by Keller &
Company, Inc., a consulting firm experienced in the valuation and appraisal of
savings institutions. See "- Stock Pricing" for additional information as to
the determination of the estimated pro forma market value of the Common Stock.
The following is a brief summary of pertinent aspects of the Conversion.
The summary is qualified in its entirety by reference to the provisions of the
Plan. A copy of the Plan is available for inspection at the Association's main
office and at the Central Region and Washington, D.C. offices of the OTS. The
Plan is also filed as an Exhibit to the Registration Statement of which this
Prospectus is a part, copies of which may be obtained from the SEC. See
"Additional Information."
PURPOSES OF CONVERSION
The Association, as a federally chartered mutual savings and loan
association, does not have shareholders and has no authority to issue capital
stock. By converting to the capital stock form of organization, the Association
will be structured in the form used by commercial banks, other business entities
and a growing number of savings institutions. The Conversion will enhance the
Association's ability to expand its current operations, acquire other financial
institutions or branch offices, provide affordable home financing opportunities
to the communities it serves, increase its equity capital base and access
capital markets, or diversify into other financial services to the extent
allowable by applicable law and regulation.
In particular, the increase in the Association's capital as a result of the
Conversion will enhance the ability of the Association to meet the needs of the
communities it serves by, among other things, permitting the Association to
increase its one- to four-family residential mortgage lending, subject to the
demand for such loans, competitive considerations and other relevant factors.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Management Strategy" and "Business of the Association - Market Area
and Competition." As discussed above, the net proceeds from the sale of the
Common Stock will also permit the Association to increase its presence in the
communities it serves through the acquisition or establishment of branch offices
or the acquisition of smaller financial institutions, although the Association
has no current understandings or agreements for the acquisition of any specific
financial institutions or the acquisition or establishment of any branch
offices.
The holding company form of organization will provide additional
flexibility to diversify the Association's business activities through existing
or newly formed subsidiaries, or through acquisitions of or mergers with both
mutual and stock institutions, as well as other companies. Although there are
no current arrangements, understandings or agreements regarding any such
opportunities, the Company will
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be in a position after the Conversion, subject to regulatory limitations and the
Company's financial position, to take advantage of any such opportunities that
may arise.
The potential impact of the Conversion upon the Association's capital base
is significant. The Association had GAAP capital of $11.4 million, or 12.4% of
assets at May 31, 1996. Assuming that $17.5 million (based on the maximum of
the estimated pro forma market value of the Common Stock) of gross proceeds are
realized from the sale of Common Stock (see "Pro Forma Data" for the basis of
this assumption) and assuming that 50% of the net proceeds are used by the
Company to purchase the capital stock of the Association, the Association's GAAP
capital would increase to $18.9 million or a ratio of GAAP capital to total
assets, on a pro forma basis, of 20.6% after the Conversion. The investment of
the net proceeds from the sale of the Common Stock will provide the Association
with additional income to further increase its capital position. The additional
capital may also assist the Association in offering new programs and expanded
services to its customers.
After completion of the Conversion, the unissued common and preferred stock
authorized by the Company's Certificate of Incorporation will permit the
Company, subject to market conditions and any required regulatory approvals of
an offering, to raise additional equity capital through further sales of
securities, and to issue securities in connection with possible acquisitions.
At the present time, the Company has no plans with respect to additional
offerings of securities, other than the issuance of additional shares upon
exercise of stock options under the Stock Option Plans or Master Stock-Based
Benefit Plan or the possible issuance of authorized but unissued shares to the
Stock Programs under the Stock Option Plans or Master Stock-Based Benefit Plan.
Following the Conversion, the Company will also be able to use stock-related
incentive programs to attract and retain executive and other personnel for
itself and its subsidiaries. See "The Board of Directors and Management of the
Association - Benefits."
EFFECTS OF CONVERSION
GENERAL. Each depositor in a mutual savings institution has both a deposit
account in the institution and a pro rata ownership interest in the net worth of
the institution based upon the balance in his account, which interest may only
be realized in the event of a liquidation of the institution. However, this
ownership interest is tied to the depositor's account and has no tangible market
value separate from such deposit account. Any depositor who opens a deposit
account obtains a pro rata ownership interest in the net worth of the
institution without any additional payment beyond the amount of the deposit. A
depositor who reduces or closes his account receives a portion or all of the
balance in the account but nothing for his ownership interest in the net worth
of the institution, which is lost to the extent that the balance in the account
is reduced. Consequently, mutual savings institution depositors normally have
no way to realize the value of their ownership interest, which has realizable
value only in the unlikely event that the mutual savings institution is
liquidated. In such event, the depositors of record at that time, as owners,
would share pro rata in any residual surplus and reserves after other claims,
including claims of depositors to the amounts of their deposits, are paid.
When a mutual savings institution converts to stock form, permanent
non-withdrawable capital stock is created to represent the ownership of the
institution's net worth. THE COMMON STOCK IS SEPARATE AND APART FROM DEPOSIT
ACCOUNTS AND CANNOT BE AND IS NOT INSURED OR GUARANTEED BY THE FDIC OR ANY OTHER
GOVERNMENTAL AGENCY. Certificates are issued to evidence ownership of the
capital stock. The stock certificates are transferable and, therefore, the
stock may be sold or traded if a purchaser is available with no effect on any
deposit account the seller may hold in the institution.
CONTINUITY. While the Conversion is being accomplished, the normal
business of the Association of accepting deposits and making loans will continue
without interruption. The Association will continue
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to be subject to regulation by the OTS and the FDIC. After the Conversion, the
Association will continue to provide services for depositors and borrowers under
current policies by its present management and staff.
The Directors serving the Association at the time of Conversion will serve
as Directors of the Association after the Conversion. The Directors of the
Company will consist of individuals currently serving on the Board of Directors
of the Association. All officers of the Association at the time of Conversion
will retain their positions after Conversion.
EFFECT ON DEPOSIT ACCOUNTS. Under the Plan, each depositor in the
Association at the time of Conversion will automatically continue as a depositor
after the Conversion, and each such deposit account will remain the same with
respect to deposit balance, interest rate and other terms. Each such account
will continue to be insured by the FDIC to the same extent as before the
Conversion (I.E., up to $100,000 per depositor). Depositors will continue to
hold their existing certificates, passbooks and other evidences of their
accounts.
EFFECT ON LOANS. No loan outstanding from the Association will be affected
by the Conversion, and the amount, interest rate, maturity and security for each
loan will remain as they were contractually fixed prior to the Conversion.
EFFECT ON VOTING RIGHTS OF MEMBERS. At present, all depositors and certain
borrowers of the Association are members of, and have voting rights in, the
Association as to all matters requiring membership action. Upon Conversion,
depositors and borrowers will cease to be members and will no longer be entitled
to vote at meetings of the Association. Upon Conversion, all voting rights in
the Association will be vested in the Company as the sole stockholder of the
Association. Exclusive voting rights with respect to the Company will be vested
in the holders of Common Stock. Depositors and borrowers of the Association
will not have voting rights after the Conversion except to the extent that they
become stockholders of the Company through the purchase of Common Stock.
TAX EFFECTS. The Association has received an opinion of counsel with
regard to federal income taxation and an opinion from Crowe, Chizek and Company
LLP ("Crowe, Chizek") with regard to Ohio taxation which indicate that the
adoption and implementation of the Plan of Conversion set forth herein will not
be taxable for federal or Ohio tax purposes to the Association, its Eligible
Account Holders, or its Supplemental Eligible Account Holders or the Company,
except as discussed below. See "- Tax Aspects."
EFFECT ON LIQUIDATION RIGHTS. If a mutual savings institution were to
liquidate, all claims of creditors (including those of depositors, to the extent
of deposit balances) would be paid first. Thereafter, if there were any assets
remaining, depositors would be entitled to such remaining assets, pro rata,
based upon the deposit balances in their deposit accounts immediately prior to
liquidation. In the unlikely event that the Association were to liquidate after
Conversion, all claims of creditors (including those of depositors, to the
extent of their deposit balances) would also be paid first, followed by
distribution of the "liquidation account" to certain depositors (see
"- Liquidation Rights"), with any assets remaining thereafter distributed to the
Company as the holder of the Association's capital stock. Pursuant to the rules
and regulations of the OTS, a post-Conversion merger, consolidation, sale of
bulk assets or similar combination or transaction with another insured savings
institution would not be considered a liquidation and, in such a transaction,
the liquidation account would be assumed by the surviving institution.
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STOCK PRICING
The Plan of Conversion requires that the purchase price of the Common Stock
must be based on the pro forma market value of the Common Stock giving effect to
the Conversion, as determined on the basis of an independent valuation. The
Association and the Company have retained Keller to make such valuation. For
its services in making such appraisal, Keller will receive a fee of $17,000,
including expenses. The Association and the Company have agreed to indemnify
Keller and its employees and affiliates against certain losses arising out of
its services as appraiser, except where Keller liability results from its
negligence or fault.
An appraisal has been made by Keller in reliance upon the information
contained in this Prospectus, including the Consolidated Financial Statements.
Keller also considered the following factors, among others: the present and
projected operating results and financial condition of the Company and the
Association and the economic and demographic conditions in the Association's
existing marketing area; certain historical, financial and other information
relating to the Association; a comparative evaluation of the operating and
financial statistics of the Association with those of other similarly situated
publicly-traded savings institutions; the aggregate size of the offering of the
Common Stock; the impact of Conversion on the Association's net worth and
earnings potential; the proposed dividend policy of the Company and the
Association; and the trading market for securities of comparable institutions
and general conditions in the market for such securities.
On the basis of the foregoing, Keller has advised the Company and the
Association that, in its opinion, dated August 9, 1996, the estimated pro forma
market value of the Common Stock ranged from a minimum of $13.2 million to a
maximum of $17.8 million with a midpoint of $15.5 million. Based upon the
Valuation Range, the Board of Directors has established the Estimated Price
Range of $13.2 million to $17.8 million, with a midpoint of $15.5 million, and
the Company expects to issue between 1,317,500 and 1,782,500 shares of Common
Stock at the Purchase Price of $10.00 per share. The Board of Directors of the
Company and the Association have reviewed the appraisal of Keller and in
determining the reasonableness and adequacy of such appraisal consistent with
OTS regulations and policies, have reviewed the methodology and reasonableness
of the assumptions utilized by Keller in the preparation of such appraisal.
SUCH VALUATION, HOWEVER, IS NOT INTENDED, AND MUST NOT BE CONSTRUED, AS A
RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF PURCHASING SUCH SHARES.
KELLER DID NOT INDEPENDENTLY VERIFY THE CONSOLIDATED FINANCIAL STATEMENTS AND
OTHER INFORMATION PROVIDED BY THE ASSOCIATION, NOR DID KELLER VALUE
INDEPENDENTLY THE ASSETS OR LIABILITIES OF THE ASSOCIATION. THE VALUATION
CONSIDERS THE ASSOCIATION AS A GOING CONCERN AND SHOULD NOT BE CONSIDERED AS AN
INDICATION OF THE LIQUIDATION VALUE OF THE ASSOCIATION. MOREOVER, BECAUSE SUCH
VALUATION IS NECESSARILY BASED UPON ESTIMATES AND PROJECTIONS OF A NUMBER OF
MATTERS, ALL OF WHICH ARE SUBJECT TO CHANGE FROM TIME TO TIME, NO ASSURANCE CAN
BE GIVEN THAT PERSONS PURCHASING SHARES IN THE CONVERSION WILL THEREAFTER BE
ABLE TO SELL SUCH SHARES AT PRICES AT OR ABOVE THE PURCHASE PRICE. SEE "RISK
FACTORS -- ABSENCE OF MARKET FOR COMMON STOCK"
Following commencement of the Subscription and Community Offerings, the
maximum of the Estimated Price Range may be increased up to 15% and the number
of shares of Common Stock to be issued in the Conversion may be increased to
2,049,875 shares due to regulatory considerations, changes in market conditions
or general financial and economic conditions, without the resolicitation of
subscribers. See "- Subscription Offering and Subscription Rights,"
"- Community Offering" and "- Limitations on Common Stock Purchases" as to the
method of distribution and allocation of additional shares that may
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be issued in the event of an increase in the Estimated Price Range to fill
unfilled orders in the Subscription and Community Offerings.
No sale of shares of Common Stock may be consummated unless, prior to such
consummation, Keller confirms to the Association and the OTS that, to the best
of its knowledge, nothing of a material nature has occurred which, taking into
account all relevant factors including those which would be involved in a change
in the maximum subscription price, would cause Keller to conclude that the value
of the Common Stock at the price so determined is incompatible with its estimate
of the pro forma market value of the Common Stock at the conclusion of the
Subscription and Community Offerings.
If, based on Keller's estimate, the pro forma market value of the Common
Stock as of such date is not more than 15% above the maximum and not less than
the minimum of the Estimated Price Range, then (1) with the approval of the OTS,
the number of shares of Common Stock to be issued in the Conversion may be
increased or decreased, pro rata to the increase or decrease in value, without
resolicitation of subscriptions, to no more than 2,049,875 shares or no less
than 1,317,500 shares; and (2) all shares purchased in the Subscription and
Community Offerings will be purchased for the Purchase Price of $10.00 per
share. If the number of shares issued in the Conversion is increased due to an
increase of up to 15% in the Estimated Price Range to reflect regulatory
considerations, changes in market conditions or general financial and economic
conditions, persons who subscribed for the maximum number of shares will not be
given the opportunity to subscribe for an adjusted maximum number of shares,
except for the ESOP which will be able to subscribe for such adjusted amount.
See "- Limitations on Common Stock Purchases."
If the pro forma market value of the Common Stock is either more than 15%
above the maximum of the Estimated Price Range or less than the minimum of the
Estimated Price Range, the Association and the Company, after consulting with
the OTS, may terminate the Plan and return all funds promptly with interest at
the Association's passbook rate of interest on payments made by cash, check,
bank draft or money order, cancel withdrawal authorizations, extend or hold a
new Subscription and Community Offering, establish a new Estimated Price Range,
commence a resolicitation of subscribers or take such other actions as permitted
by the OTS in order to complete the Conversion. In the event that a
resolicitation is commenced, unless an affirmative response is received within a
reasonable period of time, all funds will be promptly returned to investors as
described above. A resolicitation, if any, following the conclusion of the
Subscription and Community Offerings would not exceed 45 days unless further
extended by the OTS for periods of up to 90 days not to extend beyond ________,
1998.
If all shares of Common Stock are not sold through the Subscription and
Community Offerings, then the Association and the Company expect to offer the
remaining shares in a Syndicated Community Offering which would occur as soon as
practicable following the close of the Subscription and Community Offerings but
may commence during the Subscription and Community Offerings subject to prior
rights of subscribers. All shares of Common Stock will be sold at the same
price per share in the Syndicated Community Offering as in the Subscription and
Community Offerings. See "-Syndicated Community Offering."
No sale of shares of Common Stock may be consummated unless, prior to such
consummation, Keller confirms to the Association, the Company and the OTS that,
to the best of its knowledge, nothing of a material nature has occurred which,
taking into account all relevant factors, including those which would be
involved in a cancellation of the Syndicated Community Offering, would cause
Keller to conclude that the aggregate value of the Common Stock at the Purchase
Price is incompatible with its estimate of the pro forma market value of the
Common Stock of the Company at the time of the Syndicated Community Offering.
Any change which would result in an aggregate purchase price which
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is below or more than 15% above the Estimated Price Range would be subject to
OTS approval. If such confirmation is not received, the Association may extend
the Conversion, extend, reopen or commence new Subscription and Community
Offerings or Syndicated Community Offering, establish a new Estimated Price
Range and commence a resolicitation of all subscribers with the approval of the
OTS or take such other actions as permitted by the OTS in order to complete the
Conversion, or terminate the Plan and cancel the Subscription and Community
Offerings and/or the Syndicated Community Offering. In the event market or
financial conditions change so as to cause the aggregate purchase price of the
shares to be below the minimum of the Estimated Price Range or more than 15%
above the maximum of such range, and the Company and the Association determine
to continue the Conversion, subscribers will be resolicited (i.e., be permitted
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 Association's passbook rate of interest, or be permitted to decrease or
cancel their subscriptions). Any change in the Estimated Price Range must be
approved by the OTS. A resolicitation, if any, following the conclusion of the
Subscription and Community Offerings would not exceed 45 days, or if following
the Syndicated Community Offering, 90 days, unless further extended by the OTS
for periods up to 90 days not to extend beyond __________, 1998. If such
resolicitation is not effected, the Association will return all funds promptly
with interest at the Association's passbook rate of interest on payments made by
check, bank draft or money order.
Copies of the appraisal report of Keller, including any amendments thereto,
and the detailed memorandum of the appraiser setting forth the method and
assumptions for such appraisal are available for inspection at the main office
of the Association and the other locations specified under "Additional
Information."
NUMBER OF SHARES TO BE ISSUED
Depending upon market or financial conditions following the commencement of
the Subscription and Community Offerings, the total number of shares to be
issued in the Conversion may be increased or decreased without a resolicitation
of subscribers, provided that the product of the total number of shares times
the Purchase Price per share is not below the minimum or more than 15% above the
maximum of the Estimated Price Range, and the total number of shares to be
issued in the Conversion is not less than 1,317,500 or greater than 1,782,500
(or 2,049,875 if the Estimated Price Range is increased by 15%).
In the event market or financial conditions change so as to cause the
aggregate purchase price of the shares to be below the minimum of the Estimated
Price Range or more than 15% above the maximum of such range, if the Plan is not
terminated by the Company and the Association after consultation with the OTS,
purchasers will be resolicited (I.E., permitted 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, or be permitted to modify or rescind their
subscriptions). Any change in the Estimated Price Range must be approved by the
OTS. If the number of shares issued in the Conversion is increased due to an
increase of up to 15% in the Estimated Price Range to reflect changes in market
or financial condition, persons who subscribed for the maximum number of shares
will not be given the opportunity to subscribe for an adjusted maximum number of
shares, except for the ESOP which will be able to subscribe for such adjusted
amount. See "- Limitations on Common Stock Purchases."
An increase in the number of shares to be issued in the Conversion as a
result of an increase in the estimated pro forma market value would decrease
both a subscriber's ownership interest and pro forma net earnings and
stockholders' equity on a per share basis while increasing the Company's
pro forma net earnings and stockholders' equity on an aggregate basis. A
decrease in the number of
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shares to be issued in the Conversion would increase both a subscriber's
ownership interest and pro forma net earnings and stockholders' equity on a per
share basis while decreasing the Company's pro forma net earnings and
stockholder's equity on an aggregate basis. For a presentation of the effects
of such changes, see "Pro Forma Data."
SUBSCRIPTION OFFERING AND SUBSCRIPTION RIGHTS
In accordance with the Plan of Conversion, rights to subscribe for the
purchase of Common Stock have been granted under the Plan of Conversion to the
following persons in the following order of descending priority: (1) holders of
deposit accounts with a balance of $50 or more as of December 31, 1994
("Eligible Account Holders"); (2) the ESOP; (3) holders of deposit accounts with
a balance of $50 or more as of ______________ ("Supplemental Eligible Account
Holders"); and (4) members of the Association, consisting of depositors of the
Association as of __________, 1996, the Voting Record Date, and borrowers with
loans outstanding as of May 20, 1996 which continue to be outstanding as of the
Voting Record Date other than those members which qualify as Eligible Account
Holders and Supplemental Eligible Account Holders ("Other Members"). All
subscriptions received will be subject to the availability of Common Stock after
satisfaction of all subscriptions of all persons having prior rights in the
Subscription Offering and to the maximum and minimum purchase limitations set
forth in the Plan of Conversion and as described below under "- Limitations on
Common Stock Purchases."
PRIORITY 1: ELIGIBLE ACCOUNT HOLDERS. Each Eligible Account Holder will
receive, without payment therefor, first priority, non-transferable subscription
rights to subscribe in the Subscription Offering for up to the greater of the
amount permitted to be purchased in the Community Offering, currently 0.5%
(8,912 shares based on the issuance of 1,782,500 shares) of the Common Stock
offered, one-tenth of one percent (.10%) of the total offering of shares of
Common Stock or fifteen 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 the Eligible
Account Holder's qualifying deposit and the denominator is the total amount of
qualifying deposits of all Eligible Account Holders, in each case on the
Eligibility Record Date, subject to the overall maximum purchase limitation and
exclusive of an increase in the shares issued pursuant to an increase in the
Estimated Price Range of up to 15%. See "- Limitations on Common Stock
Purchases."
In the event that Eligible Account Holders exercise subscription rights for
a number of shares of Common Stock in excess of the total number of such shares
eligible for subscription, the shares of Common Stock shall be allocated among
the subscribing Eligible Account Holders so as to permit each subscribing
Eligible Account Holder, to the extent possible, to purchase a number of shares
sufficient to make his or her total allocation of Common Stock equal to the
lesser of 100 shares or the number of shares subscribed for by the Eligible
Account Holder. Any shares remaining after that allocation will be allocated
among the subscribing Eligible Account Holders whose subscriptions remain
unsatisfied in the proportion that the amount of the qualifying deposit of each
Eligible Account Holder whose subscription remains unsatisfied bears to the
total amount of the qualifying deposits of all Eligible Account Holders whose
subscriptions remain unsatisfied exclusive of any increase in the shares issued
pursuant to an increase in the Estimated Price Range of up to 15%. If the
amount so allocated exceeds the amount subscribed for by any one or more
remaining Eligible Account Holders, the excess shall be reallocated (one or more
times as necessary) among those remaining Eligible Account Holders whose
subscriptions are still not fully satisfied on the same principle until all
available shares have been allocated or all subscriptions satisfied.
To ensure proper allocation of stock, each Eligible Account Holder must
list on his subscription order form all accounts in which he has an ownership
interest. Failure to list an account could result in
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fewer shares being allocated than if all accounts had been disclosed. The
subscription rights of Eligible Account Holders who are also directors or
officers of the Association or their associates will be subordinated to the
subscription rights of other Eligible Account Holders to the extent attributable
to increased deposits in the year preceding December 31, 1994.
PRIORITY 2: EMPLOYEE STOCK OWNERSHIP PLAN. To the extent that there are
sufficient shares remaining after satisfaction of the subscriptions by Eligible
Account Holders, the ESOP will receive, without payment therefor, second
priority, non-transferable subscription rights to purchase, in the aggregate, up
to 10% of Common Stock issued in the Conversion, including any increase in the
number of shares of Common Stock to be issued in the Conversion after the date
hereof as a result of an increase of up to 15% in the maximum of the Estimated
Price Range and provided further that any such increase in the number of shares
to be issued in the Conversion will first be allocated to satisfy the ESOP's
subscription. See "- Limitations on Common Stock Purchases." The ESOP intends
to purchase 8.0% of the shares to be issued in the Conversion, or 105,000 shares
and 143,000 shares, based on the issuance of 1,317,500 shares and 1,782,500
shares, respectively. Subscriptions by the ESOP will not be aggregated with
shares of Common Stock purchased directly by or which are otherwise attributable
to any other participants in the Subscription and Community Offerings, including
subscriptions of any of the Association's directors, officers, employees or
associates thereof. See "The Board of Directors and Management of the
Association - Benefits - Employee Stock Ownership Plan and Trust."
PRIORITY 3: SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS. Each Supplemental
Eligible Account Holder will receive, without payment therefor, third priority,
non-transferable subscription rights to subscribe for in the Subscription
Offering up to the greater of the amount permitted to be purchased in the
Community Offering, currently 0.5% (8,912 shares based on the issuance of
1,782,500 shares) of the Common Stock offered, one-tenth of one percent (.10%)
of the total offering of shares of Common Stock or fifteen 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 the Supplemental Eligible Account Holder's qualifying deposit and
the denominator is the total amount of qualifying deposits of all Supplemental
Eligible Account Holders, in each case on the Supplemental Eligibility Record
Date, subject to the overall maximum purchase limitation and exclusive of an
increase in the shares issued pursuant to an increase in the Estimated Price
Range of up to 15%. See "- Limitations on Common Stock Purchases."
In the event that Supplemental Eligible Account Holders exercise
subscription rights for a number of shares of Common Stock in excess of the
total number of such shares eligible for subscription, the shares of Common
Stock shall be allocated among the subscribing Supplemental Eligible Account
Holders so as to permit each subscribing Supplemental Eligible Account Holder,
to the extent possible, to purchase a number of shares sufficient to make his or
her total allocation of Common Stock equal to the lesser of 100 shares or the
number of shares subscribed for by the Supplemental Eligible Account Holder.
Any shares remaining after that allocation will be allocated among the
subscribing Supplemental Eligible Account Holders whose subscriptions remain
unsatisfied in the proportion that the amount of the qualifying deposit of each
Supplemental Eligible Account Holder whose subscription remains unsatisfied
bears to the total amount of the qualifying deposits of all Supplemental
Eligible Account Holders whose subscriptions remain unsatisfied exclusive of any
increase in the shares issued pursuant to an increase in the Estimated Price
Range of up to 15%. If the amount so allocated exceeds the amount subscribed
for by any one or more remaining Supplemental Eligible Account Holders, the
excess shall be reallocated (one or more times as necessary) among those
remaining Supplemental Eligible Account Holders whose subscriptions are still
not satisfied on the same principle until all available shares have been
allocated or all subscriptions satisfied.
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To ensure proper allocation of stock, each Supplemental Eligible Account
Holder must list on his subscription order form all accounts in which he has an
ownership interest. Failure to list an account could result in less shares
being allocated than if all accounts had been disclosed. The subscription
rights received by Eligible Account Holders will be applied in partial
satisfaction to the subscription rights to be received as a Supplemental
Eligible Account Holder.
PRIORITY 4: OTHER MEMBERS. To the extent that there are sufficient shares
remaining after satisfaction of subscriptions by the Eligible Account Holders,
the ESOP and the Supplemental Eligible Account Holders, each Other Member will
receive, without payment therefor, fourth priority non-transferable subscription
rights to subscribe for Common Stock in the Subscription Offering up to the
greater of the amount permitted to be purchased in the Community Offering,
currently 0.5% (8,912 shares based on the issuance of 1,782,500 shares) of the
Common Stock offered, or one-tenth of one percent (.10%) of the total offering
of shares of Common Stock, subject to the overall maximum purchase limitation
and exclusive of an increase in shares issued pursuant to an increase in the
Estimated Price Range of up to 15%.
In the event that Other Members exercise subscription rights for a number
of shares of Common Stock which, when added to the shares of Common Stock
subscribed for by the Eligible Account Holders, the ESOP and the Supplemental
Eligible Account Holders is in excess of the total number of such shares being
issued, the subscriptions of such Other Members will be allocated among the
subscribing Other Members so as to permit each subscribing Other Member, to the
extent possible, to purchase a number of shares sufficient to make his or her
total allocation of Common Stock equal to the lesser of 100 shares or the number
of shares subscribed for by the Other Member. Any shares remaining after that
allocation will be allocated among the subscribing Other Members whose
subscriptions remain unsatisfied pro rata in the same proportion that the number
of votes of a subscribing Other Member on the Voting Record Date bears to the
total votes on the Voting Record Date of all subscribing Other Members whose
subscriptions remain unsatisfied. If the amount so allocated exceeds the amount
subscribed for by any one or more remaining Other Members, the excess shall be
reallocated (one or more times as necessary) among those remaining Other Members
whose subscriptions are still not fully satisfied on the same principle until
all available shares have been allocated or all subscriptions satisfied.
EXPIRATION DATE FOR THE SUBSCRIPTION OFFERING. The Subscription Offering
will expire on ________, 1996, unless extended for up to 45 days by the
Association or such additional periods with the approval of the OTS.
Subscription rights which have not been exercised prior to the Expiration Date
will become void.
The Association will not execute orders until all shares of Common Stock
have been subscribed for or otherwise sold. If all shares have not been
subscribed for or sold within 45 days after the Expiration Date, unless such
period is extended with the consent of the OTS, all funds delivered to the
Association pursuant to the Subscription Offering will be returned promptly to
the subscribers with interest and all withdrawal authorizations will be
cancelled. If an extension beyond the 45-day period following the Expiration
Date is granted, the Association will resolicit subscribers by notifying
subscribers of the extension of time and of any rights of subscribers to modify
or rescind their subscriptions and, unless an affirmative response is received,
have their funds returned promptly with interest. Such extensions may not go
beyond ________, 1998.
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COMMUNITY OFFERING
Concurrent with the Subscription Offering, to the extent that shares remain
available for purchase after satisfaction of all subscriptions of the Eligible
Account Holders, the ESOP, the Supplemental Eligible Account Holders and Other
Members, the Association has determined to offer shares pursuant to the Plan to
certain members of the general public. Any such shares available will be
available for purchase by the general public, with preference given to natural
persons (such natural persons referred to as "Preferred Subscribers") residing
in postal zip code 45833, which generally encompasses the city of Delphos in the
State of Ohio to whom a Prospectus and order form have been delivered, subject
to the right of the Company to accept or reject any such orders, in whole or in
part, in their sole discretion. Such persons, together with associates of and
persons acting in concert with such persons, may purchase up to 0.5% (8,912
shares based on the issuance of 1,782,500 shares) of the Common Stock offered,
subject to the maximum purchase limitation and exclusive of shares issued
pursuant to an increase in the Estimated Price Range by up to 15%. See
"- Limitations on Common Stock Purchases." This amount may be increased to up
to a maximum of 5% or decreased to less than 0.5% at the sole discretion of the
Company and the Association. THE OPPORTUNITY TO SUBSCRIBE FOR SHARES OF COMMON
STOCK IN THE COMMUNITY OFFERING CATEGORY IS SUBJECT TO THE RIGHT OF THE
ASSOCIATION AND THE COMPANY, IN ITS SOLE DISCRETION, TO ACCEPT OR REJECT ANY
SUCH ORDERS IN WHOLE OR IN PART EITHER AT THE TIME OF RECEIPT OF AN ORDER OR AS
SOON AS PRACTICABLE FOLLOWING THE EXPIRATION DATE.
Subject to the foregoing, if the amount of stock remaining is insufficient
to fill the orders of Preferred Subscribers after completion of the Subscription
and Community Offerings, such stock will be allocated first to each Preferred
Subscriber whose order is accepted by the Association, in an amount equal to the
lesser of 100 shares or the number of shares subscribed for by each such
Preferred Subscriber, if possible. Thereafter, unallocated shares will be
allocated among the Preferred Subscribers whose orders remain unsatisfied on a
100 shares per order basis until all such orders have been filled or the
remaining shares have been allocated. If there are any shares remaining, shares
will be allocated to other persons of the general public who purchase in the
Community Offering applying the same allocation described above for Preferred
Subscribers.
PERSONS IN NON-QUALIFIED STATES OR FOREIGN COUNTRIES. The Company and the
Association 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 Association and the Company 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, or (ii) the Company or the Association determines that
compliance with the securities laws of such state would be impracticable for
reasons of cost or otherwise, including but not limited to a request that the
Company and the Association or their officers, directors or trustees register as
a broker, dealer, salesman or selling agent, under the securities laws of such
state, or a request to register or otherwise qualify the subscription rights or
Common Stock for sale or submit any filing with respect thereto in such state.
Where the number of persons eligible to subscribe for shares in one state is
small, the Association and the Company 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, the cost of
registering or qualifying the shares or the need to register the Company, its
officers, directors or employees as brokers, dealers or salesmen.
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MARKETING AND UNDERWRITING ARRANGEMENTS
The Association and the Company have engaged Webb as a financial and
marketing advisor to advise the Company and the Association with respect to the
Subscription and Community Offerings. Webb is a registered broker-dealer and is
a member of the National Association of Securities Dealers, Inc. ("NASD"). Webb
will assist the Company and the Association in the Conversion by, among other
things: (i) developing marketing materials; (ii) targeting potential investors
in the Subscription Offering and other investors eligible to participate in the
Community Offering; (iii) soliciting potential investors by phone or in person;
(iv) training management and staff to perform tasks in connection with the
Conversion; (v) managing and setting up the Conversion Center; (vi) managing the
subscription campaign; and (vii) the solicitation of proxies.
The Association will pay Webb a management advisory and proxy solicitation
fee equal to 1.5% of the dollar value of all stock sold in the Subscription and
Community Offerings. Such amount is exclusive of any shares issued pursuant to
an increase in the Estimated Price Range of up to 15%, and shares sold to the
ESOP, directors, officers and employees and members of their immediate
families. Such fees will be paid upon completion of the Conversion. Webb
shall not be reimbursed for its expenses, including its legal fees. Webb has
not prepared any report or opinion constituting a recommendation or advice to
the Company or the Association or to persons who subscribe in the Offerings,
nor has it prepared an opinion as to the fairness to the Company or the
Association of the Purchase Price or the terms of the Offerings. Webb
expresses no opinion as to the prices at which Common Stock to be issued in
the Offerings may trade. The Association has agreed to indemnify Webb
against certain liabilities including certain liabilities under the
Securities Act and certain misrepresentations or breaches by the Company or
the Association relating to the agreement with Webb.
In the event any shares of Common Stock are unsold after completion of the
Subscription and Community Offerings, at the request of the Company and the
Association, Webb, will seek to form a syndicate of registered broker-dealers to
assist in the sale of such Common Stock on a best efforts basis, subject to the
terms and conditions set forth in the selected dealers agreement. Webb will
endeavor to distribute the Common Stock among dealers in a fashion which best
meets the distribution objectives of the Association and the Plan of Conversion.
Webb will be paid a fee not to exceed 5.5% of the aggregate Purchase Price of
the shares of Common Stock sold by them. Webb will pass onto selected broker-
dealers, who in the Syndicated Community Offering, an amount competitive with
gross underwriting discounts charged at such time for comparable amounts to
stock sold at a comparable price per share in a similar market environment.
Fees with respect to purchases affected with the assistance of a broker/dealer
other than Webb shall be transmitted by Webb to such broker/dealer. Total
marketing fees to Webb are expected to be $172,065 and $236,235 at the minimum
and maximum of the Estimated Price Range, respectively. See "Pro Forma Data"
for the assumptions used to arrive at these estimates.
Crowe, Chizek will perform conversion and records management services for
the Association in the Conversion and will receive a fee for this service of
$8,000, plus reimbursement of reasonable out-of-pocket expenses not to exceed
$1,000.
Directors and executive officers of the Company and Association may
participate in the solicitation of offers to purchase Common Stock. Other
employees of the Association may participate in the Offering in ministerial
capacities or providing clerical work in effecting a sales transaction. Other
questions of prospective purchasers will be directed to executive officers or
registered representatives. Such other employees have been instructed not to
solicit offers to purchase Common Stock or provide advice regarding the purchase
of Common Stock. The Company will rely on Rule 3a4-1 under the Exchange Act,
and sales of Common Stock will be conducted within the requirements of Rule
3a4-1, so as to permit
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officers, directors and employees to participate in the sale of Common Stock.
No officer, director or employee of the Company or the Association will be
compensated in connection with his participation by the payment of commissions
or other remuneration based either directly or indirectly on the transactions in
the Common Stock.
PROCEDURE FOR PURCHASING SHARES IN SUBSCRIPTION AND COMMUNITY OFFERINGS
To ensure that each purchaser receives a prospectus at least 48 hours
before the Expiration Date in accordance with Rule 15c2-8 of 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 stock
order form and acknowledgement form will confirm receipt or delivery in
accordance with Rule 15c2-8. Stock order forms and acknowledgement forms will
only be distributed with a Prospectus.
To purchase shares in the Subscription and Community Offerings, an executed
stock order form and acknowledgement form with the required payment for each
share subscribed for or appropriate authorization for withdrawal from a deposit
account maintained at the Association (which may be given by completing the
appropriate blanks in the stock order form), must be received by the Association
at any of its offices by ______, Eastern Time, on the Expiration Date. Stock
order forms which are not received by such time or are executed defectively or
are received without full payment (or appropriate withdrawal instructions) are
not required to be accepted. In addition, the Association is not obligated to
accept orders submitted on photocopied or facsimilied stock order forms and will
not accept stock order forms unaccompanied by an executed acknowledgement form.
The Company and the Association have the right to waive or permit the correction
of incomplete or improperly executed forms, but do not represent that they will
do so. Once received, an executed stock order form may not be modified, amended
or rescinded without the consent of the Association unless the Conversion has
not been completed within 45 days after the end of the Subscription and
Community Offerings, 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 (_________________) and/or
the Voting Record Date (__________, 1996) must list all accounts on the stock
order form giving all names in each account, the account number and the
approximate deposit balance as of the record date.
Payment for subscriptions may be made: (i) in cash if delivered in person
at any branch office of the Association; (ii) by check, bank draft or money
order; or (iii) by authorization of withdrawal from deposit accounts maintained
with the Association. No wire transfers will be accepted. Interest will be
paid on payments made by cash, check, bank draft or money order at the
Association's passbook rate of interest 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. Such funds
will be otherwise unavailable to the depositor until completion or termination
of the Conversion.
If a subscriber authorizes the Association to withdraw the amount of the
purchase price from his deposit account, the Association will do so as of the
effective date of the Conversion. The Association 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 cancelled at the time of the withdrawal,
without penalty, and the remaining balance will earn interest at the
Association's passbook rate.
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The ESOP and other employee plans 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.
Owners of self-directed Individual Retirement Accounts ("IRAs") may use the
assets of such IRAs to purchase shares of Common Stock in the Subscription and
Community Offerings, provided that such IRAs are not maintained at the
Association. Persons with self-directed IRAs maintained at the Association must
have their accounts transferred to an unaffiliated institution or broker to
purchase shares of Common Stock in the Subscription and Community Offerings. In
addition, the provisions of ERISA and IRS regulations require that officers,
directors and ten percent shareholders who use self-directed IRA funds to
purchase shares of Common Stock in the Subscription and Community Offerings make
such purchases for the exclusive benefit of the IRAs.
Certificates representing shares of Common Stock purchased will be mailed
to purchasers at the last address of such persons appearing on the records of
the Association, or to such other address as may be specified in properly
completed stock order forms, 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.
RESTRICTIONS ON TRANSFER OF SUBSCRIPTION RIGHTS AND SHARES
Prior to the completion of the Conversion, the OTS conversion regulations
prohibit any person with subscription rights, including the Eligible Account
Holders, the ESOP, the Supplemental Eligible Account Holders and Other Members
of the Association, from transferring or entering into any agreement or
understanding to transfer the legal or beneficial ownership of the subscription
rights issued under the Plan or the shares of Common Stock to be issued upon
their exercise. Such rights may be exercised only by the person to whom they
are granted and only for his account. Each person exercising such subscription
rights will be required to certify that he is purchasing shares solely for his
own account and that he has no agreement or understanding regarding the sale or
transfer of such shares. The regulations also prohibit any person from offering
or making an announcement of an offer or intent to make an offer to purchase
such subscription rights or shares of Common Stock prior to the completion of
the Conversion.
THE ASSOCIATION AND THE COMPANY WILL PURSUE ANY AND ALL LEGAL AND EQUITABLE
REMEDIES (INCLUDING FORFEITURE) IN THE EVENT THEY BECOME AWARE OF THE TRANSFER
OF SUBSCRIPTION RIGHTS AND WILL NOT HONOR ORDERS KNOWN BY THEM TO INVOLVE THE
TRANSFER OF SUCH RIGHTS.
SYNDICATED COMMUNITY OFFERING
As a final step in the Conversion, the Plan provides that, if feasible, all
shares of Common Stock not purchased in the Subscription and Community
Offerings, if any, will be offered for sale to the general public in a
Syndicated Community Offering through a syndicate of registered broker-dealers
to be formed and managed by Webb, with the participation and assistance of
Crowe, Chizek acting as agents of the Company to assist the Company and the
Association in the sale of the Common Stock. The Company and the Association
have the right to reject orders in whole or in part in their sole discretion in
the Syndicated Community Offering. Neither Webb 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, Webb has agreed to
use its best efforts in the sale of shares in the Syndicated Community Offering.
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The price at which Common Stock is sold in the Syndicated Community
Offering will be determined as described above under "- Stock Pricing." Subject
to overall purchase limitations, no person, together with any associate or group
of persons acting in concert, will be permitted to subscribe in the Syndicated
Community Offering for more than 0.5% of the total number of shares offered in
the Conversion, exclusive of an increase in shares issued pursuant to an
increase in the Estimated Price Range of up to 15%; provided, however, that
shares of Common Stock purchased in the Community Offering by any persons,
together with associates of or persons acting in concert with such persons, will
be aggregated with purchases in the Syndicated Community Offering and be subject
to an overall maximum purchase limitation of 1.0% of the shares offered,
exclusive of an increase in shares issued pursuant to an increase in the
Estimated Price Range by up to 15%.
Payments made in the form of a check, bank draft, money order or in cash
will earn interest at the Association's passbook rate of interest from the date
such payment is actually received by the Association until completion or
termination of the Conversion.
In addition to the foregoing, if a syndicate of broker-dealers ("selected
dealers") is formed to assist in the Syndicated Community Offering, a purchaser
may pay for his shares with funds held by or deposited with a selected dealer.
If an order form is executed and forwarded to the selected dealer or if the
selected dealer is authorized to execute the order form on behalf of a
purchaser, the selected dealer is required to forward the order form and funds
to the Association for deposit in a segregated account on or before noon of the
business day following receipt of the order form or execution of the order form
by the selected dealer. Alternatively, selected dealers may solicit indications
of interest from their customers to place orders for shares. Such selected
dealers shall subsequently contact their customers who indicated an interest and
seek their confirmation as to their intent to purchase. Those indicating an
intent to purchase shall execute order forms and forward them to their selected
dealer or authorize the selected dealer to execute such forms. The selected
dealer will acknowledge receipt of the order to its customer in writing on the
following business day and will debit such customer's account on the third
business day after the customer has confirmed his intent to purchase (the "debit
date") and on or before noon of the next business day following the debit date
will send order forms and funds to the Association for deposit in a segregated
account. Although purchasers' funds are not required to be in their accounts
with selected dealers until the debit date in the event that such alternative
procedure is employed once a confirmation of an intent to purchase has been
received by the selected dealer, the purchaser has no right to rescind his
order.
Certificates representing shares of Common Stock purchased, together with
any refund due, will be mailed to purchasers at the address specified in the
order form, as soon as practicable following consummation of the sale of the
Common Stock. Any certificates returned as undeliverable will be disposed of in
accordance with applicable law.
The Syndicated Community Offering will terminate no more than 45 days
following the Subscription Expiration Date, unless extended by the Company with
the approval of the OTS. Such extensions may not be beyond _________________,
1998. See "- Stock Pricing" above for a discussion of rights of subscribers, if
any, in the event an extension is granted.
LIMITATIONS ON COMMON STOCK PURCHASES
The Plan includes the following limitations on the number of shares of
Common Stock which may be purchased during the Conversion:
(1) No less than 25 shares;
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(2) Each Eligible Account Holder may subscribe for and purchase in the
Subscription Offering up to the greater of the amount permitted to be
purchased in the Community Offering, currently 0.5% (8,913 shares
based on the issuance of 1,782,500 shares) of the Common Stock
offered, one-tenth of one percent (.10%) of the total offering of
shares of Common Stock, or fifteen 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 the qualifying deposit of the Eligible
Account Holder and the denominator is the total amount of qualifying
deposits of all Eligible Account Holders in each case on the
Eligibility Record Date subject to the overall maximum purchase
limitation described in (8) below and exclusive of an increase in the
total number of shares issued due to an increase in the Estimated
Price Range of up to 15%;
(3) The ESOP is permitted to purchase in the aggregate up to 10% of the
shares of Common Stock issued in the Conversion, including shares
issued in the event of an increase in the Estimated Price Range of
15%, and intends to purchase 8% of the shares of Common Stock issued
in the Conversion;
(4) Each Supplemental Eligible Account Holder may subscribe for and
purchase in the Subscription Offering up to the greater of the amount
permitted to be purchased in the Community Offering, currently 0.5%
(8,913 shares based on the issuance of 1,782,500 shares) of the Common
Stock offered, one-tenth of one percent (.10%) of the total offering
of shares of Common Stock, or fifteen 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 the qualifying deposit of the Supplemental
Eligible Account Holder and the denominator is the total amount of
qualifying deposits of all Supplemental Eligible Account Holders, in
each case on the Supplemental Eligibility Record Date, subject to the
overall maximum purchase limitation described in (8) below and
exclusive of an increase in the total number of shares issued due to
an increase in the Estimated Price Range of up to 15%;
(5) Each Other Member may subscribe for and purchase in the Subscription
Offering up to the greater of the amount permitted to be purchased in
the Community Offering, currently 0.5% (8,913 shares based on the
issuance of 1,782,500 shares) of the Common Stock offered, or
one-tenth of one percent (.10%) of the total offering of shares of
Common Stock subject to the overall maximum purchase limitation
described in (8) below and exclusive of an increase in the total
number of shares issued due to an increase in the Estimated Price
Range of up to 15%;
(6) Persons purchasing shares of Common Stock in the Community Offering,
together with associates of and groups of persons acting in concert
with such persons, may purchase in the Community Offering up to 0.5%
(8,913 shares based on the issuance of 1,782,500 shares) of the Common
Stock offered in the Conversion, subject to the overall maximum
purchase limitation described in (8) below and exclusive of an
increase in the total number of shares issued due to an increase in
the Estimated Price Range of up to 15%;
(7) Persons purchasing shares of Common Stock in the Syndicated Community
Offering, together with associates of and persons acting in concert
with such persons, may purchase in the Syndicated Offering up to 0.5%
(8,913 shares based on the issuance of 1,782,500 shares) of Common
Stock offered in the Conversion subject to the overall maximum
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purchase limitation in (8) below and exclusive of an increase in the
total number of shares issued due to an increase in the Estimated
Price Range of up to 15% and, provided further that shares of Common
Stock purchased in the Community Offering by any persons, together
with associates of and persons acting in concert with such persons,
will be aggregated with purchases in the Syndicated Community Offering
in applying the 0.5% purchase limitation;
(8) Eligible Account Holders, Supplemental Eligible Account Holders and
Other Members may purchase stock in the Community Offering and
Syndicated Community Offering subject to the purchase limitations
described in (6) and (7) above, provided that, except for the ESOP,
the maximum number of shares of Common Stock subscribed for or
purchased in all categories by any person, together with associates of
and groups of persons acting in concert with such persons, shall not
exceed the overall maximum purchase limitation of 1.0% (17,825 shares
based on the issuance of 1,782,500 shares) of the shares of Common
Stock offered in the Conversion, exclusive of an increase in the total
number of shares issued due to an increase in the Estimated Price
Range of up to 15%; and
(9) No more than 34.9% of the total number of shares offered for sale in
the Conversion may be purchased by directors and officers of the
Association and their associates in the aggregate, excluding purchases
by the ESOP.
Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of the members of
the Association, both the individual amount permitted to be subscribed for and
the overall maximum purchase limitation may be increased to up to a maximum of
5% at the sole discretion of the Company and the Association. If such amount is
increased, subscribers for the maximum amount will be, and certain other large
subscribers in the sole discretion of the Association may be, given the
opportunity to increase their subscriptions up to the then applicable limit. In
addition, the Boards of Directors of the Company and the Association may, in
their sole discretion, increase the overall maximum purchase limitation referred
to above up to 9.99%, provided that orders for shares exceeding 5% of the shares
being offered in the Subscription and Community Offerings shall not exceed, in
the aggregate, 10% of the shares being offered in the Subscription and Community
Offerings. Requests to purchase additional shares of Common Stock under this
provision will be determined by the Boards of Directors and, if approved,
allocated on a pro rata basis giving priority in accordance with the priority
rights set forth herein.
The overall maximum purchase limitation may not be reduced to less than 1%
but the individual amount permitted to be subscribed for may be reduced by the
Association to less than 0.5%, subject to paragraphs (2), (4) and (5) above
without the further approval of members or resolicitation of subscribers. An
individual Eligible Account Holder, Supplemental Eligible Account Holder or
Other Member may not purchase individually in the Subscription Offering the
overall maximum purchase limitation of 1.0% of the shares offered, but may make
such purchase, together with associates of and persons acting in concert with
such person, by also purchasing in other available categories, subject to
availability of shares and the maximum overall purchase limitation for purchases
in the Conversion.
In the event of an increase in the total number of shares offered in the
Conversion due to an increase in the Estimated Price Range of up to 15% (the
"Adjusted Maximum"), the additional shares will be allocated in the following
order of priority in accordance with the Plan: (i) to fill the ESOP's
subscription of 8% of the Adjusted Maximum number of shares; (ii) in the event
that there is an oversubscription by Eligible Account Holders, to fill
unsatisfied subscriptions of Eligible Account Holders
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exclusive of the Adjusted Maximum; (iii) in the event that there is an
oversubscription by Supplemental Eligible Account Holders, to fill
unsatisfied subscriptions of Supplemental Eligible Account Holders, exclusive
of the Adjusted Maximum; (iv) in the event that there is an oversubscription
by Other Members, to fill unsatisfied subscriptions of Other Members
exclusive of the Adjusted Maximum; and (v) to fill unsatisfied subscriptions
in the Community Offering to the extent possible exclusive of the Adjusted
Maximum and with preference to Preferred Subscribers.
The term "associate" of a person is defined to mean: (i) any corporation
(other than the Association or a majority-owned subsidiary of the Association)
of which such person is an officer, partner or 10% stockholder; (ii) any trust
or other estate in which such person has a substantial beneficial interest or
serves as a trustee or in a similar fiduciary capacity; provided, however, such
term shall not include any employee stock benefit plan of the Association in
which such person has a substantial beneficial interest or serves as a trustee
or in a similar fiduciary capacity; 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 Association. Directors are not
treated as associates of each other solely because of their Board membership.
For a further discussion of limitations on purchases of a converting
institution's stock at the time of Conversion and subsequent to Conversion, see
"-Certain Restrictions on Purchase or Transfer of Shares After Conversion," "The
Board of Directors and Management of the Association - Subscriptions by
Executive Officers and Directors," and "Restrictions on Acquisition of the
Company and the Association."
LIQUIDATION RIGHTS
In the unlikely event of a complete liquidation of the Association in its
present mutual form, each depositor would receive his pro rata share of any
assets of the Association remaining after payment of claims of all creditors
(including the claims of all depositors 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 was to the total value
of all deposit accounts in the Association at the time of liquidation. After
the Conversion, each depositor, in the event of a complete liquidation, would
have a claim as a creditor of the same general priority as the claims of all
other general creditors of the Association. However, except as described below,
his claim would be solely in the amount of the balance in his deposit account
plus accrued interest. He would not have an interest in the value or assets of
the Association above that amount.
The Plan provides for the establishment, upon the completion of the
Conversion, of a special "liquidation account" for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders in an amount equal to
the surplus and reserves of the Association as of the date of its latest balance
sheet contained in the final Prospectus used in connection with the Conversion.
Each Eligible Account Holder and Supplemental Eligible Account Holder, if he
were to continue to maintain his deposit account at the Association, would be
entitled, on a complete liquidation of the Association after the Conversion, to
an interest in the liquidation account prior to any payment to the stockholders
of the Association. Each Eligible Account Holder and Supplemental Eligible
Account Holder would have an initial interest in such liquidation account for
each deposit account, including regular accounts, transaction accounts such as
NOW accounts, money market deposit accounts, and certificates of deposit, with a
balance of $50 or more held in the Association on December 31, 1994 and
___________________, 1996, respectively ("Qualifying Deposit"). Each Eligible
Account Holder and Supplemental Eligible Account Holder will have a pro rata
interest in the total liquidation account for each of his deposit accounts based
on the proportion that the balance of each such deposit account on the
Eligibility Record Date or Supplemental Eligibility Record Date, respectively,
bore to the total amount of all deposit accounts of all Eligible Account Holders
and Supplemental Eligible Account Holders in the Association. For deposit
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accounts in existence at both dates separate subaccounts shall be determined on
the basis of the Qualifying Deposits in such deposit accounts on such record
date.
If, however, on any annual closing date of the Association, commencing
after December 31, 1994, and __________________, 1996, the amount in any deposit
account is less than the amount in such deposit account on December 31, 1994
and ___________, 1996 or any other annual closing date, then the interest in the
liquidation account relating to such deposit account would be reduced from time
to time by the proportion of any such reduction, and such interest will cease to
exist if such deposit account is closed. In addition, no interest in the
liquidation account would ever be increased despite any subsequent increase in
the related deposit account. Any assets remaining after the above liquidation
rights of Eligible Account Holders and Supplemental Eligible Account Holders are
satisfied would be distributed to the Company as the sole stockholder of the
Association.
TAX ASPECTS
Consummation of the Conversion is expressly conditioned upon the receipt by
the Association of either a favorable ruling from the IRS or an opinion of
counsel with respect to federal income taxation, and an opinion of an
independent accountant with respect to Ohio income and franchise taxation, to
the effect that the Conversion will not be a taxable transaction to the Company,
the Association, Eligible Account Holders, Supplemental Eligible Account Holders
or Other Members except as noted below.
No private ruling will be received from the IRS with respect to the
proposed Conversion. Instead, the Association has received an opinion of its
counsel, Muldoon, Murphy & Faucette, to the effect that for federal income tax
purposes, among other matters: (i) the Association's change in form from mutual
to stock ownership will constitute a reorganization under section 368(a)(1)(F)
of the Code and neither the Association nor the Company will recognize any gain
or loss as a result of the Conversion; (ii) no gain or loss will be recognized
to the Association or the Company upon the purchase of the Association's capital
stock by the Company or to the Company upon the purchase of its Common Stock in
the Conversion; (iii) no gain or loss will be recognized by Eligible Account
Holders or Supplemental Eligible Account Holders upon the issuance to them of
deposit accounts in the Association in its stock form and their interests in the
liquidation account in exchange for their deposit accounts in the Association;
(iv) the tax basis of the depositors' deposit accounts in the Association
immediately after the Conversion will be the same as the basis of their deposit
accounts immediately prior to the Conversion; (v) the tax basis of each Eligible
Account Holder's and Supplemental Eligible Account Holder's interest in the
liquidation account will be zero; (vi) no gain or loss will be recognized by
Eligible Account Holders or Supplemental Eligible Account Holders upon the
distribution to them of non-transferable subscription rights to purchase shares
of the Common Stock, provided that the amount to be paid for the Common Stock is
equal to the fair market value of such stock; and (vii) the tax basis to the
stockholders of the Common Stock of the Company purchased in the Conversion will
be the amount paid therefore and the holding period for the shares of Common
Stock purchased by such persons will begin on the date on which their
subscription rights are exercised. Crowe, Chizek has opined that the Conversion
will not be a taxable transaction to the Company, the Association, Eligible
Account Holders or Supplemental Eligible Account Holders for Ohio income and/or
franchise tax purposes. Certain portions of both the federal and the state and
local tax opinions are based upon the assumption that the subscription rights
issued in connection with the Conversion will have no value. The Company and
the Association have received an opinion issued by Keller stating that pursuant
to Keller's valuation, Keller is of the opinion that subscription rights issued
in connection with the Conversion will have no value. The opinion of Keller and
the federal and state tax opinions, respectively, referred to herein are filed
as exhibits to the Registration Statement. See "Additional Information".
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Unlike private rulings, an opinion of counsel or an opinion of an
independent accountant is not binding on the IRS or the Ohio Department of
Taxation ("ODOT") and the IRS or ODOT could disagree with conclusions reached
therein. Keller has stated in its opinion that, pursuant to its valuation,
Keller is of the opinion that the subscription rights do not have any value,
based on the fact that such rights are acquired by the recipients without cost,
are non-transferable and of short duration, and afford the recipients the right
only to purchase the Common Stock at a price equal to its estimated fair market
value, which will be the same price as the Purchase Price for the unsubscribed
shares of Common Stock. Such valuation is not binding on the IRS or ODOT. If
the subscription rights granted to Eligible Account Holders or Supplemental
Eligible Account Holders are deemed to have an ascertainable value, receipt of
such rights could be taxable to those Eligible Account Holders or Supplemental
Eligible Account Holders who receive and/or exercise the subscription rights in
an amount equal to such value and the Association could recognize gain on such
distribution. Eligible Account Holders and Supplemental Eligible Account
Holders are encouraged to consult with their own tax advisor as to the tax
consequences in the event that such subscription rights are deemed to have an
ascertainable value.
INTERPRETATION AND AMENDMENT OF THE PLAN OF CONVERSION
To the extent permitted by law, all interpretations of the Plan by the
Association will be final. The Plan provides that the Association's Board of
Directors shall have the discretion to interpret and apply the provisions of the
Plan to particular circumstances and that such interpretation or application
shall be final. Any and all interpretations, applications and determinations
will be made by the Board of Directors on the basis of such information and
assistance as was then reasonably available for such purpose.
The Plan provides that, if deemed necessary or desirable by the Board of
Directors, the Plan may be substantively amended at any time by a two-thirds
vote of the Association's Board of Directors prior to solicitation of proxies
from members to vote on the Plan. After submission of the proxy materials to
the members, the Plan may be amended by a two-thirds vote of the Board of
Directors at any time prior to the Special Meeting with the concurrence of the
OTS. The Plan may be amended at any time after the approval of members with the
approval of the OTS and no further approval of the members will be necessary
unless otherwise required by the OTS. By adoption of the Plan, the
Association's members will be deemed to have authorized amendment of the Plan
under the circumstances described above.
CERTAIN RESTRICTIONS ON PURCHASE OR TRANSFER OF SHARES AFTER CONVERSION
All shares of Common Stock purchased in connection with the Conversion by a
director or an executive officer of the Association will be subject to a
restriction that the shares not be sold for a period of one year following the
Conversion, except in the event of the death of such director or executive
officer. Each certificate for restricted shares will bear a legend giving
notice of this restriction on transfer, and instructions will be issued to the
effect that any transfer within such time period of any certificate or record
ownership of such shares other than as provided above is a violation of the
restriction. Any shares of Common Stock issued at a later date as a stock
dividend, stock split, or otherwise, with respect to such restricted stock will
be subject to the same restrictions. The directors and executive officers of
the Association will also be subject to the insider trading rules promulgated
pursuant to the Exchange Act and any other applicable requirements of the
federal securities laws.
Purchases of outstanding shares of Common Stock of the Company by
directors, executive officers (or any person who was an executive officer or
director of the Association 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
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Company's outstanding Common Stock or to the purchase of stock pursuant to the
Incentive Stock Option Plan, the Stock Option Plan for Outside Directors or the
Master Stock-Based Benefit Plan to be established after the Conversion.
Unless approved by the OTS, the Company, pursuant to OTS regulations, will
be prohibited from repurchasing any shares of the Common Stock for three years
except: (i) for an offer to all stockholders on a pro rata basis; or (ii) for
the repurchase of qualifying shares of a director. Notwithstanding the
foregoing, and except as provided below, beginning one year following completion
of the Conversion, the Company may repurchase its Common Stock so long as:
(i) the repurchases within the following two years are part of an open-market
program not involving greater than 5% of its outstanding capital stock during a
twelve-month period; (ii) the repurchases do not cause the Association to become
undercapitalized; and (iii) the Company provides to the Regional Director of the
OTS no later than 10 days prior to the commencement of a repurchase program
written notice containing a full description of the program to be undertaken and
such program is not disapproved by the Regional Director. Under current OTS
policies, repurchases may be allowed in the first year following Conversion and
in amounts greater than 5% in the second and third years following Conversion
provided there are valid and compelling business reasons for such repurchases
and the OTS does not object to such repurchases.
