<PAGE>
As filed with the Securities and Exchange Commission on August 30, 1996
Registration No. 333-
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
PS FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 6035 Applied For
(State or other jurisdiction of incorporation (Primary Standard Industrial (I.R.S. Employer Identification No.)
or organization) Classification Code Number)
</TABLE>
4800 South Pulaski Road, Chicago, Illinois 60632 (312)376-3800
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
-------------------
Kimberly P. Rooney, President and Chief Executive Officer
PS Financial, Inc.
4800 South Pulaski Road
Chicago, Illinois 60632
(312)376-3800
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-------------------
Please send copies of all communications to:
Kip A. Weissman, P.C.
SILVER, FREEDMAN & TAFF, L.L.P.
(A limited liability partnership including professional corporations)
1100 New York Avenue, N.W.
Seventh Floor, East Tower
Washington, DC 20005
(202) 414-6100
-------------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are being offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933 check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=============================================================================================================================
Title of Each Amount Proposed Maximum Proposed Maximum
Class of Securities to be Offering Price Aggregate Offering Amount of
to be Registered Registered(1) Per Share(1) Price(1) Registration Fee
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value 2,182,125 shares $10.00 $21,821,250 $7,525
=============================================================================================================================
</TABLE>
- ------------------------------
(1) Estimated solely for the purpose of calculating the registration fee.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Prospectus
[LOGO]
PS FINANCIAL, INC.
(Proposed Holding Company for Preferred Savings Bank)
$10.00 Per Share
1,897,500 Shares of Common Stock
(Anticipated Maximum)
PS Financial, Inc. (the "Holding Company") is offering up to 1,897,500
shares of common stock, par value $0.01 per share (the "Common Stock"), in
connection with the conversion of Preferred Savings Bank ("Preferred Savings" or
the "Bank") from a federally chartered mutual savings bank to a federally
chartered stock savings bank and the issuance of all of Preferred Savings
outstanding stock to the Holding Company (the "Conversion"). Pursuant to the
Bank's plan of conversion (the "Plan of Conversion" or the "Plan"),
non-transferable rights to subscribe for the Common Stock ("Subscription
Rights") have been given to (i) Preferred Savings' depositors with account
balances of $50 or more as of March 31, 1995 ("Eligible Account Holders"), (ii)
tax-qualified employee plans of Preferred Savings and the Holding Company
("Tax-Qualified Employee Plans"), provided, however, that the Tax-Qualified
Employee Plans shall have first priority Subscription Rights to the extent that
the total number of shares of Common Stock sold in the Conversion exceeds the
maximum of the Estimated Valuation Range as defined below, (iii) Preferred
Savings' depositors with account balances of $50 or more as of September 30,
1996 ("Supplemental Eligible Account Holders"), (iv) certain of its other
members ("Other Members"), and (v) its employees, officers and directors (the
"Subscription Offering"). (continued on next page)
-------------------
FOR INFORMATION ON HOW TO SUBSCRIBE, CALL THE STOCK
INFORMATION CENTER AT (312) ___-____.
-------------------
FOR A DISCUSSION OF CERTAIN FACTORS TO BE CONSIDERED,
SEE "RISK FACTORS" AT PAGE __.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION OR THE FEDERAL DEPOSIT
INSURANCE CORPORATION, NOR HAS SUCH COMMISSION, OFFICE OR CORPORATION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE. THE SHARES OF COMMON
STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
SAVINGS DEPOSITS AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION
OR ANY OTHER GOVERNMENT AGENCY.
<