RESTRICTIONS ON ACQUISITION OF THE COMPANY
AND THE ASSOCIATION
GENERAL
The Association's Plan of Conversion provides for the Conversion of the
Association from the mutual to the stock form of organization and, in connection
therewith, a new Federal Stock Charter and Bylaws to be adopted by members of
the Association. The Plan also provides for the concurrent formation of a
holding company, which form of organization may or may not be utilized at the
option of the Board of Directors of the Association. See "The Conversion -
General." In the event that the holding company form of organization is
utilized, as described below, certain provisions in the Company's Certificate of
Incorporation and Bylaws and in its management remuneration entered into in
connection with the Conversion, together with provisions of Delaware corporate
law, may have anti-takeover effects. In the event that the holding company form
of organization is not utilized, the Association's Stock Charter and Bylaws and
management remuneration entered into in connection with the Conversion may have
anti-takeover effects as described below. In addition, regulatory restrictions
may make it difficult for persons or companies to acquire control of either the
Company or the Association.
RESTRICTIONS IN THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS
A number of provisions of the 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 Company's Certificate of Incorporation and Bylaws and certain
other statutory 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 Company stockholders may deem to be
in their best interests or in which shareholders 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
current Board of Directors or management of the Company more difficult. The
following description of certain of the provisions of the Certificate
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of Incorporation and Bylaws of the 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
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. Beneficial ownership is determined pursuant
to Rule 13d-3 of the General Rules and Regulations promulgated pursuant to the
Exchange Act, and includes shares beneficially owned by such person or any of
his affiliates (as defined in the Certificate of Incorporation), shares which
such person or his affiliates have the right to acquire upon the exercise of
conversion rights or options and shares as to which such person and his
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 Association or Company or shares that are subject to a revocable proxy and
that are not otherwise beneficially owned, or deemed by the Company to be
beneficially owned, by such person and his affiliates. The Certificate of
Incorporation of the Company further provides that this provision limiting
voting rights may only be amended upon the vote of 80% of the outstanding shares
of voting stock (after giving effect to the limitation on voting rights).
BOARD OF DIRECTORS. The Board of Directors of the Company is divided into
three classes, each of which shall contain approximately one-third of the whole
number of members of the Board. Each class shall serve a staggered term, with
approximately one-third of the total number of directors being elected each
year. The Company's Certificate of Incorporation and Bylaws provide that the
size of the Board shall be determined by a majority of the directors. The
Certificate of Incorporation and the Bylaws provide that any vacancy occurring
in the Board, including a vacancy created by an increase in the number of
directors or resulting from death, resignation, retirement, disqualification,
removal from office or other cause, may be filled for the remainder of the
unexpired term exclusively by a majority vote of the directors then in office.
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 Company. The
Certificate of Incorporation of the Company provides that a director may be
removed from the Board of Directors prior to the expiration of his term only for
cause, upon the vote of 80% of the outstanding shares of voting stock.
In the absence of these provisions, the vote of the holders of a majority
of the shares could remove the entire Board, with or without 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, special meetings of stockholders of the Company may be
called only by the Board of Directors of the Company. The Certificate of
Incorporation also provides that any action required or permitted to be taken by
the stockholders of the Company may be taken only at an annual or special
meeting and prohibits stockholder action by written consent in lieu of a
meeting.
AUTHORIZED SHARES. The Certificate of Incorporation authorizes the
issuance of 4,000,000 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 Company's
Board of Directors with as much flexibility as possible to effect, among other
transactions, financings, acquisitions, stock dividends, stock splits and
employee stock options. However, these
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additional authorized shares may also be used by the Board of Directors
consistent with its fiduciary duty to deter future attempts to gain control of
the 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
post-tender offer merger or other transaction by which a third party seeks
control, and thereby assist management to retain its position. The Company's
Board of Directors currently has no plans for the issuance of additional shares,
other than the issuance of additional shares pursuant to the terms of the Stock
Programs and upon exercise of stock options to be issued pursuant to the terms
of the Incentive Stock Option Plan and the Stock Option Plan for Outside
Directors, all of which are to be established and presented to stockholders at
the first annual meeting after the Conversion.
STOCKHOLDER VOTE REQUIRED TO APPROVE BUSINESS COMBINATIONS WITH PRINCIPAL
STOCKHOLDERS. The Certificate of Incorporation requires the approval of the
holders of 80% of the Company's outstanding shares of voting stock to approve
certain "Business Combinations," as defined therein, and related transactions.
Under Delaware law, absent this provision, Business Combinations, including
mergers, consolidations and sales of all or substantially all of the assets of a
corporation must, subject to certain exceptions, be approved by the vote of the
holders of only a majority of the outstanding shares of Common Stock of the
Company and any other affected class of stock. Under the Certificate of
Incorporation, 80% approval of shareholders is required in connection with any
transaction involving an Interested Stockholder (as defined below) except (i) in
cases where the proposed transaction has been approved in advance by a majority
of those members of the Company's Board of Directors who are unaffiliated with
the Interested Stockholder and were directors prior to the time when the
Interested Stockholder became an Interested Stockholder or (ii) if the proposed
transaction meets certain conditions set forth therein which are designed to
afford the shareholders a fair price in consideration for their shares in which
case, if a stockholder vote is required, approval of only a majority of the
outstanding shares of voting stock would be sufficient. The term "Interested
Stockholder" is defined to include any individual, corporation, partnership or
other entity (other than the Company or its subsidiary) which owns beneficially
or controls, directly or indirectly, 10% or more of the outstanding shares of
voting stock of the Company. This provision of the Certificate of Incorporation
applies to any "Business Combination," which is defined to include: (i) any
merger or consolidation of the Company or any of its subsidiaries with or into
any Interested Stockholder or Affiliate (as defined in the Certificate of
Incorporation) of an Interested Stockholder; (ii) any sale, lease, exchange,
mortgage, transfer, or other disposition to or with any Interested Stockholder
or Affiliate of 25% or more of the assets of the Company or combined assets of
the Company and its subsidiary; (iii) the issuance or transfer to any Interested
Stockholder or its Affiliate by the Company (or any subsidiary) of any
securities of the Company in exchange for any assets, cash or securities the
value of which equals or exceeds 25% of the fair market value of the Common
Stock of the Company; (iv) the adoption of any plan for the liquidation or
dissolution of the Company proposed by or on behalf of any Interested
Stockholder or Affiliate thereof; and (v) any reclassification of securities,
recapitalization, merger or consolidation of the Company which has the effect of
increasing the proportionate share of Common Stock or any class of equity or
convertible securities of the Company owned directly or indirectly by an
Interested Stockholder or Affiliate thereof. The directors and executive
officers of the Association are purchasing in the aggregate approximately 3.65%
of the shares of the Common Stock at the maximum of the Estimated Price Range.
In addition, the ESOP intends to purchase 8% of the Common Stock sold in the
Conversion. Additionally, if at a meeting of stockholders following the
Conversion stockholder approval of the proposed Stock Programs and Stock Options
Plans is received, the Company expects to acquire 4% of the Common Stock issued
in the Conversion on behalf of the Stock Programs and expects to issue an amount
equal to 10% of the Common Stock issued in the Conversion under the Stock Option
Plans to directors and executive officers. As a result, assuming the Stock
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Programs and Stock Option Plans are approved by Stockholders, directors,
executive officers and employees have the potential to control the voting of
approximately 26.03% of the Company's Common Stock, thereby enabling them to
prevent the approval of the transactions requiring the approval of at least 80%
of the Company's outstanding shares of voting stock described hereinabove.
EVALUATION OF OFFERS. The Certificate of Incorporation of the Company
further provides that the Board of Directors of the Company, when evaluating any
offer of another "Person" (as defined therein) to: (i) make a tender or exchange
offer for any equity security of the Company; (ii) merge or consolidate the
Company with another corporation or entity; or (iii) purchase or otherwise
acquire all or substantially all of the properties and assets of the Company,
may, in connection with the exercise of its judgment in determining what is in
the best interest of the Company, the Association and the stockholders of the
Company, give due consideration to all relevant factors, including, without
limitation, the social and economic effects of acceptance of such offer on the
Company's customers and the Association's present and future account holders,
borrowers and employees; on the communities in which the Company and the
Association operate or are located; and on the ability of the Company to fulfill
its corporate objectives as a savings and loan holding company and on the
ability of the Association to fulfill the objectives of a federally chartered
stock savings association under applicable statutes and regulations. By having
these standards in the Certificate of Incorporation of the Company, the Board of
Directors may be in a stronger position to oppose such a transaction if the
Board concludes that the transaction would not be in the best interest of the
Company, even if the price offered is significantly greater than the then market
price of any equity security of the Company.
AMENDMENT OF CERTIFICATE OF INCORPORATION AND BYLAWS. Amendments to the
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 Company and amendment of the Company's Bylaws and
Certificate of Incorporation. The 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.
CERTAIN BYLAW PROVISIONS. The Bylaws of the Company also require 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 at least 90
days advance notice to the Secretary of the Company. The notice provision
requires a stockholder who desires to raise new business to provide certain
information to the 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 Company with certain information concerning the nominee and the
proposing stockholder.
ANTI-TAKEOVER EFFECTS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS
AND MANAGEMENT REMUNERATION ADOPTED IN CONVERSION
The provisions described above are intended to reduce the Company's
vulnerability to takeover attempts and certain other transactions which have not
been negotiated with and approved by members of its Board of Directors. The
provisions of the employment agreements with officers, the Severance Plan, the
Stock Programs, the Incentive Stock Option Plan and the Stock Option Plan for
Outside Directors or the Master Stock-Based Benefit Plan to be established may
also discourage takeover attempts by increasing the costs to be incurred by the
Association and the Company in the event of a takeover. See "The Board
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of Directors and Management of the Association - Employment Agreements" and
"- Benefits - Stock Option Plans."
The Company's Board of Directors believes that the provisions of the
Certificate of Incorporation, Bylaws and management remuneration plans to be
established are in the best interest of the Company and its stockholders. An
unsolicited non-negotiated proposal can seriously disrupt the business and
management of a corporation and cause it great expense. Accordingly, the Board
of Directors believes it is in the best interests of the Company and its
stockholders to encourage potential acquirors to negotiate directly with
management and that these provisions will encourage such negotiations and
discourage non-negotiated takeover attempts. It is also the Board of Directors'
view that these provisions should not discourage persons from proposing a merger
or other transaction at a price that reflects the true value of the Company and
that otherwise is in the best interest of all stockholders.
DELAWARE CORPORATE LAW
The state of Delaware has a statute designed to provide Delaware
corporations with additional protection against hostile takeovers. The takeover
statute, which is codified in Section 203 of the Delaware General Corporate Law
("Section 203"), is intended to discourage certain takeover practices by
impeding the ability of a hostile acquiror to engage in certain transactions
with the target company.
In general, Section 203 provides that a "Person" (as defined therein) who
owns 15% or more of the outstanding voting stock of a Delaware corporation (an
"Interested Stockholder") may not consummate a merger or other business
combination transaction with such corporation at any time during the three-year
period following the date such "Person" became an Interested Stockholder. The
term "business combination" is defined broadly to cover a wide range of
corporate transactions including mergers, sales of assets, issuances of stock,
transactions with subsidiaries and the receipt of disproportionate financial
benefits.
The statute exempts the following transactions from the requirements of
Section 203: (i) any business combination if, prior to the date a person became
an Interested Stockholder, the Board of Directors approved either the business
combination or the transaction which resulted in the stockholder becoming an
Interested Stockholder; (ii) any business combination involving a person who
acquired at least 85% of the outstanding voting stock in the transaction in
which he became an Interested Stockholder, with the number of shares outstanding
calculated without regard to those shares owned by the corporation's directors
who are also officers and by certain employee stock plans; (iii) any business
combination with an Interested Stockholder that is approved by the Board of
Directors and by a two-thirds vote of the outstanding voting stock not owned by
the Interested Stockholder; and (iv) certain business combinations that are
proposed after the corporation had received other acquisition proposals and
which are approved or not opposed by a majority of certain continuing members of
the Board of Directors. A corporation may exempt itself from the requirements
of the statute by adopting an amendment to its Certificate of Incorporation or
Bylaws electing not to be governed by Section 203. At the present time, the
Board of Directors does not intend to propose any such amendment.
RESTRICTIONS IN THE ASSOCIATION'S NEW CHARTER AND BYLAWS
Although the Board of Directors of the Association is not aware of any
effort that might be made to obtain control of the Association after the
Conversion, the Board of Directors believes that it is appropriate to adopt
certain provisions permitted by federal regulations to protect the interests of
the converted Association and its stockholders from any hostile takeover. Such
provisions may, indirectly,
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<PAGE>
inhibit a change in control of the Company, as the Association's sole
stockholder. See "Risk Factors - Certain Anti-Takeover Provisions."
The Association's Federal Stock Charter will contain a provision whereby
the acquisition of or offer to acquire beneficial ownership of more than 10% of
the issued and outstanding shares of any class of equity securities of the
Association by any person (I.E., any individual, corporation, group acting in
concert, trust, partnership, joint stock company or similar organization),
either directly or through an affiliate thereof, will be prohibited for a period
of five years following the date of completion of the Conversion. Any stock in
excess of 10% acquired in violation of the Federal Stock Charter provision will
not be counted as outstanding for voting purposes. This limitation shall not
apply to any transaction in which the Association forms a holding company
without a change in the respective beneficial ownership interests of its
stockholders other than pursuant to the exercise of any dissenter or appraisal
rights. In the event that holders of revocable proxies for more than 10% of the
shares of the Common Stock of the Company seek, among other things, to elect
one-third or more of the Company's Board of Directors, to cause the Company's
stockholders to approve the acquisition or corporate reorganization of the
Company or to exert a continuing influence on a material aspect of the
business operations of the Company, which actions could indirectly result in
a change in control of the Association, the Board of Directors of the
Association will be able to assert this provision of the Association's
Federal Stock Charter against such holders. Although the Board of Directors
of the Association is not currently able to determine when and if it would
assert this provision of the Association's Federal Stock Charter, the Board
of Directors, in exercising its fiduciary duty, may assert this provision if
it were deemed to be in the best interests of the Association, the Company
and its stockholders. It is unclear, however, whether this provision, if
asserted, would be successful against such persons in a proxy contest which
could result in a change in control of the Association indirectly through a
change in control of the Company. Finally, for five years, stockholders will
not be permitted to call a special meeting of stockholders relating to a
change of control of the Association or a charter amendment or to cumulate
their votes in the election of directors. Furthermore, the staggered terms
of the Board of Directors could have an anti-takeover effect by making it
more difficult for a majority of shares to force an immediate change in the
Board of Directors since only one-third of the Board is elected each year.
The purpose of these provisions is to assure stability and continuity of
management of the Association in the years immediately following the
Conversion.
Although the Association has no arrangements, understandings or plans at
the present time, except as described in "Description of Capital Stock -
Preferred Stock," for the issuance or use of the shares of undesignated
preferred stock (the "Preferred Stock") proposed to be authorized, the Board of
Directors believes that the availability of such shares will provide the
Association with increased flexibility in structuring possible future financings
and acquisitions and in meeting other corporate needs which may arise. In the
event of a proposed merger, tender offer or other attempt to gain control of the
Association of which management does not approve, it might be possible for the
Board of Directors to authorize the issuance of one or more series of Preferred
Stock with rights and preferences which could impede the completion of such a
transaction. An effect of the possible issuance of such Preferred Stock,
therefore, may be to deter a future takeover attempt. The Board of Directors
does not intend to issue any Preferred Stock except on terms which the Board
deems to be in the best interest of the Association and its then existing
stockholders.
REGULATORY RESTRICTIONS
The Plan of Conversion prohibits any person, prior to the completion of the
Conversion, from transferring, or from entering into any agreement or
understanding to transfer, to the account of another, legal or beneficial
ownership of the subscription rights issued under the Plan or the Common Stock
to be
113
<PAGE>
issued upon their exercise. The Plan also prohibits any person, prior to the
completion of the Conversion, from offering, or making an announcement of an
offer or intent to make an offer, to purchase such subscription rights or Common
Stock.
For three years following the Conversion, OTS regulations prohibit any
person from acquiring or making an offer to acquire more than 10% of the stock
of any converted savings institution, except for: (i) offers that, if
consummated, would not result in the acquisition by such person during the
preceding 12-month period of more than 1% of such stock; (ii) offers for up to
25% in the aggregate by the ESOP or other tax qualified plans of the Association
or the Company; or (iii) offers which are not opposed by the Board of Directors
of the Association and which receive the prior approval of the OTS. Such
prohibition is also applicable to the acquisition of the stock of the Company.
Such acquisition may be disapproved by the OTS if it is found, among other
things, that the proposed acquisition (a) would frustrate the purposes of the
provisions of the regulations regarding conversions; (b) would be manipulative
or deceptive; (c) would subvert the fairness of the conversion; (d) would be
likely to result in injury to the savings institution; (e) would not be
consistent with economical home financing; (f) would otherwise violate law or
regulation; or (g) would not contribute to the prudent deployment of the savings
institution's conversion proceeds. In the event that any person, directly or
indirectly, violates this regulation, the securities 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 matters submitted to a vote of stockholders. The definition of beneficial
ownership for this regulation extends to persons holding revocable or
irrevocable proxies for the Company's stock under circumstances that give rise
to a conclusive or rebuttable determination of control under the OTS
regulations.
In addition, any proposal to acquire 10% of any class of equity security of
the Company generally would be subject to approval by the OTS under the Change
in Bank Control Act. The OTS requires all persons seeking control of a savings
institution, and, therefore, indirectly its holding company, to obtain
regulatory approval prior to offering to obtain control. Federal law generally
provides that no "person," acting directly or indirectly or through or in
concert with one or more other persons, may acquire directly or indirectly
"control," as that term is defined in OTS regulations, of a federally-insured
savings institution without giving at least 60 days' written notice to the OTS
and providing the OTS an opportunity to disapprove the proposed acquisition.
Such acquisitions of control may be disapproved if it is determined, among other
things, that: (i) the acquisition would substantially lessen competition;
(ii) the financial condition of the acquiring person might jeopardize the
financial stability of the savings institution or prejudice the interests of its
depositors; or (iii) the competency, experience or integrity of the acquiring
person or the proposed management personnel indicates that it would not be in
the interest of the depositors or the public to permit the acquisition of
control by such person. Such change in control restrictions on the acquisition
of holding company stock are not limited to three years after conversion but
will apply for as long as the regulations are in effect. Persons holding
revocable or irrevocable proxies may be deemed to be beneficial owners of such
securities under OTS regulations and therefore prohibited from voting all or the
portion of such proxies in excess of the 10% aggregate beneficial ownership
limit. Such regulatory restrictions may prevent or inhibit proxy contests for
control of the Company or the Association which have not received prior
regulatory approval.
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
GENERAL
The Company is authorized to issue 4,000,000 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 "Preferred
114
<PAGE>
Stock"). The Company currently expects to issue 1,782,500 shares of Common
Stock (or 2,049,875 in the event of an increase of 15% in the Estimated Price
Range) and no shares of Preferred Stock in the Conversion. Except as discussed
above in "Restriction on Acquisition of the Company and the Association," each
share of the 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,
all such stock will be duly authorized, fully paid and non-assessable.
THE COMMON STOCK OF THE COMPANY WILL REPRESENT NON-WITHDRAWABLE CAPITAL,
WILL NOT BE AN ACCOUNT OF AN INSURABLE TYPE, AND WILL NOT BE INSURED BY THE
FDIC.
COMMON STOCK
DIVIDENDS. The 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 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 Company will be entitled to receive and share
equally in such dividends as may be declared by the Board of Directors of the
Company out of funds legally available therefor. If the Company issues
Preferred Stock, the holders thereof may have a priority over the holders of the
Common Stock with respect to dividends.
VOTING RIGHTS. Upon Conversion, the holders of Common Stock of the Company
will possess exclusive voting rights in the Company. They will elect the
Company's Board of Directors and act on such other matters as are required to be
presented to them under Delaware law or the Company's Certificate of
Incorporation or as are otherwise presented to them by the Board of Directors.
Except as discussed in "Restrictions on Acquisition of the Company and the
Association," 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 Company issues Preferred Stock, holders of the Preferred Stock may also
possess voting rights. Certain matters require an 80% shareholder vote. See
"Restrictions on Acquisition of the Company and the Association."
As a federal mutual savings association, corporate powers and control of
the Association are vested in its Board of Directors, who elect the officers of
the Association 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 Association,
which will be the Company, and voted at the direction of the Company's Board of
Directors. Consequently, the holders of the Common Stock will not have direct
control of the Association.
LIQUIDATION. In the event of any liquidation, dissolution or winding up of
the Association, the Company, as holder of the Association's capital stock,
would be entitled to receive, after payment or provision for payment of all
debts and liabilities of the Association (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 - Liquidation Rights"), all assets of the
Association available for distribution. In the event of liquidation,
dissolution or winding up of the 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 Company available for distribution.
If 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.
115
<PAGE>
PREEMPTIVE RIGHTS. Holders of the Common Stock of the Company will not be
entitled to preemptive rights with respect to any shares which may be issued.
The Common Stock is not subject to redemption.
PREFERRED STOCK
None of the shares of the Company's authorized Preferred Stock will be
issued in the Conversion. Such stock may be issued with such preferences and
designations 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 which 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.
DESCRIPTION OF CAPITAL STOCK OF THE ASSOCIATION
GENERAL
The Federal Stock Charter of the Association, to be effective upon the
Conversion, authorizes the issuance of capital stock consisting of 4,000,000
shares of common stock, par value $1.00 per share, and 1,000,000 shares of
preferred stock, par value $1.00 per share, which preferred stock may be issued
in series and classes having such rights, preferences, privileges and
restrictions as the Board of Directors may determine. Each share of Common
Stock of the Association will have the same relative rights as, and will be
identical in all respects with, each other share of common stock. After the
Conversion, the Board of Directors will be authorized to approve the issuance of
Common Stock up to the amount authorized by the Federal Stock Charter without
the approval of the Association's stockholders. Assuming that the holding
company form of organization is utilized, all of the issued and outstanding
common stock of the Association will be held by the Company as the Association's
sole stockholder. THE CAPITAL STOCK OF THE ASSOCIATION WILL REPRESENT
NON-WITHDRAWABLE CAPITAL, WILL NOT BE AN ACCOUNT OF AN INSURABLE TYPE, AND WILL
NOT BE INSURED BY THE FDIC.
COMMON STOCK
DIVIDENDS. The holders of the Association's common stock will be entitled
to receive and to share equally in such dividends as may be declared by the
Board of Directors of the Association out of funds legally available therefor.
See "Dividend Policy" for certain restrictions on the payment of dividends and
"Federal and State Taxation - Federal Taxation" for a discussion of the
consequences of the payment of cash dividends from income appropriated to bad
debt reserves.
VOTING RIGHTS. Immediately after the Conversion, the holders of the
Association's common stock will possess exclusive voting rights in the
Association. Each holder of shares of common stock will be entitled to one vote
for each share held, subject to the right of shareholders to cumulate their
votes for the election of directors. During the five-year period after the
effective date of the Conversion, cumulation of votes will not be permitted.
See "Restrictions on Acquisition of the Company and the Association -
Anti-Takeover Effects of the Company's Certificate of Incorporation and Bylaws
and Management Remuneration Adopted in Conversion."
LIQUIDATION. In the event of any liquidation, dissolution, or winding up
of the Association, the holders of common stock will be entitled to receive,
after payment of all debts and liabilities of the Association (including all
deposit accounts and accrued interest thereon), and distribution of the balance
in the special liquidation account to Eligible Account Holders and Supplemental
Eligible Account Holders,
116
<PAGE>
all assets of the Association available for distribution in cash or in kind. If
additional preferred stock is issued subsequent to the Conversion, the holders
thereof may also have priority over the holders of common stock in the event of
liquidation or dissolution.
PREEMPTIVE RIGHTS; REDEMPTION. Holders of the common stock of the
Association will not be entitled to preemptive rights with respect to any shares
of the Association which may be issued. The common stock will not be subject to
redemption. Upon receipt by the Association of the full specified purchase
price therefor, the common stock will be fully paid and non-assessable.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is
_____________________.
EXPERTS
The consolidated financial statements of the Association and its
subsidiaries as of September 30, 1995 and 1994 and for each of the years in the
three-year period ended September 30, 1995, have been included herein in
reliance upon the report of Lentol, Violet, Kienitz & Company, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
Keller & Company, Inc. has consented to the publication herein of the
summary of its report to the Association and Company setting forth its opinion
as to the estimated pro forma market value of the Common Stock upon Conversion
and its valuation with respect to subscription rights.
LEGAL AND TAX OPINIONS
The legality of the Common Stock and the federal income tax consequences of
the Conversion will be passed upon for the Association and the Company by
Muldoon, Murphy & Faucette, Washington, D.C., special counsel to the Association
and the Company. Muldoon, Murphy & Faucette will rely as to certain matters of
Delaware law on the opinion of Morris, Nichols, Arsht & Tunnell. The State of
Ohio tax consequences of the Conversion will be passed upon for the Association
and the Company by Crowe, Chizek and Company LLP.
ADDITIONAL INFORMATION
The Company has filed with the SEC a registration statement under the
Securities Act with respect to the Common Stock offered hereby. As permitted by
the rules and regulations of the SEC, this Prospectus does not contain all the
information set forth in the registration statement. Such information and all
exhibits to the Registration Statement, can be examined without charge at the
public reference facilities of the SEC located at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies of such material can be obtained from the SEC
at prescribed rates. The statements contained in this Prospectus as to the
contents of any contract or other document field as an exhibit to the
registration statement are, of necessity, brief descriptions thereof and are not
necessarily complete; each such statement is qualified by reference to such
contract or document.
The Association has filed an application for conversion with the OTS with
respect to the Conversion. Pursuant to the rules and regulations of the OTS,
this Prospectus omits certain information contained in that application. The
application may be examined at the principal office of the OTS, 1700
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<PAGE>
G Street, N.W., Washington, D.C. 20552 and at the Office of the Regional
Director of the OTS located at 200 West Madison Street, Suite 1300, Chicago,
Illinois 60606.
In connection with the Conversion, the Company will register its Common
Stock with the SEC under Section 12(g) of the Exchange Act, and, upon such
registration, the Company and the holders of its stock will become subject to
the proxy solicitation rules, reporting requirements and restrictions on stock
purchases and sales by directors, officers and greater than 10% stockholders,
the annual and periodic reporting and certain other requirements of the Exchange
Act. Under the Plan, the Company has undertaken that it will not terminate such
registration for a period of at least three years following the Conversion. In
the event that the Association amends the Plan to eliminate the concurrent
formation of the Company as part of the Conversion, the Association will
register its stock with the OTS under Section 12(g) of the Exchange Act and,
upon such registration, the Association and the holders of its stock will become
subject to the same obligations and restrictions.
A copy of the Certificate of Incorporation and the Bylaws of the Company
and the Federal Stock Charter and Bylaws of the Association are available
without charge from the Association.
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<PAGE>
CITIZENS FEDERAL SAVINGS AND LOAN ASSOCIATION
FINANCIAL STATEMENTS
<PAGE>
CITIZENS FEDERAL SAVINGS AND LOAN ASSOCIATION
Delphos, Ohio
FINANCIAL STATEMENTS
CONTENTS
REPORT OF INDEPENDENT ACCOUNTANTS ......................... F-2
FINANCIAL STATEMENTS
Statements of Financial Condition........................ F-3
Statements of Income..................................... F-4
Statements of Retained Earnings.......................... F-5
Statements of Cash Flows................................. F-6
Notes to Financial Statements............................ F-8
All schedules are omitted because the required information is not applicable
or is included in the financial statements and related notes.
The financial statements of the Holding Company have been omitted because the
Holding Company has not issued any stock, has no assets, no liabilities and
has not conducted any business other than of an organizational nature.
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Citizens Federal Savings
and Loan Association
Delphos, Ohio
We have audited the accompanying statements of financial condition of
Citizens Federal Savings and Loan Association (the Association), Delphos,
Ohio, as of September 30, 1995 and 1994, and the related statements of
income, retained earnings, and cash flows for each of the three fiscal years
in the period ended September 30, 1995. These financial statements are the
responsibility of the Association's management. Our responsibility is to
express an opinion on these 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 financial statements referred to above present fairly, in
all material respects, the financial position of Citizens Federal Savings and
Loan Association as of September 30, 1995 and 1994, and the results of their
operations and their cash flows for each of the three fiscal years in the
period ended September 30, 1995, in conformity with generally accepted
accounting principles.
Lentol, Violet, Kienitz & Company
Lima, Ohio
November 15, 1995,
except for Note 1, as to
which the date is July 2, 1996.
- --------------------------------------------------------------------------------
F-2
<PAGE>
CITIZENS FEDERAL SAVINGS AND LOAN ASSOCIATION
STATEMENTS OF FINANCIAL CONDITION
MAY 31, 1996 (UNAUDITED) AND SEPTEMBER 30, 1995 AND 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAY 31, SEPTEMBER 30,
------- --------------------------
1996 1995 1994
---- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and amounts due from
depository institutions $ 1,611,972 $ 334,045 $ 325,567
Interest-bearing deposits in other banks 3,218,190 3,923,027 6,004,927
----------- ----------- -----------
Total cash and cash equivalents 4,830,162 4,257,072 6,330,494
Investment securities held to maturity
(estimated fair value of $500,000 in 1996,
$505,313 in 1995 and $503,281 in 1994)
(Note 2) 500,000 500,000 500,000
Mortgage-backed securities available
for sale (Notes 2 and 3) 775,139
Mortgage-backed securities held to
maturity (estimated fair value of
$14,278,886 in 1996, $17,828,745 in 1995,
and $17,163,593 in 1994) (Note 3) 14,146,029 17,420,613 17,754,714
Loans receivable, net (Note 4) 69,636,864 64,042,689 56,451,440
FHLB stock, at cost 764,400 725,600 569,800
Accrued interest receivable (Note 5) 263,578 254,738 170,021
Premises and equipment 709,887 724,708 756,883
Other assets 70,490 97,070 79,646
----------- ----------- -----------
$91,696,549 $88,022,490 $82,612,998
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES
Deposits (Note 7) $79,097,288 $76,664,442 $72,255,026
Escrow accounts 275,077 208,686 184,046
Accrued interest payable 481,359 23,536 27,903
Accrued expenses and other liabilities 476,199 326,940 291,342
----------- ----------- -----------
Total liabilities 80,329,923 77,223,604 72,758,317
Commitments and contingencies
(Notes 10 and 13)
RETAINED EARNINGS
Retained earnings - substantially
restricted (Notes 9 and 12) 11,381,128 10,798,886 9,854,681
Unrealized loss on securities available
for sale, net of tax (14,502)
----------- ----------- -----------
Total retained earnings 11,366,626 10,798,886 9,854,681
----------- ----------- -----------
$91,696,549 $88,022,490 $82,612,998
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
F-3
<PAGE>
CITIZENS FEDERAL SAVINGS AND LOAN ASSOCIATION
STATEMENTS OF INCOME
EIGHT MONTHS ENDED MAY 31, 1996 AND 1995 (UNAUDITED) AND
YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EIGHT MONTHS
ENDED MAY 31, YEARS ENDED SEPTEMBER 30,
------------------------ --------------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
First mortgage loans $3,332,510 $2,928,841 $4,503,056 $3,870,470 $3,923,619
Consumer and other loans 68,891 51,507 83,978 129,731 126,526
Investment securities 15,902 12,770 21,133 17,162 45,616
Mortgage-backed and
related securities 798,488 845,323 1,276,199 991,911 931,107
Dividends on FHLB stock 38,908 27,552 39,344 26,945 23,302
Other interest - earning assets 162,210 193,801 293,674 387,880 331,958
---------- ---------- ---------- ---------- ----------
Total interest income 4,416,909 4,059,794 6,217,384 5,424,099 5,382,128
INTEREST EXPENSE
Deposits (Note 7) (2,676,059) (2,324,947) (3,601,490) (2,951,663) (3,027,247)
---------- ---------- ---------- ---------- ----------
NET INTEREST INCOME 1,740,850 1,734,847 2,615,894 2,472,436 2,354,881
Provision for loan losses 60,000 25,000
---------- ---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,740,850 1,734,847 2,615,894 2,412,436 2,329,881
---------- ---------- ---------- ---------- ----------
NON-INTEREST INCOME
Service charges and fees 134,284 69,715 123,623 220,662 279,113
Gain on sale of securities 8,259
Other non-interest income 16,632 18,783 27,290 40,404 55,619
---------- ---------- ---------- ---------- ----------
Total non-interest income 159,175 88,498 150,913 261,066 334,732
---------- ---------- ---------- ---------- ----------
NON-INTEREST EXPENSE
Compensation and benefits (Note 8) 441,178 380,580 552,215 524,240 497,112
Occupancy and equipment 49,443 46,982 88,042 78,784 106,015
FDIC premium 117,617 109,849 166,347 156,096 133,560
Data processing and maintenance 106,317 89,420 146,234 147,898 134,924
Franchise taxes 109,019 99,013 150,438 134,861 119,430
Loss on sale of asset 7,678
Other non-interest expense 194,209 158,917 238,574 242,075 230,778
---------- ---------- ---------- ---------- ----------
Total non-interest expense 1,017,783 884,761 1,341,850 1,283,954 1,229,497
---------- ---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 882,242 938,584 1,424,957 1,389,548 1,435,116
Income tax expense (Note 9) 300,000 319,119 480,752 477,504 464,565
---------- ---------- ---------- ---------- ----------
NET INCOME $ 582,242 $ 619,465 $ 944,205 $ 912,044 $ 970,551
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
F-4
<PAGE>
CITIZENS FEDERAL SAVINGS AND LOAN ASSOCIATION
STATEMENTS OF RETAINED EARNINGS
EIGHT MONTHS ENDED MAY 31, 1996 (UNAUDITED) AND
YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNREALIZED LOSS
ON SECURITIES TOTAL
AVAILABLE FOR SALE, RETAINED
RETAINED EARNINGS NET OF TAX EARNINGS
----------------- ------------------- -----------
<S> <C> <C> <C>
Balance, October 1, 1992 $ 7,972,086 $7,972,086
Net income 970,551 970,551
----------- ----------
Balance, September 30, 1993 8,942,637 8,942,637
Net income 912,044 912,044
----------- ----------
Balance, September 30, 1994 9,854,681 9,854,681
Net income 944,205 944,205
----------- ----------
Balance, September 30, 1995 10,798,886 10,798,886
Unrealized loss on available for sale
securities (unaudited) $(14,502) (14,502)
Net income for the eight months ended
May 31, 1996 (unaudited) 582,242 582,242
----------- -------- ----------
Balance, May 31, 1996 (unaudited) $11,381,128 $(14,502) $11,366,626
----------- -------- ----------
----------- -------- ----------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
F-5
<PAGE>
CITIZENS FEDERAL SAVINGS AND LOAN ASSOCIATION
STATEMENTS OF CASH FLOWS
EIGHT MONTHS ENDED MAY 31, 1996 AND 1995 (UNAUDITED) AND
YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EIGHT MONTHS
ENDED MAY 31, YEARS ENDED SEPTEMBER 30,
-------------------------- ----------------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 582,242 $ 619,465 $ 944,205 $ 912,044 $ 970,551
Adjustments to reconcile net
income to net cash provided by
operating activities:
Amortization of deferred loan
origination fees 1,326 1,381 (7,237) (24,848) (44,572)
Premiums and discounts on loans
and mortgage-backed and related
securities (14,154) (11,034) (21,904) (16,669) (9,988)
Provision for loan losses 60,000 25,000
Stock dividends from FHLB (38,800) (27,400) (39,100) (26,800) (27,600)
Gain on sale of securities (8,259)
Depreciation and amortization of
premises and equipment 25,800 25,514 51,570 49,147 48,037
Deferred taxes 14,044 34,646 27,340 47,654 77,637
Net gain on sale of assets 7,678
Increase (decrease) in:
Accrued interest receivable (8,840) (41,865) (81,280) (30,142) 9,208
Other assets 26,580 (42,592) (17,424) (6,028) (6,976)
Interest payable 457,823 407,185 (4,367) (7,136) (34,627)
Accrued expenses and
other liabilities 142,686 52,704 52,656 10,332 (8,581)
----------- ----------- ----------- ------------ -----------
Net cash from operating
activities 1,180,448 1,018,004 904,459 967,554 1,005,767
----------- ----------- ----------- ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Mortgage-backed securities
available for sale
Proceeds from sales 763,370
Proceeds from paydowns 41,213
Investment and mortgage-backed
securities held to maturity
Purchases (990,000) (990,000) (9,962,011) (3,946,978)
Proceeds from calls, maturities
and paydowns 1,695,302 785,227 1,285,001 3,055,928 3,250,010
Purchases of FHLB stock (116,700) (116,700)
Loan originations net of principal
payment on loans (5,595,501) (4,250,953) (7,570,243) (8,696,265) (1,064,803)
Purchases of premises and equipment (10,979) (10,782) (19,995) (45,609) (184,204)
----------- ----------- ----------- ------------ -----------
Net cash used in investing
activities (3,106,595) (4,583,208) (7,411,937) (15,647,957) (1,945,975)
----------- ----------- ----------- ------------ -----------
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-6
<PAGE>
CITIZENS FEDERAL SAVINGS AND LOAN ASSOCIATION
STATEMENTS OF CASH FLOWS (CONTINUED)
EIGHT MONTHS ENDED MAY 31, 1996 AND 1995 (UNAUDITED) AND
YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EIGHT MONTHS
ENDED MAY 31, YEARS ENDED SEPTEMBER 30,
-------------------------- ----------------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit accounts $ 2,432,846 $ 3,486,138 $ 4,409,416 $ 4,014,187 $ 8,268,149
Net increase in mortgage escrow
funds 66,391 79,824 24,640 27,718 13,076
----------- ----------- ----------- ------------ -----------
Net cash from financing activities 2,499,237 3,565,962 4,434,056 4,041,905 8,281,225
----------- ----------- ----------- ------------ -----------
Net increase/(decrease) in cash and
cash equivalents 573,090 758 (2,073,422) (10,638,498) 7,341,017
Cash and cash equivalents at
beginning of period 4,257,072 6,330,494 6,330,494 16,968,992 9,627,975
Cash and cash equivalents at
end of period $ 4,830,162 $ 6,331,252 $ 4,257,072 $ 6,330,494 $16,968,992
----------- ----------- ----------- ------------ -----------
----------- ----------- ----------- ------------ -----------
Supplemental disclosures
Cash paid for:
Interest on deposits $ 2,218,236 $ 1,917,762 $ 3,605,857 $ 2,958,799 $ 3,061,874
----------- ----------- ----------- ------------ -----------
----------- ----------- ----------- ------------ -----------
Income taxes $ 174,741 $ 190,454 $ 442,954 $ 436,500 $ 404,752
----------- ----------- ----------- ------------ -----------
----------- ----------- ----------- ------------ -----------
Noncash transactions:
Transfer of mortgage-backed
securities to available for sale $ 1,607,975
-----------
-----------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
F-7
<PAGE>
CITIZENS FEDERAL SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995 (UNAUDITED) AND SEPTEMBER 30, 1995, 1994 AND 1993
- -------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION: Citizens Federal Savings and Loan Association is a
federally-chartered mutual thrift association located in Delphos, Ohio. The
Association originates and holds primarily residential and consumer loans to
customers throughout the Allen and Van Wert County area in Northwest Ohio.
The Association's primary deposit products are interest-bearing checking
accounts and certificates of deposit. There are no branch operations.
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 disclosures 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 allowance
for losses on loans and foreclosed real estate, management obtains
independent appraisals for significant properties.
CASH AND CASH EQUIVALENTS: For purposes of reporting cash flows, cash and
cash equivalents include cash on hand, deposits with financial institutions
and overnight deposits. The Association reports net cash flows for customer
loan and deposit transactions. Cash equivalents of $4,444,674 at May 31,
1996, and $3,941,959 and $6,029,927 at September 30, 1995 and 1994,
respectively, consist of funds due from banks. The Association considers all
highly liquid debt instruments with original maturities when purchased of
three months or less to be cash equivalents.
SECURITIES: Effective October 1, 1994, the Association adopted the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 115
"Accounting for Certain Investments in Debt and Equity Securities." This
accounting guidance requires the Corporation to classify debt and marketable
equity securities as held to maturity, trading or available for sale. Prior
to the adoption of SFAS No. 115, the Association classified securities at
amortized cost.
Securities classified as held to maturity are those that management has the
positive intent and ability to hold to maturity. Securities held to maturity
are stated at cost, adjusted for amortization of premiums and accretion of
discounts.
- -------------------------------------------------------------------------------
(Continued)
F-8
<PAGE>
CITIZENS FEDERAL SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995 (UNAUDITED) AND SEPTEMBER 30, 1995, 1994 AND 1993
- -------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Securities classified as available for sale are those that management intends
to sell or that could be sold for liquidity, investment management, or
similar reasons, even if there is not a present intention for such a sale.
Securities available for sale are carried at fair value with unrealized gains
and losses included as a separate component of member's equity, net of tax.
Gains or losses on dispositions are based on net proceeds and the adjusted
carrying amount of securities sold, using the specific identification method.
At May 31, 1996, and September 31, 1995, the Association had no outstanding
commitments to sell loans or securities.
LOANS RECEIVABLE: Loans receivable are stated at unpaid principal balances,
less the allowance for loan losses, and net deferred loan origination fees.
The allowance for loan losses is increased by charges to income and decreased
by charge-offs (net of recoveries). Management's periodic evaluation of the
adequacy of the allowance is based on the Association's past loan loss
experience, known and inherent risks in the portfolio, adverse situations
that may affect the collateral, and current economic conditions.
Uncollectible interest on loans that are contractually past due is charged
off, or an allowance is established based on management's periodic
evaluation. The allowance is established by a charge to interest income
equal to all interest previously accrued and unpaid, and income is
subsequently recognized only to the extent that cash payments are received
until, in management' judgment, the borrower's ability to make periodic
interest and principal payments is back to normal, in which case the loan is
returned to accrual status.
On October 1, 1995, the Association adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan." Under this standard, loans considered
to be impaired, as identified according to internal loan review standards,
are reduced to the present value of expected future cash flows or to the fair
value of collateral by allocating a portion of the allowance for loan losses
to such loans. If these allocations cause the allowance for loan losses to
require an increase, such an increase will be reported as a provision for
loan losses charged to operations. The effect of adopting this standard did
not materially affect the allowance for loan losses at October 1, 1995 or at
May 31, 1996.
Management analyzes loans on an individual basis and classifies a loan as
impaired when an analysis of the borrower's operating results and financial
condition indicates that underlying cash flows are not adequate to meet its
debt service requirements. Often this is associated with a delay or
shortfall in payments of 30 days or more. Smaller balance homogeneous loans
are evaluated for impairment in total. Such loans include residential first
mortgage loans secured by one to four family residences, residential
construction loans, home equity, and other consumer loans, with balances less
than $200 thousand. Loans are generally moved to non-accrual status when 90
days or more past due. These loans may also be considered impaired.
- -------------------------------------------------------------------------------
(Continued)
F-9
<PAGE>
CITIZENS FEDERAL SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995 (UNAUDITED) AND SEPTEMBER 30, 1995, 1994 AND 1993
- -------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Impaired loans, or portions thereof, are charged off when deemed
uncollectible. The nature of the disclosures for impaired loans is considered
generally comparable to prior nonaccrual loans and non-performing and past
due asset disclosures. The adoption of SFAS No. 114 had no impact on the
comparability of the May 31, 1996 allowance for loan losses to prior periods.
LOAN FEES AND COSTS: Loan fees and costs are deferred, and are recognized as
an adjustment to interest income using the interest method over the
contractual life of the loans, adjusted for estimated prepayments based on
the Association's historical prepayment experience.
REAL ESTATE HELD FOR INVESTMENT AND FORECLOSED REAL ESTATE: Real estate
properties acquired through, or in lieu of, loan foreclosure are initially
recorded at fair value at the date of foreclosure. Real estate properties
held for investment are carried at the lower of cost, including cost of
improvements and amenities incurred subsequent to acquisition, or net
realizable value. Costs related to development and improvement of property
are capitalized, whereas costs related to the holding of property are
expensed. The portion of interest costs related to the development of real
estate is capitalized.
Valuations are periodically performed by management, and an allowance for
losses is established by a charge to operations if the carrying value of a
property exceeds its estimated net realizable value. At May 31, 1996 and
September 30, 1995, the Association held no real estate for investment or
foreclosed real estate.
INCOME TAXES: Beginning October 1, 1993, the Association adopted SFAS No.
109, "Accounting for Income Taxes". SFAS No. 109 requires the liability
method in accounting for income taxes. The liability method provides that
deferred tax assets and liabilities are recorded based on the difference
between the tax basis of assets and liabilities and their carrying amounts
for financial reporting purposes, referred to as "temporary differences."
Previously, the Association computed deferred taxes for the tax effects of
timing differences between financial reporting and tax return income.
PREMISES AND EQUIPMENT: Land is carried at cost. Buildings, furniture and
fixtures, and equipment are carried at cost, less accumulated depreciation.
Buildings, furniture and fixtures, and equipment are depreciated using
straight-line and accelerated methods over the estimated useful lives of the
respective assets, which range from five to forty years.
BASIS OF PRESENTATION: In connection with the Association's initial public
offering, the Association retroactively restated its financial statements for
all periods presented to reflect certain immaterial amounts to conform with
accounting methods in future periods.
- -------------------------------------------------------------------------------
(Continued)
F-10
<PAGE>
CITIZENS FEDERAL SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995 (UNAUDITED) AND SEPTEMBER 30, 1995, 1994 AND 1993
- -------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
INTERIM FINANCIAL INFORMATION: The unaudited statement of financial
condition as of May 31, 1996 and the related unaudited statements of income,
members' equity and cash flows for the eight months ended May 31, 1996 and
1995 have been prepared in a manner consistent with the audited financial
information presented. Management believes that all adjustments, which were
all of a normal and recurring nature, have been recorded to the best of its
knowledge and that the unaudited financial information fairly presents the
financial position and results of operations and cash flows of the
Association in accordance with generally accepted accounting principles.
NOTE 2 - INVESTMENT SECURITIES
The carrying value and estimated fair values of investment securities
held-to-maturity at May 31, 1996 (unaudited) are summarized as follows:
ESTIMATED
CARRYING FAIR
VALUE VALUE
----- -----
FHLB debt securities $ 500,000 $ 500,000
--------- ---------
--------- ---------
At May 31, 1996, the Association held one FHLB variable rate bond with an
expected maturity date of October 1, 1996.
There were no sales of investment securities during the eight months ended
May 31, 1996 and 1995.
The carrying values and estimated fair values of investment securities
held-to-maturity at September 30 are summarized as follows:
1995 1994
---------------------- -----------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
----- ----- ----- -----
FHLB debt securities $ 500,000 $ 505,313 $ 500,000 $ 503,281
--------- --------- --------- ---------
--------- --------- --------- ---------
At September 30, 1995, the Association held one FHLB variable rate bond with
an expected maturity date of October 1, 1996.
There were no sales of investment securities or transfers between
classifications during the years ended September 30, 1995 and 1994.
- -------------------------------------------------------------------------------
(Continued)
F-11
<PAGE>
CITIZENS FEDERAL SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995 (UNAUDITED) AND SEPTEMBER 30, 1995, 1994 AND 1993
- -------------------------------------------------------------------------------
NOTE 3 - MORTGAGE-BACKED SECURITIES
The carrying values and estimated fair values of mortgage-backed securities
are summarized as follows:
<TABLE>
<CAPTION>
MAY 31, 1996 (UNAUDITED)
-------------------------------------------------------------------------
NET ESTIMATED
PRINCIPAL UNAMORTIZED UNEARNED AMORTIZED FAIR
BALANCE PREMIUMS DISCOUNTS BALANCE VALUE
------- -------- --------- ------- -----
<S> <C> <C> <C> <C> <C>
HELD TO MATURITY
GNMA certificates $ 14,036,034 $ 2,941 $ (121,932) $ 13,917,043 $ 14,039,708
FHLMC certificates 229,318 (332) 228,986 239,178
------------ -------- ---------- ------------ ------------
$ 14,265,352 $ 2,941 $ (122,264) $ 14,146,029 $ 14,278,886
------------ -------- ---------- ------------ ------------
------------ -------- ---------- ------------ ------------
AVAILABLE FOR SALE
GNMA certificates $ 797,582 $ (470) $ 797,112 $ 775,139
------------ ---------- ------------ ------------
------------ ---------- ------------ ------------
SEPTEMBER 30, 1995
-------------------------------------------------------------------------
NET ESTIMATED
PRINCIPAL UNAMORTIZED UNEARNED AMORTIZED FAIR
BALANCE PREMIUMS DISCOUNTS BALANCE VALUE
------- -------- --------- ------- -----
HELD TO MATURITY
GNMA certificates $ 17,266,599 $ 3,416 $ (136,791) $ 17,133,224 $ 17,529,325
FHLMC certificates 287,960 (571) 287,389 299,420
------------ -------- ---------- ------------ ------------
$ 17,554,559 $ 3,416 $ (137,362) $ 17,420,613 $ 17,828,745
------------ -------- ---------- ------------ ------------
------------ -------- ---------- ------------ ------------
SEPTEMBER 30, 1994
-------------------------------------------------------------------------
NET ESTIMATED
PRINCIPAL UNAMORTIZED UNEARNED AMORTIZED FAIR
BALANCE PREMIUMS DISCOUNTS BALANCE VALUE
------- -------- --------- ------- -----
HELD TO MATURITY
GNMA certificates $ 17,547,960 $ 4,364 $ (147,969) $ 17,404,355 $ 16,802,452
FHLMC certificates 351,407 (1,048) 350,359 361,141
------------ -------- ---------- ------------ ------------
$ 17,899,367 $ 4,364 $ (149,017) $ 17,754,714 $ 17,163,593
------------ -------- ---------- ------------ ------------
------------ -------- ---------- ------------ ------------
</TABLE>
- -------------------------------------------------------------------------------
(Continued)
F-12
<PAGE>
CITIZENS FEDERAL SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995 (UNAUDITED) AND SEPTEMBER 30, 1995, 1994 AND 1993
- -------------------------------------------------------------------------------
NOTE 3 - MORTGAGE-BACKED SECURITIES (Continued)
Unrealized gains and losses on mortgage-backed securities are summarized as
follows:
<TABLE>
<CAPTION>
MAY 31, 1996 (UNAUDITED)
---------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
<S> <C> <C> <C> <C>
Available for sale $ 797,112 $ 21,973 $ 775,139
Held to maturity 14,146,029 $ 319,539 186,682 14,278,886
SEPTEMBER 30, 1995
---------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
Held to maturity $ 17,420,613 $ 468,851 $ 60,719 $ 17,828,745
SEPTEMBER 30, 1994
---------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
Held to maturity $ 17,754,714 $ 203,842 $ 794,963 $ 17,163,593
</TABLE>
During the eight months ended May 31, 1996, the Association reclassified
mortgage-backed securities with an amortized cost of $1,607,975 from held to
maturity to available for sale. The securities were transferred in November,
1995, as allowed by the Statement of Financial Accounting Standards No. 115
implementation guide issued by the Financial Accounting Standards Board, with
the related unrealized gain of $6,818 recorded net of tax as an increase in
retained earnings.
Proceeds from the sale of mortgage-backed securities during the eight months
ended May 31, 1996 were $763,370. Gross gains of $8,259 were realized on
these sales. There were no sales of mortgage-backed securities during the
eight months ended May 31, 1995 or for the years ended September 30, 1995,
1994 and 1993.
- -------------------------------------------------------------------------------
(Continued)
F-13
<PAGE>
CITIZENS FEDERAL SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995 (UNAUDITED) AND SEPTEMBER 30, 1995, 1994 AND 1993
- -------------------------------------------------------------------------------
NOTE 4 - LOANS RECEIVABLE
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
MAY 31, ----------------------------
1996 1995 1994
---- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
First mortgage loans $ 71,446,018 $ 65,787,027 $ 57,487,458
Less:
Mortgage loans in process (3,604,526) (3,712,057) (2,706,474)
Net deferred loan origination fees (48,436) (47,110) (49,092)
------------ ------------ ------------
67,793,056 62,027,860 54,731,892
------------ ------------ ------------
Consumer and other loans
Manufactured homes 65,228 90,005 95,950
Home equity loans 914,532 1,012,926 953,881
Unsecured loans 232,721 237,085 133,054
Other consumer loans 738,683 787,619 650,417
------------ ------------ ------------
1,951,164 2,127,635 1,833,302
Less: Non-mortgage loans in process (14,996) (20,446) (21,394)
------------ ------------ ------------
1,936,168 2,107,189 1,811,908
------------ ------------ ------------
Less: Allowance for loan losses (92,360) (92,360) (92,360)
------------ ------------ ------------
$ 69,636,864 $ 64,042,689 $ 56,451,440
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
EIGHT MONTHS
ENDED MAY 31, YEARS ENDED SEPTEMBER 30,
--------------------------- ---------------------------------------
1996 1995 1995 1994 1993
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $ 92,360 $ 92,360 $ 92,360 $ 32,360 $ 28,726
Provision charged to income 60,000 25,000
Charge-offs (21,366)
--------- --------- ---------- ---------- ----------
Balance at end of period $ 92,360 $ 92,360 $ 92,360 $ 92,360 $ 32,360
--------- --------- ---------- ---------- ----------
--------- --------- ---------- ---------- ----------
</TABLE>
- -------------------------------------------------------------------------------
(Continued)
F-14
<PAGE>
CITIZENS FEDERAL SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995 (UNAUDITED) AND SEPTEMBER 30, 1995, 1994 AND 1993
- -------------------------------------------------------------------------------
NOTE 4 - LOANS RECEIVABLE (Continued)
As of and for the eight months ended May 31, 1996, there were no impaired
loans. Loans on non-accrual status at May 31, 1996 were $316,450. Nonaccrual
and renegotiated loans for which interest has been reduced totaled
approximately $231,012, $238,209 and $458,282 at September 30, 1995, 1994 and
1993, respectively. Interest income foregone under the original terms of the
loans was $6,599 and $4,482 for the eight months ended May 31, 1996 and 1995,
respectively, and $5,780, $15,142, and $15,158 for the years ended September
30, 1995, 1994 and 1993, respectively. The Association is not committed to
lend additional funds to debtors whose loans have been modified.
In the ordinary course of business, the Association has and expects to
continue to have transactions, including borrowings, with its officers,
directors and their affiliates. In the opinion of management, such
transactions were on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions
with other persons and did not involve more than a normal risk of
collectibility or present any other unfavorable features to the Association.
Loans to such borrowers, which in the aggregate exceeded $60,000 at May 31,
1996 and September 30, 1995, are summarized as follows:
MAY 31, SEPTEMBER 30,
1996 1995
---- ----
(UNAUDITED)
Balance at beginning of period $ 350,722 $ 104,926
New loans 260,288
Payments (119,471) (14,492)
----------- -----------
Balance at end of period $ 231,251 $ 350,722
----------- -----------
----------- -----------
NOTE 5 - ACCRUED INTEREST RECEIVABLE
Accrued interest receivable is summarized as follows:
SEPTEMBER 30,
MAY 31, ------------------------
1996 1995 1994
---- ---- ----
(UNAUDITED)
Investment securities $ 3,809 $ 5,847 $ 4,085
Mortgage-backed securities 94,093 103,896 102,927
Loans receivable 165,676 144,995 63,009
--------- --------- ---------
$ 263,578 $ 254,738 $ 170,021
--------- --------- ---------
--------- --------- ---------
- -------------------------------------------------------------------------------
(Continued)
F-15
<PAGE>
CITIZENS FEDERAL SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL CONDITION
MAY 31, 1996 AND 1995 (UNAUDITED) AND SEPTEMBER 30, 1995, 1994 AND 1993
- --------------------------------------------------------------------------------
NOTE 6 - PREMISES AND EQUIPMENT
Premises and equipment is summarized as follows:
MAY 31, SEPTEMBER 30,
----------- ------------------------
1996 1995 1994
---- ---- ----
(UNAUDITED)
Land and parking lot $ 175,654 $ 175,654 $ 175,654
Building and improvements 643,190 643,190 633,743
Furniture and equipment 295,403 284,423 274,476
---------- ---------- ----------
1,114,247 1,103,267 1,083,873
Accumulated depreciation (404,360) (378,559) (326,990)
---------- ---------- ----------
$ 709,887 $ 724,708 $ 756,883
---------- ---------- ----------
---------- ---------- ----------
Depreciation expense charged to earnings was $25,800 and $25,514 for the
eight months ended May 31, 1996 and 1995, respectively, and $51,570, $49,147
and $48,037 for the years ended September 30, 1995, 1994 and 1993,
respectively.
NOTE 7 - DEPOSITS
<TABLE>
<CAPTION>
MAY 31, SEPTEMBER 30,
--------------------- ---------------------------------------------
1996 1995 1994
--------------------- --------------------- ---------------------
AMOUNT % AMOUNT % AMOUNT %
------ - ------ - ------ -
(UNAUDITED)
-----------
<S> <C> <C> <C> <C> <C> <C>
Demand and NOW accounts $ 4,510,249 5.70% $ 4,779,806 6.23% $ 4,166,085 5.77%
Money market 8,644,716 10.93 9,492,767 12.38 15,387,236 21.30
Savings and club accounts 8,820,135 11.15 8,426,231 10.99 8,852,722 12.25
----------- ------ ----------- ------ ----------- ------
21,975,100 27.78 22,698,804 29.60 28,406,043 39.32
Certificates:
3.00% to 3.99% 14,747 .02 14,511 .02 6,635,849 9.18
4.00% to 4.99% 3,625,993 4.58 3,594,831 4.69 7,083,707 9.80
5.00% to 5.99% 29,420,741 37.20 16,711,033 21.80 22,841,774 31.61
6.00% to 6.99% 19,878,043 25.13 29,402,728 38.35 6,902,956 9.55
7.00% to 7.99% 4,149,909 5.25 4,205,353 5.49 275,023 .38
8.00% to 8.99% 32,755 .04 37,182 .05 109,674 .16
----------- ------ ----------- ------ ----------- ------
57,122,188 72.22 53,965,638 70.40 43,848,983 60.68
----------- ------ ----------- ------ ----------- ------
$79,097,288 100.00% $76,664,442 100.00% $72,255,026 100.00%
----------- ------ ----------- ------ ----------- ------
----------- ------ ----------- ------ ----------- ------
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-16
<PAGE>
CITIZENS FEDERAL SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL CONDITION
MAY 31, 1996 AND 1995 (UNAUDITED) AND SEPTEMBER 30, 1995, 1994 AND 1993
- --------------------------------------------------------------------------------
NOTE 7 - DEPOSITS (Continued)
The aggregate amount of short-term certificates of deposits with a minimum
denomination of $100,000 was approximately $4,059,000 at May 31, 1996,
$4,150,000 at September 30, 1995 and $4,148,000 at September 30, 1994.
At May 31, 1996, the scheduled maturities of certificates of deposits are as
follows (unaudited):
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 THEREAFTER
---- ---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
3.00% to 3.99% $ 14,747 $ -- $ -- $ -- $ -- $ --
4.00% to 4.99% 3,625,993 -- -- -- -- --
5.00% to 5.99% 17,779,144 7,023,728 4,342,590 25,079 250,200 --
6.00% to 6.99% 18,459,438 796,247 15,103 509,067 98,188 --
7.00% to 7.99% 4,029,370 63,926 51,613 5,000 -- --
8.00% to 8.99% -- -- -- -- -- 32,755
----------- ---------- ---------- -------- -------- -------
$43,908,692 $7,883,901 $4,409,306 $539,146 $348,388 $32,755
----------- ---------- ---------- -------- -------- -------
----------- ---------- ---------- -------- -------- -------
</TABLE>
At September 30, 1995, the scheduled maturities of certificates of deposits
are as follows:
<TABLE>
<CAPTION>
2000 AND
1996 1997 1998 1999 THEREAFTER
---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C>
3.00% to 3.99% $ 14,511 $ -- $ -- $ -- $ --
4.00% to 4.99% 2,565,404 1,029,427 -- -- --
5.00% to 5.99% 10,259,466 2,752,688 1,559,411 2,082,396 57,072
6.00% to 6.99% 15,169,057 13,082,794 551,569 375,452 223,856
7.00% to 7.99% 159,125 3,996,458 48,770 1,000 --
8.00% to 8.99% -- -- -- -- 37,182
----------- ----------- ---------- ---------- --------
$28,167,563 $20,861,367 $2,159,750 $2,458,848 $318,110
----------- ----------- ---------- ---------- --------
----------- ----------- ---------- ---------- --------
</TABLE>
Interest expense on deposits is summarized as follows:
<TABLE>
<CAPTION>
EIGHT MONTHS ENDING YEAR ENDING
MAY 31, SEPTEMBER 30,
----------------------- -------------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Money market $ 178,349 $ 296,376 $ 399,912 $ 760,718 $ 645,011
Savings accounts 166,365 197,128 285,078 327,246 321,605
NOW and demand
accounts 61,346 77,683 109,163 115,713 131,691
Club accounts 1,926 1,865 1,865 1,803 1,818
Certificates of deposit 2,268,073 1,751,895 2,805,472 1,746,183 1,927,122
---------- ---------- ---------- ---------- ----------
$2,676,059 $2,324,947 $3,601,490 $2,951,663 $3,027,247
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-17
<PAGE>
CITIZENS FEDERAL SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL CONDITION
MAY 31, 1996 AND 1995 (UNAUDITED) AND SEPTEMBER 30, 1995, 1994 AND 1993
- --------------------------------------------------------------------------------
NOTE 8 - PENSION PLAN
The Association participated in a defined benefit pension plan for the
benefit of all eligible employees until the plan was terminated by the Board
on May 31, 1994. The insurance plans that were used to fund the plan were
cashed in on their anniversary date, August 1, 1994. The cash value of
policies were transferred to the Huntington National Bank Trust Department
where they are earning interest until the assets can be distributed, upon
approval of termination by the Internal Revenue Service.
During 1994, the Association implemented a 401(k) profit sharing plan for all
eligible employees. Employees are eligible to participate in the plan if
they have been employed by the Association for one-half year and have
attained age twenty and one-half. Generally, employees can defer up to 10%
of their compensation into the plan, not to exceed $9,500 for 1996
(unaudited), and $9,240 for 1995 and 1994. The Association can make a
matching discretionary contribution equal to a percentage of up to 6% of the
employee's salary reduction. The Association may also make special
discretionary contributions equal to a percentage of the employee's
compensation.
The expense related to the profit sharing and defined benefit pension plans
was $21,727 and $5,938 for the eight months ended May 31, 1996 and 1995, and
$30,758, $26,348 and $39,500 for the years ending September 30, 1995, 1994
and 1993, respectively.
NOTE 9 - INCOME TAXES
The provision for income taxes consists of the following:
EIGHT MONTHS ENDING YEAR ENDING
MAY 31, SEPTEMBER 30,
--------------------- --------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(UNAUDITED)
Current expense $285,956 $284,473 $453,412 $429,850 $386,928
Deferred expense 14,044 34,646 27,340 47,654 77,637
-------- -------- -------- -------- --------
$300,000 $319,119 $480,752 $477,504 $464,565
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
- --------------------------------------------------------------------------------
(Continued)
F-18
<PAGE>
CITIZENS FEDERAL SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL CONDITION
MAY 31, 1996 AND 1995 (UNAUDITED) AND SEPTEMBER 30, 1995, 1994 AND 1993
- --------------------------------------------------------------------------------
NOTE 9 - INCOME TAXES (Continued)
The provision for federal income taxes differs from that computed at the
statutory corporate tax rate as follows:
<TABLE>
<CAPTION>
EIGHT MONTHS ENDING YEAR ENDING
MAY 31, SEPTEMBER 30,
-------------------- ---------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Statutory rate 34% 34% 34% 34% 34%
-- -- -- -- --
-- -- -- -- --
Tax expense at statutory
rate $299,962 $319,119 $484,485 $472,446 $487,939
Other 38 (3,733) 5,058 (23,374)
-------- -------- -------- -------- --------
$300,000 $319,119 $480,752 $477,504 $464,565
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
Deferred income taxes are provided for temporary differences. The components
of the Association's net deferred tax liability at May 31, 1996 and September
30, 1995 and 1994, are as follows:
MAY 31, SEPTEMBER 30,
----------- -------------------------
1996 1995 1994
---- ---- ----
(UNAUDITED)
Deferred tax assets
Deferred loan fees $ 16,468 $ 16,017 $ 16,691
Non-accrual interest 1,600 1,965 2,971
Unrealized loss on investment
securities available for sale 7,471
---------- ---------- ----------
25,539 17,982 19,662
---------- ---------- ----------
Deferred tax liabilities
Bad debt deduction (215,583) (215,583) (197,678)
FHLB stock dividends (119,442) (106,250) (97,089)
Depreciation expense (15,798) (14,859) (16,265)
---------- ---------- ----------
(350,823) (336,692) (311,032)
---------- ---------- ----------
Net deferred tax liability $(325,284) $(318,710) $(291,370)
---------- ---------- ----------
---------- ---------- ----------
- --------------------------------------------------------------------------------
(Continued)
F-19
<PAGE>
CITIZENS FEDERAL SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL CONDITION
MAY 31, 1996 AND 1995 (UNAUDITED) AND SEPTEMBER 30, 1995, 1994 AND 1993
- --------------------------------------------------------------------------------
NOTE 9 - INCOME TAXES (Continued)
No valuation allowance for deferred tax assets was provided at May 31, 1996
or September 30, 1995 and 1994, because the Association had sufficient net
deferred tax liabilities and taxes paid in and available for recovery to
warrant recording the full deferred tax asset.
Retained earnings at May 31, 1996, and September 30, 1995 and 1994, includes
approximately $1,997,990 for which no federal income tax liability has been
recorded. These amounts represent an allocation of income to bad debt
deductions for tax purposes alone. Reduction of amounts so allocated for
purposes other than tax bad debt losses or adjustments from carryback of net
operating losses would create income for tax purposes only, which would be
subject to current tax. The unrecorded deferred tax liability on the above
amounts at May 31, 1996, and September 30, 1995 and 1994 was approximately
$680,000.
Taxes attributable to securities gains approximated $2,808 for the eight
months ended May 31, 1996.
NOTE 10 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Association is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financial needs of its
customers and to reduce its own exposure to fluctuations in interest rates.
These financial instruments include commitments to extend credit and
interest-rate caps and floors written in connection with variable rate loans
the Association has originated. Those instruments involve, to varying
degrees, elements of credit and interest-rate risk in excess of the amount
recognized in the statement of financial position. The Association's
exposure to credit loss in the event of nonperformance by the other party to
the financial instrument for commitments to extend credit is represented by
the contractual notional amount of those instruments. The Association uses
the same credit policies in making commitments as it does for on-balance
sheet instruments.
As of May 31, 1996, the Association had commitments to make loans at market
rates of $2,101,000. Of these commitments, $607,000 had fixed rates and
$1,494,000 had variable rates. As of September 30, 1995, the Association had
commitments to make loans at market rates of $2,049,000. Since loan
commitments may expire without being used, the amount does not necessarily
represent future cash commitments.
- --------------------------------------------------------------------------------
(Continued)
F-20
<PAGE>
CITIZENS FEDERAL SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL CONDITION
MAY 31, 1996 AND 1995 (UNAUDITED) AND SEPTEMBER 30, 1995, 1994 AND 1993
- --------------------------------------------------------------------------------
NOTE 11 - SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
Most of the Association's business activity is with customers located within
northwest Ohio, specifically Allen and Van Wert counties. Although the
Association has a diversified loan portfolio, a substantial portion of its
debtors' ability to repay their loans is dependent on the economy in Allen
and Van Wert counties. Credit losses arising from lending transactions have
historically been minimal due to the Association's conservative lending and
collateral policies.
NOTE 12 - REGULATORY CAPITAL
The following is a reconciliation of generally accepted accounting principles
(GAAP) net income and capital to regulatory capital for the Association. The
following reconciliation also compares the capital requirements as computed
to the minimum capital requirements for the Association.
MAY 31, 1996 (UNAUDITED)
-------------------------------
TANGIBLE CORE RISK-BASED
CAPITAL CAPITAL CAPITAL
------- ------- -------
(IN THOUSANDS)
Per GAAP $11,367 $11,367 $11,367
General valuation allowance and
nondeductible subsidiaries (2) (2) 92
Unrealized loss on securities available
for sale, net of tax 15 15 15
------- ------- -------
Regulatory capital measure 11,380 11,380 11,474
Regulatory capital requirements 1,376 2,752 3,398
------- ------- -------
Excess capital $10,004 $ 8,628
------- -------
------- -------
Total assets $91,697 $91,697 $ 8,076
------- ------- -------
------- ------- -------
Risk-weighted assets $42,477
-------
-------
Capital ratio 12.41% 12.41% 27.01%
------- ------- -------
------- ------- -------
- --------------------------------------------------------------------------------
(Continued)
F-21
<PAGE>
CITIZENS FEDERAL SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL CONDITION
MAY 31, 1996 AND 1995 (UNAUDITED) AND SEPTEMBER 30, 1995, 1994 AND 1993
- --------------------------------------------------------------------------------
NOTE 12 - REGULATORY CAPITAL (Continued)
SEPTEMBER 30, 1995
-------------------------------
TANGIBLE CORE RISK-BASED
CAPITAL CAPITAL CAPITAL
------- ------- -------
(IN THOUSANDS)
Per GAAP $10,799 $10,799 $10,799
General valuation allowance and
nondeductible subsidiaries (2) (2) 92
------- ------- -------
Regulatory capital measure 10,797 10,797 10,891
Regulatory capital requirements 1,320 2,641 3,122
------- ------- -------
Excess capital $ 9,477 $ 8,156 $ 7,769
------- ------- -------
------- ------- -------
Total assets $88,022 $88,022
------- -------
------- -------
Risk-weighted assets $39,031
-------
-------
Capital ratio 12.27% 12.27% 27.90%
------- ------- -------
------- ------- -------
NOTE 13 - CONTINGENT LIABILITIES
The Association expects to pay a one-time special assessment of 85 to 90
cents on each $100 of deposits as of January 1, 1996 to recapitalize the
Savings Association Insurance Fund (SAIF). As of September 30, 1995, the
Association has qualifying deposits of $76,664,400, which would result in an
assessment of approximately $651,600 to $690,000.
- --------------------------------------------------------------------------------
(Continued)
F-22
<PAGE>
CITIZENS FEDERAL SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL CONDITION
MAY 31, 1996 AND 1995 (UNAUDITED) AND SEPTEMBER 30, 1995, 1994 AND 1993
- --------------------------------------------------------------------------------
NOTE 14 - SUBSEQUENT EVENT (UNAUDITED)
On June 11, 1996, the Board of Directors of the Association, subject to
regulatory approval and approval by the members of the Association,
unanimously adopted a Plan of Conversion to convert from a federally
chartered mutual savings and loan association to a federally chartered stock
savings bank with the concurrent formation of a holding company. The
conversion is expected to be accomplished through amendment of the
Association's articles of incorporation and the sale of the holding company's
common stock in an amount equal to the pro forma market value of the
Association after giving effect to the conversion. A subscription offering
of the shares of the holding company's common stock will be offered to the
Association's depositors, then to an employee stock benefit plan and other
members. Any shares of the holding company's common stock not sold in the
subscription offering may be offered for sale to the general public.
At the time of conversion, the Association will establish a liquidation
account in an amount equal to its regulatory capital as of the latest
practicable date prior to the conversion at which such regulatory capital can
be determined. The liquidation account will be maintained for the benefit of
eligible depositors who continue to maintain their accounts at the
Association after the conversion. The liquidation account will be reduced
annually to the extent that eligible depositors have reduced their qualifying
deposits. Subsequent increases will not restore an eligible account holder's
interest in the liquidation account. In the event of a complete liquidation,
each eligible depositor will be entitled to receive a distribution from the
liquidation account in an amount proportionate to the current adjusted
qualifying balances for accounts then held. The Association may not pay
dividends that would reduce stockholders' equity below the required
liquidation account balance.
Under Office of Thrift Supervision (OTS) regulations, limitations have been
imposed on all "capital distributions" by savings institutions including cash
dividends. The regulation establishes a three-tiered system of restrictions,
with the greatest flexibility afforded to thrifts which are both
well-capitalized and given favorable qualitative examination ratings by the
OTS.
Conversion costs will be deferred and deducted from the proceeds of the
shares sold in the conversion. If the conversion is not completed, all costs
will be charged to expense. At May 31, 1996, no costs have been deferred.
- --------------------------------------------------------------------------------
F-23
<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 INFORMATION OR REPRESENTATION SHALL NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE ASSOCIATION OR CHARLES WEBB & COMPANY. 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 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 THE COMPANY OR THE ASSOCIATION SINCE ANY OF THE DATES AS OF WHICH
INFORMATION IS FURNISHED HEREIN OR SINCE THE DATE HEREOF.
______________________________
TABLE OF CONTENTS
PAGE
----
Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Consolidated Financial and
Other Data of the Association. . . . . . . . . . . . . . . . . .
Recent Developments. . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Delphos Citizens Bancorp, Inc. . . . . . . . . . . . . . . . . . . .
Citizens Federal Savings and Loan Association of Delphos . . . . . .
Regulatory Capital Compliance. . . . . . . . . . . . . . . . . . . .
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend Policy. . . . . . . . . . . . . . . . . . . . . . . . . . .
Market for the Common Stock. . . . . . . . . . . . . . . . . . . . .
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pro Forma Data . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations. . . . . . . . . . . . . . . .
Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . . .
Business of the Association. . . . . . . . . . . . . . . . . . . . .
Federal and State Taxation . . . . . . . . . . . . . . . . . . . . .
Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Board of Directors and
Management of the Company. . . . . . . . . . . . . . . . . . . .
The Board of Directors and
Management of the Association. . . . . . . . . . . . . . . . . .
The Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restrictions on Acquisition of the Company
and the Association. . . . . . . . . . . . . . . . . . . . . . .
Description of Capital Stock of the Company. . . . . . . . . . . . .
Description of Capital Stock of the Association. . . . . . . . . . .
Transfer Agent and Registrar . . . . . . . . . . . . . . . . . . . .
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal and Tax Opinions . . . . . . . . . . . . . . . . . . . . . . .
Additional Information . . . . . . . . . . . . . . . . . . . . . . .
Index of Consolidated Financial Statements . . . . . . . . . . . . .
______________________________
UNTIL __________, 1996 OR 25 DAYS AFTER COMMENCEMENT OF THE SYNDICATED
COMMUNITY OFFERING, IF ANY, WHICHEVER IS LATER, ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER 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.
1,782,500 Shares
[LOGO]
DELPHOS CITIZENS BANCORP, INC.
(Proposed Holding Company for
Citizens Bank of Delphos, now known as
Citizens Federal Savings and Loan Association of Delphos)
COMMON STOCK
__________
PROSPECTUS
__________
__________, 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.(1)
OTS filing fee . . . . . . . . . . . . . . . . . . . . . . . . . $8,400
SEC filing fee(1). . . . . . . . . . . . . . . . . . . . . . . . 7,069
NASD filing fee(1) . . . . . . . . . . . . . . . . . . . . . . . 5,000
Stock listing fee(1) . . . . . . . . . . . . . . . . . . . . . . 10,250
Printing, postage and mailing. . . . . . . . . . . . . . . . . . 35,600
Legal fees and expenses. . . . . . . . . . . . . . . . . . . . . 100,000
Accounting fees and expenses . . . . . . . . . . . . . . . . . . 75,000
Appraiser's fees and expenses (including
business plan) . . . . . . . . . . . . . . . . . . . . . . . 17,000
Marketing fees and selling commissions(1). . . . . . . . . . . . 272,388
Proxy solicitation and record management
fees and expenses. . . . . . . . . . . . . . . . . . . . . . 10,000
Transfer agent fees and expenses . . . . . . . . . . . . . . . . 7,000
Certificate printing . . . . . . . . . . . . . . . . . . . . . . 4,000
Telephone, temporary help and other
equipment. . . . . . . . . . . . . . . . . . . . . . . . . . 7,000
Blue Sky fees and expenses . . . . . . . . . . . . . . . . . . . 12,000
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . 10,293
------
TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $581,000
--------
--------
(1) Actual expenses based upon the registration of 2,049,875 shares at $10.00
per share. All other expenses are estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
In accordance with the General Corporation Law of the State of Delaware (being
Chapter 1 of Title 8 of the Delaware Code), Articles 10 and 11 of the
Registrant's Certificate of Incorporation provide as follows:
TENTH:
A. Each person who was or is made a party or is threatened to be made a party
to or is otherwise involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she is or was a Director or an Officer of the
Corporation or is or was serving at the request of the Corporation as a
Director, Officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a Director, Officer,
employee or agent, or in any other capacity while serving as a Director,
Officer, employee or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the Corporation
to provide broader indemnification rights than such law permitted the
Corporation to provide prior to such amendment), against all expense, liability
and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid in settlement) reasonably incurred or suffered by
such indemnitee in connection therewith; provided, however, that, except as
provided in Section C hereof with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation.
<PAGE>
B. The right to indemnification conferred in Section A of this Article TENTH
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition (hereinafter
an "advancement of expenses"); provided, however, that, if the Delaware General
Corporation Law requires, an advancement of expenses incurred by an indemnitee
in his or her capacity as a Director or Officer (and not in any other capacity
in which service was or is rendered by such indemnitee, including, without
limitation, services to an employee benefit plan) shall be made only upon
delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by
or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under this
Section or otherwise. The rights to indemnification and to the advancement of
expenses conferred in Sections A and B of this Article TENTH shall be contract
rights and such rights shall continue as to an indemnitee who has ceased to be a
Director, Officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators.
C. If a claim under Section A or B of this Article TENTH is not paid in full by
the Corporation within sixty days after a written claim has been received by the
Corporation, except in the case of a claim for an advancement of expenses, in
which case the applicable period shall be twenty days, the indemnitee may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim. If successful in whole or in part in any such suit, or in a suit
brought by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the indemnitee shall be entitled to be paid also the
expenses of prosecuting or defending such suit. In (i) any suit brought by the
indemnitee to enforce a right to indemnification hereunder (but not in a suit
brought by the indemnitee to enforce a right to an advancement of expenses) it
shall be a defense that, and (ii) in any suit by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking the Corporation
shall be entitled to recover such expenses upon a final adjudication that, the
indemnitee has not met any applicable standard for indemnification set forth in
the Delaware General Corporation Law. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses under this
Article TENTH, or otherwise shall be on the Corporation.
D. The rights to indemnification and to the advancement of expenses conferred
in this Article TENTH shall not be exclusive of any other right which any person
may have or hereafter acquire under any statute, the Corporation's Certificate
of Incorporation, Bylaws, agreement, vote of stockholders or Disinterested
Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to protect itself
and any Director, Officer, employee or agent of the Corporation or subsidiary or
Affiliate or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
F. The Corporation may, to the extent authorized from time to time by the Board
of Directors, grant rights to indemnification and to the advancement of expenses
to any employee or agent of the Corporation to the fullest extent of the
provisions of this Article TENTH with respect to the indemnification and
advancement of expenses of Directors and Officers of the Corporation.
<PAGE>
ELEVENTH:
A Director of this Corporation shall not be personally liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
Director, except for liability: (i) for any breach of the Director's duty of
loyalty to the Corporation or its stockholders; (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law; (iii) under Section 174 of the Delaware General Corporation Law; or (iv)
for any transaction from which the Director derived an improper personal
benefit. If the Delaware General Corporation Law is amended to authorize
corporate action further eliminating or limiting the personal liability of
Directors, then the liability of a Director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, 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.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
None.
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The exhibits and financial statement schedules filed as a part of this
Registration Statement are as follows:
(a) List of Exhibits (filed herewith unless otherwise noted)
1.1 Engagement Letter between Citizens Federal Savings and Loan
Association of Delphos and Charles Webb & Company
1.2 Draft Form of Agency Agreement between Citizens Federal Savings and
Loan Association of Delphos and Charles Webb & Company*
2.1 Plan of Conversion (including the Federal Stock Charter and Bylaws of
Citizens Bank of Delphos)
3.1 Certificate of Incorporation of Delphos Citizens Bancorp, Inc.
3.2 Bylaws of Delphos Citizens Bancorp, Inc.
3.3 Federal Stock Charter and Bylaws of Citizens Bank of Delphos
(See Exhibit 2.1 hereto)
4.0 Draft Stock Certificate of Delphos Citizens Bancorp, Inc.
5.0 Draft Opinion of Muldoon, Murphy & Faucette re: legality
5.1 Draft Opinion of Morris, Nichols, Arsht & Tunnell re: legality
8.0 Draft Opinion of Muldoon, Murphy & Faucette re: Federal Tax Matters
8.1 Draft Opinion of Crowe Chizek and Company L.L.P. re: State Tax
Matters*
10.1 Form of Citizens Bank of Delphos Employee Stock Ownership Plan
10.2 Draft ESOP Loan Commitment Letter and ESOP Loan Documents
10.3 Form of Employment Agreement between Citizens Bank of Delphos and
certain executive officers
10.4 Form of Employment Agreement between Delphos Citizens Bancorp, Inc.
and certain executive officers
23.1 Consent of Crowe Chizek and Company L.L.P.
23.2 Consent of Lentol, Violet, Kienitz & Company
23.3 Consent of Muldoon, Murphy & Faucette
23.4 Consent of Morris, Nichols, Arsht & Tunnell
23.5 Consent and Subscription Rights Opinion of Keller & Company, Inc.
24.1 Powers of Attorney
27.0 Financial Data Schedule
- -----------------------------------
*To be filed by amendment
<PAGE>
(b) FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted as not applicable or not required under the
rules of Regulation S-X.
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;
(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 a 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 of 1933, 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 deemed to 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.
The undersigned Registrant hereby undertakes to furnish stock certificates
to or in accordance with the instructions of the respective purchasers of the
Common Stock, so as to make delivery to each purchaser promptly following the
closing under the Plan of Conversion.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, 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 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustee, 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 question whether such indemnification by it is against public
policy as expressed in the Act will be governed by the final adjudication of
such issue.
<PAGE>
CONFORMED
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Delphos, State of Ohio,
on August 22, 1996.
Delphos Citizens Bancorp, Inc.
By: /s/ Joseph R. Reinemeyer
---------------------------------
Joseph R. Reinemeyer
President, Chief Executive Officer
and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ Joseph R. Reinemeyer President, Chief Executive August 22, 1996
- ---------------------------
Joseph R. Reinemeyer Officer and Director
(principal executive and
accounting officer)
/s/ Nancy C. Rumschlag Vice President and Director August 22, 1996
- ---------------------------
Nancy C. Rumschlag
/s/ John F. Helmkamp Director August 22, 1996
- ---------------------------
John F. Helmkamp
/s/ P. Douglas Harter Director August 22, 1996
- ---------------------------
P. Douglas Harter
/s/ Robert L. Dillhoff Director August 22, 1996
- ---------------------------
Robert L. Dillhoff
</TABLE>
<PAGE>
As filed with the Securities and Exchange Commission on August 22, 1996
Registration No. 33-__________________
---------------------------------------------------------------------------
---------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
EXHIBITS
TO THE
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
--------------------
DELPHOS CITIZENS BANCORP, INC.
(Exact name of registrant as specified in its certificate of incorporation)
----------------------------------------------------------------------
----------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
LIST OF EXHIBITS (FILED HEREWITH UNLESS OTHERWISE NOTED)
1.1 Engagement Letter between Citizens Federal Savings and Loan
Association of Delphos and Charles Webb & Company
1.2 Draft Form of Agency Agreement between Citizens Federal Savings
and Loan Association of Delphos and Charles Webb & Company*
2.1 Plan of Conversion (including the Federal Stock Charter and
Bylaws of Citizens Bank of Delphos)
3.1 Certificate of Incorporation of Delphos Citizens Bancorp, Inc.
3.2 Bylaws of Delphos Citizens Bancorp, Inc.
3.3 Federal Stock Charter and Bylaws of Citizens Bank of Delphos
(See Exhibit 2.1 hereto)
4.0 Draft Stock Certificate of Delphos Citizens Bancorp, Inc.
5.0 Draft Opinion of Muldoon, Murphy & Faucette re: legality
5.1 Draft Opinion of Morris, Nichols, Arsht & Tunnell re: legality
8.0 Draft Opinion of Muldoon, Murphy & Faucette re: Federal Tax
Matters
8.1 Draft Opinion of Crowe Chizek and Company L.L.P. re: State Tax
Matters*
10.1 Form of Citizens Bank of Delphos Employee Stock Ownership Plan
10.2 Draft ESOP Loan Commitment Letter and ESOP Loan Documents
10.3 Form of Employment Agreement between Citizens Bank of Delphos and
certain executive officers
10.4 Form of Employment Agreement between Delphos Citizens Bancorp,
Inc. and certain executive officers
23.1 Consent of Crowe Chizek and Company L.L.P.
23.2 Consent of Lentol, Violet, Kienitz & Company
23.3 Consent of Muldoon, Murphy & Faucette
23.4 Consent of Morris, Nichols, Arsht & Tunnell
23.5 Consent and Subscription Rights Opinion of Keller & Company, Inc.
24.1 Powers of Attorney
27.0 Financial Data Schedule
- ----------------------------------------
*To be filed by amendment
<PAGE>
EXHIBIT 1.1 ENGAGEMENT LETTER BETWEEN CITIZENS FEDERAL SAVINGS AND LOAN
ASSOCIATION OF DELPHOS AND CHARLES WEBB & COMPANY
<PAGE>
[LETTERHEAD]
June 13, 1996
Mr. Joseph R. Reinemeyer
Executive Vice President &
Chief Executive Officer
Citizens Federal Savings & Loan Association
114 East 3rd Street
Delphos, Ohio 45833-1761
Dear Mr. Reinemeyer:
This proposal is in connection with Citizens Federal Savings & Loan
Association's (the "Bank") intention to convert from a mutual to a capital stock
form of organization (the "Conversion"). In order to effect the Conversion, it
is contemplated that all of the Bank's common stock to be outstanding pursuant
to the Conversion will be issued to a holding company (the "Company") to be
formed by the Bank, and that the Company will offer and sell shares of its
common stock first to eligible persons (pursuant to the Bank's Plan of
Conversion) in a Subscription Offering and then in a Community Offering.
Charles Webb & Company ("Webb") will act as the Bank's and the Company's
exclusive financial advisor and marketing agent in connection with the
Conversion. This letter sets forth selected terms and conditions of our
engagement.
1. ADVISORY/CONVERSION SERVICES. As the Bank's and Company's financial
advisor and marketing agent, Webb will provide the Bank and the Company with a
comprehensive program of conversion services designed to promote an orderly,
efficient, cost-effective and long-term stock distribution. Webb will provide
financial and logistical advice to the Bank and the Company concerning the
offering and related issues. Webb will assist in providing of conversion
enhancement services intended to maximize stock sales in the Subscription
Offering and to residents of the Bank's market area, if necessary, in the
Community Offering.
Webb shall provide financial advisory services to the Bank which are typical in
connection with an equity offering and include, but are not limited to, overall
financial analysis of the client with a focus on identifying factors which
impact the valuation of an equity security and provide the appropriate
recommendations for the betterment of the equity valuation.
<PAGE>
Mr. Joseph R. Reinemeyer
June 7, 1996
Pate 2 of 6
Additionally, post conversion financial advisory services will include advice on
shareholder relations, NASDAQ listing, dividend policy, stock repurchase
strategy and communication with market makers. Prior to the closing of the
offering, Webb shall furnish to client a Post-conversion reference manual which
will include specifics relative to these items. (The nature of the services to
be provided by Webb as the Bank's and the Company's financial advisor and
marketing agent are further described in Exhibit A attached hereto.)
2. PREPARATION OF OFFERING DOCUMENTS. The Bank, the Company and their counsel
will draft the Registration Statement, Application for Conversion, Prospectus
and other documents to be used in connection with the Conversion. Webb will
attend meetings to review these documents and advise you on their form and
content. Webb and their counsel will draft appropriate agency agreement and
related documents as well as marketing materials other than the Prospectus.
3. DUE DILIGENCE REVIEW. Prior to filing the Registration Statement,
Application for Conversion or any offering or other documents naming Webb as the
Bank's and the Company's financial advisor and marketing agent, Webb and their
representatives will undertake substantial investigations to learn about the
Bank's business and operations ("due diligence review") in order to confirm
information provided to us and to evaluate information to be contained in the
Bank's and/or the Company's offering documents. The Bank agrees that it will
make available to Webb all relevant information, whether or not publicly
available, which Webb reasonably request, and will permit Webb to discuss
personnel and the operations and prospects of the Bank with management. Webb
will treat all material non-public information as confidential. The Bank
acknowledges that Webb will rely upon the accuracy and completeness of all
information received from the Bank, its officers, directors, employees, agents
and representatives, accountants and counsel including this letter of intent to
serve as the Bank's and the Company's financial advisor and marketing agent.
4. REGULATORY FILINGS. The Bank and/or the Company will cause appropriate
offering documents to be filed with all regulatory agencies including, the
Securities and Exchange Commission ("SEC"), the National Association of
Securities Dealers ("NASD"), and such state securities commissioners as may be
determined by the Bank.
5. AGENCY AGREEMENT. The specific terms of the conversion services,
conversion offering enhancement and syndicated offering services contemplated in
this letter shall be set forth in an Agency Agreement between Webb and the Bank
and the Company to be executed prior to commencement of the offering, and dated
the date that the Company's Prospectus is declared effective and/or authorized
to be disseminated by the appropriate regulatory agencies, the SEC,
<PAGE>
Mr. Joseph R. Reinemeyer
June 7, 1996
Page 3 of 6
the NASD and such state securities commissioners and other regulatory agencies
as required by applicable law.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS. The Agency Agreement will
provide for customary representations, warranties and covenants by the Bank and
Webb, and for the Company to indemnify Webb and their controlling persons (and,
if applicable, the members of the selling group and their controlling persons),
and for Webb to indemnify the Bank and the Company against certain liabilities,
including, without limitation, liabilities under the Securities Act of 1933.
7. FEES. For the services hereunder, the Bank and/or Company shall pay the
following fees to Webb at closing unless stated otherwise:
(a) A Management Fee of $25,000 payable in four consecutive monthly
installments of $6,250 commencing with the signing of this letter.
Such fees shall be deemed to have been earned when due. Should the
Conversion be terminated for any reason not attributable to the action
or inaction of Webb, Webb shall have earned and be entitled to be paid
fees accruing through the stage at which point the termination
occurred.
(b) A Success Fee of 1.5% of the aggregate Purchase Price of Common Stock
sold in the Subscription Offering and Community Offering excluding
shares purchased by the Bank's officers, directors, or employees (or
members of their immediate families) plus any ESOP, tax-qualified or
stock based compensation plans (except IRA's) or similar plan created
by the Bank for some or all of its directors or employees. THE
MANAGEMENT FEE DESCRIBED IN PARAGRAPH 7(a) WILL BE DEDUCTED FROM THIS
SUCCESS FEE SHOULD THE PROSPECTUS BE BASED UPON FINANCIAL STATEMENTS
OTHER THAN AS OF THE END OF A CALENDAR QUARTER.
(c) McDonald and Company Securities, Inc., will be provided the first
right to distribute shares subsequent to joint members/community
subscription period. Provisions in the Agency Agreement relative to
the community phase of the offering will be expanded to allow McDonald
and Company Securities the right of first refusal to participate in
that phase of the offering should any shares be available. First
preference naturally will remain to be given, in accordance with
<PAGE>
Mr. Joseph R. Reinemeyer
June 7, 1996
Page 4 of 6
OTS regulations, to the first and second tier depositors in the
general community during the joint members and community phase of the
offering. Should such shares become available, then McDonald and the
Company shall negotiate the fee arrangement directly.
(d) If any shares of the Company's stock remain available after the
subscription offering, at the request of the Bank, Webb will seek to
form a syndicate of registered broker-dealers to assist in the sale of
such common stock on a best efforts basis, subject to the terms and
conditions set forth in the selected dealers agreement. Webb will
endeavor to distribute the common stock among dealers in a fashion
which best meets the distribution objectives of the Bank and the Plan
of Conversion. Webb will be paid a fee not to exceed 5.5% of the
aggregate Purchase Price of the shares of common stock sold by them.
Webb will pass onto selected broker-dealers, who assist in the
syndicated community, an amount competitive with gross underwriting
discounts charged at such time for comparable amounts of stock sold at
a comparable price per share in a similar market environment. Fees
with respect to purchases affected with the assistance of a
broker/dealer other than Webb shall be transmitted by Webb to such
broker/dealer. THE DECISION TO UTILIZE SELECTED BROKER-DEALERS WILL
BE MADE BY THE BANK upon consultation with Webb. In the event, with
respect to any stock purchases, fees are paid pursuant to this
subparagraph 7(d), such fees shall be in lieu of, and not in addition
to, payment pursuant to subparagraph 7(a) and 7(b).
8. EXPENSES. The Bank will bear those expenses of the proposed offering
customarily borne by issuers, including, without limitation, regulatory filing
fees, SEC, "Blue Sky," and NASD filing and registration fees; the fees of the
Bank's accountants, attorneys, appraiser, transfer agent and registrar,
printing, mailing and marketing and syndicate expenses associated with the
Conversion; the fees set forth in Section 7; and fees for "Blue Sky" legal work.
DUE TO CLIENT'S CLOSE PROXIMITY TO OUR OFFICE, WEBB WILL NOT REQUEST ANY EXPENSE
REIMBURSEMENT FOR TRAVEL AND ACCOMMODATION EXPENSES. WEBB SHALL ALSO ASSUME THE
COSTS FOR THE REASONABLE FEES AND EXPENSES OF THEIR COUNSEL IN THE COURSE OF A
NORMAL CONVERSION.
9. CONDITIONS. Webb's willingness and obligation to proceed hereunder shall
be subject to, among other things, satisfaction of the following conditions in
Webb's opinion, which opinion shall have been formed in good faith by Webb after
reasonable determination and consideration of all relevant factors: (a) full and
satisfactory disclosure of all relevant material, financial and
<PAGE>
Mr. Joseph R. Reinemeyer
June 7,1996
Page 5 of 6
other information in the disclosure documents and a determination by Webb, in
their sole discretion, that the sale of stock on the terms proposed is
reasonable given such disclosures; (b) no material adverse change in the
condition or operations of the Bank subsequent to the execution of the
agreement; and (c) no market conditions at the time of offering which in Webb's
opinion make the sale of the shares by the Company inadvisable.
10. BENEFIT. This Agreement shall inure to the benefit of the parties hereto
and their respective successors and to the parties indemnified hereunder and
their successors, and the obligations and liabilities assumed hereunder by the
parties hereto shall be binding upon their respective successors provided,
however, that this Agreement shall not be assignable by Webb.
11. DEFINITIVE AGREEMENT. This letter reflects Webb's present intention of
proceeding to work with the Bank on its proposed conversion. It does not create
a binding obligation on the part of the Bank, the Company or Webb except as to
the agreement to maintain the confidentiality of non-public information set
forth in Section 3, the payment of certain fees as set forth in Section 7(a) and
7(b) and the assumption of expenses as set forth in Section 9, all of which
shall constitute the binding obligations of the parties hereto and which shall
survive the termination of this Agreement or the completion of the services
furnished hereunder and shall remain operative and in full force and effect.
You further acknowledge that any report or analysis rendered by Webb pursuant to
this engagement is rendered for use solely by the management of the Bank and its
agents in connection with the Conversion. Accordingly, you agree that you will
not provide any such information to any other person without our prior written
consent.
Webb acknowledges that in offering the Company's stock no person will be
authorized to give any information or to make any representation not contained
in the offering prospectus and related offering materials filed as part of a
registration statement to be declared effective in connection with the offering.
Accordingly, Webb agrees that in connection with the offering it will not give
any unauthorized information or make any unauthorized representation. We will
be pleased to elaborate on any of the matters discussed in this letter at your
convenience.
<PAGE>
Mr. Joseph R. Reinemeyer
June 7, 1996
Page 6 of 6
If the foregoing correctly sets forth our mutual understanding, please so
indicate by signing and returning the original copy of this letter to the
undersigned.
Very truly yours,
CHARLES WEBB & COMPANY
By: /s/ Charles R. Webb
-------------------------
Charles R. Webb
President
CITIZENS FEDERAL SAVINGS & LOAN ASSOCIATION
By: /s/ Joseph R. Reinemeyer 6-20-96
--------------------------- ----------
JOSEPH R. REINEMEYER, Date
Executive Vice President &
Chief Executive Officer
<PAGE>
EXHIBIT A
CONVERSION SERVICES PROPOSAL
TO CITIZENS FEDERAL SAVINGS & LOAN ASSOCIATION
Charles Webb & Company provides thrift institutions converting from mutual to
stock form of ownership with a comprehensive program of conversion services
designed to promote an orderly, efficient, cost-effective and long-term stock
distribution. The following list is representative of the conversion services,
if appropriate, we propose to perform on behalf of the Bank.
GENERAL SERVICES
Assist management and legal counsel with the design of the transaction
structure.
Analyze and make recommendations on bids from printing, transfer agent, and
appraisal firms.
Assist officers and directors in obtaining bank loans to purchase stock, if
requested.
Assist in drafting and distribution of press releases as required or
appropriate.
CONVERSION OFFERING ENHANCEMENT SERVICES
Establish and manage Conversion Center at the Bank. Conversion Center personnel
will track prospective investors; record stock orders; mail order confirmations;
provide the Bank's senior management with daily reports; answer customer
inquiries; and handle special situations as they arise.
Assign Webb's personnel to be at the Bank through completion of the Subscription
and Community Offerings to manage the Conversion Center, meet with prospective
shareholders at individual and community information meetings, solicit local
investor interest through a tele-marketing campaign, answer inquiries, and
otherwise assist in the sale of stock in the Subscription and Community
Offerings. This effort will be lead by a Principal of Webb.
Create target investor list based upon review of the Bank's depositor base.
Provide intensive financial and marketing input for drafting of the prospectus.
<PAGE>
CONVERSION OFFERING ENHANCEMENT SERVICES- CONTINUED
Prepare other marketing materials, including prospecting letters and brochures,
and media advertisements.
Arrange logistics of community information meeting(s) as required.
Prepare audio-visual presentation by senior management for community information
meeting(s).
Prepare management for question-and-answer period at community information
meeting(s).
Attend and address community information meeting(s) and be available to answer
questions.
BROKER-ASSISTED SALES SERVICES.
Arrange for broker information meeting(s) as required.
Prepare audio-visual presentation for broker information meeting(s).
Prepare script for presentation by senior management at broker information
meeting(s).
Prepare management for question-and-answer period at broker information
meeting(s).
Attend and address broker information meeting(s) and be available to answer
questions.
Produce confidential broker memorandum to assist participating brokers in
selling the Bank's common stock.
AFTERMARKET SUPPORT SERVICES.
Webb will use their best efforts to secure market making and on-going research
commitment from at least two NASD firms.
<PAGE>
EXHIBIT 1.2 DRAFT FORM OF AGENCY AGREEMENT BETWEEN CITIZENS FEDERAL SAVINGS
AND LOAN ASSOCIATION OF DELPHOS AND CHARLES WEBB & COMPANY (TO BE
FILED BY AMENDMENT)
<PAGE>
EXHIBIT 2.1 PLAN OF CONVERSION (INCLUDING THE FEDERAL STOCK CHARTER AND
BYLAWS OF CITIZENS BANK OF DELPHOS)
<PAGE>
PLAN OF CONVERSION
FOR
CITIZENS FEDERAL SAVINGS AND LOAN ASSOCIATION OF DELPHOS
DELPHOS, OHIO
<PAGE>
PLAN OF CONVERSION FOR
CITIZENS FEDERAL SAVINGS AND LOAN ASSOCIATION OF DELPHOS
1. INTRODUCTION
This Plan of Conversion ("Plan") provides for the conversion of Citizens
Federal Savings and Loan Association of Delphos ("INSTITUTION") from a
federally-chartered mutual savings and loan association to a federally-chartered
capital stock savings bank. The Board of Directors of the INSTITUTION currently
contemplates that all of the stock of the INSTITUTION shall be held by a
corporation to be formed in connection with the conversion (the "Holding
Company"). The Board of Directors has carefully considered the alternatives
available to the INSTITUTION with respect to its corporate structure and has
determined that a mutual to stock conversion as described in this Plan is in the
best interests of the INSTITUTION, its depositors and the community served by
the INSTITUTION. The Board of Directors believes that the decline in mutuality
is placing mutual savings associations, such as the INSTITUTION, at a
disadvantage to the increasing base of stock thrift and commercial bank
institutions. The restructuring of the INSTITUTION into the capital stock form
of organization will enable the INSTITUTION to expand the INSTITUTION'S
franchise, compete more effectively with commercial banks and other financial
institutions for new business opportunities, and as a stock institution, to
increase its equity capital base and access the capital markets when needed.
The use of the Holding Company, if so utilized, would also provide greater
organizational and operating flexibility. Shares of capital stock of the
INSTITUTION will be sold to the Holding Company and the Holding Company will
offer the Conversion Stock upon the terms and conditions set forth herein to the
Eligible Account Holders, the Employee Plans established by the INSTITUTION or
<PAGE>
Holding Company, Supplemental Eligible Account Holders and Other Members in the
respective priorities set forth in this Plan. Any shares of Conversion Stock
not subscribed for by the foregoing classes of persons will be offered for sale
to certain members of the public either directly by the INSTITUTION or the
Holding Company through a Community Offering or a Syndicated Community Offering
or through an underwritten firm commitment public offering or through a
combination thereof. In the event that the INSTITUTION decides not to utilize
the Holding Company in the conversion, Conversion Stock of the INSTITUTION, in
lieu of the Holding Company, will be sold as set forth above and in the
respective priorities set forth in this Plan. In addition to the foregoing, the
INSTITUTION and the Holding Company as part of the Plan intend to implement
stock option plans and other stock benefit plans and will provide employment or
severance agreements to certain management employees and certain other
compensation to the directors, officers and employees of the INSTITUTION as
described in the prospectus for the Conversion Stock.
This Plan, which has been approved by the Board of Directors of the
INSTITUTION, must also be approved by the affirmative vote of a majority of the
total number of votes entitled to be cast by Voting Members of the INSTITUTION
at a special meeting to be called for that purpose. Prior to the submission of
this Plan to the Voting Members for consideration, the Plan must be approved by
the Office of Thrift Supervision (the "OTS").
2. DEFINITIONS
For the purposes of this Plan, the following terms have the following
meanings:
2
<PAGE>
ACCOUNT HOLDER - The term Account Holder means any Person holding a Savings
Account in the INSTITUTION.
ACTING IN CONCERT - The term "Acting in Concert" means (i) knowing
participation in a joint activity or interdependent conscious parallel action
towards a common goal whether or not pursuant to an express agreement; (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; or
(iii) a person or company which acts in concert with another person or company
("other party") shall also be deemed to be acting in concert with any person or
company 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 plan will be aggregated.
ACTUAL PURCHASE PRICE - The term Actual Purchase Price means the per share
price at which the Conversion Stock is ultimately sold in accordance with the
terms hereof.
ASSOCIATE - The term Associate when used to indicate a relationship with
any person, means (i) any corporation or organization (other than the
INSTITUTION or a majority-owned subsidiary of the INSTITUTION) of which such
person is an officer or partner or is, directly or indirectly, the beneficial
owner of 10 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 for the purposes of Sections 9 and 14 hereof, the term "Associate" does not
include any Non-Tax-Qualified Employee Stock
3
<PAGE>
Benefit Plan or any Tax-Qualified Employee Stock Benefit Plan in which a person
has a substantial beneficial interest or serves as a trustee or in a similar
fiduciary capacity, and except that, for purposes of aggregating total shares
that may be held by Officers and Directors the term "Associate" does not include
any 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 INSTITUTION or the Holding
Company, if utilized, or any of its parents or subsidiaries.
COMMUNITY OFFERING - The term Community Offering means the offering for
sale to certain members of the general public directly by the INSTITUTION or the
Holding Company, if utilized, of any shares of Conversion Stock not subscribed
for in the Subscription Offering.
CONVERSION STOCK - The term Conversion Stock means the $.01 par value
common stock offered and issued by the Holding Company or the $1.00 par value
Common Stock offered and issued by the INSTITUTION, if the Holding Company form
of organization is not utilized, upon conversion.
DIRECTOR - The term Director means a member of the Board of Directors of
the INSTITUTION and, where applicable, a member of the Board of Directors of the
Holding Company.
ELIGIBLE ACCOUNT HOLDER - The term Eligible Account Holder means any person
holding a Qualifying Deposit in a Savings Account at the INSTITUTION on the
Eligibility Record Date.
ELIGIBILITY RECORD DATE - The term Eligibility Record Date means the date
for determining Eligible Account Holders in the INSTITUTION and is December 31,
1994.
4
<PAGE>
EMPLOYEES - The term Employees means all Persons who are employed by the
INSTITUTION, but does not include an officer or director.
EMPLOYEE PLANS - The term Employee Plans means the Tax Qualified Employee
Stock Benefit Plans approved by the Board of Directors of the INSTITUTION.
ESTIMATED PRICE RANGE - The term Estimated Price Range means the range of
minimum and maximum aggregate values determined by the Board of Directors of the
INSTITUTION within which the aggregate amount of Common Stock sold in the
Conversion will fall. The Estimated Price Range will be within the estimated
pro forma market value of the Conversion Stock as determined by the Independent
Appraiser prior to the Subscription Offering and as it may be amended from time
to time thereafter.
FDIC - The term FDIC means the Federal Deposit Insurance Corporation.
HOLDING COMPANY - The term Holding Company means the corporation formed for
the purpose of acquiring all of the shares of capital stock of the INSTITUTION
to be issued upon its conversion to stock form unless the Holding Company form
of organization is not utilized. Shares of common stock of the Holding Company
will be issued in the conversion to Participants and others in a Subscription,
Community, Syndicated Community, or underwritten firm commitment public
offering, or through a combination thereof.
INDEPENDENT APPRAISER - The term Independent Appraiser means an appraiser
retained by the INSTITUTION to prepare an appraisal of the pro forma market
value of the Conversion Stock.
INSTITUTION - The term INSTITUTION means Citizens Federal Savings and Loan
Association of Delphos, Ohio.
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LOCAL COMMUNITY - The term Local Community means mailing addresses with the
zip code 45833.
MEMBER - The term Member means any Person or entity who qualifies as a
member of the INSTITUTION pursuant to its charter and bylaws.
OTS - The term OTS means Office of Thrift Supervision of the Department of
the Treasury.
OFFICER - The term Officer means an executive officer of the INSTITUTION
which includes the President, Managing Officer, Executive Vice President, Vice
Presidents in charge of principal business functions, Secretary and Controller
and any Person performing functions similar to those performed by the foregoing
persons.
ORDER FORM - The term Order Form means any form together with attached
cover letter, sent by the INSTITUTION to any Participant or Person containing
among other things a description of the alternatives available to such Person
under the Plan and by which any such Person may make elections regarding
subscriptions for Conversion Stock in the Subscription and Community Offerings.
OTHER MEMBER - The term Other Member means any person who is a Member of
the INSTITUTION (other than an Eligible Account Holder or Supplemental Eligible
Account Holder) at the close of business on the Voting Record Date.
PARTICIPANTS - The term Participants means the Eligible Account Holders,
Employee Plans, Supplemental Eligible Account Holders and Other Members.
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PERSON - The term Person means an individual, a corporation, a partnership,
an association, a joint-stock company, a trust (including Individual Retirement
Accounts and KEOGH Accounts), any unincorporated organization, a government or
political subdivision thereof or any other entity.
PLAN - The term Plan means this Plan of Conversion of the INSTITUTION as it
exists on the date hereof and as it may hereafter be amended in accordance with
its terms.
PREFERRED SUBSCRIBERS - The term Preferred Subscribers means those members
of the general public which are natural persons residing in the INSTITUTION'S
Local Community.
QUALIFYING DEPOSIT - The term Qualifying Deposit means the balance of each
Savings Account of $50 or more in the INSTITUTION at the close of business on
the Eligibility Record Date or Supplemental Eligibility Record Date,
respectively. Savings Accounts with total deposit balances of less than $50
shall not constitute a Qualifying Deposit.
SEC - The term SEC refers to the U.S. Securities and Exchange Commission.
SAVINGS ACCOUNT - The term Savings Account has the same meaning as in
Section 561.42 of the Rules and Regulations of the OTS and includes certificates
of deposit.
SPECIAL MEETING OF MEMBERS - The term Special Meeting of Members means the
special meeting and any adjournments thereof held to consider and vote upon this
Plan.
SUBSCRIPTION OFFERING - The term Subscription Offering means the offering
of Conversion Stock for purchase through Order Forms to Participants.
SUBSCRIPTION PRICE - The term Subscription Price means the amount per share
of Conversion Stock to be paid initially by Participants in the Subscription
Offering and persons in the Community Offering.
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SUPPLEMENTAL ELIGIBILITY RECORD DATE - The term Supplemental Eligibility
Record Date means the supplemental record date for determining Supplemental
Eligible Account Holders of the INSTITUTION. The Supplemental Eligibility
Record Date shall be the last day of the calendar quarter preceding the OTS'
approval of the application for conversion.
SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDER - The term Supplemental Eligible
Account Holder means any person (other than an Eligible Account Holder) holding
a Qualifying Deposit, except officers, directors and their associates, as of the
Supplemental Eligibility Record Date.
SYNDICATED COMMUNITY OFFERING- The term Syndicated Community Offering means
the offering of Conversion Stock following the Subscription and Community
Offerings through a syndicate of broker-dealers.
TAX-QUALIFIED EMPLOYEE STOCK BENEFIT PLAN - The term Tax-Qualified Employee
Stock Benefit Plan means any defined benefit plan or defined contribution plan,
such as an employee stock ownership plan, stock 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 which is not so qualified.
VOTING MEMBERS - The term Voting Members means those persons qualifying as
voting members of the INSTITUTION pursuant to its charter and bylaws.
VOTING RECORD DATE - The term Voting Record Date means the date fixed by
the Directors in accordance with OTS regulations for determining eligibility to
vote at the Special Meeting of Members.
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3. PROCEDURE FOR CONVERSION
After approval of the Plan by the Board of Directors of the INSTITUTION,
the Plan shall be submitted together with all other requisite material to the
OTS for its approval. Notice of the adoption of the Plan by the Board of
Directors of the INSTITUTION and the submission of the Plan to the OTS for its
approval will be published in a newspaper having general circulation in each
community in which an office of the INSTITUTION is located and copies of the
Plan will be made available at each office of the INSTITUTION for inspection by
the Members. Immediately upon filing of an application for conversion with the
OTS, the INSTITUTION also will cause to be published a notice of the filing with
the OTS of an application to convert in accordance with the provisions of the
Plan. Following approval by the OTS, the Plan will be submitted to a vote of
the Voting Members at the Special Meeting of Members called for that purpose.
Upon approval of the Plan by a majority of the total outstanding votes of the
Voting Members, the INSTITUTION will take all other necessary steps pursuant to
applicable laws and regulations to convert the INSTITUTION to stock form. The
conversion must be completed within 24 months of the approval of the Plan by the
Voting Members, unless a longer time period is permitted by governing laws and
regulations.
The Board of Directors of the INSTITUTION intends to take all necessary
steps to form the Holding Company, including the filing of an Application on
Form H-(e)1 or H-(e)1-S, if available to the Holding Company, with the OTS. In
the event that the Holding Company is utilized, upon conversion the INSTITUTION
will issue its capital stock to the Holding Company and the Holding Company will
issue and sell the Conversion Stock in accordance with this Plan.
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The Board of Directors of the INSTITUTION may determine for any reason at
any time prior to the issuance of the Conversion Stock not to utilize a holding
company form of organization in the Conversion, in which case, the Holding
Company's registration statement will be withdrawn from the SEC, the INSTITUTION
will take all steps necessary to complete the conversion from the mutual to the
stock form of organization, including filing any necessary documents with the
OTS, and will issue and sell the Conversion Stock in accordance with this Plan.
In such event, any subscriptions or orders received for Conversion Stock of the
Holding Company shall be deemed to be subscriptions or orders for Conversion
Stock of the INSTITUTION without any further action by the INSTITUTION or the
subscribers for the Conversion Stock, unless any such further action is required
by the SEC or the OTS, in which case the INSTITUTION shall take such necessary
action to complete the Conversion. Any references to the Holding Company in
this Plan shall mean the INSTITUTION in the event the Holding Company is
eliminated in the Conversion.
The Conversion Stock will not be insured by the FDIC. The INSTITUTION will
not knowingly lend funds or otherwise extend credit to any Person to purchase
shares of the Conversion Stock.
4. HOLDING COMPANY APPLICATIONS AND APPROVALS
The Holding Company shall make timely applications for any requisite
regulatory approvals, including an Application on Form H-(e)1 or H-(e)1-S, if
available to the Holding Company, to be filed with the OTS and a Registration
Statement on Form S-1 to be filed with
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the SEC. The INSTITUTION shall be a wholly-owned subsidiary of the Holding
Company unless the Holding Company is eliminated in the Conversion.
5. SALE OF CONVERSION STOCK
The Conversion Stock will be offered simultaneously in the Subscription
Offering to the Eligible Account Holders, Employee Plans, Supplemental Eligible
Account Holders and Other Members in the respective priorities set forth in
Sections 8 through 11 of this Plan. The Subscription Offering may be commenced
as early as the mailing of the Proxy Statement for the Special Meeting of
Members and must be commenced in time to complete the Conversion within the time
period specified in Section 3.
Any shares of Conversion Stock not subscribed for in the Subscription
Offering will be offered for sale in the Community Offering as provided in
Section 12 of this Plan. The Subscription Offering may be commenced prior to
the Special Meeting of Members and, in that event, the Community Offering may
also be commenced prior to the Special Meeting of Members. The offer and sale
of Conversion Stock prior to the Special Meeting of Members shall, however, be
conditioned upon approval of the Plan by the Voting Members.
If feasible, any shares of Conversion Stock remaining after the
Subscription and Community Offerings may be sold in a Syndicated Community
Offering, as provided in Section 13 of this Plan in a manner that will achieve
the widest distribution of the Conversion Stock as determined by the
INSTITUTION. The sale of all Conversion Stock subscribed for in the
Subscription and Community Offerings will be consummated simultaneously on the
date the sale
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of Conversion Stock in the Syndicated Community Offering is consummated and only
if all unsubscribed for Conversion Stock is sold.
The INSTITUTION may elect to offer to pay fees on a per share basis to
brokers who assist Persons in determining to purchase shares in the Subscription
and Community Offerings.
6. NUMBER OF SHARES AND PURCHASE PRICE OF CONVERSION STOCK
The total number of shares (or a range thereof) of Conversion Stock to be
issued and offered for sale will be determined jointly by the Board of Directors
of the INSTITUTION and Board of Directors of the Holding Company, if the holding
company form of organization is utilized, immediately prior to the commencement
of the Subscription and Community Offerings, subject to adjustment thereafter if
necessitated by market or financial conditions, with the approval of the OTS, if
necessary. In particular, the total number of shares may be increased by up to
15% of the number of shares offered in the Subscription and Community Offering
if the Estimated Price Range is increased subsequent to the commencement of the
Subscription and Community Offering to reflect changes in market and financial
conditions.
All shares sold in the Conversion will be sold at a uniform price per share
referred to in this Plan as the Actual Purchase Price. The aggregate purchase
price for all shares of Conversion Stock will not be inconsistent with the
estimated consolidated pro forma market value of the Holding Company. The
estimated consolidated pro forma market value of the INSTITUTION or the Holding
Company, if utilized, will be determined for such purpose by the Independent
Appraiser. Prior to the commencement of the Subscription and Community
Offerings, an Estimated Price Range will be established, which range will vary
within 15% above to 15%
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below the midpoint of such range. The number of shares of Conversion Stock to
be issued and the purchase price per share may be increased or decreased by the
INSTITUTION. In the event that the aggregate purchase price of the Conversion
Stock is below the minimum of the Estimated Price Range, or materially above the
maximum of the Estimated Price Range, resolicitation of purchasers may be
required, provided that up to a 15% increase above the maximum of the Estimated
Price Range will not be deemed material so as to require a resolicitation. Any
such resolicitation shall be effected in such manner and within such time as the
INSTITUTION shall establish, with the approval of the OTS, if required. Up to a
15% increase in the number of shares to be issued which is supported by an
appropriate change in the estimated pro forma market value of the Holding
Company will not be deemed to be material so as to require a resolicitation of
subscriptions.
Based upon the independent valuation as updated prior to the commencement
of the Subscription and Community Offerings, the Board of Directors of the
Holding Company, (if a holding company form of organization is utilized) and the
Board of Directors of the INSTITUTION will fix the Subscription Price and the
range of the number of shares to be offered. If upon completion of the
Subscription and Community Offerings all of the Conversion Stock is subscribed
for, or if because of a limited number of unsubscribed shares or otherwise a
Syndicated Community Offering cannot be effected, the total number of shares of
Conversion Stock to be issued and sold will be jointly determined by the
INSTITUTION and Holding Company (if a holding company form of organization is
utilized) as follows: (a) the estimated aggregate pro forma market value of the
INSTITUTION or the Holding Company, as the case may be, immediately after
conversion as determined by the Independent Appraiser, expressed in
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terms of a specific aggregate dollar amount rather than as a range, upon
completion of the Subscription and Community Offerings or other sale of all of
the Conversion Stock shall be divided by (b) the Actual Purchase Price.
If there is a Syndicated Community Offering of shares of Conversion Stock
not subscribed for in the Subscription and Community Offerings, the price per
share at which the Conversion Stock is sold in such Syndicated Community
Offering shall be the Subscription Price.
Notwithstanding the foregoing, no sale of Conversion Stock may be
consummated unless, prior to such consummation, the Independent Appraiser
confirms to the INSTITUTION and Holding Company, if utilized, and to the OTS
that, to the best knowledge of the Independent Appraiser, nothing of a material
nature has occurred which, taking into account all relevant factors including
those which would be involved in a change in the subscription price, would cause
the Independent Appraiser to conclude that the aggregate value of the Conversion
Stock at the Actual Purchase Price is incompatible with its estimate of the
aggregate consolidated pro forma market value of the Holding Company or the
INSTITUTION if no Holding Company is utilized. If such confirmation is not
received, the INSTITUTION may cancel the Subscription and Community Offerings
and/or the Syndicated Community Offering, extend the Conversion, establish a new
Subscription Price Range and/or Estimated Price Range, extend, reopen or hold
new Subscription and Community Offerings and/or Syndicated Community Offering or
take such other action as the OTS may permit.
The Conversion Stock to be issued in the Conversion shall be fully paid and
nonassessable.
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7. PURCHASE BY THE HOLDING COMPANY OF THE STOCK OF THE INSTITUTION
Upon the consummation of the sale of all of the Conversion Stock, and in
the event that a holding company form of organization is utilized, the Holding
Company will purchase from the INSTITUTION all of the capital stock of the
INSTITUTION to be issued by the INSTITUTION in the Conversion in exchange for
the Conversion proceeds that are not permitted to be retained by the Holding
Company.
The Holding Company will apply to the OTS to retain up to 50% of the
proceeds of the Conversion. Assuming the Holding Company is not eliminated, a
lesser percentage may be acceptable. The INSTITUTION believes that the
Conversion proceeds will provide economic strength to the Holding Company and
the INSTITUTION for the future in a highly competitive and regulated environment
and would facilitate expansion through acquisitions, diversification into other
related businesses and for other business and investment purposes, including the
payment of dividends and future repurchases of the Conversion Stock as permitted
by the OTS. If during the Conversion process the Board of Directors of the
INSTITUTION determines not to complete the Conversion utilizing a holding
company form of organization, capital stock of the INSTITUTION will be issued
and sold in accordance with the Plan. The above activities may also be engaged
in by the INSTITUTION if the Holding Company is eliminated.
8. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS (FIRST PRIORITY)
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A. Each Eligible Account Holder shall receive, as first priority and
without payment, nontransferable subscription rights to subscribe for shares of
Conversion Stock equal to an amount up to the greater of: the amount permitted
to be subscribed for in the Community Offering which amount, pursuant to Section
12, currently is .50% of the Conversion Stock offered but which may be increased
to 5% of the total offering of shares of Conversion Stock or decreased to less
than .50% of the Conversion Stock offered without the further approval of
members; one-tenth of one percent (.10%) of the total offering of shares of
Conversion Stock; or fifteen 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, in each
case on the Eligibility Record Date, subject to the maximum overall purchase
limitation specified in Section 14A and the minimum purchase limitation
specified in Section 14C and exclusive of an increase in the total number of
shares issued due to an increase in the Estimated Price Range of up to 15%.
B. In the event that Eligible Account Holders exercise subscription
rights for a number of shares of Conversion Stock in excess of the total number
of shares eligible for subscription, the shares of Conversion Stock shall be
allocated among the subscribing Eligible Account Holders so as to permit each
subscribing Eligible Account Holder, to the extent possible, to purchase a
number of shares sufficient to make his or her total allocation of Conversion
Stock equal to the lesser of 100 shares or the number of shares subscribed for
by the Eligible Account Holders. Any shares remaining after that allocation
will be allocated among the subscribing
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Eligible Account Holders whose subscriptions remain unsatisfied in the
proportion that the amount of the Qualifying Deposit of each Eligible Account
Holder whose subscription remains unsatisfied bears to the total amount of the
Qualifying Deposits of all Eligible Account Holders whose subscriptions remain
unsatisfied. If the amount so allocated exceeds the amount subscribed for by
any one or more Eligible Account Holders, the excess shall be reallocated (one
or more times as necessary) among those Eligible Account Holders whose
subscriptions are still not fully satisfied on the same principle until all
available shares have been allocated or all subscriptions satisfied.
C. Subscription rights as Eligible Account Holders received by Directors
and Officers and their Associates which are based on deposits made by such
persons during the twelve (12) months preceding the Eligibility Record Date
shall be subordinated to the Subscription Rights of all other Eligible Account
Holders.
9. SUBSCRIPTION RIGHTS OF THE EMPLOYEE PLANS (SECOND PRIORITY)
The Employee Plans shall receive, without payment, as a second priority
after the filling of subscriptions of Eligible Account Holders, nontransferable
subscription rights to purchase in the Subscription Offering the number of
shares of Conversion Stock requested by such Plan, subject to the purchase
limitations set forth in Section 14. If, after the filling of subscriptions of
Eligible Account Holders, a sufficient number of shares is not available to fill
the subscriptions by such plan, the subscription by such plan shall be filled to
the maximum extent possible, provided however that in the event of an increase
in the total number of shares issued due to an
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increase in the Estimated Price Range of up to 15%, the additional shares may be
sold to the Plan, subject to the purchase limitations set forth in Section 14.
The Employee Plans shall not be deemed to be an associate or affiliate of
or Person Acting in Concert with any Director or Officer of the Holding Company
or the INSTITUTION.
10. SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS (THIRD
PRIORITY)
A. Each Supplemental Eligible Account Holder shall receive, as third
priority and without payment, nontransferable subscription rights to subscribe
for shares of Conversion Stock equal to an amount up to the greater of: the
amount permitted to be subscribed for in the Community Offering which amount,
pursuant to Section 12, currently is .50% of the Conversion Stock offered, but
which may be increased to 5% of the total offering of shares of Conversion Stock
or decreased to less than .50% of the Conversion Stock offered without the
further approval of members or resolicitation of subscribers; one-tenth of one
percent (.10%) of the total offering of Conversion Stock; or fifteen 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 in the
INSTITUTION on the Supplemental Eligibility Record Date, subject to the maximum
overall purchase limitation specified in Section 14A and the minimum purchase
limitation specified in Section 14C and exclusive of an increase in the total
number of shares issued due to an increase in the Estimated Price Range of up to
15%.
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B. In the event that Supplemental Eligible Account Holders exercise
subscription rights for a number of shares of Conversion Stock in excess of the
total number of shares eligible for subscription, the shares of Conversion Stock
shall be allocated among the subscribing Supplemental Eligible Account Holders
so as to permit each subscribing Supplemental Eligible Account Holder, to the
extent possible, to purchase a number of shares sufficient to make his or her
total allocation of Conversion Stock equal to the lesser of 100 shares or the
number of shares subscribed for by the Supplemental Eligible Account Holder.
Any shares remaining after that allocation will be allocated among the
subscribing Supplemental Eligible Account Holders whose subscriptions remain
unsatisfied in the proportion that the amount of the Qualifying Deposit of each
remaining Supplemental Eligible Account Holder whose subscription remains
unsatisfied bears to the total amount of the Qualifying Deposits of all
Supplemental Eligible Account Holders whose subscriptions remain unsatisfied.
If the amount so allocated exceeds the amount subscribed for by any one or more
remaining Supplemental Eligible Account Holders, the excess shall be reallocated
(one or more times as necessary) among those remaining Supplemental Eligible
Account Holders whose subscriptions are still not fully satisfied on the same
principle until all available shares have been allocated or all subscriptions
satisfied.
C. Subscription rights received by an Eligible Account Holder pursuant to
Section 8 shall be applied in partial satisfaction of the subscription rights to
be received as a Supplemental Eligible Account Holder pursuant to this Section
10.
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11. SUBSCRIPTION RIGHTS OF OTHER MEMBERS (FOURTH PRIORITY)
A. Each Other Member shall receive, without payment, as a fourth priority
after the filling of subscriptions of the Eligible Account Holders, the Employee
Plans, and the Supplemental Eligible Account Holders, nontransferable
subscription rights to subscribe for shares of Conversion Stock equal to an
amount up to the greater of: the amount permitted to be subscribed for in the
Community Offering which amount, pursuant to Section 12, currently is .50% of
the Conversion Stock offered, but which may be increased to 5% of the total
offering of shares of Conversion Stock or decreased to less than .50% of the
Conversion Stock offered without the further approval of members; or one-tenth
of one percent (.10%) of the total offering of shares of Conversion Stock,
subject to the maximum overall purchase limitation specified in Section 14A and
the minimum purchase limitation specified in Section 14C and exclusive of an
increase in the total number of shares issued due to an increase in the
Estimated Price Range of up to 15%.
B. In the event that Other Members subscribe for a number of shares of
Conversion Stock which, when added to the shares of Conversion Stock subscribed
for by the Eligible Account Holders, the Employee Plans and Supplemental
Eligible Account Holders is in excess of the total number of shares of
Conversion Stock being issued, the subscriptions of such Other Members will be
allocated among the subscribing Other Members so as to permit each subscribing
Other Member, to the extent possible, to purchase a number of shares sufficient
to make his or her total allocation of Conversion Stock equal to the lesser of
100 shares or the number of shares subscribed for by the Other Member. Any
shares remaining after that allocation will be allocated among the subscribing
Other Members whose subscriptions remain
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unsatisfied pro rata in the same proportion that the number of votes of a
subscribing Other Member on the Voting Record Date bears to the total votes on
the Voting Record Date of all subscribing Other Members. If the amount so
allocated exceeds the amount subscribed for by any one or more remaining Other
Members, the excess shall be reallocated (one or more times as necessary) among
those remaining Other Members whose subscriptions are still not fully satisfied
on the same principle until all available shares have been allocated or all
subscriptions satisfied.
12. COMMUNITY OFFERING (FIFTH PRIORITY)
If less than the total number of shares of Conversion Stock to be
subscribed for in the Conversion are sold in the Subscription Offering, it is
expected that shares remaining unsubscribed for will be made available for
purchase in the Community Offering to certain members of the general public,
which may subscribe together with any Associate or group of persons Acting in
Concert for up to .50% of the Conversion Stock offered subject to the maximum
purchase limitation specified in Section 14A and the minimum purchase limitation
specified in Section 14C and exclusive of an increase in the total number of
shares issued due to an increase in the Estimated Price Range of up to 15%;
provided, however, that the amount permitted to be purchased in the Community
Offering may be increased to 5% of the total offering of shares of Conversion
Stock or decreased to less than .50% of the Conversion Stock offered without the
further approval of members. The shares may be made available in the Community
Offering through a direct community marketing program which may provide for
utilization of a broker, dealer, consultant or investment banking firm,
experienced and expert in
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the sale of savings institution securities. Such entities may be compensated on
a fixed fee basis or on a commission basis, or a combination thereof. The
shares will be available for purchase by the general public with preference
given to Preferred Subscribers. The INSTITUTION shall make distribution of the
Conversion Stock to be sold in the Community Offering in such a manner as to
promote a wide distribution of Conversion Stock. The INSTITUTION reserves the
right to reject any or all orders, in whole or in part, which are received in
the Community Offering.
If the Preferred Subscribers in the Community Offering, whose orders would
otherwise be accepted, subscribe for more shares than are available for
purchase, the shares available to them will be allocated among the Preferred
Subscribers in the manner which permits each such person to the extent possible,
to purchase the number of shares necessary to make his total allocation of
Conversion Stock equal to the lesser of 100 shares or the number of shares
subscribed for by such persons with preference given to Preferred Subscribers.
Thereafter, unallocated shares will be allocated among the Preferred Subscribers
whose subscriptions remain unsatisfied on a 100 shares per order basis until all
such orders have been filled or the remaining shares have been allocated. To
the extent that there are shares remaining after all subscriptions by Preferred
Subscribers, any remaining shares will be allocated among members of the general
public using the foregoing allocation as applied to Preferred Subscribers. The
INSTITUTION may establish all other terms and conditions of such offer. It is
expected that the Community Offering will commence concurrently with the
Subscription Offering. The Community Offering must be completed within 45 days
after the completion of the Subscription Offering unless otherwise extended by
the OTS.
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13. SYNDICATED COMMUNITY OFFERING
If feasible, all shares of Conversion Stock not subscribed for in the
Subscription and Community Offerings may be sold in a Syndicated Community
Offering, subject to such terms, conditions and procedures as may be determined
by the INSTITUTION, in a manner that will achieve the widest distribution of the
Conversion Stock subject to the right of the INSTITUTION to accept or reject in
whole or in part all subscriptions in the Syndicated Community Offering. In the
Syndicated Community Offering, any person together with any Associate or group
of persons Acting in Concert may purchase up .50% of the Conversion Stock
offered subject to the maximum overall purchase limitation specified in Section
14A and the minimum purchase limitation specified in Section 14C and exclusive
of an increase in the total number of shares issued due to an increase in the
Estimated Price Range of up to 15%; provided, however, that this amount may be
increased to 5% of the total offering of shares of Conversion Stock or decreased
to less than .50% of the Conversion Stock offered without the further approval
of members. The shares purchased by any Person together with any Associate or
group of persons Acting in Concert pursuant to Section 12 shall be counted
toward meeting the maximum percentage of shares permitted to be purchased
pursuant to this Section. Provided that the Subscription Offering has
commenced, the INSTITUTION may commence the Syndicated Community Offering at any
time after the mailing to the Members of the Proxy Statement to be used in
connection with the Special Meeting of Members, provided that the completion of
the offer and sale of the Conversion Stock shall be conditioned upon the
approval of this Plan by the Voting Members. If the Syndicated Community
Offering is not sooner commenced pursuant to the provisions of the preceding
sentence, the Syndicated Community Offering will be commenced
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as soon as practicable following the date upon which the Subscription and
Community Offerings terminate.
Alternatively, if a Syndicated Community Offering is not held, the
INSTITUTION shall have the right to sell any shares of Conversion Stock
remaining following the Subscription and Community Offerings in an underwritten
firm commitment public offering. The provisions of Section 14 hereof shall not
be applicable to sales to underwriters for purposes of such an offering but
shall be applicable to the sales by the underwriters to the public. The price
to be paid by the underwriters in such an offering shall be equal to the Actual
Purchase Price less an underwriting discount to be negotiated among such
underwriters and the INSTITUTION, which will in no event exceed an amount deemed
to be acceptable by the OTS.
If for any reason a Syndicated Community Offering or an underwritten firm
commitment public offering of shares of Conversion Stock not sold in the
Subscription and Community Offerings can not be effected, or in the event that
any insignificant residue of shares of Conversion Stock is not sold in the
Subscription and Community Offerings or in the Syndicated Community Offering or
an underwritten firm commitment public offering, other purchase arrangements
will be made for the sale of unsubscribed shares by the INSTITUTION, if
possible. Such other purchase arrangements will be subject to the approval of
the OTS.
14. LIMITATION ON PURCHASES
In addition to the maximum amount of Conversion Stock that may be
subscribed for as set forth in Sections 8, 10, 11, 12 and 13, the following
limitations shall apply to all purchases of shares of Conversion Stock:
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A. The maximum number of shares of Conversion Stock which may be
subscribed for or purchased in all categories in the Conversion by any Person or
Participant together with any Associate or group or persons Acting in Concert
shall not exceed 1.0% of the Conversion Stock offered (referred to herein as the
"Maximum Overall Purchase Limitation"), except for the Employee Plans which may
subscribe for up to 10% of the Conversion Stock issued and except for certain
Eligible Account Holders and Supplemental Eligible Account Holders which may
subscribe for or purchase shares in accordance with Section 8 and 10 herein;
provided, however, that in the event that the Maximum Overall Purchase
Limitation is increased to more than 2% of the shares of Conversion Stock
offered orders for Conversion Stock in the Community Offering and in the
Syndicated Community Offering (or, alternatively an underwritten firm commitment
public offering), if any, shall, as determined by the INSTITUTION, first be
filled to a maximum of 2% of the total number of shares of Conversion Stock
offered and thereafter remaining shares shall be allocated on an equal number of
shares basis per order until all orders have been filled.
B. The maximum number of shares of Conversion Stock which may be
purchased in all categories in the Conversion by Officers and Directors of the
INSTITUTION and their Associates in the aggregate shall not exceed 34.9% of the
total number of shares of Conversion Stock issued.
C. A minimum of 25 shares of Conversion Stock must be purchased by each
Person purchasing shares in the Conversion to the extent those shares are
available; provided, however, that in the event the minimum number of shares of
Conversion Stock purchased times the price per share exceeds $500, then such
minimum purchase requirement shall be reduced to such
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number of shares of Conversion Stock which when multiplied by the price per
share shall not exceed $500, as determined by the Board.
If the number of shares of Conversion Stock otherwise allocable pursuant to
Sections 8, 10, 11, 12 and 13, inclusive, to any Person or that Person's
Associates would be in excess of the maximum number of shares permitted as set
forth above, the number of shares of Conversion Stock allocated to each such
person shall be reduced to the lowest limitation applicable to that Person, and
then the number of shares allocated to each group consisting of a Person and
that Person's Associates shall be reduced so that the aggregate allocation to
that Person and his or her Associates complies with the above maximums, and such
maximum number of shares shall be reallocated among that Person and his or her
Associates as they may agree, or in the absence of an agreement, in proportion
to the shares subscribed by each (after first applying the maximums applicable
to each Person, separately).
Depending upon market or financial conditions, the Board of Directors of
the INSTITUTION and the Holding Company, without further approval of the
Members, may decrease or increase the maximum overall purchase limitation in
this Plan, provided that the maximum overall purchase limitation may not be
decreased below 1.0% or increased to a percentage in excess of 5%.
Notwithstanding the foregoing, the maximum overall purchase limitation may be
increased up to 9.99% provided that orders for Conversion Stock exceeding 5% of
the shares being offered shall not exceed, in the aggregate, 10% of the total
offering. If the INSTITUTION or the Holding Company, as the case may be,
increases the maximum purchase limitations, the INSTITUTION 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
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sole discretion of the INSTITUTION or the Holding Company, as the case may be,
resolicit certain other large subscribers.
In the event of an increase in the total number of shares offered in the
Conversion due to an increase in the Estimated Price Range of up to 15% (the
"Adjusted Maximum") the additional shares will be allocated in the following
order of priority: (i) to fill the Employee Plans' subscription to the Adjusted
Maximum; (ii) in the event that there is an oversubscription at the Eligible
Account Holder level, to fill unfulfilled subscriptions of Eligible Account
Holders exclusive of the Adjusted Maximum according to Section 8; (iii) in the
event there is an oversubscription at the Supplemental Eligible Account Holder
level, to fill unfulfilled subscriptions of Supplemental Eligible Account
Holders exclusive of the Adjusted Maximum according to Section 10; (iv) in the
event that there is an oversubscription at the Other Member level, to fill
unfulfilled subscriptions of Other Members exclusive of the Adjusted Maximum in
accordance with Section 11; and (v) to fill unfulfilled Subscriptions in the
Community Offering exclusive of the Adjusted Maximum in accordance with Section
12.
For purposes of this Section 14, the Directors of the INSTITUTION and the
Holding Company shall not be deemed to be Associates or a group affiliated with
each other or otherwise Acting in Concert solely as a result of their being
Directors of the INSTITUTION or the Holding Company.
Each Person purchasing Conversion Stock in the Conversion shall be deemed
to confirm that such purchase does not conflict with the above purchase
limitations contained in this Plan.
For a period of three years following the Conversion, no Officer, Director
or their Associates shall purchase, without the prior written approval of the
OTS, any outstanding shares
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of common stock of the INSTITUTION or the Holding Company, as the case may be,
except from a broker-dealer registered with the SEC. This provision shall not
apply to negotiated transactions involving more than one percent of the
outstanding shares of common stock of the INSTITUTION or the Holding Company, as
the case may be, the exercise of any options pursuant to a stock option plan or
purchases of common stock of the INSTITUTION or the Holding Company, as the case
may be, made by or held by any Tax-Qualified Employee Stock Benefit Plan or
Non-Tax-Qualified Employee Stock Benefit Plan of the INSTITUTION or the Holding
Company (including the Employee Plans) which may be attributable to any Officer
or Director. As used herein, the term "negotiated transaction" means a
transaction in which the securities are offered and the terms and arrangements
relating to any sale are arrived at through direct communications between the
seller or any person acting on its behalf and the purchaser or his investment
representative. The term "investment representative" shall mean a professional
investment advisor acting as agent for the purchaser and independent of the
seller and not acting on behalf of the seller in connection with the
transaction.
15. PAYMENT FOR CONVERSION STOCK
All payments for Conversion Stock subscribed for in the Subscription,
Community and Syndicated Community Offerings must be delivered in full to the
INSTITUTION, together with a properly completed and executed Order Form, or
purchase order in the case of the Syndicated Community Offering, on or prior to
the expiration date specified on the Order Form or purchase order, as the case
may be, unless such date is extended by the INSTITUTION; provided, however, that
if the Employee Plans subscribe for shares during the Subscription Offering,
such
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plans will not be required to pay for the shares at the time they subscribe but
rather may pay for such shares of Conversion Stock subscribed for by such plans
at the Actual Purchase Price upon consummation of the Conversion, provided that,
in the case of the employee stock ownership plan ("ESOP") there is in force from
the time of its subscription until the consummation of the Conversion, a loan
commitment from the Holding Company or an unrelated financial institution to
lend to the ESOP, at such time, the aggregated Maximum Subscription Price of the
shares for which it subscribed. The INSTITUTION may make scheduled
discretionary contributions to an Employee Plan provided such contributions do
not cause the INSTITUTION to fail to meet its regulatory capital requirement.
Notwithstanding the foregoing, the INSTITUTION and the Holding Company, if
utilized, shall have the right, in their sole discretion, to permit
institutional investors to submit contractually irrevocable orders in the
Community Offering and to thereafter submit payment for the Conversion Stock for
which they are subscribing in the Community Offering at any time prior to 48
hours before the completion of the Conversion, unless such 48 hour period is
waived by the INSTITUTION and the Holding Company, in their sole discretion.
Payment for Conversion Stock subscribed for shall be made either in cash
(if delivered in person), check or money order. Alternatively, subscribers in
the Subscription and Community Offerings may pay for the shares subscribed for
by authorizing the INSTITUTION on the Order Form to make a withdrawal from the
subscriber's Savings Account at the INSTITUTION in an amount equal to the
purchase price of such shares. Such authorized withdrawal, whether from a
savings passbook or certificate account, shall be without penalty as to
premature withdrawal. If the authorized withdrawal is from a certificate
account, and the remaining balance does not
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meet the applicable minimum balance requirement, the certificate shall be
cancelled at the time of withdrawal, without penalty, and the remaining balance
will earn interest at the passbook rate. Funds for which a withdrawal is
authorized will remain in the subscriber's Savings Account but may not be used
by the subscriber until the Conversion Stock has been sold or the 45-day period
(or such longer period as may be approved by the OTS) following the Subscription
and Community Offering has expired, whichever occurs first. Thereafter, the
withdrawal will be given effect only to the extent necessary to satisfy the
subscription (to the extent it can be filled) at the purchase price per share.
Interest will continue to be earned on any amounts authorized for withdrawal
until such withdrawal is given effect. Interest will be paid by the INSTITUTION
at not less than the passbook annual rate on payments for Conversion Stock
received in cash or by check or money order. Such interest will be paid from
the date payment is received by the INSTITUTION until consummation or
termination of the Conversion. If for any reason the Conversion is not
consummated, all payments made by subscribers in the Subscription, Community and
Syndicated Community Offerings will be refunded to them with interest. In case
of amounts authorized for withdrawal from Savings Accounts, refunds will be made
by cancelling the authorization for withdrawal. The INSTITUTION is prohibited
by regulation from knowingly making any loans or granting any lines of credit
for the purchase of stock in the Conversion, and therefore, will not do so.
16. MANNER OF EXERCISING SUBSCRIPTION RIGHTS THROUGH ORDER FORMS
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As soon as practicable after the Prospectus prepared by the Holding Company
and INSTITUTION has been declared effective by the OTS and the SEC, if the
holding company form of organization is utilized, Order Forms will be
distributed to all Eligible Account Holders, the Employee Plans, the
Supplemental Eligible Account Holders and Other Members at their last known
addresses appearing on the records of the INSTITUTION for the purpose of
subscribing to shares of Conversion Stock in the Subscription Offering and will
be made available for use by those Persons entitled to purchase in the Community
Offering. Notwithstanding the foregoing, the INSTITUTION may elect to send
Order Forms only to those Persons who request them after such notice as is
approved by the OTS and is adequate to apprise all Eligible Account Holders, the
Employee Plans, Supplemental Eligible Account Holders and Other Members of the
pendency of the Subscription Offering has been given. Such notice may be
included with the proxy statement for the Special Meeting of Members and may
also be included in a notice of the pendency of the Conversion and the Special
Meeting of Members sent to all Eligible Account Holders and Supplemental
Eligible Account Holders in accordance with regulations of the OTS.
Each Order Form will be preceded or accompanied by the Prospectus (if a
holding company form of organization is utilized) or the Offering Circular (if
the holding company form of organization is not utilized) describing the Holding
Company, if utilized, the INSTITUTION, the Conversion Stock and the Subscription
and Community Offerings. Each Order Form will contain, among other things, the
following:
A. A specified date by which all Order Forms must be received by the
INSTITUTION, which date shall be not less than twenty (20), nor more than
forty-five (45) days,
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following the date on which the Order Forms are mailed by the INSTITUTION, and
which date will constitute the termination of the Subscription Offering;
B. The Subscription Price per share for shares of Conversion Stock to be
sold in the Subscription and Community Offerings;
C. A description of the minimum and maximum number of shares of
Conversion Stock which may be subscribed for pursuant to the exercise of
subscription rights or otherwise purchased in the Community Offering;
D. Instructions as to how the recipient of the Order Form is to indicate
thereon the number of shares of Conversion Stock for which such person elects to
subscribe and the available alternative methods of payment therefor;
E. An acknowledgment that the recipient of the Order Form has received a
final copy of the Prospectus or Offering Circular, as the case may be, prior to
execution of the Order Form;
F. A statement to the effect that all subscription rights are
nontransferable, will be void at the end of the Subscription Offering, and can
only be exercised by delivering within the subscription period such properly
completed and executed Order Form, together with cash (if delivered in person),
check or money order in the full amount of the purchase price as specified in
the Order Form for the shares of Conversion Stock for which the recipient elects
to subscribe in the Subscription Offering (or by authorizing on the Order Form
that the INSTITUTION withdraw said amount from the subscriber's Savings Account
at the INSTITUTION) to the INSTITUTION;
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G. A statement to the effect that the executed Order Form, once received
by the INSTITUTION, may not be modified or amended by the subscriber without the
consent of the INSTITUTION; and
H. A statement with respect to the residence of the subscriber.
Notwithstanding the above, the INSTITUTION and the Holding Company will not
accept orders received on photocopied or facsimilied order forms.
17. UNDELIVERED, DEFECTIVE OR LATE ORDER FORMS: INSUFFICIENT PAYMENT
In the event Order Forms (a) are not delivered and are returned to the
INSTITUTION by the United States Postal Service or the INSTITUTION is unable to
locate the addressee, (b) are not received back by the INSTITUTION or are
received by the INSTITUTION after the expiration date specified thereon, (c) are
defectively filled out or executed, (d) are not accompanied by the full required
payment, or, in the case of institutional investors in the Community Offering,
by delivering irrevocable orders together with a legally binding commitment to
pay in cash, check, money order or wire transfer the full amount of the purchase
price prior to 48 hours before the completion of the Conversion for the shares
of Conversion Stock subscribed for (including cases in which savings accounts
from which withdrawals are authorized are insufficient to cover the amount of
the required payment), or (e) are not mailed pursuant to a "no mail" order
placed in effect by the account holder, the subscription rights of the person to
whom such rights have been granted will lapse as though such person failed to
return the contemplated Order Form within the time period specified thereon;
provided, however,
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that the INSTITUTION may, but will not be required to, waive any immaterial
irregularity on any Order Form or require the submission of corrected Order
Forms or the remittance of full payment for subscribed shares by such date as
the INSTITUTION may specify. The interpretation of the INSTITUTION of terms and
conditions of the Plan and of the Order Forms will be final, subject to the
authority of the OTS.
18. RESTRICTIONS ON RESALE OR SUBSEQUENT DISPOSITION
A. All shares of Conversion Stock purchased by Directors or Officers of
the INSTITUTION or the Holding Company in the Conversion shall be subject to the
restriction that, except as provided in Section 18B, below, or as may be
approved by the OTS, no interest in such shares may be sold or otherwise
disposed of for value for a period of one (l) year following the date of
purchase.
B. The restriction on disposition of shares of Conversion Stock set forth
in Section 18A above shall not apply to the following:
(i) Any exchange of such shares in connection with a merger or
acquisition involving the INSTITUTION or the Holding Company, as the case may
be, which has been approved by the OTS; and
(ii) Any disposition of such shares following the death of the person
to whom such shares were initially sold under the terms of the Plan.
C. With respect to all shares of Conversion Stock subject to restrictions
on resale or subsequent disposition, each of the following provisions shall
apply:
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(i) Each certificate representing shares restricted within the
meaning of Section 18A, above, shall bear a legend prominently stamped on its
face giving notice of the restriction;
(ii) Instructions shall be issued to the stock transfer agent for the
INSTITUTION or the Holding Company, as the case may be, not to recognize or
effect any transfer of any certificate or record of ownership of any such shares
in violation of the restriction on transfer; and
(iii) Any shares of capital stock of the INSTITUTION or the
Holding Company, as the case may be, issued with respect to a stock dividend,
stock split, or otherwise with respect to ownership of outstanding shares of
Conversion Stock subject to the restriction on transfer hereunder shall be
subject to the same restriction as is applicable to such Conversion Stock.
19. VOTING RIGHTS OF STOCKHOLDERS
Upon conversion, the holders of the capital stock of the INSTITUTION shall
have the exclusive voting rights with respect to the INSTITUTION as specified in
its charter. The holders of the common stock of the Holding Company (if a
holding company form of organization is utilized) shall have the exclusive
voting rights with respect to the Holding Company.
20. ESTABLISHMENT OF LIQUIDATION ACCOUNT
The INSTITUTION shall establish at the time of conversion a liquidation
account in an amount equal to its net worth as of the latest practicable date
prior to conversion ("Liquidation Account"). The liquidation account will be
maintained by the INSTITUTION for the benefit of the Eligible Account Holders
and Supplemental Eligible Account Holders who continue to
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maintain their Savings Accounts at the INSTITUTION. Each Eligible Account
Holder and Supplemental Eligible Account Holder shall, with respect to his
Savings Account, hold a related inchoate interest in a portion of the
Liquidation Account balance, in relation to his Savings Account balance at the
Eligibility Record Date and/or Supplemental Eligibility Record Date or to such
balance as it may be subsequently reduced, as hereinafter provided.
In the unlikely event of a complete liquidation of the INSTITUTION (and
only in such event), following all liquidation payments to creditors (including
those to Account Holders to the extent of their Savings Accounts) each Eligible
Account Holder and Supplemental Eligible Account Holder shall be entitled to
receive a liquidating distribution from the Liquidation Account, in the amount
of the then adjusted subaccount balance for his Savings Account then held,
before any liquidation distribution may be made to any holders of the
INSTITUTION's capital stock. No merger, consolidation, bulk purchase of assets
with assumption of Savings Accounts and other liabilities, or similar
transactions with an FDIC-insured institution, in which the INSTITUTION is not
the surviving institution, shall be deemed to be a complete liquidation for this
purpose. In such transactions, the Liquidation Account shall be assumed by the
surviving institution.
The initial subaccount balance for a Savings Account held by an Eligible
Account Holder and Supplemental Eligible Account Holder shall be determined by
multiplying the opening balance in the Liquidation Account by a fraction, the
numerator of which is the amount of such Eligible Account Holder's and/or
Supplemental Eligible Account Holder's Qualifying Deposit and the denominator of
which is the total amount of all Qualifying Deposits of all Eligible Account
Holders and Supplemental Eligible Account Holders in the INSTITUTION. Such
initial
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subaccount balance shall not be increased, but shall be subject to downward
adjustment as described below. For Savings Accounts in existence at both dates,
separate subaccounts shall be determined on the basis of the Qualifying Deposits
in such Savings Account on such record dates. Such initial subaccount balances
shall not be increased but shall be subject to downward adjustment as described
below.
If, at the close of business on any annual closing date, commencing on or
after the Eligibility Record Date and the Supplemental Eligibility Record Date,
the deposit balance in the Savings Account of an Eligible Account Holder or
Supplemental Eligible Account Holder is less than the lesser of (i) the balance
in the Savings Account at the close of business on any other annual closing date
subsequent to the Eligibility Record Date or Supplemental Eligibility Record
Date, or (ii) the amount of the Qualifying Deposit in such Savings Account, 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 such downward adjustment, the subaccount balance shall
not be subsequently increased, notwithstanding any subsequent increase in the
deposit balance of the related Savings Account. If any such Savings Account is
closed, the related subaccount shall be reduced to zero.
The creation and maintenance of the Liquidation Account shall not operate
to restrict the use or application of any of the net worth accounts of the
INSTITUTION.
21. TRANSFER OF SAVINGS ACCOUNTS AND CONTINUITY OF THE INSTITUTION
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Upon Conversion, each Savings Account Holder having a Savings Account at
the INSTITUTION prior to the Conversion will continue to have a Savings Account,
without payment therefor, in the same amount and subject to the same terms and
conditions (except for voting and liquidation rights) as in effect prior to the
Conversion.
After the Conversion, the INSTITUTION will succeed to all the rights,
interests, duties and obligations of the INSTITUTION before the Conversion,
including but not limited to all rights and interests of the INSTITUTION in and
to its assets and properties, whether real, personal or mixed. The INSTITUTION
will continue to be a member of the Federal Home Loan Bank System and all its
insured savings deposits will continue to be insured by the FDIC to the extent
provided by applicable law.
22. RESTRICTIONS ON ACQUISITION OF THE INSTITUTION AND HOLDING COMPANY
A. In accordance with OTS regulations, for a period of three years from
the date of consummation of the Conversion, no Person, other than the Holding
Company (if a holding company form of organization is utilized), shall directly
or indirectly offer to acquire or acquire the beneficial ownership of more than
10% of any class of an equity security of the INSTITUTION without the prior
written consent of the OTS.
B. 1. The charter of the INSTITUTION contains a provision stipulating
that no person, except the Holding Company (if a holding company form of
organization is utilized), for a period of five years following the date of the
Conversion shall directly or indirectly offer to acquire or acquire the
beneficial ownership of more than 10% of any class of an equity security
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of the INSTITUTION, without the prior written approval of the OTS. In addition,
such charter may also provide that for a period of five years following the
Conversion, shares beneficially owned in violation of the above-described
charter provision shall not be entitled to vote and shall not be voted by any
person or counted as voting stock in connection with any matter submitted to
stockholders for a vote. In addition, special meetings of the stockholders
relating to changes in control or amendment of the charter may only be called by
the Board of Directors, and shareholders shall not be permitted to cumulate
their votes for the election of directors.
B. 2. The Certificate of Incorporation of the Holding Company, if a
holding company form of organization is utilized, will contain a provision
stipulating that in no event shall any record owner of any outstanding shares of
the Holding Company's common stock who beneficially owns in excess of 10% of
such outstanding shares be entitled or permitted to any vote in respect to any
shares held in excess of 10%. In addition, the Certificate of Incorporation and
Bylaws of the Holding Company provide for staggered terms of the directors,
noncumulative voting for directors, limitations on the calling of special
meetings, a fair price provision for certain business combinations and certain
notice requirements.
C. For the purposes of this Section 22:
(i) The term "person" includes an individual, a group acting in
concert, a corporation, a partnership, an association, a joint stock company, a
trust, an 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;
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(ii) The term "offer" includes every offer to buy or acquire,
solicitation of an offer to sell, tender offer for, or request or invitation for
tenders of, a security or interest in a security for value;
(iii) The term "acquire" includes every type of acquisition,
whether effected by purchase, exchange, operation of law or otherwise; and
(iv) The term "security" includes non-transferable subscription rights
issued pursuant to a plan of conversion as well as a "security" as defined in 15
U.S.C. Section 78c(a)(10).
23. PAYMENT OF DIVIDENDS AND REPURCHASE OF STOCK
The INSTITUTION shall not declare or pay a cash dividend on, or repurchase
any of, its capital stock if the effect thereof would cause its regulatory
capital to be reduced below (i) the amount required for the Liquidation Account
or (ii) the federal regulatory capital requirement in Section 567.2 of the Rules
and Regulations of the OTS. Otherwise, the INSTITUTION may declare dividends,
make capital distributions or repurchase its capital stock in accordance with
applicable law and regulations.
24. AMENDMENT OF PLAN
If deemed necessary or desirable, the Plan may be substantively amended at
any time prior to solicitation of proxies from Members to vote on the Plan by a
two-thirds vote of the INSTITUTION's Board of Directors, and at any time
thereafter by such vote of such Board of Directors with the concurrence of the
OTS. Any amendment to the Plan made after approval by the Members with the
approval of the OTS shall not necessitate further approval by the Members
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unless otherwise required by the OTS. The Plan may be terminated by majority
vote of the INSTITUTION's Board of Directors at any time prior to the Special
Meeting of Members to vote on the Plan, and at any time thereafter with the
concurrence of the OTS.
By adoption of the Plan, the Members of the INSTITUTION authorize the Board
of Directors to amend or terminate the Plan under the circumstances set forth in
this Section.
25. CHARTER AND BYLAWS
By voting to adopt the Plan, members of the INSTITUTION will be voting to
adopt a Federal Stock Savings Bank Charter and Bylaws for a Federal Stock
Savings Bank attached as Exhibits I and II to this Plan. The effective date of
the INSTITUTION's stock charter and bylaws shall be the date of issuance and
sale of the Conversion Stock as specified by the OTS.
26. CONSUMMATION OF CONVERSION
The Conversion of the INSTITUTION shall be deemed to take place and be
effective upon the completion of all requisite organizational procedures for
obtaining a Federal Stock Savings Bank Charter for the INSTITUTION and sale of
all Conversion Stock.
27. REGISTRATION AND MARKETING
Within the time period required by applicable laws and regulations, the
INSTITUTION or the Holding Company, as the case may be, will register the
securities issued in connection with the Conversion pursuant to the Securities
Exchange Act of 1934 and will not deregister such securities for a period of at
least three years thereafter, except that the maintenance of registration
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for three years requirement may be fulfilled by any successor to the INSTITUTION
or any holding company of the INSTITUTION. In addition, the INSTITUTION or
Holding Company, as the case may be, will use its best efforts to encourage and
assist a market-maker to establish and maintain a market for the Conversion
Stock and to list those securities on a national or regional securities exchange
or the NASDAQ system.
28. RESIDENTS OF FOREIGN COUNTRIES AND CERTAIN STATES
The INSTITUTION will make reasonable efforts to comply with the securities
laws of all States in the United States in which Persons entitled to subscribe
for shares of Conversion Stock pursuant to the Plan reside. However, no such
Person will be issued subscription rights or be permitted to purchase shares of
Conversion Stock in the Subscription Offering if such Person resides in a
foreign country or in a state of the United States with respect to which both of
the following apply: A. a small number of Persons otherwise eligible to
subscribe for shares under the Plan reside in such state and; B. the issuance
of subscription rights or the offer or sale of shares of Conversion Stock to
such Persons would require the INSTITUTION or the Holding Company, as the case
may be, under the securities laws of such state, to register as a broker,
dealer, salesman or agent or to register or otherwise qualify its securities for
sale in such state and such registration or qualification would be impracticable
for reasons of cost or otherwise.
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29. EXPENSES OF CONVERSION
The INSTITUTION shall use its best efforts to assure that expenses incurred
by it in connection with the Conversion shall be reasonable.
30. CONDITIONS TO CONVERSION
The Conversion of the INSTITUTION pursuant to this Plan is expressly
conditioned upon the following:
(a) Prior receipt by the INSTITUTION of rulings of the United States
Internal Revenue Service and the State of Ohio taxing authorities, or opinions
of counsel, substantially to the effect that the Conversion will not result in
any adverse federal or state tax consequences to Eligible Account Holders or
Supplemental Eligible Account Holders or to the INSTITUTION and the Holding
Company before or after the Conversion;
(b) The sale of all of the Conversion Stock offered in the Conversion; and
(c) The completion of the Conversion within the time period specified in
Section 3 of this Plan.
31. INTERPRETATION
All interpretations of this Plan and application of its provisions to
particular circumstances by a majority of the Board of Directors of the
INSTITUTION shall be final, subject to the authority of the OTS.
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EXHIBIT I
FEDERAL STOCK CHARTER
FOR
CITIZENS BANK OF DELPHOS
Section 1. Corporate Title.
The full corporate title of the institution is Citizens Bank of Delphos.
Section 2. Office.
The home office shall be located in Delphos, Ohio.
Section 3. Duration.
The duration of the BANK is perpetual.
Section 4. Purpose and Powers.
The purpose of the BANK is to pursue any or all of the lawful objectives of
a Federal savings bank chartered under Section 5 of the Home Owners' Loan Act
and to exercise all 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
BANK has authority to issue is ten million (10,000,000) of which nine million
(9,000,000) shall be common stock, par value $1.00 per share and of which one
million (1,000,000) shall be preferred stock, par value $1.00 per share. The
shares may be issued from time to time as authorized by the Board of Directors
without further approval of 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 BANK. The consideration for the
shares shall be cash, tangible or intangible property (to the extent direct
investment in such property would be permitted), labor or services actually
performed for the BANK, or any combination of the foregoing. In the absence of
actual fraud
<PAGE>
in the transaction, the value of such property, labor, or services, as
determined by the Board of Directors of the 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
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 BANK
from the mutual to the stock form of capitalization, no shares of capital 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 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:
(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 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 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, the 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 BANK in a
merger or consolidation for the BANK, shall not be considered to
be such an adverse change.
A description of the different classes and series (if any) of the 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:
<PAGE>
A. COMMON STOCK. Except as provided in this Section 5 (or in any
supplementary sections hereto) 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, 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, 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.
In the event of any liquidation, dissolution, or winding up of the
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 BANK available for distribution remaining
after: (i) payment or provision for payment of the 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 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 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:
(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 the shares of such
series;
<PAGE>
(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 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 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 BANK shall
file with the Secretary of the Office 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.
<PAGE>
Section 6. Preemptive Rights.
Holders of the capital stock of the BANK shall not be entitled to
preemptive rights with respect to any shares of the BANK which may be issued.
Section 7. Liquidation Account.
Pursuant to the requirements of the Office's regulations (12 C.F.R.
563b.3), the BANK shall establish and maintain a liquidation account for the
benefit of its savings account holders as of December 31, 1994 and September 30,
1996, respectively ("eligible savers"). In the event of a complete liquidation
of the BANK, it shall comply with such regulations with respect to the amount
and the priorities on liquidation of each of the BANK's eligible saver's
inchoate interest in the liquidation account, to the extent it is still in
existence: Provided, That an eligible saver's inchoate interest in the
liquidation account shall not entitle such eligible saver to any voting rights
at meetings of the BANK's shareholders.
Section 8. Certain Provisions Applicable for Five Years.
Notwithstanding anything contained in the BANK's charter or bylaws to the
contrary, for a period of five years from the date of consummation of the
conversion of the BANK from mutual to stock form, the following provisions shall
apply:
A. BENEFICIAL OWNERSHIP LIMITATION. No person shall directly or
indirectly offer to acquire or acquire the beneficial ownership of
more than 10 percent of any class of any equity security of the BANK.
This limitation shall not apply to a transaction in which the BANK
forms a holding company in conjunction with conversion, or thereafter,
if such formation is without change in the respective beneficial
ownership interests of the BANK's shareholders other than pursuant to
the exercise of any dissenter and appraisal rights, the purchase of
shares by underwriters in connection with a public offering, or the
purchase of shares by a tax-qualified employee stock benefit plan
which is exempt from the approval requirements under Section
574.3(c)(1)(vi) of the Office Regulations.
In the event shares are acquired in violation of this Section 8, all
shares beneficially owned by any person in excess of 10% shall be
considered "excess shares" and 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 matters submitted to the shareholders
for a vote.
For the purposes of this Section 8, the following definitions apply:
(i) The term "person" includes an individual, a group acting in
concert, a corporation, a partnership, an association, a joint
stock company, a trust, any unincorporated organization or
similar company, a syndicate or any
<PAGE>
other group formed for the purpose of acquiring, holding or
disposing of the equity securities of the BANK.
(ii) The term "offer" includes every offer to buy or otherwise
acquire, solicitation of an offer to sell, tender offer for, or
request or invitation for tenders of, a security or interest in a
security for value.
(iii) The term "acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or otherwise.
(iv) The term "acting in concert" means (a) knowing participation in a
joint activity or conscious parallel action towards a common goal
whether or not pursuant to an express agreement, or (b) 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.
B. CUMULATIVE VOTING LIMITATION. Shareholders shall not be permitted to
cumulate their votes for the election of directors.
C. CALL FOR SPECIAL MEETINGS. Special meetings of shareholders relating
to changes in control of the BANK or amendments to its charter shall
be called only at the direction of the Board of Directors.
Section 9. Directors.
The BANK shall be under the direction of a Board of Directors. The
authorized number of directors, as stated in the BANK's bylaws, shall not be
less than five nor more than 15 except when a greater number is approved by the
Office or its delegates.
Section 10. 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 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 the
regulatory procedures or on such other date as the Office may specify in its
preliminary approval.
<PAGE>
As adopted by the BANK's members on __________, 1996, to be effective on
the date the BANK converts from mutual to stock form of organization.
Citizens Bank of Delphos
Attest: By:
-------------------------- -----------------------
Gary G. Ricker Joseph Reinemeyer
Secretary Managing Officer
Citizens Bank of Delphos
OFFICE OF THRIFT SUPERVISION
Attest: By:
-------------------------- -----------------------
Secretary to the Office
Declared effective on
the _____ day of __________, 199_.
<PAGE>
EXHIBIT II
BYLAWS OF
CITIZENS BANK OF DELPHOS
ARTICLE I. HOME OFFICE
The home office of Citizens Bank of Delphos ("BANK") is 114 East Third
Street, Delphos, Ohio 45833.
ARTICLE II. SHAREHOLDERS
SECTION 1. PLACE OF MEETINGS. All annual and special meetings of
shareholders shall be held at the home office of the BANK or at such other place
in the State in which the principal place of business of the BANK is located as
the board of directors may determine.
SECTION 2. ANNUAL MEETING. A meeting of the shareholders of the BANK for
the election of directors and for the transaction of any other business of the
BANK shall be held annually within 120 days after the end of the BANK's fiscal
year as the board of directors may determine.
SECTION 3. SPECIAL MEETINGS. For a period of five years from the date of
the completion of the conversion of the BANK from mutual to stock form, special
meetings of the shareholders relating to a change in control of the BANK or to
an amendment of the Charter of the BANK may be called only by the board of
directors. Thereafter, special meetings of the shareholders for any purpose or
purposes, unless otherwise prescribed by the regulations of the Office of Thrift
Supervision ("OTS"), 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 the outstanding capital stock
of the BANK entitled to vote at the meeting. Such written request shall state
the purpose or purposes of the meeting and shall be delivered at the home office
of the 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 the most current edition of Robert's Rules of Order
unless otherwise prescribed by regulations of the OTS or these bylaws. 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 20 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, 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 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
<PAGE>
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 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 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 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 the
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
elect to follow the procedures prescribed in Section 552.6(d) of the OTS's
Regulations as now or hereafter in effect.
SECTION 8. QUORUM. A majority of the outstanding shares of the 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 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.
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<PAGE>
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 BANK to the contrary, at any meeting of the shareholders of
the 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 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 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 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.
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 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 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. Except as otherwise provided in the 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
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<PAGE>
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 OTS, 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 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 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 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 BANK at
least 5 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 5
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 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 shareholders, or any other action which may be taken at a
meeting of the 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.
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<PAGE>
ARTICLE III. BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the 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, vice
chairman of the board or the president to preside at its meetings.
SECTION 2. NUMBER AND TERM. The board of directors shall consist of five
(5) 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 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 BANK unless
the 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 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 by means of similar communications equipment
by which all persons participating in the meeting can hear each other. Such
participation 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 24 hours 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 or waiver of notice of such meeting.
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<PAGE>
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 regulation of the OTS 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 BANK addressed to
the chairman of the board or president. Unless otherwise specified such
resignation shall take effect upon receipt by the chairman of the board or
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 in 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 BANK who is present
at a meeting of the board of directors at which action on any BANK 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 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 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
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<PAGE>
shares then entitled to vote at an election of directors. 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.
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 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 BANK otherwise than
in the usual and regular course of its business; a voluntary dissolution of the
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.
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<PAGE>
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 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 committees composed of directors as they may
determine to be necessary or appropriate for the conduct of the business of the
BANK and may prescribe the duties, constitution and procedures thereof.
ARTICLE V. OFFICERS
SECTION 1. POSITIONS. The officers of the 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
BANK. The offices of
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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 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 BANK shall be
elected annually 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 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 BANK
to enter into an employment contract with any officer in accordance with
regulations of the OTS; 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 BANK will be served thereby,
but such removal, other than for cause, shall be without prejudice to the
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 OTS,
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 BANK to enter into any contract or execute and deliver any instrument in
the name of and on behalf of the BANK. Such authority may be general or
confined to specific instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of the 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.
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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 BANK shall be signed by one or more officers, employees or agents of
the BANK in such manner as shall from time to time be determined by the board of
directors.
SECTION 4. DEPOSITS. All funds of the BANK not otherwise employed shall
be deposited from time to time to the credit of the BANK in any duly authorized
depositories as the board of directors may select.
ARTICLE VII. CERTIFICATES FOR SHARES
AND THEIR TRANSFER
SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares of
capital stock of the BANK shall be in such form as shall be determined by the
board of directors and approved by the OTS. Such certificates shall be signed
by the chief executive officer or by any other officer of the 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 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 BANK. All
certificates surrendered to the BANK for transfer shall be cancelled and no new
certificate shall be issued until the former certificate for a like number of
shares has been surrendered and cancelled, except that in case of a lost or
destroyed certificate, a new certificate may be issued upon such terms and
indemnity to the BANK as the board of directors may prescribe.
SECTION 2. TRANSFER OF SHARES. Transfer of shares of capital stock of the
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
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 BANK shall be deemed by the BANK to be the owner for
all purposes.
ARTICLE VIII. FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the BANK shall end on September 30 of each year. The
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.
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ARTICLE IX. DIVIDENDS
Subject to the terms of the BANK's Charter and the regulations and orders
of the OTS, the board of directors may, from time to time, declare, and the BANK
may pay, dividends on its outstanding shares of capital stock.
ARTICLE X. CORPORATE SEAL
The board of directors shall provide an BANK seal, which shall be two
concentric circles between which shall be the name of the 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
OTS at any time by a majority vote of the full board of directors, or by a
majority vote of the votes cast by the shareholders of the BANK at any legal
meeting.
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EXHIBIT 3.1 CERTIFICATE OF INCORPORATION OF DELPHOS CITIZENS BANCORP, INC.
<PAGE>
CERTIFICATE OF INCORPORATION
OF
DELPHOS CITIZENS BANCORP, INC.
FIRST: The name of the Corporation is Delphos Citizens Bancorp, Inc.
(hereinafter sometimes referred to as the "Corporation").
SECOND: The address of the registered office of the Corporation in the
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle. The name of the registered agent at that
address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
FOURTH:
A. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is five million (5,000,000)
consisting of:
1. One million (1,000,000) shares of Preferred Stock, par value one
cent ($.01) per share (the "Preferred Stock"); and
2. Four million (4,000,000) shares of Common Stock, par value one
cent ($.01) per share (the "Common Stock").
B. The Board of Directors is authorized, subject to any limitations
prescribed by law, to provide for the issuance of the shares of Preferred
Stock in series, and by filing a certificate pursuant to the applicable law
of the State of Delaware (such certificate being hereinafter referred to as
a "Preferred Stock Designation"), to establish from time to time the number
of shares to be included in each such series, and to fix the designation,
powers, preferences, and rights of the shares of each such series and any
qualifications, limitations or restrictions thereof. The number of
authorized shares of Preferred Stock may be increased or decreased (but not
below the number of shares thereof then outstanding) by the affirmative
vote of the holders of a majority of the Common Stock, without a vote of
the holders of the Preferred Stock, or of any series thereof, unless a vote
of any such holders is required pursuant to the terms of any Preferred
Stock Designation.
C. 1. Notwithstanding any other provision of this Certificate of
Incorporation, 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
<PAGE>
held in excess of the Limit. 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 beneficially 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 beneficially owned
by such person would be entitled to cast, (subject to the
provisions of this Article FOURTH) 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 FOURTH:
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 amended, as in
effect on the date of filing of this Certificate of
Incorporation.
b. "Beneficial ownership" shall be determined pursuant to
Rule 13d-3 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended, (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 of Incorporation; provided, however, that a
person shall, in any event, also be deemed the
"beneficial owner" of any Common Stock:
(1) which such person or any of its affiliates
beneficially owns, directly or indirectly; or
(2) which such person or any of its affiliates has:
(i) 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 clauses 1 through 5 of Section A of Article
EIGHTH of this Certificate of Incorporation
("Article EIGHTH")), or upon the exercise of
conversion rights, exchange rights, warrants, or
options or otherwise, or (ii) sole or shared
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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
(3) 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:
(1) 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 or 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 (2) 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 only of computing the percentage of
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.
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<PAGE>
c. The "Limit" shall mean 10% of the then-outstanding
shares of Common Stock.
d. A "person" shall include an individual, a firm, a group
acting in concert, a corporation, a partnership, an
association, a joint venture, a pool, a joint stock
company, a trust, an unincorporated organization or
similar company, a syndicate or any other group formed
for the purpose of acquiring, holding or disposing of
securities or any other entity.
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 the 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 requested 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
of Incorporation 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.
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<PAGE>
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 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.
FIFTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its Directors and stockholders:
A. The business and affairs of the Corporation shall be managed by
or under the direction of the Board of Directors. In addition to the
powers and authority expressly conferred upon them by statute or by this
Certificate of Incorporation or the Bylaws of the Corporation, the
Directors are hereby empowered to exercise all such powers and do all such
acts and things as may be exercised or done by the Corporation.
B. The Directors of the Corporation need not be elected by written
ballot unless the Bylaws so provide.
C. Any action required or permitted to be taken by the stockholders
of the Corporation must be effected at a duly called annual or special
meeting of stockholders of the Corporation and may not be effected by any
consent in writing by such stockholders.
D. Special meetings of stockholders of the Corporation may be called
only by the Board of Directors pursuant to a resolution adopted by a
majority of the Whole Board or as otherwise provided in the Bylaws. The
term "Whole Board" shall mean the total number of authorized directorships
(whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board for
adoption).
SIXTH:
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A. The number of Directors shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the Whole Board. The Directors shall be divided into three
classes, as nearly equal in number as reasonably possible, with the term of
office of the first class to expire at the first annual meeting of
stockholders, the term of office of the second class to expire at the
annual meeting of stockholders one year thereafter and the term of office
of the third class to expire at the annual meeting of stockholders two
years thereafter with each Director to hold office until his or her
successor shall have been duly elected and qualified. At each annual
meeting of stockholders following such initial classification and election,
Directors elected to succeed those Directors whose terms expire shall be
elected for a term of office to expire at the third succeeding annual
meeting of stockholders after their election with each Director to hold
office until his or her successor shall have been duly elected and
qualified.
B. Subject to the rights of holders of any series of Preferred Stock
outstanding, the newly created directorships resulting from any increase in
the authorized number of Directors or any vacancies in the Board of
Directors resulting from death, resignation, retirement, disqualification,
removal from office or other cause may be filled only by a majority vote of
the Directors then in office, though less than a quorum, and Directors so
chosen shall hold office for a term expiring at the annual meeting of
stockholders at which the term of office of the class to which they have
been chosen expires. No decrease in the number of Directors constituting
the Board of Directors shall shorten the term of any incumbent Director.
C. Advance notice of stockholder nominations for the election of
Directors and of business to be brought by stockholders before any meeting
of the stockholders of the Corporation shall be given in the manner
provided in the Bylaws of the Corporation.
D. Subject to the rights of holders of any series of Preferred Stock
then outstanding, any Director, or the entire Board of Directors, may be
removed from office at any time, but only for cause and only by the
affirmative vote of the holders of at least 80 percent of the voting power
of all of the then-outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of Directors (after giving
effect to the provisions of Article FOURTH of this Certificate of
Incorporation ("Article FOURTH")), voting together as a single class.
SEVENTH: The Board of Directors is expressly empowered to adopt, amend or
repeal Bylaws of the Corporation. Any adoption, amendment or repeal of the
Bylaws of the Corporation by the Board of Directors shall require the approval
of a majority of the Whole Board. The stockholders shall also have power to
adopt, amend or repeal the Bylaws of the Corporation; provided, however, that,
in addition to any vote of the holders of any class or series of stock of this
Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least 80 percent of the voting power of
all of the then-outstanding shares of the capital stock of the Corporation
entitled to vote generally in the election of Directors (after giving effect to
the provisions of Article FOURTH), voting
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<PAGE>
together as a single class, shall be required to adopt, amend or repeal any
provisions of the Bylaws of the Corporation.
EIGHTH:
A. In addition to any affirmative vote required by law or this
Certificate of Incorporation, and except as otherwise expressly provided in
this Article EIGHTH:
1. any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with: (i) any
Interested Stockholder (as hereinafter defined); or (ii) any
other corporation (whether or not itself an Interested
Stockholder) which is, or after such merger or consolidation
would be, an Affiliate (as hereinafter defined) of an
Interested Stockholder; or
2. any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of
transactions) to or with any Interested Stockholder, or any
Affiliate of any Interested Stockholder, of any assets of
the Corporation or any Subsidiary having an aggregate Fair
Market Value (as hereinafter defined) equaling or exceeding
25% or more of the combined assets of the Corporation and
its Subsidiaries; or
3. the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of transactions)
of any securities of the Corporation or any Subsidiary to
any Interested Stockholder or any Affiliate of any
Interested Stockholder in exchange for cash, securities or
other property (or a combination thereof) having an
aggregate Fair Market Value (as hereinafter defined)
equaling or exceeding 25% of the combined Fair Market Value
of the outstanding common stock of the Corporation and its
Subsidiaries, except for any issuance or transfer pursuant
to an employee benefit plan of the Corporation or any
Subsidiary thereof; or
4. the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of
an Interested Stockholder or any Affiliate of any Interested
Stockholder; or
5. any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any
merger or consolidation of the Corporation with any of its
Subsidiaries or any other transaction (whether or not with
or into or otherwise involving an Interested Stockholder)
which has the effect, directly or indirectly, of increasing
the proportionate share of the outstanding shares of any
class of equity or convertible securities of the Corporation
or any Subsidiary which is
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<PAGE>
directly or indirectly owned by any Interested Stockholder
or any Affiliate of any Interested Stockholder;
shall require the affirmative vote of the holders of at least 80% of the
voting power of the then-outstanding shares of stock of the Corporation
entitled to vote in the election of Directors (the "Voting Stock") (after
giving effect to the provisions of Article FOURTH), voting together as a
single class. Such affirmative vote shall be required notwithstanding the
fact that no vote may be required, or that a lesser percentage may be
specified, by law or by any other provisions of this Certificate of
Incorporation or any Preferred Stock Designation in any agreement with any
national securities exchange or otherwise.
The term "Business Combination" as used in this Article EIGHTH shall
mean any transaction which is referred to in any one or more of paragraphs
1 through 5 of Section A of this Article EIGHTH.
B. The provisions of Section A of this Article EIGHTH shall not be
applicable to any particular Business Combination, and such Business
Combination shall require only the affirmative vote of the majority of the
outstanding shares of capital stock entitled to vote after giving effect to
the provisions of Article FOURTH, or such vote (if any), as is required by
law or by this Certificate of Incorporation, if, in the case of any
Business Combination that does not involve any cash or other consideration
being received by the stockholders of the Corporation solely in their
capacity as stockholders of the Corporation, the condition specified in the
following paragraph 1 is met or, in the case of any other Business
Combination, all of the conditions specified in either of the following
paragraphs 1 or 2 are met:
1. The Business Combination shall have been approved by a majority
of the Disinterested Directors (as hereinafter defined).
2. All of the following conditions shall have been met:
a. The aggregate amount of the cash and the Fair Market Value
as of the date of the consummation of the Business
Combination of consideration other than cash to be received
per share by the holders of Common Stock in such Business
Combination shall at least be equal to the higher of the
following:
(1) (if applicable) the Highest Per Share Price (as
hereinafter defined), including any brokerage
commissions, transfer taxes and soliciting dealers'
fees, paid by the Interested Stockholder or any of its
Affiliates for any shares of Common Stock acquired by
it: (i) within the two-year period immediately prior to
the first public announcement of the proposal of the
Business Combination (the "Announcement Date"); or (ii)
in the
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<PAGE>
transaction in which it became an Interested
Stockholder, whichever is higher; or
(2) the Fair Market Value per share of Common Stock on the
Announcement Date or on the date on which the
Interested Stockholder became an Interested Stockholder
(such latter date is referred to in this Article EIGHTH
as the "Determination Date"), whichever is higher.
b. The aggregate amount of the cash and the Fair Market Value
as of the date of the consummation of the Business
Combination of consideration other than cash to be received
per share by holders of shares of any class of outstanding
Voting Stock other than Common Stock shall be at least equal
to the highest of the following (it being intended that the
requirements of this subparagraph (b) shall be required to
be met with respect to every such class of outstanding
Voting Stock, whether or not the Interested Stockholder has
previously acquired any shares of a particular class of
Voting Stock):
(1) (if applicable) the Highest Per Share Price (as
hereinafter defined), including any brokerage
commissions, transfer taxes and soliciting dealers'
fees, paid by the Interested Stockholder for any shares
of such class of Voting Stock acquired by it: (i)
within the two-year period immediately prior to the
Announcement Date; or (ii) in the transaction in which
it became an Interested Stockholder, whichever is
higher; or
(2) (if applicable) the highest preferential amount per
share to which the holders of shares of such class of
Voting Stock are entitled in the event of any voluntary
or involuntary liquidation, dissolution or winding up
of the Corporation; or
(3) the Fair Market Value per share of such class of Voting
Stock on the Announcement Date or on the Determination
Date, whichever is higher.
c. The consideration to be received by holders of a particular
class of outstanding Voting Stock (including Common Stock)
shall be in cash or in the same form as the Interested
Stockholder has previously paid for shares of such class of
Voting Stock. If the Interested Stockholder has paid for
shares of any class of Voting Stock with varying forms of
consideration, the form of consideration to be received per
share by holders of shares of such class of Voting Stock
shall be either cash or the form used to acquire the largest
number of shares of such class of Voting Stock previously
acquired by the Interested Stockholder. The price
determined in accordance with subparagraph B.2 of this
Article
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<PAGE>
EIGHTH shall be subject to appropriate adjustment in the
event of any stock dividend, stock split, combination of
shares or similar event.
d. After such Interested Stockholder has become an Interested
Stockholder and prior to the consummation of such Business
Combination: (1) except as approved by a majority of the
Disinterested Directors (as hereinafter defined), there
shall have been no failure to declare and pay at the regular
date therefor any full quarterly dividends (whether or not
cumulative) on any outstanding stock having preference over
the Common Stock as to dividends or liquidation; (2) there
shall have been: (i) no reduction in the annual rate of
dividends paid on the Common Stock (except as necessary to
reflect any subdivision of the Common Stock), except as
approved by a majority of the Disinterested Directors; and
(ii) an increase in such annual rate of dividends as
necessary to reflect any reclassification (including any
reverse stock split), recapitalization, reorganization or
any similar transaction which has the effect of reducing the
number of outstanding shares of the Common Stock, unless the
failure to so increase such annual rate is approved by a
majority of the Disinterested Directors, and (3) neither
such Interested Stockholder or any of its Affiliates shall
have become the beneficial owner of any additional shares of
Voting Stock except as part of the transaction which results
in such Interested Stockholder becoming an Interested
Stockholder.
e. After such Interested Stockholder has become an Interested
Stockholder, such Interested Stockholder shall not have
received the benefit, directly or indirectly (except
proportionately as a stockholder), of any loans, advances,
guarantees, pledges or other financial assistance or any tax
credits or other tax advantages provided, directly or
indirectly, by the Corporation, whether in anticipation of
or in connection with such Business Combination or
otherwise.
f. A proxy or information statement describing the proposed
Business Combination and complying with the requirements of
the Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder (or any subsequent
provisions replacing such Act, and the rules or regulations
thereunder) shall be mailed to stockholders of the
Corporation at least 30 days prior to the consummation of
such Business Combination (whether or not such proxy or
information statement is required to be mailed pursuant to
such Act or subsequent provisions).
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<PAGE>
C. For the purposes of this Article EIGHTH:
1. A "Person" shall include an individual, a firm, a group
acting in concert, a corporation, a partnership, an
association, a joint venture, a pool, a joint stock company,
a trust, an unincorporated organization or similar company,
a syndicate or any other group formed for the purpose of
acquiring, holding or disposing of securities or any other
entity.
2. "Interested Stockholder" shall mean any person (other than
the Corporation or any Holding Company or Subsidiary
thereof) who or which:
a. is the beneficial owner, directly or indirectly, of
more than 10% of the voting power of the outstanding
Voting Stock; or
b. is an Affiliate of the Corporation and at any time
within the two-year period immediately prior to the
date in question was the beneficial owner, directly or
indirectly, of 10% or more of the voting power of the
then outstanding Voting Stock; or
c. is an assignee of or has otherwise succeeded to any
shares of Voting Stock which were at any time within
the two-year period immediately prior to the date in
question beneficially owned by any Interested
Stockholder, if such assignment or succession shall
have occurred in the course of a transaction or series
of transactions not involving a public offering within
the meaning of the Securities Act of 1933, as amended.
3. For purposes of this Article EIGHTH, "beneficial ownership"
shall be determined in the manner provided in Section C of
Article FOURTH hereof.
4. "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms 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
of Incorporation.
5. "Subsidiary" means any corporation of which a majority of
any class of equity security is owned, directly or
indirectly, by the Corporation; provided, however, that for
the purposes of the definition of Interested Stockholder set
forth in Paragraph 2 of this Section C, the term
"Subsidiary" shall mean only a corporation of which a
majority of each class of equity security is owned, directly
or indirectly, by the Corporation.
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<PAGE>
6. "Disinterested Director" means any member of the Board of
Directors who is unaffiliated with the Interested
Stockholder and was a member of the Board of Directors prior
to the time that the Interested Stockholder became an
Interested Stockholder, and any Director who is thereafter
chosen to fill any vacancy of the Board of Directors or who
is elected and who, in either event, is unaffiliated with
the Interested Stockholder and in connection with his or her
initial assumption of office is recommended for appointment
or election by a majority of Disinterested Directors then on
the Board of Directors.
7. "Fair Market Value" means:
a. in the case of stock, the highest closing sales price
of the stock during the 30-day period immediately
preceding the date in question of a share of such stock
on the National Association of Securities Dealers
Automated Quotation System or any system then in use,
or, if such stock is admitted to trading on a principal
United States securities exchange registered under the
Securities Exchange Act of 1934, as amended, Fair
Market Value shall be the highest sale price reported
during the 30-day period preceding the date in
question, or, if no such quotations are available, the
Fair Market Value on the date in question of a share of
such stock as determined by the Board of Directors in
good faith, in each case with respect to any class of
stock, appropriately adjusted for any dividend or
distribution in shares of such stock or any stock split
or reclassification of outstanding shares of such stock
into a greater number of shares of such stock or any
combination or reclassification of outstanding shares
of such stock into a smaller number of shares of such
stock; and
b. in the case of property other than cash or stock, the
Fair Market Value of such property on the date in
question as determined by the Board of Directors in
good faith.
8. Reference to "Highest Per Share Price" shall in each case
with respect to any class of stock reflect an appropriate
adjustment for any dividend or distribution in shares of
such stock or any stock split or reclassification of
outstanding shares of such stock into a greater number of
shares of such stock or any combination or reclassification
of outstanding shares of such stock into a smaller number of
shares of such stock.
9. In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than
cash to be received" as used in Subparagraphs (a) and (b) of
Paragraph 2 of Section B of this Article EIGHTH shall
include the shares of Common Stock and/or the
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<PAGE>
shares of any other class of outstanding Voting Stock
retained by the holders of such shares.
D. A majority of the Disinterested Directors of the Corporation
shall have the power and duty to determine for the purposes of this Article
EIGHTH, on the basis of information known to them after reasonable inquiry:
(a) whether a person is an Interested Stockholder; (b) the number of shares
of Voting Stock beneficially owned by any person; (c) whether a person is
an Affiliate or Associate of another; and (d) whether the assets which are
the subject of any Business Combination have, or the consideration to be
received for the issuance or transfer of securities by the Corporation or
any Subsidiary in any Business Combination has an aggregate Fair Market
Value equaling or exceeding 25% of the combined Fair Market Value of the
Common Stock of the Corporation and its Subsidiaries. A majority of the
Disinterested Directors shall have the further power to interpret all of
the terms and provisions of this Article EIGHTH.
E. Nothing contained in this Article EIGHTH shall be construed to
relieve any Interested Stockholder from any fiduciary obligation imposed by
law.
F. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser
vote or no vote, but in addition to any affirmative vote of the holders of
any particular class or series of the Voting Stock required by law, this
Certificate of Incorporation or any Preferred Stock Designation, the
affirmative vote of the holders of at least 80 percent of the voting power
of all of the then-outstanding shares of the Voting Stock (after giving
effect to the provisions of Article FOURTH), voting together as a single
class, shall be required to alter, amend or repeal this Article EIGHTH.
NINTH: The Board of Directors of the Corporation, when evaluating any
offer of another Person (as defined in Article EIGHTH hereof) to: (A) make a
tender or exchange offer for any equity security of the Corporation; (B) merge
or consolidate the Corporation with another corporation or entity; or (C)
purchase or otherwise acquire all or substantially all of the properties and
assets of the Corporation, may, in connection with the exercise of its judgment
in determining what is in the best interest of the Corporation and its
stockholders, give due consideration to all relevant factors, including, without
limitation, those factors that Directors of any subsidiary of the Corporation
may consider in evaluating any action that may result in a change or potential
change in the control of the subsidiary, and the social and economic effect of
acceptance of such offer: on the Corporation's present and future customers and
employees and those of its Subsidiaries (as defined in Article EIGHTH hereof);
on the communities in which the Corporation and its Subsidiaries operate or are
located; on the ability of the Corporation to fulfill its corporate objective as
a savings and loan holding company under applicable laws and regulations; and on
the ability of its subsidiary savings and loan association to fulfill the
objectives of a federally-chartered stock form savings and loan association
under applicable statutes and regulations.
TENTH:
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A. Each person who was or is made a party or is threatened to be
made a party to or is otherwise involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she is or was a Director or
an Officer of the Corporation or is or was serving at the request of the
Corporation as a Director, Officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to an employee benefit plan (hereinafter an
"indemnitee"), whether the basis of such proceeding is alleged action in an
official capacity as a Director, Officer, employee or agent or in any other
capacity while serving as a Director, Officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to
the extent that such amendment permits the Corporation to provide broader
indemnification rights than such law permitted the Corporation to provide
prior to such amendment), against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid in settlement) reasonably incurred or suffered
by such indemnitee in connection therewith; provided, however, that, except
as provided in Section C hereof with respect to proceedings to enforce
rights to indemnification, the Corporation shall indemnify any such
indemnitee in connection with a proceeding (or part thereof) initiated by
such indemnitee only if such proceeding (or part thereof) was authorized by
the Board of Directors of the Corporation.
B. The right to indemnification conferred in Section A of this
Article TENTH shall include the right to be paid by the Corporation the
expenses incurred in defending any such proceeding in advance of its final
disposition (hereinafter an "advancement of expenses"); provided, however,
that, if the Delaware General Corporation Law requires, an advancement of
expenses incurred by an indemnitee in his or her capacity as a Director or
Officer (and not in any other capacity in which service was or is rendered
by such indemnitee, including, without limitation, services to an employee
benefit plan) shall be made only upon delivery to the Corporation of an
undertaking (hereinafter an "undertaking"), by or on behalf of such
indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right
to appeal (hereinafter a "final adjudication") that such indemnitee is not
entitled to be indemnified for such expenses under this Section or
otherwise. The rights to indemnification and to the advancement of
expenses conferred in Sections A and B of this Article TENTH shall be
contract rights and such rights shall continue as to an indemnitee who has
ceased to be a Director, Officer, employee or agent and shall inure to the
benefit of the indemnitee's heirs, executors and administrators.
C. If a claim under Section A or B of this Article TENTH is not paid
in full by the Corporation within sixty days after a written claim has been
received by the Corporation, except in the case of a claim for an
advancement of expenses, in which case the applicable period shall be
twenty days, the indemnitee may at any time thereafter bring suit against
the Corporation to recover the unpaid amount of the claim.
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<PAGE>
If successful in whole or in part in any such suit, or in a suit brought by
the Corporation to recover an advancement of expenses pursuant to the terms
of an undertaking, the indemnitee shall be entitled to be paid also the
expenses of prosecuting or defending such suit. In (i) any suit brought by
the indemnitee to enforce a right to indemnification hereunder (but not in
a suit brought by the indemnitee to enforce a right to an advancement of
expenses) it shall be a defense that, and (ii) in any suit by the
Corporation to recover an advancement of expenses pursuant to the terms of
an undertaking the Corporation shall be entitled to recover such expenses
upon a final adjudication that, the indemnitee has not met any applicable
standard for indemnification set forth in the Delaware General Corporation
Law. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such suit that indemnification
of the indemnitee is proper in the circumstances because the indemnitee has
met the applicable standard of conduct set forth in the Delaware General
Corporation Law, nor an actual determination by the Corporation (including
its Board of Directors, independent legal counsel, or its stockholders)
that the indemnitee has not met such applicable standard of conduct, shall
create a presumption that the indemnitee has not met the applicable
standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the
indemnitee to enforce a right to indemnification or to an advancement of
expenses hereunder, or by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the burden of proving
that the indemnitee is not entitled to be indemnified, or to such
advancement of expenses, under this Article TENTH or otherwise shall be on
the Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article TENTH shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, the
Corporation's Certificate of Incorporation, Bylaws, agreement, vote of
stockholders or Disinterested Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to
protect itself and any Director, Officer, employee or agent of the
Corporation or subsidiary or Affiliate or another corporation, partnership,
joint venture, trust or other enterprise against any expense, liability or
loss, whether or not the Corporation would have the power to indemnify such
person against such expense, liability or loss under the Delaware General
Corporation Law.
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<PAGE>
F. The Corporation may, to the extent authorized from time to time
by the Board of Directors, grant rights to indemnification and to the
advancement of expenses to any employee or agent of the Corporation to the
fullest extent of the provisions of this Article TENTH with respect to the
indemnification and advancement of expenses of Directors and Officers of
the Corporation.
ELEVENTH: A Director of this Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for liability: (i) for any breach of the Director's
duty of loyalty to the Corporation or its stockholders; (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law; (iii) under Section 174 of the Delaware General Corporation
Law; or (iv) for any transaction from which the Director derived an improper
personal benefit. If the Delaware General Corporation Law is amended to
authorize corporate action further eliminating or limiting the personal
liability of Directors, then the liability of a Director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law, 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.
TWELFTH: The Corporation reserves the right to amend or repeal any
provision contained in this Certificate of Incorporation in the manner
prescribed by the laws of the State of Delaware and all rights conferred upon
stockholders are granted subject to this reservation; provided, however, that,
notwithstanding any other provision of this Certificate of Incorporation or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any vote of the holders of any class or series of the stock of this
Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least 80 percent of the voting power of
all of the then-outstanding shares of the capital stock of the Corporation
entitled to vote generally in the election of Directors (after giving effect to
the provisions of Article FOURTH), voting together as a single class, shall be
required to amend or repeal this Article TWELFTH, Section C of Article FOURTH,
Sections C or D of Article FIFTH, Article SIXTH, Article SEVENTH, Article EIGHTH
or Article TENTH.
THIRTEENTH: The name and mailing address of the sole incorporator are as
follows:
Name Mailing Address
---- --------------------------------
Karen A. Gimbutas Morris, Nichols, Arsht & Tunnell
1201 North Market Street
P.O. Box 1347
Wilmington, Delaware 19899-1347
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I, THE UNDERSIGNED, being the incorporator, for the purpose of forming a
corporation under the laws of the State of Delaware, do make, file and record
this Certificate of Incorporation and do certify that the facts herein stated
are true, and accordingly, have hereto set my hand this 24th day of July, 1996.
/S/ Karen A. Gimbutas
-------------------------------------------------
Incorporator
<PAGE>
EXHIBIT 3.2 BYLAWS OF DELPHOS CITIZENS BANCORP, INC.
<PAGE>
DELPHOS CITIZENS BANCORP, INC.
BYLAWS
ARTICLE I - STOCKHOLDERS
SECTION 1. ANNUAL MEETING.
An annual meeting of the stockholders, for the election of Directors to
succeed those whose terms expire and for the transaction of such other business
as may properly come before the meeting, shall be held at such place, on such
date, and at such time as the Board of Directors shall each year fix, which date
shall be within thirteen (13) months subsequent to the later of the date of
incorporation or the last annual meeting of stockholders.
SECTION 2. SPECIAL MEETINGS.
Subject to the rights of the holders of any class or series of preferred
stock of the Corporation, special meetings of stockholders of the Corporation
may be called only by the Board of Directors pursuant to a resolution adopted by
a majority of the total number of Directors which the Corporation would have if
there were no vacancies on the Board of Directors (hereinafter the "Whole
Board").
SECTION 3. NOTICE OF MEETINGS.
Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten (10) nor more than sixty (60)
days before the date on which the meeting is to be held, to each stockholder
entitled to vote at such meeting, except as otherwise provided herein or
required by law (meaning, here and hereinafter, as required from time to time by
the Delaware General Corporation Law or the Certificate of Incorporation of the
Corporation).
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; PROVIDED,
HOWEVER, that if the date of any adjourned meeting is more than thirty (30) days
after the date for which the meeting was originally noticed, or if a new record
date is fixed for the adjourned meeting, written notice of the place, date, and
time of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
SECTION 4. QUORUM.
At any meeting of the stockholders, the holders of a majority of all of the
shares of the stock entitled to vote at the meeting, present in person or by
proxy (after giving effect to the provisions of Article FOURTH of the
Corporation's Certificate of Incorporation), shall
<PAGE>
constitute a quorum for all purposes, unless or except to the extent that the
presence of a larger number may be required by law. Where a separate vote by a
class or classes is required, a majority of the shares of such class or classes
present in person or represented by proxy (after giving effect to the provisions
of Article FOURTH of the Corporation's Certificate of Incorporation) shall
constitute a quorum entitled to take action with respect to that vote on that
matter.
If a quorum shall fail to attend any meeting, the chairman of the meeting
or the holders of a majority of the shares of stock entitled to vote who are
present, in person or by proxy, may adjourn the meeting to another place, date,
or time.
If a notice of any adjourned special meeting of stockholders is sent to all
stockholders entitled to vote thereat, stating that it will be held with those
present in person or by proxy constituting a quorum, then except as otherwise
required by law, those present in person or by proxy at such adjourned meeting
shall constitute a quorum, and all matters shall be determined by a majority of
the votes cast at such meeting.
SECTION 5. ORGANIZATION.
Such person as the Board of Directors may have designated or, in the
absence of such a person, the Chairman of the Board of the Corporation or, in
his or her absence, such person as may be chosen by the holders of a majority of
the shares entitled to vote who are present, in person or by proxy, shall call
to order any meeting of the stockholders and act as chairman of the meeting. In
the absence of the Secretary of the Corporation, the secretary of the meeting
shall be such person as the chairman appoints.
SECTION 6. CONDUCT OF BUSINESS.
(a) The chairman of any meeting of stockholders shall determine the
order of business and the procedures at the meeting, including such regulation
of the manner of voting and the conduct of discussion as seem to him or her in
order. The date and time of the opening and closing of the polls for each
matter upon which the stockholders will vote at the meeting shall be announced
at the meeting.
(b) At any annual meeting of the stockholders, only such business
shall be conducted as shall have been brought before the meeting: (i) by or at
the direction of the Board of Directors or (ii) by any stockholder of the
Corporation who is entitled to vote with respect thereto and who complies with
the notice procedures set forth in this Section 6(b). For business to be
properly brought before an annual meeting by a stockholder, the business must
relate to a proper subject matter for stockholder action and the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered or mailed
to and received at the principal executive offices of the Corporation not less
than ninety (90) days prior to the date of the annual meeting; PROVIDED,
HOWEVER, that in the event that less than one hundred (100) days' notice or
prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be received not later
than the close of business on the 10th day following the day on which such
notice of the date of the annual meeting was mailed or
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such public disclosure was made. A stockholder's notice to the Secretary shall
set forth as to each matter such stockholder proposes to bring before the annual
meeting: (i) a brief description of the business desired to be brought before
the annual meeting and the reasons for conducting such business at the annual
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's capital stock that are beneficially owned by such
stockholder; and (iv) any material interest of such stockholder in such
business. Notwithstanding anything in these Bylaws to the contrary, no business
shall be brought before or conducted at an annual meeting except in accordance
with the provisions of this Section 6(b). The Officer of the Corporation or
other person presiding over the annual meeting shall, if the facts so warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of this Section 6(b) and,
if he should so determine, he shall so declare to the meeting and any such
business so determined to be not properly brought before the meeting shall not
be transacted.
At any special meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting by or at the direction
of the Board of Directors.
(c) Only persons who are nominated in accordance with the procedures
set forth in these Bylaws shall be eligible for election as Directors.
Nominations of persons for election to the Board of Directors of the Corporation
may be made at a meeting of stockholders at which directors are to be elected
only: (i) by or at the direction of the Board of Directors; or (ii) by any
stockholder of the Corporation entitled to vote for the election of Directors at
the meeting who complies with the notice procedures set forth in this Section
6(c). Such nominations, other than those made by or at the direction of the
Board of Directors, shall be made by timely notice in writing to the Secretary
of the Corporation. To be timely, a stockholder's notice shall be delivered or
mailed to and received at the principal executive offices of the Corporation not
less than ninety (90) days prior to the date of the meeting; PROVIDED, HOWEVER,
that in the event that less than one hundred (100) days' notice or prior
disclosure of the date of the meeting is given or made to stockholders, notice
by the stockholder to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. Such stockholder's
notice shall set forth: (i) as to each person whom such stockholder proposes to
nominate for election or re-election as a Director, all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (including
such person's written consent to being named in the proxy statement as a nominee
and to serving as a director if elected); and (ii) as to the stockholder giving
the notice (x) the name and address, as they appear on the Corporation's books,
of such stockholder and (y) the class and number of shares of the Corporation's
capital stock that are beneficially owned by such stockholder. At the request
of the Board of Directors, any person nominated by the Board of Directors for
election as a Director shall furnish to the Secretary of the Corporation that
information required to be set forth in a stockholder's notice of nomination
which pertains to the nominee. No person shall be eligible for election as a
Director of the Corporation unless nominated in accordance with the provisions
of this Section 6(c). The Officer of the Corporation or other person presiding
at the meeting shall, if the facts so warrant, determine that a nomination was
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not made in accordance with such provisions and, if he or she shall so
determine, he or she shall so declare to the meeting and the defective
nomination shall be disregarded.
SECTION 7. PROXIES AND VOTING.
At any meeting of the stockholders, every stockholder entitled to vote may
vote in person or by proxy authorized by an instrument in writing filed in
accordance with the procedure established for the meeting. Any facsimile
telecommunication or other reliable reproduction of the writing or transmission
created pursuant to this paragraph may be substituted or used in lieu of the
original writing or transmission for any and all purposes for which the original
writing or transmission could be used, provided that such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of the
entire original writing or transmission.
All voting, including on the election of Directors but excepting where
otherwise required by law or by the governing documents of the Corporation, may
be made by a voice vote; PROVIDED, HOWEVER, that upon demand therefor by a
stockholder entitled to vote or his or her proxy, a stock vote shall be taken.
Every stock vote shall be taken by ballot, each of which shall state the name of
the stockholder or proxy voting and such other information as may be required
under the procedures established for the meeting. The Corporation shall, in
advance of any meeting of stockholders, appoint one or more inspectors to act at
the meeting and make a written report thereof. The Corporation may designate
one or more persons as alternate inspectors to replace any inspector who fails
to act. If no inspector or alternate is able to act at a meeting of
stockholders, the person presiding at the meeting shall appoint one or more
inspectors to act at the meeting. Each inspector, before entering upon the
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of inspector with strict impartiality and according to the best of his
ability.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law or the Certificate of Incorporation, all
other matters shall be determined by a majority of the votes cast.
SECTION 8. STOCK LIST.
A complete list of stockholders entitled to vote at any meeting of
stockholders, arranged in alphabetical order for each class of stock and showing
the address of each such stockholder and the number of shares registered in his
or her name, shall be open to the examination of any such stockholder, for any
purpose germane to the meeting, during ordinary business hours for a period of
at least ten (10) days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or if not so specified, at the place where the meeting is to be
held.
The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such stockholder
who is present. This list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
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<PAGE>
SECTION 9. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING.
Subject to the rights of the holders of any class or series of preferred
stock of the Corporation, any action required or permitted to be taken by the
stockholders of the Corporation must be effected at an annual or special meeting
of stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders.
ARTICLE II - BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS, NUMBER, TERM OF OFFICE AND LIMITATIONS.
The business and affairs of the Corporation shall be under the direction of
its Board of Directors. The number of Directors who shall constitute the Whole
Board shall be such number as the Board of Directors shall from time to time
have designated, except that in the absence of such designation shall be five.
The Board of Directors shall annually elect a Chairman of the Board from among
its members who shall, when present, preside at its meetings.
The Directors, other than those who may be elected by the holders of any
class or series of Preferred Stock, shall be divided, with respect to the time
for which they severally hold office, into three classes, with the term of
office of the first class to expire at the first annual meeting of stockholders,
the term of office of the second class to expire at the annual meeting of
stockholders one year thereafter and the term of office of the third class to
expire at the annual meeting of stockholders two years thereafter, with each
Director to hold office until his or her successor shall have been duly elected
and qualified. At each annual meeting of stockholders, Directors elected to
succeed those Directors whose terms then expire shall be elected for a term of
office to expire at the third succeeding annual meeting of stockholders after
their election, with each Director to hold office until his or her successor
shall have been duly elected and qualified.
Except as provided herein, no person who is more than 70 years of age shall
be eligible for election, reelection, appointment, or reappointment to the Board
of the Corporation; PROVIDED, HOWEVER, that any Director serving in such
capacity as of September 1, 1996 who is more than 70 years of age on such date
may serve as a Director until the expiration of the term of office to which such
Director has been elected as of September 1, 1996 or until their successor shall
be elected and qualified. The age limitation contained in this Section shall
not apply to an advisory Director.
SECTION 2. VACANCIES AND NEWLY CREATED DIRECTORSHIPS.
Subject to the rights of the holders of any class or series of Preferred
Stock, and unless the Board of Directors otherwise determines, newly created
directorships resulting from any increase in the authorized number of directors
or any vacancies in the Board of Directors resulting from death, resignation,
retirement, disqualification, removal from office or other cause may be filled
only by a majority vote of the Directors then in office, though less than a
quorum, and Directors so chosen shall hold office for a term expiring at the
annual meeting of
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<PAGE>
stockholders at which the term of office of the class to which they have been
elected expires and until such Director's successor shall have been duly elected
and qualified. No decrease in the number of authorized directors constituting
the Board shall shorten the term of any incumbent Director.
SECTION 3. REGULAR MEETINGS.
Regular meetings of the Board of Directors shall be held at such place or
places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all Directors. A
notice of each regular meeting shall not be required.
SECTION 4. SPECIAL MEETINGS.
Special meetings of the Board of Directors may be called by one-third (1/3)
of the Directors then in office (rounded up to the nearest whole number), by the
Chairman of the Board or the President or, in the event that the Chairman of the
Board or President are incapacitated or otherwise unable to call such meeting,
by the Secretary, and shall be held at such place, on such date, and at such
time as they, or he or she, shall fix. Notice of the place, date, and time of
each such special meeting shall be given each Director by whom it is not waived
by mailing written notice not less than five (5) days before the meeting or by
telegraphing or telexing or by facsimile transmission of the same not less than
twenty-four (24) hours before the meeting. Unless otherwise indicated in the
notice thereof, any and all business may be transacted at a special meeting.
SECTION 5. QUORUM.
At any meeting of the Board of Directors, a majority of the Whole Board
shall constitute a quorum for all purposes. If a quorum shall fail to attend
any meeting, a majority of those present may adjourn the meeting to another
place, date, or time, without further notice or waiver thereof.
SECTION 6. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE.
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.
SECTION 7. CONDUCT OF BUSINESS.
At any meeting of the Board of Directors, business shall be transacted in
such order and manner as the Board may from time to time determine, and all
matters shall be determined by the vote of a majority of the Directors present,
except as otherwise provided herein or required by law. Action may be taken by
the Board of Directors without a meeting if all
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<PAGE>
members thereof consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the Board of Directors.
SECTION 8. POWERS.
The Board of Directors may, except as otherwise required by law, exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation, including, without limiting the generality of the foregoing,
the unqualified power:
(1) To declare dividends from time to time in accordance with law;
(2) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such form as
it may determine, of written obligations of every kind, negotiable or
non-negotiable, secured or unsecured, and to do all things necessary in
connection therewith;
(4) To remove any Officer of the Corporation with or without cause,
and from time to time to devolve the powers and duties of any Officer upon
any other person for the time being;
(5) To confer upon any Officer of the Corporation the power to
appoint, remove and suspend subordinate Officers, employees and agents;
(6) To adopt from time to time such stock, option, stock purchase,
bonus or other compensation plans for Directors, Officers, employees and
agents of the Corporation and its subsidiaries as it may determine;
(7) To adopt from time to time such insurance, retirement, and other
benefit plans for Directors, Officers, employees and agents of the
Corporation and its subsidiaries as it may determine;
(8) To adopt from time to time regulations, not inconsistent with
these Bylaws, for the management of the Corporation's business and affairs;
and
(9) To fix the Compensation of officers and employees of the
Corporation and its subsidiaries as it my determine.
SECTION 9. COMPENSATION OF DIRECTORS.
Directors, as such, may receive, pursuant to resolution of the Board of
Directors, fixed fees and other compensation for their services as Directors,
including, without limitation, their services as members of committees of the
Board of Directors.
ARTICLE III - COMMITTEES
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<PAGE>
SECTION 1. COMMITTEES OF THE BOARD OF DIRECTORS.
The Board of Directors, by a vote of a majority of the Board of Directors,
may from time to time designate committees of the Board, with such lawfully
delegable powers and duties as it thereby confers, to serve at the pleasure of
the Board and shall, for these committees and any others provided for herein,
elect a Director or Directors to serve as the member or members, designating, if
it desires, other Directors as alternate members who may replace any absent or
disqualified member at any meeting of the committee. Any committee so
designated may exercise the power and authority of the Board of Directors to
declare a dividend, to authorize the issuance of stock or to adopt a certificate
of ownership and merger pursuant to Section 253 of the Delaware General
Corporation Law if the resolution which designates the committee or a
supplemental resolution of the Board of Directors shall so provide. In the
absence or disqualification of any member of any committee and any alternate
member in his or her place, the member or members of the committee present at
the meeting and not disqualified from voting, whether or not he or she or they
constitute a quorum, may by unanimous vote appoint another member of the Board
of Directors to act at the meeting in the place of the absent or disqualified
member.
SECTION 2. CONDUCT OF BUSINESS.
Each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be made
for notice to members of all meetings. The quorum requirements for each such
committee shall be a majority of the members of such committee unless otherwise
determined by the Board of Directors by a majority vote of the Board of
Directors which such quorum determined by a majority of the Board may be one-
third of such members and all matters considered by such committees shall be
determined by a majority vote of the members present. Action may be taken by
any committee without a meeting if all members thereof consent thereto in
writing, and the writing or writings are filed with the minutes of the
proceedings of such committee.
SECTION 3. NOMINATING COMMITTEE.
The Board of Directors shall appoint a Nominating Committee of the Board,
consisting of not less than three (3) members. The Nominating Committee shall
have authority: (a) to review any nominations for election to the Board of
Directors made by a stockholder of the Corporation pursuant to Section 6(c)(ii)
of Article I of these Bylaws in order to determine compliance with such Bylaw;
and (b) to recommend to the Whole Board nominees for election to the Board of
Directors to replace those Directors whose terms expire at the annual meeting of
stockholders next ensuing.
ARTICLE IV - OFFICERS
SECTION 1. GENERALLY.
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<PAGE>
(a) The Board of Directors as soon as may be practicable after the
annual meeting of stockholders shall choose a Chairman of the Board, Chief
Executive Officer, a President, one or more Vice Presidents, a Secretary and a
Treasurer and from time to time may choose such other officers as it may deem
proper. The Chairman of the Board shall be chosen from among the Directors.
Any number of offices may be held by the same person.
(b) The term of office of all Officers shall be until the next annual
election of Officers and until their respective successors are chosen but any
Officer may be removed from office at any time by the affirmative vote of a
majority of the authorized number of Directors then constituting the Board of
Directors.
(c) All Officers chosen by the Board of Directors shall have such
powers and duties as generally pertain to their respective Offices, subject to
the specific provisions of this ARTICLE IV. Such officers shall also have such
powers and duties as from time to time may be conferred by the Board of
Directors or by any committee thereof.
SECTION 2. CHAIRMAN OF THE BOARD OF DIRECTORS.
The Chairman of the Board, subject to the provisions of these Bylaws and to
the direction of the Board of Directors, shall serve in general executive
capacity and unless the Board has designated another person, when present, shall
preside at all meetings of the stockholders of the Corporation. The Chairman of
the Board shall perform all duties and have all powers which are commonly
incident to the office of Chairman of the Board and which are delegated to him
or her by the Board of Directors by resolution of the Board of Directors. He or
she shall have power to sign all stock certificates, contracts and other
instruments of the Corporation which are authorized.
SECTION 3. PRESIDENT AND CHIEF EXECUTIVE OFFICER.
The President and Chief Executive Officer (the "President") shall have
general responsibility for the management and control of the business and
affairs of the Corporation and shall perform all duties and have all powers
which are commonly incident to the office of President and Chief Executive
Officer or which are delegated to him or her by the Board of Directors. Subject
to the direction of the Board of Directors, the President shall have power to
sign all stock certificates, contracts and other instruments of the Corporation
which are authorized and shall have general supervision of all of the other
Officers (other than the Chairman of the Board), employees and agents of the
Corporation.
SECTION 4. VICE PRESIDENT.
The Vice President or Vice Presidents shall perform the duties of the
President in his absence or during his inability to act. In addition, the Vice
Presidents shall perform the duties and exercise the powers usually incident to
their respective offices and/or such other duties and powers as may be properly
assigned to them by the Board of Directors, the Chairman of
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<PAGE>
the Board or the President. A Vice President or Vice Presidents may be
designated as Executive Vice President or Senior Vice President.
SECTION 5. SECRETARY.
The Secretary or Assistant Secretary shall issue notices of meetings, shall
keep their minutes, shall have charge of the seal and the corporate books, shall
perform such other duties and exercise such other powers as are usually incident
to such office and/or such other duties and powers as are properly assigned
thereto by the Board of Directors, the Chairman of the Board or the President.
Subject to the direction of the Board of Directors, the Secretary shall have the
power to sign all stock certificates.
SECTION 6. TREASURER.
The Treasurer shall be the Comptroller of the Corporation and shall have
the responsibility for maintaining the financial records of the Corporation. He
or she shall make such disbursements of the funds of the Corporation as are
authorized and shall render from time to time an account of all such
transactions and of the financial condition of the Corporation. The Treasurer
shall also perform such other duties as the Board of Directors may from time to
time prescribe. Subject to the direction of the Board of Directors, the
Treasurer shall have the power to sign all stock certificates.
SECTION 7. ASSISTANT SECRETARIES AND OTHER OFFICERS.
The Board of Directors may appoint one or more Assistant Secretaries and
such other Officers who shall have such powers and shall perform such duties as
are provided in these Bylaws or as may be assigned to them by the Board of
Directors, the Chairman of the Board or the President.
SECTION 8. ACTION WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS.
Unless otherwise directed by the Board of Directors, the President or any
Officer of the Corporation authorized by the President shall have power to vote
and otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of stockholders of or with respect to any action of stockholders of any
other corporation in which this Corporation may hold securities and otherwise to
exercise any and all rights and powers which this Corporation may possess by
reason of its ownership of securities in such other corporation.
ARTICLE V - STOCK
SECTION 1. CERTIFICATES OF STOCK.
Each stockholder shall be entitled to a certificate signed by, or in the
name of the Corporation by, the Chairman of the Board or the President, and by
the Secretary or an Assistant Secretary, or any Treasurer or Assistant
Treasurer, certifying the number of shares owned by him or her. Any or all of
the signatures on the certificate may be by facsimile.
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<PAGE>
SECTION 2. TRANSFERS OF STOCK.
Transfers of stock shall be made only upon the transfer books of the
Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where a
certificate is issued in accordance with Section 4 of Article V of these Bylaws,
an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefor.
SECTION 3. RECORD DATE.
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders, or to receive payment of
any dividend or other distribution or allotment of any rights or to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date on which the resolution
fixing the record date is adopted and which record date shall not be more than
sixty (60) nor less than ten (10) days before the date of any meeting of
stockholders, nor more than sixty (60) days prior to the time for such other
action as hereinbefore described; PROVIDED, HOWEVER, that if no record date is
fixed by the Board of Directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the next day preceding the day
on which the meeting is held, and, for determining stockholders entitled to
receive payment of any dividend or other distribution or allotment or rights or
to exercise any rights of change, conversion or exchange of stock or for any
other purpose, the record date shall be at the close of business on the day on
which the Board of Directors adopts a resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
PROVIDED, HOWEVER, that the Board of Directors may fix a new record date for the
adjourned meeting.
SECTION 4. LOST, STOLEN OR DESTROYED CERTIFICATES.
In the event of the loss, theft or destruction of any certificate of stock,
another may be issued in its place pursuant to such regulations as the Board of
Directors may establish concerning proof of such loss, theft or destruction and
concerning the giving of a satisfactory bond or bonds of indemnity.
SECTION 5. REGULATIONS.
The issue, transfer, conversion and registration of certificates of stock
shall be governed by such other regulations as the Board of Directors may
establish.
ARTICLE VI - NOTICES
SECTION 1. NOTICES.
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<PAGE>
Except as otherwise specifically provided herein or required by law, all
notices required to be given to any stockholder, Director, Officer, employee or
agent shall be in writing and may in every instance be effectively given by hand
delivery to the recipient thereof, by depositing such notice in the mails,
postage paid, or by sending such notice by prepaid telegram or mailgram or other
courier. Any such notice shall be addressed to such stockholder, Director,
Officer, employee or agent at his or her last known address as the same appears
on the books of the Corporation. The time when such notice is received, if hand
delivered, or dispatched, if delivered through the mails or by telegram or
mailgram or other courier, shall be the time of the giving of the notice.
SECTION 2. WAIVERS.
A written waiver of any notice, signed by a stockholder, Director, Officer,
employee or agent, whether before or after the time of the event for which
notice is to be given, shall be deemed equivalent to the notice required to be
given to such stockholder, Director, Officer, employee or agent. Neither the
business nor the purpose of any meeting need be specified in such a waiver.
ARTICLE VII - MISCELLANEOUS
SECTION 1. FACSIMILE SIGNATURES.
In addition to the provisions for use of facsimile signatures elsewhere
specifically authorized in these Bylaws, facsimile signatures of any officer or
officers of the Corporation may be used whenever and as authorized by the Board
of Directors or a committee thereof.
SECTION 2. CORPORATE SEAL.
The Board of Directors may provide a suitable seal, containing the name of
the Corporation, which seal shall be in the charge of the Secretary. If and
when so directed by the Board of Directors or a committee thereof, duplicates of
the seal may be kept and used by the Treasurer or by an Assistant Secretary or
an assistant to the Treasurer.
SECTION 3. RELIANCE UPON BOOKS, REPORTS AND RECORDS.
Each Director, each member of any committee designated by the Board of
Directors, and each Officer of the Corporation shall, in the performance of his
or her duties, be fully protected in relying in good faith upon the books of
account or other records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its Officers or
employees, or committees of the Board of Directors so designated, or by any
other person as to matters which such Director or committee member reasonably
believes are within such other person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the Corporation.
SECTION 4. FISCAL YEAR.
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<PAGE>
The fiscal year of the Corporation shall be as fixed by the Board of
Directors.
SECTION 5. TIME PERIODS.
In applying any provision of these Bylaws which requires that an act be
done or not be done a specified number of days prior to an event or that an act
be done during a period of a specified number of days prior to an event,
calendar days shall be used, the day of the doing of the act shall be excluded,
and the day of the event shall be included.
ARTICLE VIII - AMENDMENTS
The Board of Directors may amend, alter or repeal these Bylaws at any
meeting of the Board, provided notice of the proposed change was given not less
than two (2) days prior to the meeting. The stockholders shall also have power
to amend, alter or repeal these Bylaws at any meeting of stockholders provided
notice of the proposed change was given in the notice of the meeting; PROVIDED,
HOWEVER, that, notwithstanding any other provisions of the Bylaws or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any affirmative vote of the holders of any particular class or
series of the voting stock required by law, the Certificate of Incorporation,
any Preferred Stock Designation or these Bylaws, the affirmative votes of the
holders of at least 80% of the voting power of all the then-outstanding shares
of the Voting Stock, voting together as a single class, shall be required to
alter, amend or repeal any provisions of these Bylaws.
The above Bylaws are effective as of July 24, 1996, the date of incorporation of
Delphos Citizens Bancorp, Inc.
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<PAGE>
EXHIBIT 3.3 FEDERAL STOCK CHARTER AND BYLAWS OF CITIZENS BANK OF DELPHOS (SEE
EXHIBIT 2.1 HERETO)
<PAGE>
EXHIBIT 4.0 DRAFT STOCK CERTIFICATE OF DELPHOS CITIZENS BANCORP, INC.
<PAGE>
COMMON STOCK COMMON STOCK
PAR VALUE $.01 SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP
DELPHOS CITIZENS BANCORP, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT
S P E C I M E N
is the owner of:
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK $.01 PAR VALUE PER SHARE OF
DELPHOS CITIZENS BANCORP, INC.
The shares represented by this certificate are transferable only on the stock
transfer books of the Corporation by the holder of record hereof, or by his duly
authorized attorney or legal representative, upon the surrender of this
certificate properly endorsed. This certificate and the shares represented
hereby are issued and shall be held subject to all the provisions of the
Certificate of Incorporation of the Corporation and any amendments thereto
(copies of which are on file with the Transfer Agent), to all of which
provisions the holder by acceptance hereof, assents.
This certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar. The shares represented by this Certificate are
not insured by the Federal Deposit Insurance Corporation or any other government
agency.
IN WITNESS THEREOF, Delphos Citizens Bancorp, Inc. has caused this
certificate to be executed by the facsimile signatures of its duly authorized
officers and has caused a facsimile of its corporate seal to be hereunto
affixed.
Dated: [SEAL]
President Secretary
<PAGE>
DELPHOS CITIZENS BANCORP, INC.
The shares represented by this certificate are subject to a limitation
contained in the Certificate of Incorporation to the effect 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 outstanding shares of common stock (the "Limit") be entitled or
permitted to any vote in respect of shares held in excess of the Limit.
The Board of Directors of the Corporation is authorized by resolution(s),
from time to time adopted, to provide for the issuance of serial preferred stock
in series and to fix and state the voting powers, designations, preferences and
relative, participating, optional, or other special rights of the shares of each
such series and the qualifications, limitations and restrictions thereof. The
Corporation will furnish to any shareholder upon request and without charge a
full description of each class of stock and any series thereof.
The shares represented by this certificate may not be cumulatively voted on
any matter. The affirmative vote of the holders of at least 80% of the voting
stock of the Corporation, voting together as a single class, shall be required
to approve certain business combinations and other transactions, pursuant to the
Certificate of Incorporation or to amend certain provisions of the Certificate
of Incorporation.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFTS MIN ACT - ____ custodian______
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors Act
--------------------
(State)
JT TEN - as joint tenants with right
of survivorship and not as
tenants in common
Additional abbreviations may also be used though not in the above list.
For value received, __________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFICATION NUMBER OF ASSIGNEE
- ----------------------------------------------------------------------
Please print or typewrite name and address including postal zip code of assignee
_______________________________________________ shares of the common stock
represented by the within Certificate, and do hereby irrevocably constitute and
appoint _____________________________________________________________ Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
DATED
-------------------------- ----------------------------------
NOTICE: THE SIGNATURE TO THIS
ASSIGNMENT MUST CORRESPOND WITH THE
NAME AS WRITTEN UPON THE FACE OF
THE CERTIFICATE IN EVERY PARTICULAR
WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.
SIGNATURE GUARANTEED:
------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15
<PAGE>
EXHIBIT 5.0 DRAFT OPINION OF MULDOON, MURPHY & FAUCETTE RE: LEGALITY
<PAGE>
________________, 1996
Board of Directors
Delphos Citizens Bancorp, Inc.
114 East 3rd Street
Delphos, Ohio 45833
Re: The offering of up to 1,782,500 shares of
Delphos Citizens Bancorp, Inc. Common Stock
Gentlemen:
You have requested our opinion concerning certain matters of Delaware law
in connection with the conversion of Citizens Federal Savings and Loan
Association of Delphos (the "Association"), a federally-chartered savings
association, from the mutual form of ownership to the stock form of ownership
(the "Conversion"), and the related subscription offering, community offering
and syndicated community offering (the "Offerings") by Delphos Citizens Bancorp,
Inc., a Delaware corporation (the "Company"), of up to 1,782,500 shares of its
common stock, par value $.01 per share ("Common Stock"), (2,049,875 shares if
the Estimated Valuation Range is increased up to 15% to reflect changes in
market and financial conditions following commencement of the Offerings).
In connection with your request for our opinion, you have provided to us
and we have reviewed the Company's certificate of incorporation filed with the
Delaware Secretary of State on July 24, 1996 (the "Certificate of
Incorporation"); the Company's Bylaws; the Company's Registration Statement on
Form S-1, as filed with the Securities and Exchange Commission initially on
August __, 1996 and as amended on September __, 1996 (the "Registration
Statement"); a consent of the sole incorporator of the Company; resolutions of
the Board of Directors of the Company (the "Board") concerning the organization
of the Company, the Offerings and designation of a Pricing Committee of the
Board, and the form of stock certificate approved by the Board to represent
shares of Common Stock. We have also been furnished a certificate of the
Delaware Secretary of State certifying the Company's
<PAGE>
Board of Directors
_______________, 1996
Page -2-
good standing as a Delaware corporation. Capitalized terms used but not defined
herein shall have the meaning given them in the Certificate of Incorporation.
In rendering this opinion, we have relied upon the opinion of Morris,
Nichols, Arsht & Tunnell as to matters of Delaware law upon which opinion we
believe we are justified in relying.
We understand that the Company will loan to the trust for the Association's
Employee Stock Ownership Plan (the "ESOP") the funds the ESOP Trust will use to
purchase shares of Common Stock for which the ESOP Trust subscribes pursuant to
the Offerings and for purposes of rendering the opinion set forth in paragraph 2
below, we assume that: (a) the Board has duly authorized the loan to the ESOP
Trust (the "Loan"); (b) the ESOP serves a valid corporate purpose; (c) the Loan
will be made at an interest rate and on other terms that are fair to the
Company; (d) the terms of the Loan will be set forth in customary and
appropriate documents including, without limitation, a promissory note
representing the indebtedness of the ESOP Trust to the Company as a result of
the Loan; and (e) the closing for the Loan and for the sale of Common Stock to
the ESOP Trust will be held after the closing for the sale of the other shares
of Common Stock sold in the Offerings and the receipt by the Company of the
proceeds thereof.
Based upon and subject to the foregoing, and limited in all respects to
matters of Delaware law, it is our opinion that:
1. The Company has been duly organized and is validly existing in good
standing as a corporation under the laws of the State of Delaware.
2. Upon the due adoption by the Pricing Committee of a resolution fixing
the number of shares of Common Stock to be sold in the Offerings, the Common
Stock to be issued in the Offerings (including the shares to be issued to the
ESOP Trust) will be duly authorized and, when such shares are sold and paid for
in accordance with the terms set forth in the Prospectus and such resolution of
the Pricing Committee, and certificates representing such shares in the form
provided to us are duly and properly issued, will be validly issued, fully paid
and nonassessable.
<PAGE>
Board of Directors
_______________, 1996
Page -2-
The following provisions of the Certificate of Incorporation may not be
given effect by a court applying Delaware law, but in our opinion the failure to
give effect to such provisions will not affect the duly authorized, validly
issued, fully paid and nonassessable status of the Common Stock:
1. (a) Subsections C.3 and C.6 of Article FOURTH and Section D of
Article EIGHTH, which grant the Board the authority to construe
and apply the provisions of those Articles, subsection C.4 of
Article FOURTH, to the extent that subsection obligates any
person to provide to the Board the information such subsection
authorizes the Board to demand, and the provision of
Subsection C.7 of Article EIGHTH empowering the Board to
determine the Fair Market Value of property offered or paid for
the Company's stock by an Interested Stockholder, in each case
to the extent, if any, that a court applying Delaware law were
to impose equitable limitations upon such authority; and
(b) Article NINTH of the Certificate of Incorporation, which
authorizes the Board to consider the effect of any offer to
acquire the Company on constituencies other than stockholders in
evaluating any such offer.
We consent to the filing of this opinion as an exhibit to the Registration
Statement on Form S-1 and the Form AC and to the use of the name of our firm
where it appears in the Registration Statement, Form AC and Prospectus.
Very truly yours,
MULDOON, MURPHY & FAUCETTE
<PAGE>
EXHIBIT 5.1 DRAFT OPINION OF MORRIS, NICHOLS, ARSHT & TUNNELL RE: LEGALITY
<PAGE>
[Morris, Nichols, Arsht & Tunnell Letterhead]
August ___, 1996
Muldoon, Murphy & Faucette
5101 Wisconsin Avenue, N.W.
Washington, DC 20016
Ladies and Gentlemen:
You have requested our opinion concerning certain matters of
Delaware law in connection with the conversion of Citizens Federal Savings
and Loan Association of Delphos, a federally chartered savings and loan
association (the "Association"), from the mutual form of ownership to stock
form of ownership (the "Conversion"), and the subscription and community
offering (the "Offering"), in connection with the Conversion, by Delphos
Citizens Bancorp, Inc., a Delaware corporation (the "Company"), of up to
________ shares of its common stock, par value $.01 per share (the "Common
Stock").
In connection with your request for our opinion, you have provided
to us, and we have reviewed, the Company's certificate of incorporation (the
"Certificate of Incorporation"), its by-laws, the Registration Statement
filed with the Securities and Exchange Commission in connection with the
Offering (the "Registration Statement"), including the prospectus
constituting a part thereof (the "Prospectus"), a consent of the sole
incorporator of the
<PAGE>
Muldoon, Murphy & Faucette
August ___, 1996
Page 2
Company, resolutions of the Board of Directors of the Company (the "Board")
concerning, INTER alia, the organization of the Company, the Offering and the
designation of a Pricing Committee of the Board (the "Pricing Committee"),
and the form of stock certificate approved by the Board to represent shares
of Common Stock. We have also obtained a certificate of the Delaware
Secretary of State as to the Company's good standing as a Delaware
corporation. Capitalized terms used but not defined herein shall have the
meanings given them in the Certificate of Incorporation.
We understand that the Company will loan to the Association's
Employee Stock Ownership Plan (the "ESOP") the funds the ESOP will use to
purchase the shares of Common Stock for which the ESOP has subscribed as part
of the Offering. In this regard, we have assumed, for purposes of rendering
the opinion set forth in paragraph 2 below, that: (a) the Board has duly
authorized the loan to the ESOP (the "Loan"); (b) the Loan serves a valid
corporate purpose; (c) the Loan will be made at an interest rate and on other
terms that are fair to the Company; (d) the terms of the Loan will be set
forth in customary and appropriate documents including, without limitation, a
promissory note representing the indebtedness of the ESOP to the Company as a
result of the Loan; and (e) the closing for the Loan and for the sale of
Common Stock to the ESOP will be held after the closing for the sale of the
other shares of
<PAGE>
Muldoon, Murphy & Faucette
August ___, 1996
Page 3
Common Stock sold in the Offering and the receipt by the Company of the
proceeds thereof.
We call your attention to the fact that the opinions expressed
herein are limited in all respects to matters of Delaware corporate law. We
express no opinion concerning the requirements of any other law, rule or
regulation, state or federal, applicable to the Association, the Company, the
Offering, or the Conversion, including, without limitation, those applicable
to federally chartered savings and loan associations or their holding
companies.
Based upon and subject to the foregoing, it is our opinion that:
1. The Company has been duly organized and is validly existing in
good standing as a corporation under the laws of the State of Delaware, with
the corporate power and authority to own its property and conduct its
business as now conducted as described in the Prospectus.
2. Upon the due adoption by the Pricing Committee of a resolution
fixing the number of shares of Common Stock to be sold in the Offering, the
Common Stock to be issued in the Offering (including the shares to be issued
to the ESOP) will be duly authorized and, when such shares are sold and paid
for in accordance with the terms set forth in the Prospectus and such
resolution of the Pricing Committee, and certificates representing such
shares in the form provided to us are duly and properly
<PAGE>
Muldoon, Murphy & Faucette
August ___, 1996
Page 4
issued, will be validly issued, fully paid and nonassessable, with no
personal liability for the payment of the Company's debts arising solely by
virtue of the ownership thereof; such issuance and sale will not be in
violation of or subject to any preemptive rights provided for by Delaware law
or by the Certificate of Incorporation.
The following provisions of the Certificate of Incorporation may
not be given effect by a court applying Delaware law, but in our opinion the
failure to give effect to such provisions will not affect the duly
authorized, validly issued, fully paid and nonassessable status of the Common
Stock:
(a) Subsections C.3 and C.6 of Article FOURTH and Section D of
Article EIGHTH, which grant the Board the authority to construe and apply the
provisions of those Articles, subsection C.4 of Article FOURTH, to the extent
that provision obligates any person to provide to the Board the information
such subsection authorizes the Board to demand, and the provision of Section
C.7 of Article EIGHTH empowering the Board to determine the Fair Market Value
of property offered or paid for the Company's stock by an Interested
Stockholder, to the extent, if any, that a court applying Delaware law were
to impose equitable limitations upon the authority of the directors of the
Company under such provisions.
(b) Article NINTH of the Certificate of Incorporation, which
purports to permit the Board to consider the effect of any
<PAGE>
Muldoon, Murphy & Faucette
August ___, 1996
Page 5
offer to acquire the Company on constituencies other than stockholders in
evaluating any such offer.
Very truly yours,
<PAGE>
EXHIBIT 8.0 DRAFT OPINION OF MULDOON, MURPHY & FAUCETTE
RE: FEDERAL TAX MATTERS
<PAGE>
DRAFT
_______________, 1996
Board of Directors
Delphos Citizens Bancorp, Inc.
114 East Third Street
Delphos, Ohio 45833
Board of Directors
Citizens Federal Savings and Loan Association
of Delphos
114 East Third Street
Delphos, Ohio 45833
Re: Certain Federal Tax Consequences of the Conversion of Citizens
Federal Savings and Loan Association of Delphos from a
federally-chartered mutual savings and loan association to a
federally-chartered capital stock savings bank
Ladies and Gentlemen:
You have requested an opinion on certain federal income tax consequences of
the proposed conversion of Citizens Federal Savings and Loan Association of
Delphos ("Citizens" or the "Association") from a federally-chartered mutual
savings and loan association to a federally-chartered capital stock savings bank
(the "Converted Association") and the acquisition of the stock of the Converted
Association by Delphos Citizens Bancorp, Inc., a Delaware corporation (the
"Company" or the "Holding Company") pursuant to the Plan of Conversion, as
adopted by the Board of Directors on June 11, 1996 (the "Plan of Conversion").
The proposed transaction is described in the Prospectus and the Plan of
Conversion, and the tax consequences of the proposed transaction will be as set
forth in the section of this letter entitled "FEDERAL TAX OPINION."
<PAGE>
Board of Directors DRAFT
_______________, 1996
Page - 2 -
We have made such inquiries and have examined such documents and records as
we have deemed appropriate for the purpose of this opinion. In rendering this
opinion, we have received certain standard representations of the Company and
the Association concerning the Company and the Association as well as the
transaction ("Representations"). These Representations are required to be
furnished prior to the execution of this letter and again prior to the closing
of the Conversion. We will rely upon the accuracy of the Representations of the
Company and the Association and the statements of facts contained in the
examined documents, particularly the Plan of Conversion. We have also assumed
the authenticity of all signatures, the legal capacity of all natural persons
and the conformity to the originals of all documents submitted to us as copies.
Each capitalized term used herein, unless otherwise defined, has the meaning set
forth in the Plan of Conversion. We have assumed that the Conversion will be
consummated strictly in accordance with the terms of the Plan of Conversion.
The Plan of Conversion and the Prospectus contain a detailed description of
the Conversion. These documents as well as the Representations to be provided
by the Company and the Association are incorporated in this letter as part of
the statement of the facts.
As a mutual savings and loan association, the Association has never been
authorized to issue stock. Instead, the proprietary interest in the reserves
and undivided profits of the Association belong to the deposit account holders
of the Association, hereinafter sometimes referred to as "depositors." A
depositor of the Association has a right to share, pro rata, with respect to the
withdrawal value of his respective deposit account in any liquidation proceeds
distributed in the event the Association is ever liquidated. In addition, a
depositor of the Association is entitled to interest on his account balance as
fixed and paid by the Association.
In order to provide organizational and economic strength to the
Association, the Board of Directors has adopted the Plan of Conversion whereby
the Association will convert itself into a federally-chartered stock savings and
loan association (the "Converted Association"), the stock of which will be held
entirely by the Holding Company. The Holding Company will acquire the stock of
the Association by purchase, using 50% of the net proceeds received from the
sale of its own stock under the Plan of Conversion. The aggregate sales price
of the Common Stock issued in the Conversion will be based on an independent
appraiser's valuation of the estimated pro forma market value of the Common
Stock of the Converted Association. The Conversion and sale of the Common Stock
will be subject to approval by the Office of Thrift Supervision and the approval
of the Voting Members.
ESTABLISHMENT OF LIQUIDATION ACCOUNT. The Association shall establish at
the time of Conversion a liquidation account in an amount equal to its net worth
as of the latest practicable date prior to Conversion. The liquidation account
will be maintained by the Association for the benefit of the Eligible Account
Holders and Supplemental Eligible
<PAGE>
Board of Directors DRAFT
_______________, 1996
Page - 3 -
Account Holders who continue to maintain their savings accounts at the
Association. Each Eligible Account Holder and Supplemental Eligible Account
Holder shall, with respect to his savings account, hold a related inchoate
interest in a portion of the liquidation account balance, in relation to his
savings account balance on the Eligibility Record Date and/or Supplemental
Eligibility Record Date or to such balance as it may be subsequently reduced.
In the unlikely event of a complete liquidation of the Association (and
only in such event), following all liquidation payments to creditors (including
those to account holders to the extent of their savings accounts) each Eligible
Account Holder and Supplemental Eligible Account Holder shall be entitled to
receive a liquidating distribution from the liquidation account, in the amount
of the then adjusted subaccount balance for his savings account then held,
before any liquidation distribution may be made to any holders of the
Association's capital stock. No merger, consolidation, purchase of bulk assets
with assumption of savings accounts and other liabilities, or similar
transaction with an FDIC institution, in which the Association is not the
surviving institution, shall be deemed to be a complete liquidation for this
purpose. In such transactions, the liquidation account shall be assumed by the
surviving institution.
* * *
You have provided the following representations concerning this
transaction:
(a) The fair market value of the withdrawable deposit accounts plus
interests in the liquidation account of the Converted Association to
be constructively received under the Plan of Conversion will, in each
instance, be equal to the fair market value of the withdrawable
deposit accounts (plus the related interest in the residual equity of
the Association) deemed to be surrendered in exchange therefor.
(b) If an individual's total deposits in the Association equal or exceed
$50 as of the Eligibility Record Date or the Supplemental Eligibility
Record Date, then no amount of that individual's total deposits will
be excluded from participating in the liquidation account. The fair
market value of the deposit accounts of the Association which have a
balance of less than $50 on the Eligibility Record Date or the
Supplemental Eligibility Record Date will be less than 1% of the total
fair market value of all deposit accounts of the Association.
(c) Immediately following the Conversion, the Eligible Account Holders and
the Supplemental Eligible Account Holders of the Association will own
all of the outstanding interests in the liquidation account and will
own such interest solely
<PAGE>
Board of Directors DRAFT
_______________, 1996
Page - 4 -
by reason of their ownership of deposits in the Association
immediately before the Conversion.
(d) After the Conversion, the Converted Association will continue the
business of the Association in the same manner as prior to the
Conversion. The Converted Association has no plan or intention and
the Holding Company has no plan or intention to cause the Converted
Association to sell its assets other than in the ordinary course of
business.
(e) The Holding Company has no plan or intention to sell, liquidate or
otherwise dispose of the stock of the Converted Association other than
in the ordinary course of business.
(f) The Holding Company and the Converted Association have no current plan
or intention to redeem or otherwise acquire any of the Common Stock
issued in the Conversion transaction.
(g) Immediately after the Conversion, the assets and liabilities of the
Converted Association will be identical to the assets and liabilities
of the Association immediately prior to the Conversion, plus the net
proceeds from the sale of the Converted Association's common stock to
the Holding Company and any liability associated with indebtedness
incurred by the Employee Plans in the acquisition of Common Stock by
the Employee Plans.
(h) The Association, Converted Association and the Holding Company are
corporations within the meaning of section 7701(a)(3) of the Internal
Revenue Code of 1986, as amended (the "Code").
(i) None of the shares of the Common Stock to be purchased by the
depositor-employees of the Association in the Conversion will be
issued or acquired at a discount. However, shares may be given to
certain Directors and employees as compensation by means of the
Employee Plans. Compensation to be paid to such Directors and
depositor-employees will be commensurate with amounts paid to third
parties bargaining at arm's length for similar services.
(j) The fair market value of the assets of the Association, which will be
transferred to the Converted Association in the Conversion, will equal
or exceed the sum of the liabilities of the Association which will be
assumed by the Converted Association and any liabilities to which the
transferred assets are subject.
<PAGE>
Board of Directors DRAFT
_______________, 1996
Page - 5 -
(k) The Association is not under the jurisdiction of a bankruptcy or
similar court in any Title 11 or similar case within the meaning of
section 368(a)(3)(A) of the Code.
(l) Upon the completion of the Conversion, the Holding Company will own
and hold 100% of the issued and outstanding capital stock of the
Converted Association and no other shares of capital stock of the
Converted Association will be issued and/or outstanding. At the time
of the Conversion, the Converted Association does not have any plan or
intention to issue additional shares of its stock following the
transaction. Further, no shares of preferred stock of the Converted
Association will be issued and/or outstanding.
(m) Upon the completion of the Conversion, there will be no rights,
warrants, contracts, agreements, commitments or understandings with
respect to the capital stock of the Converted Association, nor will
there be any securities outstanding which are convertible into the
capital stock of the Converted Association.
(n) No cash or property will be given to Eligible Account Holders,
Supplemental Eligible Account Holders, or others in lieu of (a)
nontransferable subscription rights, or (b) an interest in the
liquidation account of the Converted Association.
(o) The Association utilizes a reserve for bad debts in accordance with
section 593 and, following the Conversion, the Converted Association
shall likewise utilize a reserve for bad debts in accordance with
section 593.
(p) The Association currently satisfies the 60% "qualified assets" test of
section 7701(a)(19) of the Code. Management expects the Converted
Association to be able to continue to satisfy the test in the future.
The Converted Association will also satisfy the "qualified thrift
lender" tests set out in sections 301 and 303 of the Financial
Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA").
(q) Depositors will pay the expenses of the Conversion solely applicable
to them, if any. The Holding Company and the Association will each
pay expenses of the transaction attributable to them and will not pay
any expenses solely attributable to the depositors or to the Holding
Company shareholders.
(r) The exercise price of the subscription rights received by the
Association's Eligible Account Holders, Supplemental Eligible Account
Holders, and other
<PAGE>
Board of Directors DRAFT
_______________, 1996
Page - 6 -
holders of subscription rights to purchase Holding Company Common
Stock will be equal to the fair market value of the stock of the
Holding Company at the time of the completion of the Conversion as
determined by an independent appraisal.
(s) The proprietary interests of the Eligible Account Holders and the
Supplemental Eligible Account Holders in the Association arise solely
by virtue of the fact that they are account holders in the
Association.
(t) There is no plan or intention for the Converted Association to be
liquidated or merged with another corporation following this proposed
transaction.
(u) The liabilities of the Association assumed by the Converted
Association plus the liabilities, if any, to which the transferred
assets are subject were incurred by the Association in the ordinary
course of its business and are associated with the assets transferred.
(v) The Association currently has no net operating losses for federal tax
purposes, and has no such losses available for carryover to future tax
years. The Association has neither generated nor carried forward a
net operating loss for federal tax purposes in the past five tax
years.
LIMITATIONS ON OPINION
Our opinions expressed herein are based solely upon current provisions of
the Internal Revenue Code of 1986, as amended, including applicable regulations
thereunder and current judicial and administrative authority. Any future
amendments to the Code or applicable regulations, or new judicial decisions or
administrative interpretations, any of which could be retroactive in effect,
could cause us to modify our opinion. No opinion is expressed herein with
regard to the federal, state, or city tax consequences of the Conversion under
any section of the Code, or with respect to any aspect of the transaction,
except if and to the extent specifically addressed.
FEDERAL TAX OPINION
Based solely upon the foregoing representations and information and
assuming the transaction occurs in accordance with the Plan of Conversion (and
taking into consideration
<PAGE>
Board of Directors DRAFT
_______________, 1996
Page - 7 -
the limitations at the end of this opinion), it is our opinion that under
current federal income tax law:
(1) Pursuant to the Conversion, the changes at the corporate level other
than changes in the form of organization will be insubstantial. Based
upon that fact and the fact that the equity interest of a depositor in
a mutual savings and loan association is more nominal than real,
unlike that of a shareholder of a corporation, the Conversion of the
Association from a mutual savings and loan association to a stock
savings and loan association is a tax-free reorganization since it is
a mere change in identity, form or place of organization within the
meaning of section 368(a)(1)(F) of the Code (see Rev. Rul. 80-105,
1980-1 C.B. 78). Neither the Association nor the Converted
Association shall recognize gain or loss as a result of the
Conversion. The Association and the Converted Association shall each
be "a party to a reorganization" within the meaning of section 368(b)
of the Code.
(2) No gain or loss shall be recognized by the Converted Association or
the Holding Company on the receipt by the Converted Association of
money from the Holding Company in exchange for shares of the Converted
Association's capital stock or by the Holding Company upon the receipt
of money from the sale of its Common Stock (Section 1032(a) of the
Code).
(3) The basis of the assets of the Association in the hands of the
Converted Association shall be the same as the basis of such assets in
the hands of the Association immediately prior to the Conversion
(Section 362(b) of the Code).
(4) The holding period of the assets of the Association in the hands of
the Converted Association shall include the period during which the
Association held the assets (Section 1223(2) of the Code).
(5) No gain or loss shall be recognized by the Eligible Account Holders
and the Supplemental Eligible Account Holders of the Association on
the issuance to them of withdrawable deposit accounts in the Converted
Association plus interests in the liquidation account of the Converted
Association in exchange for their deposit accounts in the Association
or to the other depositors on the issuance to them of withdrawable
deposit accounts (Section 354(a) of the Code).
(6) Provided that the amount to be paid for such stock pursuant to the
subscription rights is equal to the fair market value of the stock, no
gain or loss will be recognized by Eligible Account Holders and
Supplemental Eligible Account
<PAGE>
Board of Directors DRAFT
_______________, 1996
Page - 8 -
Holders upon the distribution to them of the nontransferable
subscription rights to purchase shares of stock in the Holding Company
(Section 356(a)). Gain realized, if any, by the Eligible Account
Holders and Supplemental Eligible Account Holders on the distribution
to them of nontransferable subscription rights to purchase shares of
Common Stock will be recognized but only in an amount not in excess of
the fair market value of such subscription rights (Section 356(a)).
Eligible Account Holders and Supplemental Eligible Account Holders
will not realize any taxable income as a result of the exercise by
them of the nontransferable subscription rights (Rev. Rul. 56-572,
1956-2 C.B. 182).
(7) The basis of the deposit accounts in the Converted Association to be
received by the Eligible Account Holders, Supplemental Eligible
Account Holders and other depositors of the Association will be the
same as the basis of their deposit accounts in the Association
surrendered in exchange therefor (Section 358(a)(1) of the Code). The
basis of the interests in the liquidation account of the Converted
Association to be received by the Eligible Account Holders of the
Association shall be zero (Rev. Rul. 71-233, 1971-1 C.B. 113). The
basis of the Holding Company Common Stock to its stockholders will be
the purchase price thereof plus the basis, if any, of nontransferable
subscription rights (Section 1012 of the Code). Accordingly, assuming
the nontransferable subscription rights have no value, the basis of
the Common Stock to the Eligible Account Holders and Supplemental
Eligible Account Holders will be the amount paid therefor. The
holding period of the Common Stock purchased pursuant to the exercise
of subscription rights shall commence on the date on which the right
to acquire such stock was exercised (Section 1223(6) of the Code).
Our opinion under paragraph (6) above is predicated on the representation
that no person shall receive any payment, whether in money or property, in lieu
of the issuance of subscription rights. Our opinion under paragraphs (6) and
(7) above assumes that the subscription rights to purchase shares of Common
Stock received by Eligible Account Holders and Supplemental Eligible Account
Holders have a fair market value of zero. We understand that you have received
a letter from Keller & Company, Inc. that the subscription rights do not have
any value. We express no view regarding the valuation of the subscription
rights.
If the subscription rights are subsequently found to have a fair market
value, income may be recognized by various recipients of the subscription rights
(in certain cases, whether or not the rights are exercised) and Holding Company
and/or the Converted Association may be taxable on the distribution of the
subscription rights.
* * *
<PAGE>
Board of Directors DRAFT
_______________, 1996
Page - 9 -
Since this letter is rendered in advance of the closing of this
transaction, we have assumed that the transaction will be consummated in
accordance with the Plan of Conversion as well as all the information and
representations referred to herein. Any change in the transaction could cause
us to modify our opinion.
We consent to the inclusion of this opinion as an exhibit to the Form S-1
Registration Statement of Delphos Citizens Bancorp, Inc. and the references to
and summary of this opinion in such Form S-1 Registration Statement.
Sincerely,
MULDOON, MURPHY & FAUCETTE
<PAGE>
EXHIBIT 8.1 DRAFT OPINION OF CROWE CHIZEK AND COMPANY L.L.P.
RE: STATE TAX MATTERS
(TO BE FILED BY AMENDMENT)
<PAGE>
EXHIBIT 10.1 FORM OF CITIZENS BANK OF DELPHOS EMPLOYEE STOCK OWNERSHIP PLAN
<PAGE>
DRAFT
CITIZENS BANK OF DELPHOS
EMPLOYEE STOCK OWNERSHIP PLAN
EFFECTIVE
------------
<PAGE>
CITIZENS BANK OF DELPHOS
EMPLOYEE STOCK OWNERSHIP PLAN
This Employee Stock Ownership Plan, executed on ______________, by
Citizens Bank of Delphos, a federally chartered savings bank (the "Bank"),
W I T N E S S E T H T H A T :
WHEREAS, the board of directors of the Bank has resolved to adopt an
employee stock ownership plan for eligible employees in accordance with the
terms and conditions presented to the directors;
NOW, THEREFORE, the Bank hereby adopts the following Plan setting forth the
terms and conditions pertaining to contributions, and the payment of benefits to
Participants and Beneficiaries, effective ______________.
IN WITNESS WHEREOF, the Bank has adopted this Plan and caused this
instrument to be executed by its duly authorized officers as of the above date.
ATTEST: CITIZENS BANK OF DELPHOS
By:
- ------------------------ ------------------------------
Secretary
<PAGE>
C O N T E N T S
Section 1. PLAN IDENTITY. . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 NAME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 PURPOSE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 EFFECTIVE DATE . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.4 FISCAL PERIOD. . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.5 SINGLE PLAN FOR ALL EMPLOYERS. . . . . . . . . . . . . . . . . . 1
1.6 INTERPRETATION OF PROVISIONS . . . . . . . . . . . . . . . . . . 1
Section 2. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 3. ELIGIBILITY FOR PARTICIPATION. . . . . . . . . . . . . . . . . . 8
3.1 INITIAL ELIGIBILITY. . . . . . . . . . . . . . . . . . . . . . . 8
3.2 TERMINATED EMPLOYEES . . . . . . . . . . . . . . . . . . . . . . 8
3.3 CERTAIN EMPLOYEES INELIGIBLE . . . . . . . . . . . . . . . . . . 8
3.4 PARTICIPATION AND REPARTICIPATION. . . . . . . . . . . . . . . . 8
Section 4. EMPLOYER CONTRIBUTIONS AND CREDITS . . . . . . . . . . . . . . . 8
4.1 DISCRETIONARY CONTRIBUTIONS. . . . . . . . . . . . . . . . . . . 8
4.2 CONTRIBUTIONS FOR STOCK OBLIGATIONS. . . . . . . . . . . . . . . 9
4.3 DEFINITIONS RELATED TO CONTRIBUTIONS . . . . . . . . . . . . . . 9
4.4 CONDITIONS AS TO CONTRIBUTIONS . . . . . . . . . . . . . . . . . 10
Section 5. LIMITATIONS ON CONTRIBUTIONS AND ALLOCATIONS . . . . . . . . . . 10
5.1 LIMITATION ON ANNUAL ADDITIONS . . . . . . . . . . . . . . . . . 10
5.2 COORDINATED LIMITATION WITH OTHER PLANS. . . . . . . . . . . . . 11
5.3 EFFECT OF LIMITATIONS. . . . . . . . . . . . . . . . . . . . . . 12
5.4 LIMITATIONS AS TO CERTAIN PARTICIPANTS . . . . . . . . . . . . . 12
Section 6. TRUST FUND AND ITS INVESTMENT. . . . . . . . . . . . . . . . . . 13
6.1 CREATION OF TRUST FUND . . . . . . . . . . . . . . . . . . . . . 13
6.2 STOCK FUND AND INVESTMENT FUND . . . . . . . . . . . . . . . . . 13
6.3 ACQUISITION OF STOCK . . . . . . . . . . . . . . . . . . . . . . 13
6.4 PARTICIPANTS' OPTION TO DIVERSIFY. . . . . . . . . . . . . . . . 14
Section 7. VOTING RIGHTS AND DIVIDENDS ON STOCK . . . . . . . . . . . . . . 14
7.1 VOTING AND TENDERING OF STOCK. . . . . . . . . . . . . . . . . . 14
7.2 DIVIDENDS ON STOCK . . . . . . . . . . . . . . . . . . . . . . . 15
<PAGE>
Section 8. ADJUSTMENTS TO ACCOUNTS. . . . . . . . . . . . . . . . . . . . . 15
8.1 ADJUSTMENTS FOR TRANSACTIONS . . . . . . . . . . . . . . . . . . 15
8.2 VALUATION OF INVESTMENT FUND . . . . . . . . . . . . . . . . . . 16
8.3 ADJUSTMENTS FOR INVESTMENT EXPERIENCE. . . . . . . . . . . . . . 16
8.4 ADJUSTMENTS FOR CAPITAL CHANGES. . . . . . . . . . . . . . . . . 16
Section 9. VESTING OF PARTICIPANTS' INTERESTS . . . . . . . . . . . . . . . 16
9.1 DEFERRED VESTING IN ACCOUNTS . . . . . . . . . . . . . . . . . . 16
9.2 COMPUTATION OF VESTING YEARS . . . . . . . . . . . . . . . . . . 17
9.3 FULL VESTING UPON CERTAIN EVENTS . . . . . . . . . . . . . . . . 17
9.4 FULL VESTING UPON PLAN TERMINATION . . . . . . . . . . . . . . . 18
9.5 FORFEITURE, REPAYMENT, AND RESTORAL. . . . . . . . . . . . . . . 18
9.6 ACCOUNTING FOR FORFEITURES . . . . . . . . . . . . . . . . . . . 19
9.7 VESTING AND NONFORFEITABILITY. . . . . . . . . . . . . . . . . . 19
Section 10. PAYMENT OF BENEFITS. . . . . . . . . . . . . . . . . . . . . . . 19
10.1 BENEFITS FOR PARTICIPANTS. . . . . . . . . . . . . . . . . . . . 19
10.2 BENEFITS ON A PARTICIPANT'S DEATH. . . . . . . . . . . . . . . . 20
10.3 MARITAL STATUS . . . . . . . . . . . . . . . . . . . . . . . . . 20
10.4 DELAY IN BENEFIT DETERMINATION . . . . . . . . . . . . . . . . . 20
10.5 ACCOUNTING FOR BENEFIT PAYMENTS. . . . . . . . . . . . . . . . . 20
10.6 OPTIONS TO RECEIVE AND SELL STOCK. . . . . . . . . . . . . . . . 20
10.7 RESTRICTIONS ON DISPOSITION OF STOCK . . . . . . . . . . . . . . 21
10.8 DIRECT TRANSFER OF ELIGIBLE PLAN DISTRIBUTIONS . . . . . . . . . 22
Section 11. RULES GOVERNING BENEFIT CLAIMS AND REVIEW OF APPEALS . . . . . . 22
11.1 CLAIM FOR BENEFITS . . . . . . . . . . . . . . . . . . . . . . . 22
11.2 NOTIFICATION BY COMMITTEE. . . . . . . . . . . . . . . . . . . . 23
11.3 CLAIMS REVIEW PROCEDURE. . . . . . . . . . . . . . . . . . . . . 23
Section 12. THE COMMITTEE AND ITS FUNCTIONS. . . . . . . . . . . . . . . . . 23
12.1 AUTHORITY OF COMMITTEE. . . . . . . . . . . . . . . . . . . . . 23
12.2 IDENTITY OF COMMITTEE. . . . . . . . . . . . . . . . . . . . . . 24
12.3 DUTIES OF COMMITTEE. . . . . . . . . . . . . . . . . . . . . . . 24
12.4 VALUATION OF STOCK . . . . . . . . . . . . . . . . . . . . . . . 24
12.5 COMPLIANCE WITH ERISA. . . . . . . . . . . . . . . . . . . . . . 25
12.6 ACTION BY COMMITTEE. . . . . . . . . . . . . . . . . . . . . . . 25
12.7 EXECUTION OF DOCUMENTS . . . . . . . . . . . . . . . . . . . . . 25
12.8 ADOPTION OF RULES. . . . . . . . . . . . . . . . . . . . . . . . 25
12.9 RESPONSIBILITIES TO PARTICIPANTS . . . . . . . . . . . . . . . . 25
12.10 ALTERNATIVE PAYEES IN EVENT OF INCAPACITY. . . . . . . . . . . . 25
12.11 INDEMNIFICATION BY EMPLOYERS . . . . . . . . . . . . . . . . . . 26
12.12 NONPARTICIPATION BY INTERESTED MEMBER. . . . . . . . . . . . . . 26
<PAGE>
Section 13. ADOPTION, AMENDMENT, OR TERMINATION OF THE PLAN. . . . . . . . . 26
13.1 ADOPTION OF PLAN BY OTHER EMPLOYERS. . . . . . . . . . . . . . . 26
13.2 ADOPTION OF PLAN BY SUCCESSOR. . . . . . . . . . . . . . . . . . 26
13.3 PLAN ADOPTION SUBJECT TO QUALIFICATION.. . . . . . . . . . . . . 26
13.4 RIGHT TO AMEND OR TERMINATE. . . . . . . . . . . . . . . . . . . 27
Section 14. MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . 27
14.1 PLAN CREATES NO EMPLOYMENT RIGHTS. . . . . . . . . . . . . . . . 27
14.2 NONASSIGNABILITY OF BENEFITS . . . . . . . . . . . . . . . . . . 27
14.3 LIMIT OF EMPLOYER LIABILITY. . . . . . . . . . . . . . . . . . . 28
14.4 TREATMENT OF EXPENSES. . . . . . . . . . . . . . . . . . . . . . 28
14.5 NUMBER AND GENDER. . . . . . . . . . . . . . . . . . . . . . . . 28
14.6 NONDIVERSION OF ASSETS . . . . . . . . . . . . . . . . . . . . . 28
14.7 SEPARABILITY OF PROVISIONS . . . . . . . . . . . . . . . . . . . 28
14.8 SERVICE OF PROCESS . . . . . . . . . . . . . . . . . . . . . . . 28
14.9 GOVERNING STATE LAW. . . . . . . . . . . . . . . . . . . . . . . 28
14.10 SPECIAL RULES FOR PERSONS SUBJECT TO SECTION 16(b) REQUIREMENTS. 28
Section 15. TOP-HEAVY PROVISIONS . . . . . . . . . . . . . . . . . . . . . . 29
15.1 DETERMINATION OF TOP-HEAVY STATUS. . . . . . . . . . . . . . . . 29
15.2 MINIMUM CONTRIBUTIONS. . . . . . . . . . . . . . . . . . . . . . 30
15.3 MINIMUM VESTING. . . . . . . . . . . . . . . . . . . . . . . . . 31
<PAGE>
CITIZENS BANK OF DELPHOS
EMPLOYEE STOCK OWNERSHIP PLAN
Section 1. PLAN IDENTITY.
1.1 NAME. The name of this Plan is "Citizens Bank of Delphos Employee
Stock Ownership Plan."
1.2 PURPOSE. The purpose of this Plan is to describe the terms and
conditions under which contributions made pursuant to the Plan will be credited
and paid to the Participants and their Beneficiaries.
1.3 EFFECTIVE DATE. The Effective Date of this Plan is .
1.4 FISCAL PERIOD. This Plan shall be operated on the basis of a
January 1-December 31 fiscal year for the purpose of keeping the Plan's books
and records and distributing or filing any reports or returns required by law.
1.5 SINGLE PLAN FOR ALL EMPLOYERS. This Plan shall be treated as a
single plan with respect to all participating Employers for the purpose of
crediting contributions and forfeitures and distributing benefits, determining
whether there has been any termination of Service, and applying the limitations
set forth in Section 5.
1.6 INTERPRETATION OF PROVISIONS. The Employers intend this Plan and
the Trust to be a qualified stock bonus plan under Section 401(a) of the Code
and an employee stock ownership plan within the meaning of Section 407(d)(6) of
ERISA and Section 4975(e)(7) of the Code. The Plan is intended to have its
assets invested primarily in qualifying employer securities of one or more
Employers within the meaning of Section 407(d)(5) of ERISA, and to satisfy any
requirement under ERISA or the Code applicable to such a plan. Accordingly, the
Plan and Trust Agreement shall be interpreted and applied in a manner consistent
with this intent and shall be administered at all times and in all respects in a
nondiscriminatory manner.
Section 2. DEFINITIONS. The following capitalized words and phrases shall
have the meanings specified when used in this Plan and in the Trust Agreement,
unless the context clearly indicates otherwise:
"Account" means a Participant's interest in the assets accumulated under
this Plan as expressed in terms of a separate account balance which is
periodically adjusted to reflect his Employer's contributions, the Plan's
investment experience, and distributions and forfeitures.
"Active Participant" means any Employee who has satisfied the eligibility
requirements of Section 3 and who qualifies as an Active Participant for a
particular Plan Year under Section 4.3.
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<PAGE>
"Bank" means Citizens Bank of Delphos, and any entity which succeeds to the
business of the Bank and adopts this Plan as its own pursuant to Section 13.2.
"Beneficiary" means the person or persons who are designated by a
Participant to receive benefits payable under the Plan on the Participant's
death. In the absence of any designation or if all the designated Beneficiaries
shall die before the Participant dies or shall die before all benefits have been
paid, the Participant's Beneficiary shall be his surviving spouse, if any, or
his estate if he is not survived by a spouse. The Committee may rely upon the
advice of the Participant's executor or administrator as to the identity of the
Participant's spouse.
"Break in Service" means any five or more consecutive 12-month periods
beginning January 1 in which an Employee has 500 or fewer Hours of Service per
period. Solely for this purpose, an Employee shall be considered employed for
his normal hours of paid employment during a Recognized Absence, unless he does
not resume his Service at the end of the Recognized Absence. Further, if an
Employee is absent for any period (i) by reason of the Employee's pregnancy,
(ii) by reason of the birth of the Employee's child, (iii) by reason of the
placement of a child with the Employee in connection with the Employee's
adoption of the child, or (iv) for purposes of caring for such child for a
period beginning immediately after such birth or placement, the Employee shall
be credited with the Hours of Service which would normally have been credited
but for such absence, up to a maximum of 501 Hours of Service, in the first
12-month period which would otherwise be counted toward a Break in Service.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the committee responsible for the administration of this
Plan in accordance with Section 12.
"Disability" means a condition which renders the Participant totally and
permanently disabled due to sickness or injury, such disability is likely to be
continuous and permanent, and such disability renders the Participant unable to
continue a like gainful occupation. In any event, the Committee's good faith
decision as to whether a Participant's Service has been terminated by Disability
shall be final and conclusive.
"Early Retirement" means retirement on or after a Participant's attainment
of age 55 and the completion of ten years of service for an Employer.
"Effective Date" means .
"Employee" means any individual who is or has been employed by an Employer.
"Employee" also means an individual employed by a leasing organization who,
pursuant to an agreement between an Employer and the leasing organization, has
performed services for the Employer and any related persons (within the meaning
of Section 414(n)(6) of the Code) on a substantially full-time basis for more
than one year, if such services are of a type historically performed by
employees in the Employer's business field. However, such a "leased employee"
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<PAGE>
shall not be considered an Employee if (i) he participates in a money purchase
pension plan sponsored by the leasing organization which provides for immediate
participation, immediate full vesting, and an annual contribution of at least 10
percent of the Employee's Total Compensation, and (ii) leased employees do not
constitute more than 20 percent of the Employer's total work force (including
leased employees, but excluding Highly Paid Employees and any other employees
who have not performed services for the Employer on a substantially full-time
basis for at least one year).
"Employer" means the Bank or any affiliate within the purview of section
414(b), (c) or (m) and 415(h) of the Code, any other corporation, partnership,
or proprietorship which adopts this Plan with the Bank's consent pursuant to
Section 13.1, and any entity which succeeds to the business of any Employer and
adopts the Plan pursuant to Section 13.2.
"Entry Date" means the Effective Date of the Plan and the first day of each
July and January of each Plan Year thereafter.
"ERISA" means the Employee Retirement Income Security Act of 1974 (P.L.
93-406, as amended).
"Highly Paid Employee" for any Plan Year means an Employee who, during
either of that or the immediately preceding Plan Year, (i) owned more than five
percent of the outstanding equity interest or the outstanding voting interest in
any Employer, (ii) had Total Compensation exceeding $75,000 (as adjusted
pursuant to section 415(d) of the Code), (iii) had Total Compensation exceeding
$50,000 (as adjusted pursuant to section 415(d) of the Code) and was among the
most highly compensated one-fifth of all Employees, or (iv) was at any time an
officer of an Employer and had Total Compensation exceeding $45,000 (or 50
percent of the currently applicable dollar limit under Section 415(b)(1)(A) of
the Code). For this purpose:
(a) "Total Compensation" shall include any amount which is
excludable from the Employee's gross income for tax purposes pursuant to
Sections 125, 402(e)(3), 402(h)(1)(B), or 403(b) of the Code.
(b) The number of Employees in "the most highly compensated
one-fifth of all Employees" shall be determined by taking into account all
individuals working for all related employer entities described in the
definition of "Service", but excluding any individual who has not completed
six months of Service, who normally works fewer than 17-1/2 hours per week
or in fewer than six months per year, who has not reached age 21, whose
employment is covered by a collective bargaining agreement, or who is a
nonresident alien who receives no earned income from United States sources.
(c) The number of individuals counted as "officers" shall not be
more than the lesser of (i) 50 individuals and (ii) the greater of 3
individuals or 10 percent of the total number of Employees. If no officer
earns more than $45,000 (or the adjusted limit), then the highest paid
officer shall be a Highly Paid Employee.
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<PAGE>
(d) A former employee shall be treated as a highly compensated
employee if such employee was a highly paid employee when such employee
separated from service, or if such employee was a highly paid employee at
any time after attaining age 55.
(e) If an employee is, during a determination year or look-back
year, a family member of either a 5 percent owner who is an active or former
employee or a highly compensated employee who is one of the 10 most highly
compensated employees ranked on the basis of compensation paid by the
employer during such year, then the family member and the 5 percent owner or
top-ten highly compensated employee shall be aggregated. In such case, the
family member and 5 percent owner or top-ten highly compensated employee
shall be treated as a single employee receiving compensation and plan
contributions or benefits equal to the sum of such compensation and
contributions or benefits of the family member and 5 percent owner or top-
ten highly compensated employee. For purposes of this section, family
member includes the spouse, lineal ascendants and descendants of the
employee or former employee and the spouses of such lineal ascendants
and descendants.
For this purpose, the determination year shall be the plan
year. The look-back year shall be the twelve-month period immediately
preceding the determination year.
(f) The determination of who is a highly compensated employee,
including the determinations of the number and identity of employees in the
top-paid group, the top 100 employees, the number of employees treated as
officers and the compensation that is considered, will be made in accordance
with section 414(q) of the Code and the regulations thereunder.
"Holding Company" means [Holding Company], the holding company of Citizens
Bank of Delphos, and any entity which succeeds to the business of the Holding
Company.
"Hours of Service" means hours to be credited to an Employee under the
following rules:
(a) Each hour for which an Employee is paid or is entitled to be
paid for services to an Employer is an Hour of Service.
(b) Each hour for which an Employee is directly or indirectly
paid or is entitled to be paid for a period of vacation, holidays, illness,
disability, lay-off, jury duty, temporary military duty, or leave of absence
is an Hour of Service. However, except as otherwise specifically provided,
no more than 501 Hours of Service shall be credited for any single
continuous period in which an Employee performs no duties. Further, no
Hours of Service shall be credited on account of payments made solely under
a plan maintained to comply with worker's compensation, unemployment
compensation, or disability insurance laws, or to reimburse an Employee for
medical expenses.
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<PAGE>
(c) Each hour for which back pay (ignoring any mitigation of
damages) is either awarded or agreed to by an Employer is an Hour of
Service. However, no more than 501 Hours of Service shall be credited for
any single continuous period during which an Employee would not have
performed any duties.
(d) Hours of Service shall be credited in any one period only
under one of the foregoing paragraphs (a), (b) and (c); an Employee may not
get double credit for the same period.
(e) If an Employer finds it impractical to count the actual
Hours of Service for any class or group of non-hourly Employees, each
Employee in that class or group shall be credited with 45 Hours of Service
for each weekly pay period in which he has at least one Hour of Service.
However, an Employee shall be credited only for his normal working hours
during a paid absence.
(f) Hours of Service to be credited on account of a payment to
an Employee (including back pay) shall be recorded in the period of Service
for which the payment was made. If the period overlaps two or more Plan
Years, the Hours of Service credit shall be allocated in proportion to the
respective portions of the period included in the several Plan Years.
However, in the case of periods of 31 days or less, the Administrator may
apply a uniform policy of crediting the Hours of Service to either the first
Plan Year or the second.
(g) In all respects an Employee's Hours of Service shall be
counted as required by Section 2530.200b-2(b) and (c) of the Department of
Labor's regulations under Title I of ERISA.
"Investment Fund" means that portion of the Trust Fund consisting of assets
other than Stock.
"Normal Retirement Age" means a Participant's 65th birthday.
"Normal Retirement Date" means the first day of the month coincident with or
next following attainment of Normal Retirement Age.
"Participant" means any Employee who is participating in the Plan, or who
has previously participated in the Plan and still has a balance credited to his
Account.
"Plan Year" means [the short plan year commencing ___________, and ending
December 31, __________ and] each period of 12 consecutive months beginning on
January 1 of each [succeeding] year.
"Recognized Absence" means a period for which --
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<PAGE>
(a) an Employer grants an Employee a leave of absence for a
limited period, but only if an Employer grants such leaves on a
nondiscriminatory basis; or
(b) an Employee is temporarily laid off by an Employer because of
a change in business conditions; or
(c) an Employee is on active military duty, but only to the extent
that his employment rights are protected by the Military Selective Service
Act of 1967 (38 U.S.C. sec. 2021).
"Service" means an Employee's period(s) of employment or self-employment
with an Employer, excluding for initial eligibility purposes any period in
which the individual was a nonresident alien and did not receive from an
Employer any earned income which constituted income from sources within the
United States. An Employee's Service shall include any service which
constitutes service with a predecessor employer within the meaning of Section
414(a) of the Code. An Employee's Service shall also include any service
with an entity which is not an Employer, but only either (i) for a period
after 1975 in which the other entity is a member of a controlled group of
corporations or is under common control with other trades and businesses
within the meaning of Section 414(b) or 414(c) of the Code, and a member of
the controlled group or one of the trades and businesses is an Employer, or
(ii) for a period after 1979 in which the other entity is a member of an
affiliated service group within the meaning of Section 414(m) of the Code,
and a member of the affiliated service group is an Employer.
"Spouse" means the individual, if any, to whom a Participant is lawfully
married on the date benefit payments to the Participant are to begin, or on the
date of the Participant's death, if earlier.
"Stock" means shares of the voting common stock or preferred stock meeting
the requirements of Section 409(e)(3) of the Code issued by an Employer or an
affiliated corporation.
"Stock Fund" means that portion of the Trust Fund consisting of Stock.
"Stock Obligation" means an indebtedness arising from any extension of
credit to the Plan or the Trust which was obtained for the purpose of buying
Stock and which satisfies the requirements set forth in Section 6.3.
"Total Compensation" means a Participant's wages, salary, overtime, bonuses,
commissions, and any other amounts received for personal services rendered while
in Service from any Employer or an affiliate (within the purview of Section
414(b), (c), and (m) of the Code), plus his earned income from any such entity
as defined in Section 401(c)(2) of the Code if he is self-employed. "Total
Compensation" shall include (i) severance payments and amounts paid as a result
of termination, (ii) amounts excludable from gross income under Section 911 of
the Code, (iii) amounts described in Sections 104(a)(3), 105(a), and 105(h) of
the Code to the extent includable in gross income, (iv) amounts received from an
Employer for moving expenses which
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<PAGE>
are not deductible under Section 217 of the Code, (v) amounts includable in
gross income in the year of, and on account of, the grant of a nonqualified
stock option, (vi) amounts includable in gross income pursuant to Section
83(b) of the Code, and (vii) amounts includable in gross income under an
unfunded nonqualified plan of deferred compensation, but shall exclude (viii)
Employer contributions to or amounts received from a funded or qualified plan
of deferred compensation, (ix) Employer contributions to a simplified
employee pension account to the extent deductible under Section 219 of the
Code, (x) Employer contributions to a Section 403(b) annuity contract, and
(xi) amounts includable in gross income pursuant to Section 83(a) of the
Code, (xii) amounts includable in gross income upon the exercise of
nonqualified stock option or upon the disposition of stock acquired under any
stock option, and (xiii) any other amounts expended by the Employer on the
Participant's behalf which are excludable from his income or which receive
special tax benefits. A Participant's Total Compensation shall exclude any
compensation in any limitation year in excess of the limit currently in
effect under Section 401(a)(17) of the Code.
"Trust" or "Trust Fund" means the trust fund created under this Plan.
"Trust Agreement" means the agreement between the Bank and the Trustee
concerning the Trust Fund. If any assets of the Trust Fund are held in a
co-mingled trust fund with assets of other qualified retirement plans, "Trust
Agreement" shall be deemed to include the trust agreement governing that
co-mingled trust fund. With respect to the allocation of investment
responsibility for the assets of the Trust Fund, the provisions of Section 2 of
the Trust Agreement are incorporated herein by reference.
"Trustee" means one or more corporate persons and individuals selected from
time to time by the Bank to serve as trustee or co-trustees of the Trust Fund.
"Unallocated Stock Fund" means that portion of the Stock Fund consisting of
the Plan's holding of stock which have been acquired in exchange for one or more
Stock Obligations and which have not yet been allocated to the Participant's
Accounts in accordance with Section 4.2.
"Valuation Date" means the last day of the Plan Year and each other date as
of which the committee shall determine the investment experience of the
Investment Fund and adjust the Participants' accounts accordingly.
"Valuation Period" means the period following a Valuation Date and ending
with the next Valuation Date.
"Vesting Year" means a unit of Service credited to a Participant pursuant to
Section 9.2 for purposes of determining his vested interest in his Account.
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<PAGE>
Section 3. ELIGIBILITY FOR PARTICIPATION.
3.1 INITIAL ELIGIBILITY. An Employee shall enter the Plan as of the
Entry Date coinciding with or next following the later of the following dates:
(a) the date an Employee completes an eligibility
computation period with the Employer, during which the Employee completes at
least 1,000 hours of service for the Employer, and
(b) attainment by the Employee of age 21.
However, if an Employee is not in active Service with an Employer on the date
he would otherwise first enter the Plan, his entry shall be deferred until the
next day he is in Service.
For purposes of this Plan, a Participant's initial eligibility computation
period shall be the twelve consecutive month period beginning with the day a
Participant first completes an Hour of Service. A Participant's subsequent
eligibility computation periods shall be the Plan Year, commencing with the Plan
Year which includes the first anniversary of the day the Participant first
completed an Hour of Service.
3.2 TERMINATED EMPLOYEES. No Employee shall have any interest or
rights under this Plan if he is never in active Service with an Employer on or
after the Effective Date.
3.3 CERTAIN EMPLOYEES INELIGIBLE. No Employee shall participate in the
Plan while he is [receiving compensation in the form of commissions].
Additionally, No Employee shall participate in the Plan while his Service is
covered by a collective bargaining agreement between an Employer and the
Employee's collective bargaining representative if (i) retirement benefits have
been the subject of good faith bargaining between the Employer and the
representative and (ii) the collective bargaining agreement does not provide for
the Employee's participation in the Plan. No Employee shall participate in the
Plan while he is actually employed by a leasing organization rather than an
Employer.
3.4 PARTICIPATION AND REPARTICIPATION. Subject to the satisfaction of
the foregoing requirements, an Employee shall participate in the Plan during
each period of his Service from the date on which he first becomes eligible
until his termination. For this purpose, an Employee returning within five
years of his or her termination who previously satisfied the initial eligibility
requirements shall re-enter the Plan as of the date of his return to Service
with an Employer.
Section 4. EMPLOYER CONTRIBUTIONS AND CREDITS.
4.1 DISCRETIONARY CONTRIBUTIONS. Each Employer shall from time to time
contribute, with respect to a Plan Year, such amounts as it may determine from
time to time. An Employer shall have no obligation to contribute any amount
under this Plan except as so determined in its sole discretion. The Employers'
contributions and available forfeitures for a
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<PAGE>
Plan Year shall be credited as of the last day of the year to the Accounts of
the Active Participants in proportion to their amounts of Cash Compensation.
4.2 CONTRIBUTIONS FOR STOCK OBLIGATIONS. If the Trustee, upon
instructions from the Committee, incurs any Stock Obligation upon the purchase
of Stock, the Employer shall, subject to the provisions of the Plan of
Conversion of Citizens Federal Savings and Loan Association of Delphos and any
regulatory prohibitions, contribute for each Plan Year an amount sufficient to
cover all payments of principal and interest as they come due under the terms of
the Stock Obligation. If there is more than one Stock Obligation, the Employers
shall designate the one to which any contribution is to be applied. The
Employer's obligation to make contributions under this Section 4.2 shall be
reduced to the extent of any investment earnings realized on such contributions
and any dividends paid by the Employers on Stock held in the Unallocated Stock
Account, which earnings and dividends shall be applied to the Stock Obligation
related to that Stock.
In each Plan Year in which Employer contributions, earnings on
contributions, or dividends on unallocated Stock are used as payments under a
Stock Obligation, a certain number of shares of the Stock acquired with that
Stock Obligation which is then held in the Unallocated Stock Fund shall be
released for allocation among the Participants. The number of shares released
shall bear the same ratio to the total number of those shares then held in the
Unallocated Stock Fund (prior to the release) as (i) the principal and interest
payments made on the Stock Obligation in the current Plan Year bears to (ii) the
sum of (i) above, and the remaining principal and interest payments required (or
projected to be required on the basis of the interest rate in effect at the end
of the Plan Year) to satisfy the Stock Obligation.
At the direction of the Committee, the current and projected payments of
interest under a Stock Obligation may be ignored in calculating the number of
shares to be released in each year if (i) the Stock Obligation provides for
annual payments of principal and interest at a cumulative rate that is not less
rapid at any time than level annual payments of such amounts for 10 years, (ii)
the interest included in any payment is ignored only to the extent that it would
be determined to be interest under standard loan amortization tables, and (iii)
the term of the Stock Obligation, by reason of renewal, extension, or
refinancing, has not exceeded 10 years from the original acquisition of the
Stock.
For these purposes, each Stock Obligation, the Stock purchased with it, and
any dividends on such Stock, shall be considered separately. The Stock released
from the Unallocated Stock Fund in any Plan Year shall be credited as of the
last day of the year to the Accounts of the Active Participants in proportion to
their amounts of Cash Compensation while a Participant.
4.3 DEFINITIONS RELATED TO CONTRIBUTIONS. For the purposes of this
Plan, the following terms have the meanings specified:
"Active Participant" means a Participant who has satisfied the eligibility
requirements under Section 3 and who has completed at least 1,000 Hours of
Service during the Plan Year.
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<PAGE>
However, a Participant shall not qualify as an Active Participant unless (i)
he is in active Service with an Employer as of the last day of the Plan Year,
or (ii) he is on a Recognized Absence as of that date, or (iii) his Service
terminated during the Plan Year by reason of Normal Retirement, Early
Retirement, Disability or death.
"Cash Compensation" means the Participant's compensation reportable on Form
W-2. However, a Participant's Cash Compensation shall exclude any compensation
in excess of the limit currently in effect under Section 401(a)(17) of the Code.
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any provision of the Plan to the contrary, the annual
compensation of each employee taken in to account under the Plan shall not
exceed the Omnibus Budget Reconciliation Act of 1993 ("OBRA 1993") annual
compensation limit. The OBRA 1993 annual compensation limit is $150,000, as
adjusted by the Commissioner of the Internal Revenue Service for increases 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 (the
"Determination Period") beginning in such calendar year. If a Determination
Period consists of fewer than 12 months, the OBRA 1993 annual compensation
limitation 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
12. For purposes of applying the limitations of Section 401(a)(17) of the Code,
the rules relating to the family member's of a Highly Paid Employee will apply,
except that the only the employee's spouse and lineal descendants who have not
attained age 19 will be included in as family members.
4.4 CONDITIONS AS TO CONTRIBUTIONS. Employers' contributions shall in
any event be subject to the limitation set forth in Section 5. Contributions
may be made in the form of cash, or securities and other property to the extent
permissible under ERISA, including Stock, and shall be held by the Trustee in
accordance with the Trust Agreement. In addition to the provisions of Section
13.3 for the return of an Employer's contributions in connection with a failure
of the Plan to qualify initially under the Code, any amount contributed by an
Employer due to a good faith mistake of fact, or based upon a good faith but
erroneous determination of its deductibility under Section 404 of the Code,
shall be returned to the Employer within one year after the date on which the
contribution was originally made, or within one year after its nondeductibility
has been finally determined. However, the amount to be returned shall be
reduced to take account of any adverse investment experience within the Trust
Fund in order that the balance credited to each Participant's Account is not
less that it would have been if the contribution had never been made.
Section 5. LIMITATIONS ON CONTRIBUTIONS AND ALLOCATIONS.
5.1 LIMITATION ON ANNUAL ADDITIONS. Notwithstanding the provisions of
Section 4, the annual addition to a Participant's accounts under this and any
other defined contribution plans maintained by the Employers or an affiliate
(within the purview of Section 414(b), (c), and (m) and Section 415(h) of the
Code, which affiliate shall be deemed an Employer for this purpose) shall not
exceed for any limitation year an amount equal to the lesser of --
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5.1-1 $30,000, or the one-fourth of the dollar limitation
currently in effect under Section 415(b)(1)(A) of the Code; or
5.1-2 25 percent of the Participant's Total Compensation for such
limitation year.
For purposes of this Section 5.1 and the following Section 5.2, the "annual
addition" to a Participant's accounts means the sum of (i) the Employer
contributions and Employee forfeitures credited to a Participant's accounts with
respect to a limitation year, plus (ii) the Participant's total voluntary
contributions for that year. The $30,000 and Section 415(b)(1)(A) limitations
referred to shall, for each limitation year, be automatically adjusted to the
new dollar limitations determined by the Commissioner of Internal Revenue for
the calendar year beginning in that limitation year. Notwithstanding the
foregoing, if the special limitations on annual additions described in section
415(c)(6) of the Code applies, the limitations described in this section shall
be adjusted accordingly. A "limitation year" means each 12 consecutive month
period beginning January 1.
5.2 COORDINATED LIMITATION WITH OTHER PLANS. Aside from the limitation
prescribed by Section 5.1 with respect to the annual addition to a Participant's
accounts for any single limitation year, if a Participant has ever participated
in one or more defined benefit plans maintained by an Employer or an affiliate,
then the benefits provided under the defined benefit plan on his account shall
be limited on a cumulative basis so that the sum of his defined contribution
plan fraction and his defined benefit plan fraction does not exceed one. For
this purpose:
5.2-1 A Participant's defined contribution plan fraction with
respect to a Plan Year shall be a fraction, (i) the numerator of which is
the sum of the annual additions to his accounts under all defined
contribution plans (whether or not terminated) maintained by the Employer
for the current year and all prior limitation years (including annual
additions of the Participant's nondeductible employee contributions to all
defined benefit plans, whether or not terminated, maintained by an Employer,
and the annual additions attributable to all welfare benefit plans,
individual medical accounts, and simplified employee pensions maintained by
the Employer), and (ii) the denominator of which is the sum of the lesser of
the following amounts -A- and -B- determined for the current limitation year
and each prior limitation year of Service with an Employer: -A- is 1.25
times the dollar limitation determined under Section 415(c)(1)(A) of the
Code, or 1.0 times such dollar limitation if the Plan is top-heavy, and -B-
is 35 percent of the Participant's Total Compensation for such year. If the
Employee was a Participant as of the end of the first limitation year
beginning after December 31, 1986 in one or more defined contribution plans
maintained by an Employer which plan(s) were in existence on May 6, 1986,
and if the sum of this fraction and the defined benefit fraction (described
below) would otherwise exceed 1.0 under the terms of this Plan, the
numerator of this fraction will be adjusted. To affect this adjustment, an
amount equal to the product of the excess of the sum of the fractions over
1.0, multiplied by the denominator of this fraction shall be permanently
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subtracted from the numerator of this fraction. This adjustment shall be
calculated using the fractions as they would be computed as of the end of
the last limitation year beginning before January 1, 1987, and disregarding
any changes in the terms and conditions of the Plan made after May 5, 1986,
but using the limitation applicable under Section 415 of the Code for the
first limitation year beginning on or after January 1, 1987.
5.2-2 A Participant's defined benefit plan fraction with respect
to a limitation year shall be a fraction, (i) the numerator of which is his
projected annual benefit payable at normal retirement under the Employers'
defined benefit plans, and (ii) the denominator of which is the lesser of
(a) 1.25 times $90,000, or 1.0 times such dollar limitation if the Plan is
top-heavy, and (b) 1.4 times the Participant's average Total Compensation
during his highest-paid three consecutive limitation years.
5.3 EFFECT OF LIMITATIONS. The Committee shall take whatever action
may be necessary from time to time to assure compliance with the limitations set
forth in Section 5.1 and 5.2. Specifically, the Committee shall see that each
Employer restrict its contributions for any Plan Year to an amount which, taking
into account the amount of available forfeitures, may be completely allocated to
the Participants consistent with those limitations. Where the limitations would
otherwise be exceeded by any Participant, further allocations to the Participant
shall be curtailed to the extent necessary to satisfy the limitations. Where an
excessive amount is contributed on account of a mistake as to one or more
Participants' compensation, or there is an amount of forfeitures which may not
be credited in the Plan Year in which it becomes available, the amount shall be
held in a suspense account to be allocated in lieu of any Employer contributions
in future years until it is eliminated, and to be returned to the Employer if it
cannot be credited consistent with these limitations before the termination of
the Plan.
5.4 LIMITATIONS AS TO CERTAIN PARTICIPANTS. Aside from the limitations
set forth in Section 5.1 and 5.2, if the Plan acquires any Stock in a
transaction as to which a selling shareholder or the estate of a deceased
shareholder is claiming the benefit of Section 1042 of the Code, the Committee
shall see that none of such Stock, and no other assets in lieu of such Stock,
are allocated to the Accounts of certain Participants in order to comply with
Section 409(n) of the Code.
This restriction shall apply at all times to a Participant who owns (taking
into account the attribution rules under Section 318(a) of the Code, without
regard to the exception for employee plan trusts in Section 318(a)(2)(B)(i) more
than 25 percent of any class of stock of a corporation which issued the Stock
acquired by the Plan, or another corporation within the same controlled group,
as defined in Section 409(l)(4) of the Code (any such class of stock hereafter
called a "Related Class"). For this purpose, a Participant who owns more than
25 percent of any Related Class at any time within the one year preceding the
Plan's purchase of the Stock shall be subject to the restriction as to all
allocations of the Stock, but any other Participant shall be subject to the
restriction only as to allocations which occur at a time when he owns more than
25 percent of any Related Class.
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<PAGE>
Further, this restriction shall apply to the selling shareholder claiming
the benefit of Section 1042 and any other Participant who is related to such a
shareholder within the meaning of Section 267(b) of the Code, during the period
beginning on the date on which the Plan purchases the Stock and ending 10 years
after the later of (i) the date of such purchase, and (ii) the date of the
allocation under Section 4.2 attributable to the final payment on whatever Stock
Obligations were incurred with the purchase.
This restriction shall not apply to any Participant who is a lineal
descendant of a selling shareholder if the aggregate amounts allocated under the
Plan for the benefit of all such descendants do not exceed five percent of the
Stock acquired from the shareholder.
Section 6. TRUST FUND AND ITS INVESTMENT.
6.1 CREATION OF TRUST FUND. All amounts received under the Plan from
an Employer and investments shall be held as the Trust Fund pursuant to the
terms of this Plan and of the Trust Agreement between the Bank and the Trustee.
The benefits described in this Plan shall be payable only from the assets of the
Trust Fund, and none of the Bank, any other Employer, its board of directors or
trustees, its stockholders, its officers, its employees, the Committee, and the
Trustee shall be liable for payment of any benefit under this Plan except from
the Trust Fund.
6.2 STOCK FUND AND INVESTMENT FUND. The Trust Fund held by the Trustee
shall be divided into the Stock Fund, consisting entirely of Stock, and the
Investment Fund, consisting of all assets of the Trust other than Stock. The
Trustee shall have no investment responsibility for the Stock Fund, but shall
accept any Employer contributions made in the form of Stock, and shall acquire,
sell, exchange, distribute, and otherwise deal with and dispose of Stock in
accordance with the instructions of the Committee.
6.3 ACQUISITION OF STOCK. From time to time the Committee may, in its
sole discretion, direct the Trustee to acquire Stock from the issuing Employer
or from shareholders, including shareholders who are or have been Employees,
Participants, or fiduciaries with respect to the Plan. The Trustee shall pay
for such Stock no more than its fair market value, which shall be determined
conclusively by the Committee pursuant to Section 12.4. The Committee may
direct the Trustee to finance the acquisition of Stock by incurring or assuming
indebtedness to the seller or another party which indebtedness shall be called a
"Stock Obligation". Any Stock Obligation shall be subject to the following
conditions and limitations:
6.3-1 A Stock Obligation shall be for a specific term, shall not
be payable on demand except in the event of default, and shall bear a
reasonable rate of interest.
6.3-2 A Stock Obligation may, but need not, be secured by a
collateral pledge of either the Stock acquired in exchange for the Stock
Obligation, or the Stock previously pledged in connection with a prior Stock
Obligation which is being repaid with the proceeds of the current Stock
Obligation. No other assets of the Plan and Trust may be
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used as collateral for a Stock Obligation, and no creditor under a
Stock Obligation shall have any right or recourse to any Plan and Trust
assets other than Stock remaining subject to a collateral pledge.
6.3-3 Any pledge of Stock to secure a Stock Obligation must
provide for the release of pledged Stock in connection with payments on the
Stock Obligations in the ratio prescribed in Section 4.2.
6.3-4 Repayments of principal and interest on any Stock Obligation
generally shall be made by the Trustee from cash contributions designated
for such payments, from earnings on such contributions, and from cash
dividends received on Stock held in the Unallocated Stock Fund.
6.4 PARTICIPANTS' OPTION TO DIVERSIFY. The Committee shall provide for
a procedure under which each Participant may, during the first five years of a
certain six-year period, elect to have up to 25 percent of the value of his
Account committed to alternative investment options within the Investment Fund.
For the sixth year in this period, the Participant may elect to have up to 50
percent of the value of his Account committed to other investments. The
six-year period shall begin with the Plan Year following the first Plan Year in
which the Participant has both reached aged 55 and completed 10 years of
participation in the Plan; a Participant's election to diversify his Account
must be made within the 90-day period immediately following the last day of each
of the six Plan Years. The Committee shall see that the Investment Fund
includes a sufficient number of investment options to comply with Section
401(a)(28)(B) of the Code. The Trustee shall comply with any investment
directions received from Participants in accordance with the procedures adopted
from time to time by the Committee under this Section 6.4.
Section 7. VOTING RIGHTS AND DIVIDENDS ON STOCK.
7.1 VOTING AND TENDERING OF STOCK. The Trustee generally shall vote
all shares of Stock held under the Plan. However, if any Employer has
registration-type class of securities within the meaning of Section 409(e)(4) of
the Code, or if a matter submitted to the holders of the Stock involves a
merger, consolidation, recapitalization, reclassification, liquidation,
dissolution, or sale of substantially all assets of an entity, then (i) the
shares of Stock which have been allocated to Participants' Accounts shall be
voted by the Trustee in accordance with the Participants' written instructions,
and (ii) the Trustee shall vote any shares of Stock which have been allocated to
Participants' Accounts but for which no written instructions have been received
and any unallocated Stock in a manner calculated to most accurately reflect the
instructions it has received from Participants regarding the allocated Stock.
In the event no shares of Stock have been allocated to Participants' Accounts at
the time Stock is to be voted, each Participant shall be deemed to have one
share of Stock allocated to his or her account for the sole purpose of providing
the Trustee with voting instructions. Notwithstanding any provision hereunder
to the contrary, all shares of Stock which have been allocated to Participants'
Accounts and for which the Trustee has received no written instructions and all
unallocated shares of Stock must be voted
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<PAGE>
by the Trustee in a manner determined by the Trustee to be solely in the
interest of the Participants and Beneficiaries. Whenever such voting rights
are to be exercised, the Employers, the Committee, and the Trustee shall see
that all Participants and Beneficiaries are provided with the same notices
and other materials as are provided to other holders of the Stock, and are
provided with adequate opportunity to deliver their instructions to the
Trustee regarding the voting of Stock allocated to their Accounts. The
instructions of the Participants with respect to the voting of allocated
shares hereunder shall be confidential.
7.1-1 In the event of a tender offer, Stock shall be tendered by
the Trustee in the same manner as set forth above with respect to the
voting of Stock. Notwithstanding any provision hereunder to the contrary,
Stock must be tendered by the Trustee in a manner determined by the Trustee
to be solely in the interest of the Participants and Beneficiaries.
7.2 DIVIDENDS ON STOCK. Dividends on Stock which are received by the
Trustee in the form of additional Stock shall be retained in the Stock Fund, and
shall be allocated among the Participant's Accounts and the Unallocated Stock
Fund in accordance with their holdings of the Stock on which the dividends have
been paid. Dividends on Stock credited to Participants' Accounts which are
received by the Trustee in the form of cash shall, at the direction of the
Company paying the dividends, either (i) be credited to the Accounts in
accordance with Section 8.3 and invested as part of the Investment Fund, (ii) be
distributed immediately to the Participants in proportion with the Participants'
Account balance; (iii) be distributed to the Participants within 90 days of the
close of the Plan Year in which paid in proportion with the Participants'
Account balance; or (iv) be used to repay principal and interest on the Stock
Obligation used to acquire Stock on which the dividends were paid. Dividends on
Stock held in the Unallocated Stock Fund which are received by the Trustee in
the form of cash shall be applied as soon as practicable to payments of
principal and interest under the Stock Obligation incurred with the purchase of
the Stock.
Section 8. ADJUSTMENTS TO ACCOUNTS.
8.1 ADJUSTMENTS FOR TRANSACTIONS. An Employer contribution pursuant
to Section 4.1 shall be credited to the Participants' Accounts as of the last
day of the Plan Year for which it is contributed. Stock released from the
Unallocated Stock Fund upon the Trust's repayment of a Stock Obligation
pursuant to Section 4.2 shall be credited to the Participants' Accounts as of
the last day of the Plan Year in which the repayment occurred. Any excess
amounts remaining from the use of, or the use of the proceeds of, a sale of
Stock from the Unallocated Stock Fund to repay a Stock Obligation shall be
allocated as of the last day of the Plan Year in which the repayment occurred
among the Participants' Accounts as earnings, in proportion to the opening
balance in each Account. Any benefit which is paid to a Participant or
Beneficiary pursuant to Section 10 shall be charged to the Participant's
Account as of the first day of the Valuation Period in which it is paid. Any
forfeiture or restoral shall be charged or credited to the Participant's
Account as of the first day of the Valuation Period in which the forfeiture
or restoral occurs pursuant to Section 9.6.
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<PAGE>
8.2 VALUATION OF INVESTMENT FUND. As of each Valuation Date, the
Trustee shall prepare a balance sheet of the Investment Fund, recording each
asset (including any contribution receivable from an Employer) and liability at
its fair market value. Any liability with respect to short positions or options
and any item of accrued income or expense and unrealized appreciation or
depreciation shall be included; provided, however, that such an item may be
estimated or excluded if it is not readily ascertainable unless estimating or
excluding it would result in a material distortion. The Committee shall then
determine the net gain or loss of the Investment Fund since the preceding
Valuation Date, which shall mean the entire income of the Investment Fund,
including realized and unrealized capital gains and losses, net of any expenses
to be charged to the general Investment Fund and excluding any contributions by
the Employer. The determination of gain or loss shall be consistent with the
balance sheets of the Investment Fund for the current and preceding Valuation
Dates.
8.3 ADJUSTMENTS FOR INVESTMENT EXPERIENCE. Any net gain or loss of the
Investment Fund during a Valuation Period, as determined pursuant to Section
8.2, shall be allocated as of the last day of the Valuation Period among the
Participants' Accounts in proportion to the opening balance in each Account, as
adjusted for benefit payments and forfeitures during the Valuation Period,
without regard to whatever Stock may be credited to an Account.
8.4 ADJUSTMENTS FOR CAPITAL CHANGES. In the event of any change in the
outstanding shares of Stock by reason of any stock dividend or split,
recapitalization, merger, consolidation, spin-off, reorganization, combination
or exchange of shares, or other similar corporate change, or other increase or
decrease in such shares effected without receipt or payment of consideration by
the bank issuing the Stock, the Committee shall adjust the number of shares of
Stock allocated to the Participants' Accounts to prevent dilution or enlargement
of such Accounts.
Section 9. VESTING OF PARTICIPANTS' INTERESTS.
9.1 DEFERRED VESTING IN ACCOUNTS. A Participant's vested interest in
his Account shall be based on his Vesting Years in accordance with the following
Table, subject to the balance of this Section 9:
VESTING PERCENTAGE OF
YEARS INTEREST VESTED
------- ---------------
fewer than 3 0%
3 20%
4 40%
5 60%
6 80%
7 or more 100%
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9.2 COMPUTATION OF VESTING YEARS. For purposes of this Plan, a
"Vesting Year" means each 12-month period in which an Employee has at least
1,000 Hours of Service, beginning with his initial Service with the Employer.
However, a Participant's Vesting Years shall be computed subject to the
following conditions and qualifications:
(a) A Participant's vested interest in his Account accumulated
before a Break in Service shall be determined without regard to any Service
after the Break. Notwithstanding the foregoing, in the event a Participant
has an eligibility computation period (as defined in Section 3.1 of the
Plan) during which he performs 500 or fewer Hours of Service (a "one year
break in Service"), and then returns to Service prior to having a Break in
Service, his Service performed both before and after his break in employment
shall be taken into account in determining his Vesting Years. Generally, if
a Participant has a Break in Service before his interest in his Account has
become vested to some extent, he shall lose credit for any Vesting Year
before the Break in Service. However, if a Participant separates from
Service before his interest in his Account has become vested to some extent,
and returns to Service after a Break in Service, the Participant's Vesting
Years both prior to and after the Break in Service will count as Vesting
Years for his Account accumulated after the Break if the number of the
Participant's consecutive one year breaks in Service is less than the number
of years of Service prior to the Break in Service.
(b) Unless otherwise specifically excluded, a Participant's
Vesting Years shall include any period of active military duty to the extent
required by the Military Selective Service Act of 1967 (38 U.S.C. Section
2021).
9.3 FULL VESTING UPON CERTAIN EVENTS. Notwithstanding Section 9.1, a
Participant's interest in his Account shall fully vest on the Participant's
Normal Retirement Date, provided the Participant is in Service on or after that
date. The Participant's interest shall also fully vest in the event that his
Service is terminated by Early Retirement, Disability or by death or upon the
occurrence of a Change in Control of the Bank or the Holding Company.
For purposes of this Section 9.3, a Change in Control of the Bank or the
Holding Company shall mean an event of a nature that; (i) would be required
to be reported in response to Item 1 of the current report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a Change in
Control of the Bank or the Holding Company within the meaning of the Home
Owners' Loan Act of 1933, as amended and the Rules and Regulations
promulgated by the Office of Thrift Supervision ("OTS") (or its predecessor
agency), as in effect on the date hereof (provided, that in applying the
definition of change in control as set forth under the rules and regulations
of the OTS, the Board shall substitute its judgment for that of the OTS); or
(iii) without limitation such a Change in Control shall be deemed to have
occurred at such time as (A) any "person" (as the term is used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Bank or the Holding Company representing 20% or more of the
Bank's or the Holding Company's outstanding securities except for any
securities of the Bank purchased by the Holding
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Company in connection with the conversion of the Bank to the stock form and
any securities purchased by any tax qualified employee benefit plan of the
Bank; or (B) individuals who constitute the Board on the date hereof (the
"Incumbent Board") cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to the date
hereof whose election was approved by a vote of at least three-quarters of
the directors comprising the Incumbent Board, or whose nomination for
election by the Holding Company's stockholders was approved by the same
Nominating Committee serving under an Incumbent Board, shall be, for purposes
of this clause (B), considered as though he were a member of the Incumbent
Board; or (C) a plan of reorganization, merger, consolidation, sale of all
or substantially all the assets of the Bank or the Holding Company or similar
transaction occurs in which the Bank or Holding Company is not the resulting
entity; or (D) solicitations of shareholders of the Holding Company, by
someone other than the current management of the Holding Company, seeking
stockholder approval of a plan of reorganization, merger or consolidation of
the Holding Company or Bank or similar transaction with one or more
corporations as a result of which the outstanding shares of the class of
securities then subject to the plan or transaction are exchanged for or
converted into cash or property or securities not issued by the Bank or the
Holding Company shall be distributed; or (E) a tender offer is made for 20%
or more of the voting securities of the Bank or the Holding Company.
9.4 FULL VESTING UPON PLAN TERMINATION. Notwithstanding Section 9.1, a
Participant's interest in his Account shall fully vest if he is in active
Service upon termination of this Plan or upon the permanent and complete
discontinuance of contributions by his Employer. In the event of a partial
termination, the interest of each Participant who is in Service shall fully vest
with respect to that part of the Plan which is terminated.
9.5 FORFEITURE, REPAYMENT, AND RESTORAL. If a Participant's Service
terminates before his interest in his Account is fully vested, that portion
which has not vested shall be forfeited if he either (i) receives a
distribution of his entire vested benefit , or (ii) has a Break in Service.
If a Participant who has received his entire vested interest returns to
Service before he has a Break in Service, he may repay to the Trustee an
amount equal to the distribution. The Participant may repay such amount at
any time within five years after he has returned to Service. The amount
shall be credited to his Account as of the last day of the Plan Year in which
it is repaid; an additional amount equal to the portion of his Account which
was previously forfeited shall be restored to his Account at the same time
from other Employees' forfeitures and, if such forfeitures are insufficient,
from a special contribution by his Employer for that year. In the case of a
terminated Participant who does not receive a distribution of his entire
vested interest and whose Service resumes after a Break in Service, any
undistributed balance from his prior participation which was not forfeited
shall be maintained as a fully vested subaccount with his Account. If a
portion of a Participant's Account is forfeited, assets other that Stock must
be forfeited before any Stock may be forfeited. In the case of a Participant
who has incurred a Break in Service and then returns to Service, all years of
Service after the Break in Service will be disregarded for the purpose of
vesting his Account accrued before the Break in Service, but both pre-Break
and post-Break Service will count for the purpose of vesting the
Participant's Account that accrues after the Break in Service. If a
Participant's Service terminates prior to his
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Account having become vested, such Participant shall be deemed to have
received a distribution of his entire vested interest as of the Valuation
Date next following his termination of Service.
9.6 ACCOUNTING FOR FORFEITURES. A forfeiture shall be charged to the
Participant's Account as of the first day of the first Valuation Period in which
the forfeiture becomes certain pursuant to Section 9.5. Except as otherwise
provided in that Section, a forfeiture shall be added to the contributions of
the terminated Participant's Employer which are to be credited to other
Participants pursuant to Section 4.1 as of the last day of the Plan Year in
which the forfeiture becomes certain.
9.7 VESTING AND NONFORFEITABILITY. A Participant's interest in his
Account which has become vested shall be nonforfeitable for any reason.
Section 10. PAYMENT OF BENEFITS.
10.1 BENEFITS FOR PARTICIPANTS. A Participant whose Service ends for
any reason shall receive the vested portion of his Account in a single payment
on a date selected by the Committee. That date shall be on or before the 60th
day after the end of the Plan Year in which his Service ends. Notwithstanding
the foregoing, if the balance credited to his Account exceeds $3,500, his
benefits shall not be paid before the latest of his 65th birthday or the tenth
anniversary of the year in which he commenced participation in the Plan unless
he elects an early payment date in a written election filed with the Committee.
A Participant may modify such an election at any time, provided any new benefit
payment date is at least 30 days after a modified election is delivered to the
Committee. Such an election is not valid unless it is made after the
Participant has received the required notice under Section 1.411(a)-11(c) of the
Income Tax Regulations that provides a general description of the material
features of a lump sum distribution and the Participant's right to defer receipt
of his benefit. The Notice shall be provided no less than 30 days and no more
than 90 days before the first day on which all events have occurred which
entitle the Participant to such benefit. Written consent of the Participant to
the distribution generally may not be made within 30 days of the date the
Participant receives the notice and shall not be made more than 90 days from the
date the Participant receives the notice. However, a distribution may be made
less than 30 days after the notice provided under Section 1.411(a)-11(c) of the
Income Tax Regulations is given, if:
(a) the Committee clearly informs the Participant that he has a
right to period of at least 30 days after receiving the notice to consider
the decision of whether or not to elect a distribution (and if applicable,
a particular distribution option), and
(b) the Participant, after receiving the notice, affirmatively
elects a distribution.
In all events, a Participant's benefits shall be paid by April 1st of the
calendar year in which he reaches age 71-1/2. A Participant's benefits from
that portion of his Account committed to the Investment Fund shall be calculated
on the basis of the most recent Valuation Date before the day of payment.
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<PAGE>
10.2 BENEFITS ON A PARTICIPANT'S DEATH. If a Participant dies before
his benefits are paid pursuant to Section 10.1, the balance credited to his
Account shall be paid to his Beneficiary in a single distribution on or before
the 60th day after the end of the Plan Year in which he died. The benefits from
that portion of the Account committed to the Investment Fund shall be calculated
on the basis of the most recent Valuation Date before the date of payment.
If a married Participant dies before his benefit payments begin, then unless
he has specifically elected otherwise the Committee shall cause the balance in
his Account to be paid to his Spouse. No election by a married Participant of a
different Beneficiary shall be valid unless the election is accompanied by the
Spouse's written consent, which (i) must acknowledge the effect of the election,
(ii) must explicitly provide either that the designated Beneficiary may not
subsequently be changed by the Participant without the Spouse's further consent,
or that it may be changed without such consent, and (iii) must be witnessed by
the Committee, its representative, or a notary public. This requirement shall
not apply if the Participant establishes to the Committee's satisfaction that
the Spouse may not be located.
10.3 MARITAL STATUS. The Committee shall from time to time take
whatever steps it deems appropriate to keep informed of each Participant's
marital status. Each Employer shall provide the Committee with the most
reliable information in the Employer's possession regarding its Participants'
marital status, and the Committee may, in its discretion, require a notarized
affidavit from any Participant as to his marital status. The Committee, the
Plan, the Trustee, and the Employers shall be fully protected and discharged
from any liability to the extent of any benefit payments made as a result of the
Committee's good faith and reasonable reliance upon information obtained from a
Participant and his Employer as to his marital status.
10.4 DELAY IN BENEFIT DETERMINATION. If the Committee is unable to
determine the benefits payable to a Participant or Beneficiary on or before the
latest date prescribed for payment pursuant to Section 10.1 or 10.2, the
benefits shall in any event be paid within 60 days after they can first be
determined, with whatever makeup payments may be appropriate in view of the
delay.
10.5 ACCOUNTING FOR BENEFIT PAYMENTS. Any benefit payment shall be
charged to the Participant's Account as of the first day of the Valuation Period
in which the payment is made.
10.6 OPTIONS TO RECEIVE AND SELL STOCK. Unless ownership of virtually
all Stock is restricted to active Employees and qualified retirement plans for
the benefit of Employees pursuant to the certificates of incorporation or
by-laws of the Employers issuing Stock, a terminated Participant or the
Beneficiary of a deceased Participant may instruct the Committee to distribute
the Participant's entire vested interest in his Account in the form of Stock.
In that event, the Committee shall apply the Participant's vested interest in
the Investment Fund to purchase sufficient Stock from the Stock Fund or from any
owner of stock to make the required distribution. In all other cases, the
Participant's vested interest in the Stock Fund shall be
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distributed in shares of Stock, and his vested interest in the Investment
Fund shall be distributed in cash.
Any Participant who receives Stock pursuant to Section 10.1, and any person
who has received Stock from the Plan or from such a Participant by reason of the
Participant's death or incompetency, by reason of divorce or separation from the
Participant, or by reason of a rollover contribution described in Section 402(c)
of the Code, shall have the right to require the Employer which issued the Stock
to purchase the Stock for its current fair market value (hereinafter referred to
as the "put right"). The put right shall be exercisable by written notice to
the Committee during the first 60 days after the Stock is distributed by the
Plan, and, if not exercised in that period, during the first 60 days in the
following Plan Year after the Committee has communicated to the Participant its
determination as to the Stock's current fair market value. However, the put
right shall not apply to the extent that the Stock, at the time the put right
would otherwise be exercisable, may be sold on an established market in
accordance with federal and state securities laws and regulations. If the put
right is exercised, the Trustee may, if so directed by the Committee in its sole
discretion, assume the Employer's rights and obligations with respect to
purchasing the Stock.
The Employer or the Trustee, as the case may be, may elect to pay for the
Stock in equal periodic installments, not less frequently than annually, over a
period not longer than five years from the 30th day after the put right is
exercised, with adequate security and interest at a reasonable rate on the
unpaid balance, all such terms to be set forth in a promissory note delivered to
the seller with normal terms as to acceleration upon any uncured default.
Nothing contained herein shall be deemed to obligate any Employer to
register any Stock under any federal or state securities law or to create or
maintain a public market to facilitate the transfer or disposition of any Stock.
The put right described herein may only be exercised by a person described in
the second preceding paragraph, and may not be transferred with any Stock to any
other person. As to all Stock purchased by the Plan in exchange for any Stock
Obligation, the put right shall be nonterminable. The put right for Stock
acquired through a Stock Obligation shall continue with respect to such Stock
after the Stock Obligation is repaid or the Plan ceases to be an employee stock
ownership plan. Except as provided above, in accordance with the provisions of
Sections 54.4975-7(b)(4) of the Treasury Regulations, no Stock acquired with the
proceeds of a Stock Obligation may be subject to any put, call or other option
or buy-sell or similar arrangement while held by and when distributed from the
Plan, whether the Plan is then an employee stock ownership plan.
10.7 RESTRICTIONS ON DISPOSITION OF STOCK. Except in the case of Stock
which is traded on an established market, a Participant who receives Stock
pursuant to Section 10.1, and any person who has received Stock from the Plan or
from such a Participant by reason of the Participant's death or incompetency, by
reason of divorce or separation from the Participant, or by reason of a rollover
contribution described in Section 402(c) of the Code, shall, prior to any sale
or other transfer of the Stock to any other person, first offer the Stock to the
issuing Employer and to the Plan at its current fair market value. This
restriction shall apply to any
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transfer, whether voluntary, involuntary, or by operation of law, and whether
for consideration or gratuitous. Either the Employer or the Trustee may
accept the offer within 14 days after it is delivered. Any Stock distributed
by the Plan shall bear a conspicuous legend describing the right of first
refusal under this Section 10.7, as well as any other restrictions upon the
transfer of the Stock imposed by federal and state securities laws and
regulations.
10.8 DIRECT TRANSFER OF ELIGIBLE PLAN DISTRIBUTIONS. A Participant or
Beneficiary may direct that an "eligible rollover distribution" (as defined
below) included in such payment be paid directly to an "eligible retirement
plan" (as defined below).
To effect such a direct transfer, the Participant or Beneficiary must notify
the Committee that a direct transfer is desired and provide to the Committee the
eligible retirement plan to which the payment is to be made. Such notice shall
be made in such form and at such time as the Committee may prescribe. Upon
receipt of such notice, the Committee shall direct the Trustee to make a
trustee-to-trustee transfer of the eligible rollover distribution to the
eligible retirement plan so specified.
For purposes of this Section 10.8, an "eligible rollover distribution" shall
have the meaning set forth in Section 402(c)(4) of the Code and any regulations
promulgated thereunder. To the extent such meaning is not inconsistent with the
above references, an eligible rollover distribution shall mean any distribution
of all or any portion of the Participant's Account, except that such term shall
not include any distribution which is one of a series of substantially equal
periodic payments (not less frequently than annually) made (i) for the life (or
life expectancy) of the Participant or the joint lives (or joint life
expectancies) of the Participant and a designated Beneficiary, or (ii) for a
period of ten years or more. Further, the term "eligible rollover distribution
shall not include any distribution required to be made under Section 401(a)(9)
of the Code.
For purposes of this Section 10.8, an "eligible retirement plan" shall have
the meaning set forth in Section 402(c)(8) of the Code and any regulations
promulgated thereunder. To the extent such meaning is not inconsistent with the
above references, an eligible retirement plan shall mean: (i) an individual
retirement account described in Section 408(a) of the Code; (ii) an individual
retirement annuity described in Section 408(b) of the Code (other than an
endowment contract), (iii) a qualified trust described in Section 401(a) of the
Code and exempt under Section 501(a) of the Code, and (iv) an annuity plan
described in Section 403(a) of the Code.
Section 11. RULES GOVERNING BENEFIT CLAIMS AND REVIEW OF APPEALS.
11.1 CLAIM FOR BENEFITS. Any Participant or Beneficiary who qualifies
for the payment of benefits shall file a claim for his benefits with the
Committee on a form provided by the Committee. The claim, including any
election of an alternative benefit form, shall be filed at least 30 days before
the date on which the benefits are to begin. If a Participant or Beneficiary
fails to file a claim by the 30th day before the date on which benefits become
payable, he shall
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be presumed to have filed a claim for payment for the Participant's benefits
in the standard form prescribed by Sections 10.1 or 10.2
11.2 NOTIFICATION BY COMMITTEE. Within 90 days after receiving a claim
for benefits (or within 180 days, if special circumstances require an extension
of time and written notice of the extension is given to the Participant or
Beneficiary within 90 days after receiving the claim for benefits), the
Committee shall notify the Participant or Beneficiary whether the claim has been
approved or denied. If the Committee denies a claim in any respect, the
Committee shall set forth in a written notice to the Participant or Beneficiary:
(i) each specific reason for the denial;
(ii) specific references to the pertinent Plan provisions on which
the denial is based;
(iii) a description of any additional material or information which
could be submitted by the Participant or Beneficiary to support his
claim, with an explanation of the relevance of such information;
and
(iv) an explanation of the claims review procedures set forth in
Section 11.3.
11.3 CLAIMS REVIEW PROCEDURE. Within 60 days after a Participant or
Beneficiary receives notice from the Committee that his claim for benefits has
been denied in any respect, he may file with the Committee a written notice of
appeal setting forth his reasons for disputing the Committee's determination.
In connection with his appeal the Participant or Beneficiary or his
representative may inspect or purchase copies of pertinent documents and records
to the extent not inconsistent with other Participants' and Beneficiaries'
rights of privacy. Within 60 days after receiving a notice of appeal from a
prior determination (or within 120 days, if special circumstances require an
extension of time and written notice of the extension is given to the
Participant or Beneficiary and his representative within 60 days after receiving
the notice of appeal), the Committee shall furnish to the Participant or
Beneficiary and his representative, if any, a written statement of the
Committee's final decision with respect to his claim, including the reasons for
such decision and the particular Plan provisions upon which it is based.
Section 12. THE COMMITTEE AND ITS FUNCTIONS.
12.1 AUTHORITY OF COMMITTEE. The Committee shall be the "plan
administrator" within the meaning of ERISA and shall have exclusive
responsibility and authority to control and manage the operation and
administration of the Plan, including the interpretation and application of its
provisions, except to the extent such responsibility and authority are otherwise
specifically (i) allocated to the Bank, the Employers, or the Trustee under the
Plan and Trust Agreement, (ii) delegated in writing to other persons by the
Bank, the Employers, the Committee, or the Trustee, or (iii) allocated to other
parties by operation of law. The Committee shall have exclusive responsibility
regarding decisions concerning the payment of benefits under the Plan. The
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Committee shall have full investment responsibility with respect to the
Investment Fund except to the extent, if any, specifically provided in the
Trust Agreement. In the discharge of its duties, the Committee may employ
accountants, actuaries, legal counsel, and other agents (who also may be
employed by an Employer or the Trustee in the same or some other capacity)
and may pay their reasonable expenses and compensation.
12.2 IDENTITY OF COMMITTEE. The Committee shall consist of three or
more individuals selected by the Bank. Any individual, including a director,
trustee, shareholder, officer, or employee of an Employer, shall be eligible to
serve as a member of the Committee. The Bank shall have the power to remove any
individual serving on the Committee at any time without cause upon 10 days
written notice, and any individual may resign from the Committee at any time
upon 10 days written notice to the Bank. The Bank shall notify the Trustee of
any change in membership of the Committee.
12.3 DUTIES OF COMMITTEE. The Committee shall keep whatever records may
be necessary to implement the Plan and shall furnish whatever reports may be
required from time to time by the Bank. The Committee shall furnish to the
Trustee whatever information may be necessary to properly administer the Trust.
The Committee shall see to the filing with the appropriate government agencies
of all reports and returns required of the plan Committee under ERISA and other
laws.
Further, the Committee shall have exclusive responsibility and authority
with respect to the Plan's holdings of Stock and shall direct the Trustee in all
respects regarding the purchase, retention, sale, exchange, and pledge of Stock
and the creation and satisfaction of Stock Obligations. The Committee shall at
all times act consistently with the Bank's long-term intention that the Plan, as
an employee stock ownership plan, be invested primarily in Stock. Subject to
the direction of the Committee with respect to Stock Obligations pursuant to the
provision of Section 4.2, and subject to the provisions of Sections 6.4 and 10.6
as to Participants' rights under certain circumstances to have their Accounts
invested in Stock or in assets other than Stock, the Committee shall determine
in its sole discretion the extent to which assets of the Trust shall be used to
repay Stock Obligations, to purchase Stock, or to invest in other assets to be
selected by the Committee or an investment manager. No provision of the Plan
relating to the allocation or vesting of any interests in the Stock Fund or the
Investment Fund shall restrict the Committee from changing any holdings of the
Trust, whether the changes involve an increase or a decrease in the Stock or
other assets credited to Participants' Accounts. In determining the proper
extent of the Trust's investment in Stock, the Committee shall be authorized to
employ investment counsel, legal counsel, appraisers, and other agents to pay
their reasonable expenses and compensation.
12.4 VALUATION OF STOCK. If the valuation of any Stock is not
established by reported trading on a generally recognized public market, the
Committee shall have the exclusive authority and responsibility to determine its
value for all purposes under the Plan. Such value shall be determined as of
each Valuation Date, and on any other date as of which the Plan purchases or
sells such Stock. The Committee shall use generally accepted methods of valuing
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<PAGE>
stock of similar corporations for purposes of arm's length business and
investment transactions, and in this connection the Committee shall obtain, and
shall be protected in relying upon, the valuation of such Stock as determined by
an independent appraiser experienced in preparing valuations of similar
businesses.
12.5 COMPLIANCE WITH ERISA. The Committee shall perform all acts
necessary to comply with ERISA. Each individual member or employee of the
Committee shall discharge his duties in good faith and in accordance with the
applicable requirements of ERISA.
12.6 ACTION BY COMMITTEE. All actions of the Committee shall be
governed by the affirmative vote of a number of members which is a majority of
the total number of members currently appointed, including vacancies. The
members of the Committee may meet informally and may take any action without
meeting as a group.
12.7 EXECUTION OF DOCUMENTS. Any instrument executed by the Committee
shall be signed by any member or employee of the Committee.
12.8 ADOPTION OF RULES. The Committee shall adopt such rules and
regulations of uniform applicability as it deems necessary or appropriate for
the proper administration and interpretation of the Plan.
12.9 RESPONSIBILITIES TO PARTICIPANTS. The Committee shall determine
which Employees qualify to enter the Plan. The Committee shall furnish to each
eligible Employee whatever summary plan descriptions, summary annual reports,
and other notices and information may be required under ERISA. The Committee
also shall determine when a Participant or his Beneficiary qualifies for the
payment of benefits under the Plan. The Committee shall furnish to each such
Participant or Beneficiary whatever information is required under ERISA (or is
otherwise appropriate) to enable the Participant or Beneficiary to make whatever
elections may be available pursuant to Sections 6 and 10, and the Committee
shall provide for the payment of benefits in the proper form and amount from the
assets of the Trust Fund. The Committee may decide in its sole discretion to
permit modifications of elections and to defer or accelerate benefits to the
extent consistent with applicable law and the best interests of the individuals
concerned.
12.10 ALTERNATIVE PAYEES IN EVENT OF INCAPACITY. If the Committee finds
at any time that an individual qualifying for benefits under this Plan is a
minor or is incompetent, the Committee may direct the benefits to be paid, in
the case of a minor, to his parents, his legal guardian, a custodian for him
under the Uniform Transfers to Minors Act, or the person having actual custody
of him, or, in the case of an incompetent, to his spouse, his legal guardian, or
the person having actual custody of him, the payments to be used for the
individual's benefit. The Committee and the Trustee shall not be obligated to
inquire as to the actual use of the funds by the person receiving them under
this Section 12.10, and any such payment shall completely discharge the
obligations of the Plan, the Trustee, the Committee, and the Employers to the
extent of the payment.
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12.11 INDEMNIFICATION BY EMPLOYERS. Except as separately agreed in
writing, the Committee, and any member or employee of the Committee, shall be
indemnified and held harmless by the Employers, jointly and severally, to the
fullest extent permitted by law against any and all costs, damages, expenses,
and liabilities reasonably incurred by or imposed upon it or him in connection
with any claim made against it or him or in which it or he may be involved by
reason of its or his being, or having been, the Committee, or a member or
employee of the Committee, to the extent such amounts are not paid by insurance.
12.12 NONPARTICIPATION BY INTERESTED MEMBER. Any member of the Committee
who also is a Participant in the Plan shall take no part in any determination
specifically relating to his own participation or benefits, unless his
abstention would leave the Committee incapable of acting on the matter.
Section 13. ADOPTION, AMENDMENT, OR TERMINATION OF THE PLAN.
13.1 ADOPTION OF PLAN BY OTHER EMPLOYERS. With the consent of the Bank,
any entity may become a participating Employer under the Plan by (i) taking such
action as shall be necessary to adopt the Plan, (ii) becoming a party to the
Trust Agreement establishing the Trust Fund, and (iii) executing and delivering
such instruments and taking such other action as may be necessary or desirable
to put the Plan into effect with respect to the entity's Employees.
13.2 ADOPTION OF PLAN BY SUCCESSOR. In the event that any Employer
shall be reorganized by way of merger, consolidation, transfer of assets or
otherwise, so that an entity other than an Employer shall succeed to all or
substantially all of the Employer's business, the successor entity may be
substituted for the Employer under the Plan by adopting the Plan and becoming a
party to the Trust Agreement. Contributions by the Employer shall be
automatically suspended from the effective date of any such reorganization until
the date upon which the substitution of the successor entity for the Employer
under the Plan becomes effective. If, within 90 days following the effective
date of any such reorganization, the successor entity shall not have elected to
become a party to the Plan, or if the Employer shall adopt a plan of complete
liquidation other than in connection with a reorganization, the Plan shall be
automatically terminated with respect to Employees of the Employer as of the
close of business on the 90th day following the effective date of the
reorganization, or as of the close of business on the date of adoption of a plan
of complete liquidation, as the case may be.
13.3 PLAN ADOPTION SUBJECT TO QUALIFICATION. Notwithstanding any other
provision of the Plan, the adoption of the Plan and the execution of the Trust
Agreement are conditioned upon their being determined initially by the Internal
Revenue Service to meet the qualification requirements of Section 401(a) of the
Code, so that the Employers may deduct currently for federal income tax purposes
their contributions to the Trust and so that the Participants may exclude the
contributions from their gross income and recognize income only when they
receive benefits. In the event that this Plan is held by the Internal Revenue
Service not to qualify initially under Section 401(a), the Plan, may be amended
retroactively to the earliest date permitted by U.S. Treasury Regulations in
order to secure qualification under Section 401(a).
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<PAGE>
If this Plan is held by the Internal Revenue Service not to qualify initially
under Section 401(a) either as originally adopted or as amended, each
Employer's contributions to the Trust under this Plan (including any earnings
thereon) shall be returned to it and this Plan shall be terminated. In the
event that this Plan is amended after its initial qualification and the Plan
as amended is held by the Internal Revenue Service not to qualify under
Section 401(a), the amendment may be modified retroactively to the earliest
date permitted by U.S. Treasury Regulations in order to secure approval of
the amendment under Section 401(a).
13.4 RIGHT TO AMEND OR TERMINATE. The Bank intends to continue this
Plan as a permanent program. However, each participating Employer separately
reserves the right to suspend, supersede, or terminate the Plan at any time and
for any reason, as it applies to that Employer's Employees, and the Bank
reserves the right to amend, suspend, supersede, merge, consolidate, or
terminate the Plan at any time and for any reason, as it applies to the
Employees of all Employers. No amendment, suspension, supersession, merger,
consolidation, or termination of the Plan shall reduce any Participant's or
Beneficiary's proportionate interest in the Trust Fund, or shall divert any
portion of the Trust Fund to purposes other than the exclusive benefit of the
Participants and their Beneficiaries prior to the satisfaction of all
liabilities under the Plan. Except as is required for purposes of compliance
with the Code or ERISA, each as amended from time to time, neither the
provisions of Section 4.1 and 4.2 relating to the crediting of contributions,
forfeitures and shares of Stock released from the Unallocated Stock Fund, nor
any other provision of the Plan relating to the allocation of benefits to
Participants, may be amended more frequently than once every six months.
Moreover, there shall not be any transfer of assets to a successor plan or
merger or consolidation with another plan unless, in the event of the
termination of the successor plan or the surviving plan immediately following
such transfer, merger, or consolidation, each participant or beneficiary would
be entitled to a benefit equal to or greater than the benefit he would have been
entitled to if the plan in which he was previously a participant or beneficiary
had terminated immediately prior to such transfer, merger, or consolidation.
Following a termination of this Plan by the Bank, the Trustee shall continue to
administer the Trust and pay benefits in accordance with the Plan as amended
from time to time and the Committee's instructions.
Section 14. MISCELLANEOUS PROVISIONS.
14.1 PLAN CREATES NO EMPLOYMENT RIGHTS. Nothing in this Plan shall be
interpreted as giving any Employee the right to be retained as an Employee by an
Employer, or as limiting or affecting the rights of an Employer to control its
Employees or to terminate the Service of any Employee at any time and for any
reason, subject to any applicable employment or collective bargaining
agreements.
14.2 NONASSIGNABILITY OF BENEFITS. No assignment, pledge, or other
anticipation of benefits from the Plan will be permitted or recognized by the
Employers, the Committee, or the Trustee. Moreover, benefits from the Plan
shall not be subject to attachment, garnishment, or other legal process for
debts or liabilities of any Participant or Beneficiary, to the extent permitted
by law. This prohibition on assignment or alienation shall apply to any
judgment, decree, or
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order (including approval of a property settlement agreement) which relates
to the provision of child support, alimony, or property rights to a present
or former spouse, child or other dependent of a Participant pursuant to a
State domestic relations or community property law, unless the judgment,
decree, or order is determined by the Committee to be a qualified domestic
relations order within the meaning of Section 414(p) of the Code.
14.3 LIMIT OF EMPLOYER LIABILITY. The liability of the Employers with
respect to Participants under this Plan shall be limited to making contributions
to the Trust from time to time, in accordance with Section 4.
14.4 TREATMENT OF EXPENSES. All expenses incurred by the Committee and
the Trustee in connection with administering this Plan and Trust Fund shall be
paid by the Trustee from the Trust Fund to the extent the expenses have not been
paid or assumed by the Employers or by the Trustee.
14.5 NUMBER AND GENDER. Any use of the singular shall be interpreted to
include the plural, and the plural the singular. Any use of the masculine,
feminine, or neuter shall be interpreted to include the masculine, feminine, or
neuter, as the context shall require.
14.6 NONDIVERSION OF ASSETS. Except as provided in Sections 5.3 and
13.3, under no circumstances shall any portion of the Trust Fund be diverted to
or used for any purpose other than the exclusive benefit of the Participants and
their Beneficiaries prior to the satisfaction of all liabilities under the Plan.
14.7 SEPARABILITY OF PROVISIONS. If any provision of this Plan is held
to be invalid or unenforceable, the other provisions of the Plan shall not be
affected but shall be applied as if the invalid or unenforceable provision had
not been included in the Plan.
14.8 SERVICE OF PROCESS. The agent for the service of process upon the
Plan shall be the president of the Bank, or such other person as may be
designated from time to time by the Bank.
14.9 GOVERNING STATE LAW. This Plan shall be interpreted in accordance
with the laws of the State of Ohio to the extent those laws are applicable under
the provisions of ERISA.
14.10 SPECIAL RULES FOR PERSONS SUBJECT TO SECTION 16(B) REQUIREMENTS.
Notwithstanding anything herein to the contrary, any former Participant who is
subject to the provisions of Section 16(b) of the Securities Exchange Act of
1934, who becomes eligible to again participate in the Plan, may not become a
Participant prior to the date that is six months from the date such former
Participant terminated participation in the Plan.
In addition, any person subject to the provisions of Section 16(b) of the
1934 Act receiving a distribution of Stock from the Plan must hold such Stock
for a period of six months commencing with the date of distribution. However,
this restriction will not apply to Stock
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distributions made in connection with death, retirement, disability or
termination of employment, or made pursuant to the terms of a qualified
domestic relations order.
Section 15. TOP-HEAVY PROVISIONS.
15.1 DETERMINATION OF TOP-HEAVY STATUS. The Committee shall determine
on a regular basis whether each Plan Year is or is not a "Top-Heavy Year" for
purposes of implementing the provisions of Sections 15.2, and 15.3, which apply
only to the extent the Plan is top-heavy or super top-heavy within the meaning
of Section 416 and the Treasury Regulations promulgated thereunder. In making
this determination, the Committee shall use the following definitions and
principles:
15.1-1 The "Employer" includes all business entities which are
considered commonly controlled or affiliated within the meaning of Sections
414(b), 414(c), and 414(m) of the Code.
15.1-2 The "plan aggregation group" includes each qualified
retirement plan maintained by the Employer (i) in which a Key Employee is a
Participant during the Plan Year, (ii) which enables any plan described in
clause (i) to satisfy the requirements of Section 401(a)(4) or 410 of the
Code, or (iii) which provides contributions or benefits comparable to those
of the plans described in clauses (i) and (ii) and which is designated by
the Committee as part of the plan aggregation group.
15.1-3 The "determination date," with respect to the first Plan
Year of any plan, means the last day of that Plan Year, and with respect to
each subsequent Plan Year, means the last day of the preceding Plan Year.
If any other plan has a determination date which differs from this Plan's
determination date, the top-heaviness of this Plan shall be determined on
the basis of the other plan's determination date falling within the same
calendar years as this Plan's determination date.
15.1-4 A "Key Employee," with respect to a Plan Year, means an
Employee who at any time during the five years ending on the top-heavy
determination date for the Plan Year has received compensation from an
Employer and has been (i) an officer of the Employer having Total
Compensation greater than 50 percent of the limit then in effect under
Section 415(b)(1)(A) of the Code, (ii) one of the 10 Employees owning the
largest interests in the Employer having Total Compensation greater than
the limit then in effect under Section 415(c)(1)(A), (iii) an owner of more
than five percent of the outstanding equity interest or the outstanding
voting interest in any Employer, or (iv) an owner of more than one percent
of the outstanding equity interest or the outstanding voting interest in an
Employer whose Total Compensation exceeds $150,000. In determining which
individuals are Key Employees, the rules of Section 416(i) of the Code and
Treasury Regulations promulgated thereunder shall apply. The Beneficiary
of a Key Employee shall also be considered a Key Employee.
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<PAGE>
15.1-5 A "Non-key Employee" means an Employee who at any time
during the five years ending on the top-heavy determination date for the
Plan Year has received compensation from an Employer and who has never been
a Key Employee, and the Beneficiary of any such Employee.
15.1-6 The "aggregated benefits" for any Plan Year means (i) the
adjusted account balances in defined contribution plans on the determination
date, plus (ii) the adjusted value of accrued benefits in defined benefit
plans, calculated as of the annual valuation date coinciding with or next
preceding the determination date, with respect to Key Employees and Non-key
Employees under all plans within the plan aggregation group which includes
this Plan. For this purpose, the "adjusted account balance" for and the
"adjusted value of accrued benefit" for any Employee shall be increased by
all plan distributions made with respect to the Employee during the five
years ending on the determination date. Further, the adjusted account
balance under a plan shall not include any amount attributable to a rollover
contribution or similar transfer to the plan initiated by an Employee and
made after 1983, unless both plans involved are maintained by the Employer,
in which event the transferred amount shall be counted in the transferee
plan and ignored for all purposes in the transferor plan. Finally, the
adjusted value of accrued benefits under any defined benefit plan shall be
determined by assuming whichever actuarial assumptions were applied by the
Pension Benefit Guaranty Corporation to determine the sufficiency of plan
assets for plans terminating on the valuation date.
15.1-7 This Plan shall be "top-heavy" for any Plan Year in which
the aggregated benefits of the Key Employees exceed 60 percent of the total
aggregated benefits for both Key Employees and Non-key Employees.
15.1-8 This Plan shall be "super top-heavy" for any Plan Year in
which the aggregated benefits of the Key Employees exceed 90 percent of the
total aggregated benefits for both Key Employees and Non-key Employees.
15.1-9 A "Top-Heavy Year" means a Plan Year in which the Plan is
top-heavy.
15.2 MINIMUM CONTRIBUTIONS. For any Top-Heavy Year, each Employer shall
make a special contribution on behalf of each Participant to the extent that the
total allocations to his Account pursuant to Section 4 is less than the lesser
of (i) four percent of his Total Compensation for that year, or (ii) the highest
ratio of such allocation to Total Compensation received by any Key Employee for
that year. For purposes of the special contribution of this Section 15.2, a Key
Employee's Total Compensation shall include amounts the Key Employee elected to
defer under a qualified 401(k) arrangement. Such a special contribution shall
be made on behalf of each Participant who is employed by an Employer on the last
day of the Plan Year, regardless of the number of his Hours of Service, and
shall be allocated to his Account.
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<PAGE>
For any Plan Year when (1) the Plan is top-heavy and (2) a Non-key
Employee is a Participant in both this Plan and a defined benefit plan included
in the plan aggregation group which is top heavy, the sum of the Employer
contributions and forfeitures allocated to the Account of each such Non-key
Employee shall be equal to at least five percent (5%) of such Non-key Employee's
Total Compensation for that year.
15.3 MINIMUM VESTING. If a Participant's vested interest in his Account
is to be determined in a Top-Heavy Year, it shall be based on the following
"top-heavy table":
VESTING PERCENTAGE OF
YEARS INTEREST VESTED
------- ---------------
fewer than 2 0%
2 20%
3 40%
4 60%
5 80%
6 or more 100%
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<PAGE>
EXHIBIT 10.2 DRAFT ESOP LOAN COMMITMENT LETTER AND ESOP LOAN DOCUMENTS
<PAGE>
[DELPHOS CITIZENS BANCORP, INC. LETTERHEAD]
____________, 1996
Joseph R. Reinemeyer
Executive Vice President
Citizens Bank of Delphos
114 East 3rd Street
Delphos, Ohio 45833
Dear Mr. Reinemeyer:
This letter confirms Delphos Citizens Bancorp, Inc.'s commitment to fund a
leveraged ESOP in an amount up to $________. The commitment is subject to the
following terms and conditions:
1. LENDER: Delphos Citizens Bancorp, Inc. (the "Company").
2. BORROWER: Citizens Bank of Delphos Employee Stock Ownership Plan.
3. TRUSTEE: ______________________________.
4. SECURITY: Unallocated shares of stock of the Company held in the
Citizens Bank of Delphos Employee Stock Ownership Plan.
5. MATURITY: Up to 17 years from takedown.
6. AMORTIZATION: Equal principal payments on quarterly, semi-annual or
annual basis; specific amount to be set prior to takedown upon
determination of total loan disbursements.
7. PRICING:
a. [the Prime Rate as published in the Wall Street Journal on the
date of the loan transaction].
8. INTEREST PAYMENTS:
<PAGE>
a. Quarterly, semi-annual or annual 360 or 365 day basis.
9. FUNDING: In full by _______________, unless such date is waived by the
Company.
10. PREPAYMENT: Voluntary prepayments are permitted at any time.
11. CONDITIONS PRECEDENT TO CLOSING: Receipt by the Company of all
supporting loan documents in a form and with terms and conditions
satisfactory to the Company and its counsel. Consummation of the
transaction will also be contingent upon no material adverse change
occurring in the condition of Citizens Bank of Delphos or the Company.
12. CLOSING DATE: Not later than _____________, unless such date is waived
by the Company.
If the terms and conditions are agreeable to you, please indicate your
acceptance by signing the enclosed copy and returning it to my attention.
Sincerely,
[Name]
[Title]
Accepted on Behalf of
Citizens Bank of Delphos
By: Date:
--------------------------------- ---------------------
Joseph R. Reinemeyer
Executive Vice President
<PAGE>
CITIZENS BANK OF DELPHOS
EMPLOYEE STOCK OWNERSHIP TRUST
LOAN AND SECURITY AGREEMENT
Delphos Citizens Bancorp, Inc.
114 East 3rd Street
Delphos, Ohio 45833
___________, 1996
Gentlemen:
The undersigned, ________________ ("Trustee"), not individually but solely
as Trustee under the Citizens Bank of Delphos Employee Stock Ownership Trust
(the "Trust") effective _________________ (the "Borrower"), applies to you for
your commitment, subject to all of the terms and conditions hereof and on the
basis of the representations hereinafter set forth, to make a loan available to
the Borrower as hereinafter set forth. Delphos Citizens Bancorp, Inc. is
hereinafter referred to as the "Lender". The term "Company" as used herein
refers to Citizens Bank of Delphos, as the sponsoring employer of Citizens Bank
of Delphos Employee Stock Ownership Plan (the "ESOP").
SECTION ONE. THE TERM LOAN.
1.1 AMOUNT AND TERMS. By its acceptance hereof the Lender agrees, subject
to all of the terms and conditions hereof and on the basis of the
representations hereinafter set forth, to make a loan (the "Loan") of up to
______________________________dollars ($___________________) (the "Commitment"),
such proceeds to be used by the Borrower entirely to acquire shares ("Shares")
of the common stock, par value $.01 of Delphos Citizens Bancorp, Inc., a
Delaware corporation.
<PAGE>
The Loan is intended to be an "exempt loan" as described in Section 4975(d)
of the Internal Revenue Code of 1986, as amended (the "Code"), as defined in
Section 54.4975-7(b) of the Treasury Regulations (the "Regulations"), as
described in Section 408(b)(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") and as described in Department of Labor Regulations
Section 2550.408b-3 (collectively, the "Exempt Loan Rules").
1.2 THE NOTE. The disbursement of the Loan pursuant to Section 1.1 hereof
shall be made against and evidenced by a promissory note of the Borrower in the
form annexed hereto as Exhibit A (the "Note"), such Note to bear interest as
hereinafter provided, and to mature in consecutive annual principal installments
commencing on ________________ and on the last day of each and every December
each year thereafter, each such installment to be in an amount equal to [1/17th]
of the original principal amount of the Loan made under Section 1.1 hereof,
except that the final installment in the amount of all principal and interest
not sooner paid shall be due on December 31, 20__, the final maturity thereof.
Without regard to the principal amount of the Note stated on its face, the
actual principal amount at any time outstanding and owed by the Borrower on
account of the Note shall be the amount of the disbursement of the Loan made by
the Lender under Section 1.1 hereof less all payments of principal actually
received by the Lender. The amount of such disbursement made by the Lender and
any repayments of principal thereof shall be recorded by the Lender on its books
or records or, at its option, endorsed on the reverse side of the Note by the
Lender and the unpaid principal balance at any time so recorded or endorsed by
the Lender shall be prima facie evidence in any court or other proceedings
brought to enforce the Note of the principal amount remaining unpaid thereon.
1.3 EXEMPT LOAN RULES. Notwithstanding anything to the contrary contained
in this Loan and Security Agreement (the "Agreement") or in the Note, the
Borrower shall be obligated to make repayments of the Loan only to the extent
that such repayments when added to the repayments theretofore made during the
applicable plan year would not exceed an amount which would cause the
limitations of Section 415 of the Code to be exceeded for any ESOP participant.
Except as set forth in the next succeeding sentence and to the extent
permitted by applicable law, including, without limitation, the Exempt Loan
Rules, the principal amount of the Loan and any interest thereon shall be
payable solely from contributions (other than contributions of employer
securities) made to the Trust in accordance with the ESOP, and cash dividends
received on the Shares, to enable the Borrower to pay its obligations under the
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<PAGE>
Loan and from earnings attributable to the Shares and the investment of such
contributions and dividends.
The Lender acknowledges and agrees that it shall have no other recourse
against the Borrower for repayment of the Loan and that it shall have no
recourse against assets of the ESOP included in the Trust other than pursuant to
Sections 3 and 8 hereof.
SECTION TWO. INTEREST AND FEES.
2.1 INTEREST RATE. The Loan shall bear interest (which the Borrower
hereby promises to pay) prior to maturity (whether by lapse of time,
acceleration or otherwise) at a rate per annum equal at all times to the
Interest Rate as defined in Section 10.3 hereof.
2.2 BASIS AND PAYMENT DATES. All interest accruing on the Note prior to
maturity shall be due and payable on a annual basis on the last day of each year
(commencing December 31, ______ and at maturity (unless prepaid in whole prior
to such date, then on the date of such prepayment in whole) and interest
accruing after maturity shall be due and payable upon demand. All interest on
the Note shall be computed on the basis of a year of 360 days.
SECTION THREE. COLLATERAL.
3.1 GRANT OF SECURITY INTEREST-PLEDGED SHARES. The Borrower hereby
grants, pledges and assigns to the Lender _________ shares of the issued and
outstanding common stock, par value $.01 per share all of which were either (i)
purchased by the Borrower from the proceeds of the disbursement of the Loan or
(ii) acquired by the Borrower with the proceeds of a prior exempt loan within
the meaning of Section 54.4975-7(b) of the Regulations, and pledged as
collateral for such prior exempt loan, where the balance of such prior exempt
loan has been repaid with the proceeds of the disbursement of the Loan (the
"Pledged Shares" being hereinafter referred to as the "Collateral"). The
Pledged Shares shall be evidenced by a stock certificate. The assignment and
pledge herein granted and provided for is made and given to secure and shall
secure the prompt payment of principal of and interest on the Note as and when
the same becomes due and payable and the payment, observance and performance of
any and all obligations and liabilities arising under or provided for in this
Agreement or the Note or any of them in each instance as the same may be amended
or modified and whether now existing or hereafter arising.
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<PAGE>
3.2 FURTHER ASSURANCES. The Borrower covenants and agrees that it will at
any time and from time to time as requested by the Lender execute and deliver
such further instruments and do and perform such other acts as the Lender may
reasonably deem necessary or desirable to provide for or perfect the lien of the
Lender in the Collateral hereunder.
3.3 VOTING. Upon the occurrence of a Default or an Event of Default
hereunder, the Lender shall have the right to transfer the Collateral or any
part thereof into its name or into the name of its nominee. The Lender shall
not be entitled to vote the Pledged Shares unless and until an Event of Default
has occurred and so long as the same shall not have been waived by the Lender.
3.4 PARTIAL RELEASES. The Lender agrees, provided always that no Default
or Event of Default shall have occurred and be continuing, as promptly as is
practicable after December 31 in each year (the period commencing the date
hereof and ending December 31, ____ and each subsequent 12-month period ending
on December 31 being hereinafter referred to as a "Plan Year"), to release that
number of Pledged Shares then being held to secure the Loan which is equal to
the number of such Pledged Shares held as of the last day of the Plan Year
multiplied by a fraction, the numerator of which is the aggregate amount of all
principal and interest payments made on the Note during the Plan Year and the
denominator of which is the sum of the numerator plus the unpaid principal and
interest of the Note as of the last day of such Plan Year.
SECTION FOUR. PAYMENTS.
4.1 PLACE AND APPLICATION. All payments of principal, interest, fees
and all other amounts payable hereunder shall be made to the Lender at 114
East 3rd Street, Delphos, Ohio 45833, for the account of the Lender (or at
such other place for the account of the Lender as the Lender may from time
to time in writing specify to the Borrower) in immediately available and
freely transferable funds at the place of payment. All payments shall be
paid in full without setoff or counterclaim and without reduction for and
free from any and all taxes, levies, duties, fees, charges, deductions,
withholdings, restrictions or conditions of any nature imposed by any
government or any political subdivision or taxing authority thereof.
4.2 PREPAYMENTS. The Borrower shall have the privilege of prepaying in
whole or in part the Note at any time upon giving three (3) Business Days'
prior notice to the Lender, each such prepayment to be made by the payment of
the principal amount to be prepaid and accrued interest thereon to the date
fixed for prepayment. All such prepayments shall be
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<PAGE>
made without premium or penalty. Prepayments shall first be applied to the
several installments of the Note in the inverse order of their respective
maturities.
SECTION FIVE. REPRESENTATIONS AND WARRANTIES.
The Borrower represents and warrants to the Lender as follows:
5.1 The Trust is a duly organized, validly existing employee stock
ownership trust.
5.2 The proceeds of the disbursement of the Loan shall be applied in their
entirety to the payment of the purchase price for the Pledged Shares.
5.3 The Borrower has full right, power and authority to enter into this
Agreement, to make the borrowings hereunder provided for, to issue the Note in
evidence thereof and to perform each and all of the matters and things herein
and therein provided for and this Agreement does not, and the Note when issued
will not, nor will the performance or observance by the Borrower of any of the
matters or things herein or therein provided, contravene any provision of law or
the Trust or any other covenant or agreement affecting the Trust or any of its
assets. As of the date of the disbursement of the Loan, the Pledged Shares will
be fully paid and non-assessable and the Pledged Shares will be owned by the
Borrower free and clear of all liens, charges and encumbrances whatsoever,
except for any lien of Lender provided for herein.
5.4 Except as disclosed to the Lender in writing, there is no litigation
or governmental proceeding pending, nor to the knowledge of the Borrower
threatened, against the ESOP and Trust.
5.5 The ESOP and Trust have no material liabilities, whether absolute or
contingent, except for those heretofore disclosed to the Lender.
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<PAGE>
SECTION SIX. REPRESENTATIONS AND WARRANTIES OF THE LENDER
The Lender represents and warrants that:
6.1 The Lender is a corporation duly organized under the laws of the State
of Delaware, and is validly existing and in good standing under the laws of the
State of Delaware. The Lender has full power and authority and legal right to
make and perform this Agreement.
6.2 The execution, delivery and performance by the Lender of this
Agreement have been duly authorized by all necessary action by the Lender and is
not and will not violate any provisions of law applicable to the Lender, any
rules, regulations or orders applicable to the Lender or any judgments or
decrees binding upon the Lender. This Agreement is a valid and legally binding
obligation of the Lender enforceable against the Lender in accordance with its
terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting credits' rights generally
and the general principles of equity (regardless of whether considered in a
proceeding at law or in equity).
6.3 No authorizations, approvals or consents of, and no filings or
registrations with, any governmental regulatory authority or agency are required
for the execution, delivery or performance by the Lender of this Agreement, or
any transaction contemplated hereby, or for the validity or enforceability
against the Lender hereof except as have already been received or accomplished.
6.4 The execution, delivery and performance of the Agreement and the
consummation of the transactions contemplated hereby will not violate, conflict
with or constitute a default under (i) any of the provisions of the Lender's
Certificate of Incorporation or Bylaws, (ii) any provision of any agreement,
instrument, order, arbitration award, judgment or decree to which the Lender is
a party or by which it is or its assets are bound or (iii) any statute, rule
or regulation of any federal, state or local government or agency applicable to
the Lender, except in any such case (i), (ii) (iii) above, for any such
conflicts, violations defaults which either individually or in the aggregate do
not have a material adverse effect on the business properties of the Lender and
its subsidiaries, taken as a whole.
6.5 The Company has taken such actions as are required by applicable law
to be taken by it to establish the ESOP and the Trust.
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<PAGE>
6.6 There is no action, suit, investigation or proceeding pending, or to
the best knowledge of the Company, threatened against or affecting the ESOP
before any court or governmental department, agency or instrumentality.
6.7 The Loan will be an "exempt loan" as that term is defined under
Section 54.4975-7(b)(1)(iii) of the Regulations, provided the ESOP Committee
determines that the interest rate is not more than reasonable; and the
transactions contemplated by this Agreement are not "prohibited transactions"
within the meaning of Section 4975 of the Code or Section 406(a) of ERISA.
6.8 Except as otherwise provided in this Agreement, the Shares are not
subject to any restriction on transfer under applicable Federal securities law
and may be freely traded over-the-counter.
SECTION SEVEN. CONDITIONS PRECEDENT.
The obligation of the Lender to make the Loan shall be subject to
satisfaction of the following conditions precedent:
7.1 The Lender shall have received executed originals of this Agreement
and the Note duly signed and properly completed.
7.2 The Lender shall have received either (i) the certificate evidencing
all the Pledged Shares together with duly executed blank stock power therefore
or (ii) if such Pledged Shares are not yet available, a duly executed agreement
to pledge such stock in the form attached hereto as Exhibit B (in which event
such certificate and stock power will be delivered within 10 days of the date of
the Lender makes the Loan).
7.3 The Lender shall have received copies (executed or certified, as may
be appropriate) of all legal documents or proceedings taken in connection with
the execution and delivery of this Agreement and the Note.
SECTION EIGHT. COVENANTS.
Borrower covenants and agrees that so long as any amount remains unpaid on
the Note or the Commitment is outstanding, except to the extent compliance in
any case or cases is waived in writing by the Lender:
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<PAGE>
8.1 COMPLIANCE.
The Borrower will comply with all requirements of the Code, ERISA and any
other law, rule or regulation applicable to it as such laws, rules or
regulations affect the ESOP or the Trust.
8.2 REPORTS.
(a) The Borrower will maintain a system of accounting for the ESOP and
the Trust in accordance with sound accounting practice and will, from time to
time, furnish to the Lender and its duly authorized representatives, such
information and data with respect to the financial condition of the ESOP and the
Trust as the Lender may reasonably request.
(b) Without any request the Borrower will furnish to the Lender promptly
after knowledge thereof shall have come to the attention of the Borrower,
written notice of the occurrence of any Default or Event of Default hereunder or
of any threatened or pending litigation or governmental proceeding against the
Plan or the Trust.
8.3 DETERMINATION LETTER. The Company shall apply for a determination
letter from the Internal Revenue Service that the Plan and the Trust, taken
together, qualify as an employee stock ownership plan for purposes of Section
4975(e)(7) of the Code and the rules and regulations thereunder.
SECTION NINE. EVENTS OF DEFAULT AND REMEDIES.
9.1 EVENT OF DEFAULT. Any one or more of the following shall constitute
an Event of Default hereunder:
(a) The Borrower shall default in the payment of principal and/or
interest in respect of the Note or any other amounts payable under this
Agreement when due;
(b) Any representation, warranty or statement made by the Borrower
herein or in connection with the making of the Loan proves to be incorrect
in any material respect as of the date of the issuance or making thereof;
(c) The Borrower shall default in the due performance or observance
by it of any term, covenant or agreement (other than those referred to in
subparts (a) and (b), inclusive, of this Section 9.1) contained in this
Agreement and such default shall
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<PAGE>
continue unremedied for a period of 30 days after notice to the Borrower
by the Lender or any other holder of the Note; or
(d) The ESOP shall be terminated prior to the expiration of the term
of this Agreement.
9.2 LIMITATIONS ON USE OF TRUST ASSETS. When any Event of Default
described in subsections (a) to (c), of Section 9.1 has occurred and is
continuing, the Lender or the holder of the Note shall have no rights to assets
of the Trust other than (i) contributions (other than contributions of employer
securities) that are made by the Lender to enable the Borrower to meet its
obligations pursuant to the Loan, cash dividends received by the Borrower on the
Shares and earnings attributable to the investment of such contributions and
dividends and (ii) the Pledged Stock; provided further, however, that the value
of Trust assets transferred to the Lender as a result of an Event of Default
shall not exceed the amount of the repayment then in default, and, provided
further, that so long as the Lender is a "party in interest" within the meaning
of ERISA Section 3(14) or a "disqualified person" within the meaning of Section
4975(e)(2) of the Code, a transfer of Trust assets upon default shall be made
only if, and to the extent of, the Borrower's failure to meet the loan's payment
schedule.
9.3 RIGHTS UPON AN EVENT OF DEFAULT. When any Event of Default has
occurred and is continuing the Lender may, in addition to such other rights or
remedies as it may have, then or at any time or times thereafter exercise with
respect to the Collateral any and all of the rights, options and remedies of a
secured party under the Uniform Commercial Code of Ohio (the "UCC") including
without limitation the sale of all or any part of the Collateral at any brokers'
board or any public or private sale, provided, however that the Lender shall
only be able to exercise such rights and remedies to the extent of all interest
and principal payments which are due and payable as of the date of the Event of
Default and provided further that prior to such exercise the Lender shall
release from the Collateral so much thereof as it would have been required to
release under Section 3.4 hereof if the period from the previous December 31 to
the date of such release constituted a Plan Year and no Event of Default had
occurred. The net proceeds of any such sale, after deducting all costs and
expenses incurred in the collection, protection, sale and delivery of the
Collateral (which expenses Borrower promises to pay) shall be applied first to
the payment of any costs and expenses incurred by the Lender in selling or
otherwise disposing of the Collateral, second, to the payment of the principal
of and the interest on the Note, and, third, ratably as among any other items of
the indebtedness hereby secured. Any surplus remaining after the full payment
and satisfaction of the foregoing shall be returned to the Borrower or to
whomsoever a court of competent jurisdiction shall determine to be entitled
thereto. Any requirement of said UCC
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<PAGE>
as to reasonable notice shall be met by the Lender personally delivering or
mailing notice (by certified mail - return receipt requested) to the Borrower
at its address as provided in Section 11.6 hereof at least ten (10) days
prior to the event giving rise to the requirement of such notice. In
connection with any offer, solicitation or sale of the Collateral, the Lender
may restrict bidders and otherwise proceed in whatever manner it reasonably
believes appropriate in order to comply or assure compliance with applicable
legal requirements pertaining to the offer and sale of securities of the same
type as the Collateral.
9.4 ERISA RESTRICTIONS. The number of shares of Pledged Stock as to which
the Lender may exercise the rights set forth in this Section 9 may not exceed
that number of shares (then remaining subject to pledge hereunder) which is then
equal in current value to the amount in default under the Note. The remedies
set forth in this Section 9 may only be exercised to the extent consistent with
the restrictions on remedies set forth in Section 408(b)(3) of ERISA and the
regulations thereunder and Section 4975(d)(3) of the Code and the regulations
thereunder.
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<PAGE>
SECTION TEN. DEFINITIONS.
10.1 The term "BUSINESS DAY" shall mean any day on which savings
institutions are generally open for business in Ohio other than a Saturday or
Sunday.
10.2 The term "EVENT OF DEFAULT" shall mean any event condition specified
as such in Section 9.1 hereof and the term "DEFAULT" shall mean any event or
condition which, with the lapse of time, the giving of notice, or both would
constitute an Event of Default.
Capitalized terms defined elsewhere in this Agreement shall have the
meanings as defined in all provisions hereof.
10.3 The term "INTEREST RATE" shall mean the [Prime Rate as reported in the
WALL STREET JOURNAL on the day of the closing of the Loan].
SECTION ELEVEN. MISCELLANEOUS.
11.1 HOLIDAYS. If any principal of the Note shall fall due on Saturday,
Sunday or on another day which is a legal holiday for savings institutions in
the State of Ohio, interest at the rate the Note bears for the period prior to
maturity shall continue to accrue on such principal from the stated due date
thereof to and including the next succeeding Business Day on which the same is
payable.
11.2 NO WAIVER, CUMULATIVE REMEDIES. No delay or failure on the part of
the Lender or the part of the holder of the Note in the exercise of any power
or right shall preclude any other or further exercise thereof, or the exercise
of any other power or right, and the rights and remedies hereunder of the Lender
and of any holder of the Note are cumulative to, and not exclusive of, any
rights or remedies which any of them would otherwise have.
11.3 AMENDMENTS, ETC. No amendment, modification, termination or waiver
of any provision of this Agreement or of the Note nor consent to any departure
by the Borrower therefrom, shall in any event be effective unless the same shall
be in writing and signed by the Lender, and then such consent, modification or
waiver shall be effective only in the specific instance and for the specific
purpose for which given. No notice to or demand on the Borrower in any case
shall entitle the Borrower to any other further notice or demand in similar or
other circumstances.
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<PAGE>
11.4. SURVIVAL OF REPRESENTATIONS. All representations and warranties
made herein or in certificates given in connection with the Loan shall survive
the execution and delivery of this Agreement and of the Note, and shall continue
in full force and effect with respect to the date as of which they were made as
long as any credit is in use or available hereunder.
11.5 PAYMENTS. So long as the Lender is the holder of the Note, the
Borrower will promptly and punctually pay the principal of and interest on the
Note without presentment of the Note and without any notation of any such
payment being made on the Note.
11.6 ADDRESSES FOR NOTICES. All communications provided for herein shall
be in writing and shall be deemed to have been given or made when served
personally or when deposited in the United States mail addressed, if to the
Borrower at __________________________, Trust Officer; if to the Lender at 114
East 3rd Street, Delphos, Ohio 45833, or at such other address as shall be
designated by any party hereto in a written notice to each other party pursuant
to this Section 11.6.
11.7 HEADINGS. Article and Section headings used in this Agreement are
for convenience or reference only and are not a part of this Agreement for any
other purpose.
11.8 SEVERABILITY OF PROVISIONS. Any provision of this Agreement which is
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such unenforceability without impairing the enforceability of
the remaining provisions hereof affecting the enforceability of such provision
in any other jurisdiction.
11.9 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and by different parties hereto on separate counterparts, and all
such counterparts taken together shall be deemed to constitute one and the same
instrument.
11.10 BINDING NATURE, GOVERNING LAW, ETC. This Agreement shall be binding
upon the Borrower and its successors and assigns and shall inure to the benefit
of the Lender and the benefit of its successors and assigns, including any
subsequent holder of the Note. To the extent not preempted by Federal law, this
Agreement and the rights and duties of the parties hereto shall be construed and
determined in accordance with the laws of the State of Ohio without regard to
principles of conflicts of laws. This Agreement constitutes the entire
understanding of the parties with respect to the subject matter hereof and any
prior agreements, whether written or oral, with respect thereto are superseded
hereby.
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<PAGE>
11.11 CONCERNING THE BORROWER. The term "Borrower" as used herein shall
mean and include the undersigned as Trustee of the Trust and its successors in
trust not individually but solely as Trustee under that certain Citizens Bank of
Delphos Employee Stock Ownership Trust effective ____________, by and between
the undersigned and Citizens Bank of Delphos and this Agreement shall be binding
upon the undersigned and its successors and assigns and upon the trust estate.
The undersigned assumes no personal or individual liability or responsibility
for payment of the indebtedness evidenced by the Note or for observance or
performance of the covenants and agreements herein contained or for the
truthfulness of the representations and warranties herein contained, the
undersigned having executed this Agreement and the Note solely in its capacity
as trustee as aforesaid to bind the undersigned, its successors in trust and the
trust estates.
11.12 LIMITED LIABILITY. Anything contained herein or in the Note to the
contrary notwithstanding, the sole and only recourse of the Lender and any other
holder of the Note for payment of the obligations hereunder and under the Note ,
as against the Borrower for the payment of the obligations hereunder and under
the Note shall be to (i) the Collateral, (ii) contributions, other than employer
securities not constituting Collateral hereunder, made to the ESOP and the Trust
by sponsoring employers to enable the Borrower to meet its obligations hereunder
and under the Note, and (iii) earnings attributable to the Pledged Shares and to
the investment of such employer contributions, but only to the extent of the
failure of the Borrower to meet the payment schedule of the Loan provided for
herein. The Trust assets may be transferred to Lender upon the occurrence of a
Default or an Event of Default hereunder only upon and to the extent of the
failure of the Plan to meet the payment schedule of the Loan. In no event may
the value of the Trust assets so transferred exceed the amount of the default.
11.13 LENDER'S DUTY OF CARE. It is agreed and understood that the
Lender's duty with respect to the Collateral shall be solely to use reasonable
care in the custody and preservation of the Collateral in the Lender's
possession, which shall not include any steps necessary to preserve rights
against prior parties.
All provisions in this Agreement shall be construed so as to maintain (i)
the ESOP as a qualified leveraged employee stock ownership plan under Sections
401(a) and 4975(e)(7) of the Code, (ii) the Trust as exempt from taxation under
Section 501(a) of the Code, and (iii) the Loan as an "exempt loan" under the
Exempt Loan Rules.
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Upon your acceptance hereof in the manner hereinafter set forth, this
Agreement shall constitute a contract between us for the uses and purposes
hereinabove set forth.
Dated as of this ___ day of ______________, 1996.
_______________________., and its successors in
trust, as Trustee under that certain Citizens Bank
of Delphos Employee Stock Ownership Trust
effective __________ by and between the
undersigned and Citizens Bank of Delphos.
By
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Accepted and agreed to at Delphos, Ohio as of the date last above written.
DELPHOS CITIZENS BANCORP, INC.
By
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EXHIBIT A
PROMISSORY NOTE
$___________
Delphos, Ohio ____________ , 19__
For VALUE RECEIVED, the undersigned,_____________________, not individually
but solely as Trustee under that certain Citizens Bank of Delphos Employee Stock
Ownership Trust effective______________ by and between the undersigned
("Borrower") and Citizens Bank of Delphos promises to pay to the order of
Delphos Citizens Bancorp, Inc., a Delaware Corporation (the "Lender") at its
office at 114 East 3rd Street, Delphos, Ohio 45833, the principal sum of
_____________________________ ($ ) , if less, the aggregate
principal amount of the loan made to the Borrower under Section 1.1 of the Loan
and Security Agreement hereinafter referred to in consecutive annual principal
installments each in an amount equal to [1/17th] of the original principal
amount of such Loan, together with all accrued interest on the unpaid principal
sum, payable annually commencing on December 31, ___, and on the last business
day of each and every December in each year thereafter, except that the final
installment in the amount of all principal and interest not sooner paid shall be
due on December 31, 20__, the final maturity hereof.
The Borrower promises to pay interest (computed on the basis of a year of
360 days) at said office on the balance of principal from time to time remaining
outstanding and unpaid hereon at the rate per annum equal at all times to the
Interest Rate as defined in Section 10.3 of the Loan and Security Agreement (as
defined below) on the last business day of each and every December, commencing
December 31, _____, and in each year thereafter and on the final maturity date
of this Note. On demand, the Borrower promises to pay interest on any overdue
principal hereof (whether by lapse of time, acceleration, or otherwise) until
paid at the stated rate.
This Note is issued under the terms and provisions of that certain Citizens
Bank of Delphos Employee Stock Ownership Trust Loan and Security Agreement
bearing even date herewith by and between the Borrower and the Lender (the "Loan
and Security Agreement") and this Note and the holder hereof are entitled to all
the benefits and security provided for thereby or referred to therein to which
Loan and Security Agreement reference is hereby made for a statement thereof.
<PAGE>
This Note may be declared due prior to its express maturity and voluntary
prepayments may be made hereon, all in the events, on the terms and in the
manner as provided in such Loan and Security Agreement.
Recourse for the payment of this Note has been limited by the provisions of
the Loan and Security Agreement and this Note is expressly made subject to such
provisions. This Note shall be governed by and construed in accordance with the
laws of Ohio without regard to principles of conflicts of laws. The Borrower
hereby waives presentment for payment and demand.
Upon the occurrence of an Event of Default as such term is defined in the
Loan and Security Agreement at the option of the Lender, all amounts payable by
the Borrower to the Lender under the terms of this Note may immediately become
due and payable by the Borrower to the Lender pursuant to the provisions of
Section 9.2 of the Loan and Security Agreement, and the Lender shall have all of
the rights, powers, and remedies available under the terms of this Note, any of
the other documents evidencing and securing this Loan and all applicable laws.
The Borrower and all endorsers, guarantors, and other parties who may now or in
the future be primarily or secondarily liable for the payment of the
indebtedness evidenced by this Note hereby severally waive presentment, protest
and demand, notice of protest, notice of demand and of dishonor and non-payment
of this Note and expressly agree that this Note any payment hereunder may be
extended from time to time without in any way affecting the liability of the
Borrower, guarantors and endorsers.
_____________ and its successors in trust, as
Trustee under that certain Citizens Bank of
Delphos Employee Stock Ownership Trust
effective ________ by and between the
undersigned and Citizens Bank of Delphos.
By:
---------------------------
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EXHIBIT B
SECURITY AGREEMENT
INSTRUMENTS OR NEGOTIABLE DOCUMENTS TO BE DEPOSITED
For new value contemporaneously given by Delphos Citizens Bancorp, Inc.,
("Lender") to the undersigned ("Borrower"), the receipt whereof is hereby
acknowledged, the Borrower does hereby grant a security interest to said Lender
in the instruments or negotiable documents hereafter described ("Collateral"),
in all of which Collateral the Borrower warrants that the Borrower has good,
valid and effective rights to the ownership and possession thereof and to the
grant of the security interest hereby made:
shares of the common stock, par value $.01 per share, of Delphos
Citizens Bancorp, Inc., a Delaware corporation.
Borrower agrees to deliver said collateral to said Lender not later than the
close of business on _________________, ____, said date being within 10 days
from the date hereof.
Said security interest secures the payment of all indebtedness and
liabilities as undertaken in the Loan and Security Agreement to which this is a
part, now existing or hereafter arising, and the Lender has all the rights with
respect to said Collateral and said security interest as more fully set forth in
the form of secured note or notes executed and delivered by the undersigned to
said Lender prior hereto or contemporaneously herewith.
This agreement, including matters of interpretation and construction, and
the rights of the Lender and the duties and obligations of the debt hereunder
are to be determined in accordance with the laws of the State of Ohio,
particularly the Uniform Commercial Code, except where preempted by federal law.
Dated at Delphos, Ohio the ___ day of __________, ___.
_______________., and its successors in trust,
as Trustee under that certain Citizens Bank of
Delphos Employee Stock Ownership Trust effective
__________ by and between the undersigned and
Citizens Bank of Delphos.
By:
---------------------------------
<PAGE>
EXHIBIT 10.3 FORM OF EMPLOYMENT AGREEMENT BETWEEN CITIZENS BANK OF DELPHOS AND
CERTAIN EXECUTIVE OFFICERS
<PAGE>
FORM OF
CITIZENS BANK OF DELPHOS
EMPLOYMENT AGREEMENT
This AGREEMENT is made effective as of __________, by and among Citizens
Bank of Delphos (the "Institution"), a federally chartered savings institution,
with its principal administrative office at 114 East 3rd Street, Delphos, Ohio
45833, Delphos Citizens Bancorp, Inc. a corporation organized under the laws of
the State of Delaware, the holding company for the Institution (the "Holding
Company"), and _________ ("Executive").
WHEREAS, the Institution 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 Institution 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
__________ of the Institution. Executive shall render administrative and
management services to the Institution such as are customarily performed by
persons situated in a similar executive capacity. During said period, Executive
also agrees to serve, if elected, as an officer and director of the Holding
Company or any subsidiary of the Institution.
2. TERMS AND DUTIES.
(a) The period of Executive's employment under 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 of this Agreement, and continuing on each anniversary
thereafter, the disinterested members of the board of directors of the
Institution ("Board") may extend the Agreement an additional year such that the
remaining term of the Agreement shall be three (3) years unless the Executive
elects not to extend the term of this Agreement by giving written notice in
accordance with Section 8 of this Agreement. The Board will review the
Agreement and Executive's performance annually for purposes of determining
whether to extend the Agreement and the rationale and results thereof shall be
included in the minutes of the Board's meeting. The
<PAGE>
Board shall give notice to the Executive as soon as possible after such
review as to whether the Agreement is to be extended.
(b) During the period of Executive's 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 Institution and participation in community and
civic organizations; 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 Institution, or materially
affect the performance of Executive's duties pursuant to this Agreement.
(c) Notwithstanding anything herein to the contrary, Executive's
employment with the Institution may be terminated by the Institution or the
Executive during the term of this Agreement, subject to the terms and conditions
of this Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Institution shall pay Executive as compensation a salary of not
less than $__________ per year ("Base Salary"). Base Salary shall include any
amounts of compensation deferred by Executive under any qualified or unqualified
plan maintained by the Institution. Such Base Salary shall be payable semi
monthly. 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 the
Board or by a Committee of the Board, delegated such responsibility by the
Board. The Committee or the Board may increase Executive's Base Salary. Any
increase in Base Salary shall become the "Base Salary" for purposes of this
Agreement. In addition to the Base Salary provided in this Section 3(a), the
Institution shall also provide Executive, at no premium cost to Executive, with
all such other benefits as are provided uniformly to permanent full-time
employees of the Institution.
(b) The Executive shall be entitled to participate in any 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 Institution will not,
without Executive's prior written consent, make any changes in such plans,
arrangements or perquisites which would materially adversely affect Executive's
rights or benefits thereunder; except to the extent such changes are made
applicable to all Institution employees on a non-discriminatory basis. Without
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limiting the generality of the foregoing provisions of this Subsection (b),
Executive shall 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 plans, medical coverage or any other employee benefit plan
or arrangement made available by the Institution 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 shall be entitled to incentive compensation and bonuses
as provided in any plan of the Institution in which Executive is eligible to
participate. Nothing paid to the Executive under any such plan or arrangement
will be deemed to be in lieu of other compensation to which the Executive is
entitled under this Agreement.
(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3 and other compensation provided for by paragraph (b) of this Section
3, the Institution shall pay or reimburse Executive for all reasonable travel
and other reasonable expenses incurred in the performance of Executive's
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 the 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 Institution or the Holding Company of Executive's full-time
employment hereunder for any reason other than a termination governed by Section
5(a) hereof, or Termination for Cause, as defined in Section 7 hereof; (ii)
Executive's resignation from the Institution's employ upon any (A) failure to
elect or reelect or to appoint or reappoint Executive as __________, unless
consented to by the Executive, (B) 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 Section 1, above, unless consented to by
Executive, (C) a relocation of Executive's principal place of employment by more
than 25 miles from its location at the effective date of this Agreement, unless
consented to by the Executive, (D) a material reduction in the benefits and
perquisites to the Executive from those being provided as of the effective date
of this Agreement, unless consented to by the Executive, or (E) a liquidation or
dissolution of the Institution or Holding Company, or (F) breach of this
Agreement by the Institution. Upon the occurrence of any event described in
clauses (A), (B), (C), (D), (E) or (F), above, Executive shall have the right to
elect to terminate his employment under this Agreement by resignation upon not
less than sixty (60)
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<PAGE>
days prior written notice given within six full months after the event giving
rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Institution shall be obligated to pay
Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, an amount equal to the sum of:
(i) the amount of the remaining payments that the Executive would have earned if
he had continued his employment with the Institution during the remaining term
of this Agreement at the Executive's Base Salary at the Date of Termination; and
(ii) the amount equal to the annual contributions that would have been made on
Executive's behalf to any employee benefit plans of the Institution or the
Holding Company during the remaining term of this Agreement based on
contributions made (on an annualized basis) at the Date of Termination;
PROVIDED, HOWEVER, that any payments pursuant to this subsection and subsection
4(c) of this Agreement shall not, in the aggregate, exceed three (3) times
Executive's average annual compensation for the five (5) most recent taxable
years that Executive has been employed by the Institution or such lesser number
of years in the event that Executive shall have been employed by the Institution
for less than five (5) years. For purposes of this subsection 4(b), "average
annual compensation" shall be the average annual compensation as defined in
Section 5(c) of this Agreement. In the event the Institution is not in
compliance with its minimum capital requirements or if such payments pursuant to
this subsection (b) would cause the Institution's capital to be reduced below
its minimum regulatory capital requirements, such payments shall be deferred
until such time as the Institution or successor thereto is in capital
compliance. At the election of the Executive, which election is to be made
prior to an Event of Termination, such payments shall be made in a lump sum as
of the Executive's Date of Termination. In the event that no election is made,
payment to Executive will be made on a monthly basis in approximately equal
installments during the remaining term of the Agreement. Such payments shall
not be reduced in the event the Executive obtains other employment following
termination of employment.
(c) Upon the occurrence of an Event of Termination, the Institution will
cause to be continued life, health and disability coverage substantially
identical to the coverage maintained by the Institution or the Holding Company
for Executive prior to his termination at no premium cost to the Executive,
except to the extent such coverage may be changed in its application to all
Institution or Holding Company employees. Such coverage shall cease upon the
expiration of the remaining term of this Agreement.
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5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the
Institution or Holding Company shall mean an event of a nature that: (i) would
be required to be reported in response to Item 1 of the current report on Form
8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); or (ii)
results in a Change in Control of the Institution or the Holding Company within
the meaning of the Home Owners' Loan Act of 1933, as amended, the Federal
Deposit Insurance Act and the Rules and Regulations promulgated by the Office of
Thrift Supervision ("OTS") (or its predecessor agency), as in effect on the date
hereof; or (iii) without limitation such a Change in Control shall be deemed to
have occurred at such time as (A) any "person" (as the term is used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of voting
securities of the Institution or the Holding Company representing 25% or more of
the Institution's or the Holding Company's outstanding voting securities or
right to acquire such securities except for any voting securities of the
Institution purchased by the Holding Company and any voting securities purchased
by any employee benefit plan of the Institution or the Holding Company, or (B)
individuals who constitute the Board on the date hereof (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof, provided that
any person becoming a director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the directors comprising the
Incumbent Board, or whose nomination for election by the Holding Company's
stockholders was approved by the same Nominating Committee serving under an
Incumbent Board, shall be, for purposes of this clause (B), considered as though
he were a member of the Incumbent Board, or (C) a plan of reorganization,
merger, consolidation, sale of all or substantially all the assets of the
Institution or the Holding Company or similar transaction occurs in which the
Institution or Holding Company is not the resulting entity; provided, however,
that such an event listed above will be deemed to have occurred or to have been
effectuated upon the receipt of all required regulatory approvals not including
the lapse of any statutory waiting periods.
(b) If a Change in Control has occurred pursuant to Section 5(a),
Executive shall be entitled to the benefits provided in paragraphs (c), and (d)
of this Section 5 upon his subsequent termination of employment at any time
during the term of this Agreement due to: (1) Executive's dismissal or (2)
Executive's voluntary resignation following any material demotion, loss of
title, office or significant authority or responsibility, material reduction in
annual compensation or material reduction in benefits or relocation of his
principal place of employment by more than 25 miles from its location
immediately prior to the Change in Control, unless such termination is because
of his death or termination for Cause.
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(c) Upon Executive's entitlement to benefits pursuant to Section 5(b), the
Institution shall pay Executive, or in the event of his subsequent death, his
beneficiary or beneficiaries, or his estate, as the case may be, a sum equal to
the greater of: (1) the payments due for the remaining term of the Agreement;
or 2) three (3) times Executive's average annual compensation for the five (5)
most recent taxable years that Executive has been employed by the Institution or
such lesser number of years in the event that Executive shall have been employed
by the Institution for less than five (5) years, provided, however, that no
payments pursuant to this subsection and subsection 5(d) below shall exceed
three (3) times the Executive's average annual compensation for the five (5)
most recent taxable years that the Executive has been employed by the
Institution or such lesser number of years in the event the Executive shall have
been employed by the Institution for less than five (5) years. For purposes of
this Agreement, such average annual compensation shall include Base Salary,
commissions, bonuses, contributions on Executive's behalf to any pension and/or
profit sharing plan, severance payments, retirement payments, directors or
committee fees, fringe benefits paid or to be paid to Executive in any such
year, and payment of expense items without accountability or business purpose or
that do not meet the IRS requirements for deductibility by the Institution. In
the event the Institution is not in compliance with its minimum capital
requirements or if such payments would cause the Institution's capital to be
reduced below its minimum regulatory capital requirements, such payments shall
be deferred until such time as the Institution or successor thereto is in
capital compliance. At the election of the Executive, which election is to be
made prior to a Change in Control, such payment may be made in a lump sum as of
the Executive's Date of Termination. In the event that no election is made,
payment to the Executive will be made on a monthly basis in approximately equal
installments over a period of thirty six (36) months following the Executive's
termination. Such payments shall not be reduced in the event Executive obtains
other employment following termination of employment.
(d) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Institution will cause to be continued life, health and disability coverage
substantially identical to the coverage maintained by the Institution for
Executive prior to his severance at no premium cost to the Executive, except to
the extent that such coverage may be changed in its application for all
Institution employees on a non-discriminatory basis. Such coverage and payments
shall cease upon the expiration of thirty six (36) months following the Date of
Termination.
6. CHANGE OF CONTROL RELATED PROVISIONS
Notwithstanding the paragraphs of Section 5, in no event shall the
aggregate payments or benefits to be made or afforded to Executive under said
paragraphs (the "Termination Benefits") constitute an "excess parachute payment"
under Section 280G of the Code or any successor thereto, and in order to avoid
such a result, Termination Benefits will be reduced, if
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necessary, to an amount (the "Non-Triggering Amount"), the value of which is
one dollar ($1.00) less than an amount equal to three (3) times Executive's
"base amount", as determined in accordance with said Section 280G. The
allocation of the reduction required hereby among the Termination Benefits
provided by Section 5 shall be determined by Executive.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of
Executive's personal dishonesty, incompetence, willful misconduct, any 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 final cease-and-desist order or material
breach of any provision of this Agreement. 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 Notice of Termination which shall
include a copy of a resolution duly adopted by the affirmative vote of not less
than a majority 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 particulars thereof in detail. The
Executive shall not have the right to receive compensation or other benefits for
any period after the Date of Termination for Cause. During the period beginning
on the date of the Notice of Termination for Cause pursuant to Section 8 hereof
through the Date of Termination for Cause, stock options and related limited
rights granted to Executive under any stock option plan shall not be exercisable
nor shall any unvested awards granted to Executive under any stock benefit plan
of the Institution, the Holding Company or any subsidiary or affiliate thereof,
vest. At the Date of Termination for Cause, such stock options and related
limited rights and any such unvested awards shall become null and void and shall
not be exercisable by or delivered to Executive at any time subsequent to such
Date of Termination for Cause.
8. NOTICE.
(a) Any purported termination by the Institution 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 the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty days from the date such Notice of Termination is given).
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(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, 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 therefrom 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, in the event the Executive is
terminated for reasons other than Termination for Cause, the Institution will
continue to pay Executive his Base Salary in effect when the notice giving rise
to the dispute was given until the earlier of: 1) the resolution of the dispute
in accordance with this Agreement or 2) the expiration of the remaining term of
this Agreement as determined as of the Date of Termination. 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.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Institution . Executive shall, upon reasonable
notice, furnish such information and assistance to the Institution as may
reasonably be required by the Institution in connection with any litigation in
which it or any of its subsidiaries or affiliates is, or may become, a party.
10. NON-COMPETITION.
(a) Upon any termination of Executive's employment hereunder pursuant to
Section 4 hereof, Executive agrees not to compete with the Institution for a
period of one (1) year following such termination in any city, town or county in
which the Executive's normal business office is located and the Institution has
an office or has filed an application for regulatory approval to establish an
office, determined as of the effective date of such termination, except as
agreed to pursuant to a resolution duly adopted by the Board. 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 Institution. The parties hereto,
recognizing that irreparable injury will result to the Institution, its business
and property in the event of Executive's breach of this Subsection 10(a) agree
that in the event of any such breach by Executive, the Institution, will be
entitled, in addition to any other remedies and damages available, to an
injunction to restrain the
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violation hereof by Executive, Executive's partners, agents, servants,
employees and all persons acting for or under the direction of Executive.
Nothing herein will be construed as prohibiting the Institution from pursuing
any other remedies available to the Institution 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 Institution and
affiliates thereof, as it may exist from time to time, is a valuable, special
and unique asset of the business of the Institution. 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 Institution or
affiliates thereof to any person, firm, corporation, or other entity for any
reason or purpose whatsoever, unless expressly authorized by the Board of
Directors or required by law. 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 Institution. Further, Executive may disclose
information regarding the business activities of the Institution to the OTS and
the Federal Deposit Insurance Corporation ("FDIC") pursuant to a formal
regulatory request. In the event of a breach or threatened breach by Executive
of the provisions of this Section, the Institution 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
Institution 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 Institution from pursuing any other remedies
available to the Institution for such breach or threatened breach, including the
recovery of damages from Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash
or check from the general funds of the Institution. The Holding Company,
however, unconditionally guarantees payment and provision of all amounts and
benefits due hereunder to Executive and, if such amounts and benefits due from
the Institution are not timely paid or provided by the Institution, such amounts
and benefits shall be paid or provided by the Holding Company.
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement dated __________, 1996,
between Executive and the Holding Company, such compensation payments and
benefits paid by the Holding Company will be subtracted from any amounts due
simultaneously to Executive under similar provisions of this Agreement.
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12. 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 Institution or any
predecessor of the Institution 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.
13. 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 and the Institution and their respective successors and assigns.
14. 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 be 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.
15. REQUIRED PROVISIONS.
(a) The Institution may terminate Executive's employment at any time, but
any termination by the Institution, 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 7
hereinabove.
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(b) If Executive is suspended from office and/or temporarily prohibited
from participating in the conduct of the Institution's affairs by a notice
served under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12
U.S.C. Section 1818(e)(3) or (g)(1); the Institution 's obligations under this
contract shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the
Institution may in its discretion (i) pay Executive all or part of the
compensation withheld while their contract obligations were suspended and (ii)
reinstate (in whole or in part) any of the obligations which were suspended.
(c) If Executive is removed and/or permanently prohibited from
participating in the conduct of the Institution's affairs by an order issued
under Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
Section 1818(e)(4) or (g)(1), all obligations of the Institution under this
contract shall terminate as of the effective date of the order, but vested
rights of the contracting parties shall not be affected.
(d) If the Institution is in default as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act, 12 U.S.C. Section 1813(x)(1) all obligations of
the Institution under this contract shall terminate as of the date of default,
but this paragraph shall not affect any vested rights of the contracting
parties.
(e) All obligations of the Institution under this contract shall be
terminated, except to the extent determined that continuation of the contract is
necessary for the continued operation of the institution, (i) by the Director of
the OTS (or his designee) or the FDIC at the time the FDIC enters into an
agreement to provide assistance to or on behalf of the Institution under the
authority contained in Section 13(c) of the Federal Deposit Insurance Act, 12
U.S.C. Section 1823(c), or (ii) by the Director of the OTS (or his designee) at
the time the Director (or his designee) approves a supervisory merger to resolve
problems related to the operations of the Institution or when the Institution 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. Section
1828(k) and 12 C.F.R. Section 545.121 and any rules and regulations promulgated
thereunder.
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.
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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.
The validity, interpretation, performance and enforcement of this Agreement
shall be governed by the laws of the State of Delaware, but only to the extent
not superseded by federal law.
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 Executive within fifty
(50) miles from the location of the Institution, 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.
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of Executive, whether by judgment,
arbitration or settlement, Executive shall be entitled to the payment of all
back-pay, including salary, bonuses and any other cash compensation, fringe
benefits and any compensation and benefits due Executive under this Agreement.
20. PAYMENT OF COSTS AND LEGAL FEES.
All reasonable costs and 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 Institution if Executive is successful on the merits
pursuant to a legal judgment, arbitration or settlement.
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21. INDEMNIFICATION.
(a) The Institution 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 the Executive's heirs, executors and administrators) to
the fullest extent permitted under federal 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 Institution (whether or not he continues to be
a director or officer at the time of incurring such expenses or liabilities),
such expenses and liabilities to include, but not be limited to, judgments,
court costs and attorneys' fees and the cost of reasonable settlements.
(b) Any payments made to Executive pursuant to this Section are subject to
and conditioned upon compliance with 12 C.F.R. Section 545.121 and any rules or
regulations promulgated thereunder.
22. SUCCESSOR TO THE INSTITUTION.
The Institution 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 Institution or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Institution's obligations under this Agreement, in the same manner and to the
same extent that the Institution would be required to perform if no such
succession or assignment had taken place.
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SIGNATURES
IN WITNESS WHEREOF, __________________ and _____________________ have
caused this Agreement to be executed and their seals to be affixed hereunto by
their duly authorized officers and directors, and Executive has signed this
Agreement, on the _____ day of _________, 1996.
ATTEST: CITIZENS BANK OF DELPHOS
BY:
- ------------------------------------ ------------------------------------
Secretary
[SEAL]
ATTEST: DELPHOS CITIZENS BANCORP, INC.
(Guarantor)
BY:
- ------------------------------------ ------------------------------------
Secretary
[SEAL]
WITNESS:
- ----------------------------------------------------------------------------
Executive
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EXHIBIT 10.4 FORM OF EMPLOYMENT AGREEMENT BETWEEN DELPHOS CITIZENS BANCORP,
INC. AND CERTAIN EXECUTIVE OFFICERS
<PAGE>
FORM OF
DELPHOS CITIZENS BANCORP, INC.
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of _________, by and
between Delphos Citizens Bancorp, Inc. (the "Holding Company"), a corporation
organized under the laws of Delaware, with its principal administrative office
at 114 East 3rd Street, Delphos, Ohio 45833 and ________________________ (the
"Executive"). Any reference to "Institution" herein shall mean Citizens Bank of
Delphos or any successor thereto.
WHEREAS, the Holding Company wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the Holding
Company 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
________________ of the Holding Company. The Executive shall render
administrative and management services to the Holding Company such as are
customarily performed by persons in a similar executive capacity. During said
period, Executive also agrees to serve, if elected, as an officer and director
of any subsidiary of the Holding Company.
2. TERMS.
(a) The period of Executive's employment under 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 day of this Agreement, and continuing at each day thereafter, this
Agreement shall be extended for an additional day each day, until such time as
the Board of Directors of the Holding Company ("Board") or the Executive elects
not to extend the term of the Agreement by giving written notice to the other
party in accordance with Section 8 of this Agreement, in which case the term of
this Agreement shall be fixed and shall end on the third anniversary of the date
of such written notice.
<PAGE>
(b) During the period of Executive's 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 Holding Company and its, direct or indirect,
subsidiaries ("Subsidiaries") and participation in community and civic
organizations; 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 Holding Company or its
Subsidiaries, or materially affect the performance of Executive's duties
pursuant to this Agreement.
(c) Notwithstanding anything herein contained to the contrary Executive's
employment with the Holding Company may be terminated by the Holding Company or
Executive during the term of this Agreement, subject to the terms and conditions
of this Agreement. In the event Executive is Terminated for Cause pursuant to
the terms of the Employment Agreement between the Executive and the Institution
dated _______, 1996: 1) the Holding Company will only continue to make payments
to Executive for the performance of services for the Holding Company pursuant to
this Agreement and will not make any payments to Executive for any services
performed by Executive in his capacity as an employee of the Institution; and 2)
the Holding Company shall not permit Executive to act in the capacity as an
employee of the Institution or otherwise directly perform services for the
Institution.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Executive shall be entitled to a salary from the Holding Company
or its Subsidiaries of not less than [$_____] per year ("Base Salary"). Base
Salary shall include any amounts of compensation deferred by Executive under any
qualified or unqualified plan maintained by the Holding Company and its
Subsidiaries. Such Base Salary shall be payable semi monthly. 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 the Board or by a
Committee of the Board delegated such responsibility by the Board. The
Committee or the Board may increase Executive's Base Salary. The increased Base
Salary shall become the "Base Salary" for purposes of this Agreement. In
addition to the Base Salary provided in this Section 3(a), the Holding Company
shall also provide Executive, at no premium cost to Executive, with all such
other benefits as are provided uniformly to permanent full-time employees of the
Holding Company and its Subsidiaries.
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(b) The Executive shall be entitled to participate in any 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 Holding Company and its
Subsidiaries will not, without Executive's prior written consent, make any
changes in such plans, arrangements or perquisites which would materially
adversely affect Executive's rights or benefits thereunder, except to the extent
that such changes are made applicable to all Holding Company and Institution
employees eligible to participate in such plans, arrangements and perquisites on
a non-discriminatory basis. Without limiting the generality of the foregoing
provisions of this Subsection (b), Executive shall 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 plans, medical coverage or any other
employee benefit plan or arrangement made available by the Holding Company and
its Subsidiaries 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 shall be
entitled to incentive compensation and bonuses as provided in any plan of the
Holding Company and its Subsidiaries in which Executive is eligible to
participate. Nothing paid to the Executive under any such plan or arrangement
will be deemed to be in lieu of other compensation to which the Executive is
entitled under this Agreement.
(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3 and other compensation provided for by paragraph (b) of this Section
3, the Holding Company shall pay or reimburse Executive for all reasonable
travel and other reasonable expenses incurred in the performance of Executive's
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 the 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 Holding Company of Executive's full-time employment hereunder
for any reason other than termination governed by Section 5(a) hereof, or for
Cause, as defined in Section 7 hereof; (ii) Executive's resignation from the
Holding Company's employ upon any (A) failure to elect or reelect or to appoint
or reappoint Executive as _______________, unless consented to by the Executive,
(B) a material change in Executive's function, duties, or responsibilities with
the Holding Company or its Subsidiaries, which change would cause Executive's
position to become one of lesser responsibility, importance, or scope from the
position and attributes thereof described in
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Section 1, above, unless consented to by the Executive, (C) a relocation of
Executive's principal place of employment by more than 25 miles from its
location at the effective date of this Agreement,unless consented to by the
Executive, (D) a material reduction in the benefits and perquisites to the
Executive from those being provided as of the effective date of this
Agreement, unless consented to by the Executive, (E) a liquidation or
dissolution of the Holding Company or the Institution, or (F) breach of this
Agreement by the Holding Company. Upon the occurrence of any event described
in clauses (A), (B), (C), (D), (E) or (F), 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 six full calendar months after the event giving rise to said right to
elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Holding Company shall be obligated to
pay Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, an amount equal to the sum of
(i) the amount of the remaining payments that the Executive would have earned if
he had continued his employment with the Institution during the remaining term
of this Agreement at the Executive's Base Salary at the Date of Termination; and
(ii) the amount equal to the annual contributions that would have been made on
Executive's behalf to any employee benefit plans of the Institution or the
Holding Company during the remaining term of this Agreement based on
contributions made (on an annualized basis) at the Date of Termination. At the
election of the Executive, which election is to be made prior to an Event of
Termination, such payments may be made in a lump sum. In the event that no
election is made, payment to the Executive will be made on a monthly basis in
approximately equal installments during the remaining term of the Agreement.
Such payments shall not be reduced in the event the Executive obtains other
employment following termination of employment.
(c) Upon the occurrence of an Event of Termination, the Holding Company
will cause to be continued life, health and disability coverage substantially
equivalent to the coverage maintained by the Holding Company or its Subsidiaries
for Executive prior to his termination at no premium cost to the Executive.
Such coverage shall cease upon the expiration of the remaining term of this
Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the Holding
Company or the Institution shall mean an event of a nature that: (i) would be
required to be reported in response to Item 1(a) of the current report on Form
8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a
Change in Control of the Institution or the Holding Company within the meaning
of the Home Owners' Loan Act of 1933, as amended, the Federal Deposit Insurance
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<PAGE>
Act, and the Rules and Regulations promulgated by the Office of Thrift
Supervision (or its predecessor agency), as in effect on the date hereof; or
(iii) without limitation such a Change in Control shall be deemed to have
occurred at such time as (A) any "person" (as the term is used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
voting securities of the Institution or the Holding Company representing 20%
or more of the Institution's or the Holding Company's outstanding voting
securities or right to acquire such securities except for any voting
securities of the Institution purchased by the Holding Company and any voting
securities purchased by any employee benefit plan of the Holding Company or
its Subsidiaries, or (B) individuals who constitute the Board on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent to
the date hereof whose election was approved by a vote of at least
three-quarters of the directors comprising the Incumbent Board, or whose
nomination for election by the Company's stockholders was approved by a
Nominating Committee solely composed of members which are Incumbent Board
members, shall be, for purposes of this clause (B), considered as though he
were a member of the Incumbent Board, or (C) a plan of reorganization,
merger, consolidation, sale of all or substantially all the assets of the
Institution or the Holding Company or similar transaction occurs or is
effectuated in which the Institution or Holding Company is not the resulting
entity; provided, however, that such an event listed above will be deemed to
have occurred or to have been effectuated upon the receipt of all required
federal regulatory approvals not including the lapse of any statutory waiting
periods, or (D) a proxy statement shall be distributed soliciting proxies
from stockholders of the Holding Company, by someone other than the current
management of the Holding Company, seeking stockholder approval of a plan of
reorganization, merger or consolidation of the Holding Company or Institution
with one or more corporations as a result of which the outstanding shares of
the class of securities then subject to such plan or transaction are
exchanged for or converted into cash or property or securities not issued by
the Institution or the Holding Company shall be distributed, or (E) a tender
offer is made for 20% or more of the voting securities of the Institution or
Holding Company then outstanding.
(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, Executive shall
be entitled to the benefits provided in paragraphs (c) and (d), of this
Section 5 upon his subsequent termination of employment at any time during
the term of this Agreement due to (i) Executive's dismissal, or (ii)
Executive's voluntary resignation following any material demotion, loss of
title, office or significant authority or responsibility, material reduction
in the annual compensation or benefits or relocation of his principal place
of employment by more than 30 miles from its location immediately prior to
the change in control), unless such termination is because of his death, or
termination for Cause.
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(c) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Holding Company 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 greater of:
(i) the payments due for the remaining term of the Agreement; or (ii) three (3)
times Executive's average annual compensation for the five (5) preceding taxable
years. Such annual compensation shall include Base Salary, commissions,
bonuses, contributions on behalf of Executive to any pension and profit sharing
plan, severance payments, directors or committee fees and fringe benefits paid
or to be paid to the Executive during such years. At the election of the
Executive, which election is to be made prior to a Change in Control, such
payment may be made in a lump sum. In the event that no election is made,
payment to the Executive will be made on a monthly basis in approximately equal
installments during the remaining term of the Agreement. Such payments shall
not be reduced in the event Executive obtains other employment following
termination of employment.
(d) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Company will cause to be continued life, health and disability coverage
substantially equivalent to the coverage maintained by the Institution for
Executive at no premium cost to Executive prior to his severance. Such coverage
and payments shall cease upon the expiration of thirty six (36) months following
the Change in Control.
6. CHANGE OF CONTROL RELATED PROVISIONS.
(a) Notwithstanding the paragraphs of Section 5, in the event that:
(i) the aggregate payments or benefits to be made or afforded to
Executive, which are deemed to be parachute payments as defined
in Section 280G of the Internal Revenue Code of 1986, as amended
(the "Code") or any successor thereof, (the "Termination
Benefits") would be deemed to include an "excess parachute
payment" under Section 280G of the Code; and
(ii) if such Termination Benefits were reduced to an amount (the
"Non-Triggering Amount"), the value of which is one dollar
($1.00) less than an amount equal to three (3) times Executive's
"base amount," as determined in accordance with said Section 280G
and the Non-Triggering Amount less the product of the marginal
rate of any applicable state and federal income tax and the Non
Triggering Amount would be greater than the aggregate value of
the Termination Benefits (without such reduction) minus (i) the
amount of tax required to be paid by the Executive thereon by
Section 4999 of the Code and further
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minus (ii) the product of the Termination Benefits and the
marginal rate of any applicable state and federal income tax,
then the Termination Benefits shall be reduced to the Non-Triggering Amount.
The allocation of the reduction required hereby among the Termination Benefits
shall be determined by the Executive.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of a
material loss to the Holding Company or one of its Subsidiaries caused by the
Executive's intentional failure to perform stated duties, personal
dishonesty, willful violation of any law, rule, regulation (other than
traffic violations or similar offenses), 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
Holding Company or its Subsidiaries. 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 Notice of Termination which shall include
a copy of a resolution duly adopted by the affirmative vote of not less than
three-fourths 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 particulars
thereof in detail. The Executive shall not have the right to receive
compensation or other benefits for any period after the Date of Termination.
During the period beginning on the date of the Notice of Termination for
Cause pursuant to Section 8 hereof through the Date of Termination, stock
options and related limited rights granted to Executive under any stock
option plan shall not be exercisable nor shall any unvested awards granted to
Executive under any stock benefit plan of the Holding Company or its
Subsidiaries vest. At the Date of Termination, such stock options and
related limited rights and such unvested awards shall become null and void
and shall not be exercisable by or delivered to Executive at any time
subsequent to such Date of Termination for Cause.
8. NOTICE.
(a) Any purported termination by the Holding Company 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.
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(b) "Date of Termination" shall mean 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 the 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 therefrom 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 Company 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.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Holding Company. Executive shall, upon
reasonable notice, furnish such information and assistance to the Holding
Company as may reasonably be required by the Holding Company in connection with
any litigation in which it or any of its subsidiaries or affiliates is, or may
become, a party.
10. NON-COMPETITION.
(a) Upon any termination of Executive's employment hereunder pursuant to
Section 4 hereof, Executive agrees not to compete with the Holding Company or
its Subsidiaries for a period of one (1) year following such termination in any
city, town or county in which the Executive's normal business office is located
and the Holding Company or any of its Subsidiaries has an office or has filed an
application for regulatory approval to establish an office, determined as of the
effective date of such termination, except as agreed to pursuant to a
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resolution duly adopted by the Board. 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 Holding Company or its Subsidiaries. The
parties hereto, recognizing that irreparable injury will result to the
Holding Company or its Subsidiaries, its business and property in the event
of Executive's breach of this Subsection 10(a) agree that in the event of any
such breach by Executive, the Holding Company or its Subsidiaries, 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, employees and all persons acting for or under the
direction of Executive. Executive represents and admits that in the event of
the termination of his employment pursuant to Section 7 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
Holding Company or its Subsidiaries, 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 Holding Company or its
Subsidiaries from pursuing any other remedies available to the Holding
Company or its Subsidiaries 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 Holding Company
and its Subsidiaries as it may exist from time to time, is a valuable,
special and unique asset of the business of the Holding Company and its
Subsidiaries. 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 Holding Company and its Subsidiaries thereof to any person,
firm, corporation, or other entity for any reason or purpose whatsoever,
unless expressly authorized by the Board of Directors or required by law.
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 Holding Company. In the event of a breach or threatened breach by the
Executive of the provisions of this Section, the Holding Company 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 Holding Company or its Subsidiaries 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 Holding
Company from pursuing any other remedies available to the Holding Company for
such breach or threatened breach, including the recovery of damages from
Executive.
11. SOURCE OF PAYMENTS.
- 9 -
<PAGE>
(a) All payments provided in this Agreement shall be timely paid in cash
or check from the general funds of the Holding Company subject to Section 11(b).
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement dated ______________,
between Executive and the Institution, such compensation payments and benefits
paid by the Institution will be subtracted from any amount due simultaneously to
Executive under similar provisions of this Agreement.
12. 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 Holding Company or any
predecessor of the Holding Company and Executive, except that this Agreement
shall not affect or operate to reduce any benefit or compensation inuring to the
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.
13. 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 and the Holding Company and their respective successors and assigns.
14. 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 be 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
- 10 -
<PAGE>
waiver of such term or condition for the future as to any act other than that
specifically waived.
15. 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.
16. 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.
17. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Delaware,
unless otherwise specified herein.
18. 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 Executive within
fifty (50) miles from the location of the Institution, 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.
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of the Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of all back-pay, including salary, bonuses and any other cash compensation,
fringe benefits and any compensation and benefits due Executive under this
Agreement.
19. PAYMENT OF LEGAL FEES.
- 11 -
<PAGE>
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 Holding Company, if Executive is successful pursuant to a
legal judgment, arbitration or settlement.
20. INDEMNIFICATION.
The Holding Company 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 Delaware 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 Holding Company (whether or not he continues to be a director
or officer at the time of incurring such expenses or liabilities), such expenses
and liabilities to include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements.
21. SUCCESSOR TO THE HOLDING COMPANY.
The Holding 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 Association or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Holding Company's obligations under this Agreement, in the same manner and to
the same extent that the Holding Company would be required to perform if no such
succession or assignment had taken place.
- 12 -
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, Delphos Citizens Bancorp, Inc., has caused this
Agreement to be executed and its seal to be affixed hereunto by its duly
authorized officer and its directors, and Executive has signed this Agreement,
on the day of _____, 199 .
ATTEST: DELPHOS CITIZENS BANCORP, INC.
By:
- ---------------------- -----------------------------
Secretary
[SEAL]
WITNESS:
By:
- ---------------------- -----------------------------
Executive
- 13 -
<PAGE>
EXHIBIT 23.1 CONSENT OF CROWE CHIZEK AND COMPANY L.L.P.
<PAGE>
CONSENT
We hereby consent to the references to this firm and our opinion in the
Registration Statement on Form S-1 filed by Delphos Citizens Bancorp, Inc.
and all amendments thereto and the Application for Conversion on the Form AC
filed by Citizens Federal Savings and Loan Association of Delphos (the
"Association") and all amendments thereto, relating to the conversion of the
Association from a federally-chartered mutual savings association to a
federally-chartered stock savings bank, the concurrent issuance of the
Association's outstanding capital stock to Delphos Citizens Bancorp, Inc., a
holding company formed for such purpose, and the offering of Delphos Citizens
Bancorp, Inc.'s common stock.
/s/ Crowe, Chizek and Company LLP
Crowe Chizek and Company LLP
August 22, 1996
<PAGE>
EXHIBIT 23.2 CONSENT OF LENTOL, VIOLET, KIENITZ & COMPANY
<PAGE>
ACCOUNTANTS' CONSENT
We consent to the inclusion in the Registration Statement on Form S-1 filed
by Delphos Citizens Bancorp, Inc. of our report dated November 15, 1995 and
July 2, 1996 on the financial statements of Citizens Federal Savings and Loan
Association as of September 30, 1995 and 1994 and for the three year period
ended September 30, 1995. We also consent to the reference to us under the
heading "Experts" in the registration statement.
/s/Lentol, Violet, Kienitz & Company
Lentol, Violet, Kienitz & Company
Lima, Ohio
August 22, 1996
<PAGE>
EXHIBIT 23.3 CONSENT OF MULDOON, MURPHY & FAUCETTE
<PAGE>
CONSENT
We hereby consent to the references to this firm and our opinions in the
Registration Statement on Form S-1 filed by Delphos Citizens Bancorp, Inc. and
all amendments thereto and the Application for Conversion on the Form AC filed
by Citizens Federal Savings and Loan Association of Delphos (the "Association")
and all amendments thereto, relating to the conversion of the Association from a
federally-chartered mutual savings association to a federally-chartered stock
savings bank to be known as Citizens Bank of Delphos, the concurrent issuance of
the Association's outstanding capital stock to Delphos Citizens Bancorp, Inc., a
holding company formed for such purpose, and the offering of Delphos Citizens
Bancorp, Inc.'s common stock.
/s/ MULDOON, MURPHY & FAUCETTE
Dated this 22nd day of
August, 1996
<PAGE>
EXHIBIT 23.4 CONSENT OF MORRIS, NICHOLS, ARSHT & TUNNELL
<PAGE>
[Morris, Nichols, Arsht & Tunnel Letterhead]
August 21, 1996
Muldoon, Murphy & Faucette
5101 Wisconsin Avenue, N.W.
Washington, DC 20016
Ladies and Gentlemen:
We hereby consent to the filing of our opinion to you concerning
certain matters of Delaware law in connection with the subscription and
community offering (the "Offering") by Delphos Citizens Bancorp, Inc., a
Delaware corporation (the "Company"), of shares of its common stock, par
value $.01 per share, in draft or final form, as an exhibit to (i) the
Registration Statement filed with the Securities and Exchange Commission by
the Company in connection with the Offering, and all amendments thereto, and
(ii) the Application for Conversion filed with the Office of Thrift
Supervision in connection with the conversion of Citizens Federal Savings and
Loan Association of Delphos, a federally chartered savings and loan
association, from the mutual form of ownership to stock form of ownership,
and all amendments thereto, and to the reference to this firm in the "Legal
Matters" section of the Prospectus relating to the Offering.
Very truly yours,
/s/ Morris, Nichols, Arsht & Tunnell
<PAGE>
EXHIBIT 23.5 CONSENT AND SUBSCRIPTION RIGHTS OPINION OF KELLER & COMPANY,
INC.
<PAGE>
[LETTERHEAD]
August 21, 1996
Re: Valuation Appraisal of Delphos Citizens Bancorp, Inc./
Citizens Federal Savings and Loan Association
Delphos, Ohio
We hereby consent to the use of our firm's name, Keller & Company, Inc.,
and the reference to our firm as experts in the Application for Approval of
Conversion on Form AC to be filed with the Office of Thrift Supervision on or
about August 22, 1996, and to the statements with respect to us and the
references to our Valuation Appraisal Report in the Prospectus and in the Form
AC and the Form S-1 to be filed with the Securities and Exchange Commission.
Sincerely,
KELLER & COMPANY, INC.
by: /s/ Michael R. Keller
------------------------
Michael R. Keller
President
<PAGE>
[LETTERHEAD]
August 21, 1996
Board of Directors
Citizens Federal Savings and Loan
Association
114 E. Third Street
Delphos, OH 45833
Re: Subscription Rights -- Conversion of Citizens Federal Savings and Loan
Association Delphos, Ohio
Gentlemen:
The purpose of this letter is to provide an opinion of the value of the
subscription rights of the "to be issued" common stock of Delphos Citizens
Bancorp, Inc. ("Delphos" or the "Corporation"), Delphos, Ohio, in regard to the
conversion of Citizens Federal Savings and Loan Association ("Citizens Federal")
from a federally-chartered mutual savings and loan association to a
federally-chartered stock savings and loan association.
Because the Subscription Rights to purchase shares of Common Stock in Citizens
Federal, which are to be issued to the depositors of Citizens Federal and the
other members of Citizens Federal and will be acquired by such recipients
without cost, will be nontransferable and of short duration and will afford the
recipients the right only to purchase shares of Common Stock at the same price
as will be paid by members of the general public in a Direct Community Offering,
we are of the opinion that:
(1) The Subscription Rights will have no ascertainable fair market value,
and;
(2) The price at which the Subscription Rights are exercisable will not be
more or less than the fair market value of the shares on the date of
the exercise.
Further, it is our opinion that the Subscription Rights will have no economic
value on the date of distribution or at the time of exercise, whether or not a
community offering takes place.
Sincerely,
KELLER & COMPANY, INC.
/s/ Michael R. Keller
Michael R. Keller
President
<PAGE>
EXHIBIT 24.1 POWERS OF ATTORNEY
<PAGE>
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints Joseph R. Reinemeyer as the true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities to sign any
or all amendments to the Application for Conversion and the Form S-1
Registration Statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Office of Thrift Supervision
of the Department of the Treasury or the U.S. Securities and Exchange
Commission, respectively, granting unto said attorney-in-fact and agent full
power and authority to do and perform each and every act and things requisite
and necessary to be done as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of Part 563b of the OTS Rules and Regulations
and the Securities Act of 1933, as amended, and any rules and regulations
promulgated thereunder, the foregoing Powers of Attorney prepared in conjunction
with the Application for Conversion and the Form S-1 Registration Statement have
been duly signed by the following persons in the capacities and on the dates
indicated.
NAME DATE
/s/ Joseph R. Reinemeyer August 22, 1996
- ------------------------------------------
Joseph R. Reinemeyer
President, Chief Executive Officer
and Director
(principal executive and accounting officer)
Delphos Citizens Bancorp, Inc.
Chief Executive Officer, President and Director
(principal executive and accounting officer)
Citizens Federal Savings and Loan Association of Delphos
/s/ John F. Helmkamp August 22, 1996
- ------------------------------------------
John F. Helmkamp
Director
Delphos Citizens Bancorp, Inc.
Director
Citizens Federal Savings and Loan Association of Delphos
<PAGE>
/s/ Nancy C. Rumschlag August 22, 1996
- ------------------------------------------
Nancy C. Rumschlag
Vice President and Director
Delphos Citizens Bancorp, Inc.
Vice President and Director
Citizens Federal Savings and Loan Association of Delphos
/s/ P. Douglas Harter August 22, 1996
- ------------------------------------------
P. Douglas Harter
Director
Delphos Citizens Bancorp, Inc.
Director
Citizens Federal Savings and Loan Association of Delphos
/s/ Robert L. Dillhoff August 22, 1996
- ------------------------------------------
Robert L. Dillhoff
Director
Delphos Citizens Bancorp, Inc.
Director
Citizens Federal Savings and Loan Association of Delphos
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FORM THE
FINANCIAL STATEMENTS OF CITIZENS FEDERAL SAVINGS AND LOAN ASSOCIATION AT AND
FOR THE YEAR ENDED SEPTEMBER 30, 1995 AND AT AND FOR EIGHT MONTHS ENDED MAY
31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 8-MOS
<FISCAL-YEAR-END> SEP-30-1995 SEP-30-1996
<PERIOD-START> OCT-01-1994 OCT-01-1995
<PERIOD-END> SEP-30-1995 MAY-31-1996
<CASH> 334,045 1,611,972
<INT-BEARING-DEPOSITS> 3,923,027 3,218,190
<FED-FUNDS-SOLD> 0 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 0 775,139
<INVESTMENTS-CARRYING> 17,920,613 14,646,029
<INVESTMENTS-MARKET> 18,334,058 14,778,886
<LOANS> 64,135,049 69,729,224
<ALLOWANCE> 92,360 92,360
<TOTAL-ASSETS> 88,022,490 91,696,549
<DEPOSITS> 76,664,442 79,097,288
<SHORT-TERM> 0 0
<LIABILITIES-OTHER> 559,162 1,232,635
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 10,798,886 11,366,626
<TOTAL-LIABILITIES-AND-EQUITY> 88,022,490 91,696,549
<INTEREST-LOAN> 4,587,034 3,401,401
<INTEREST-INVEST> 1,336,676 853,298
<INTEREST-OTHER> 293,674 162,210
<INTEREST-TOTAL> 6,217,384 4,416,909
<INTEREST-DEPOSIT> 3,601,490 2,676,059
<INTEREST-EXPENSE> 3,601,490 2,676,059
<INTEREST-INCOME-NET> 2,651,894 1,740,850
<LOAN-LOSSES> 0 0
<SECURITIES-GAINS> 0 8,259
<EXPENSE-OTHER> 1,341,850 1,017,783
<INCOME-PRETAX> 1,424,957 882,242
<INCOME-PRE-EXTRAORDINARY> 944,205 582,242
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 944,205 582,242
<EPS-PRIMARY> 0<F1> 0<F1>
<EPS-DILUTED> 0<F1> 0<F1>
<YIELD-ACTUAL> 7.36 7.53
<LOANS-NON> 250,000 316,000
<LOANS-PAST> 0 0
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 92,360 92,360
<CHARGE-OFFS> 0 0
<RECOVERIES> 0 0
<ALLOWANCE-CLOSE> 92,360 92,360
<ALLOWANCE-DOMESTIC> 81,000 81,000
<ALLOWANCE-FOREIGN> 11,360 11,360
<ALLOWANCE-UNALLOCATED> 92,360 92,360
<FN>
<F1>EARNINGS PER SHARE IS NOT APPLICABLE AS THE ASSOCIATION IS A MUTUAL SAVINGS
ASSOCIATION.
</FN>
</TABLE>
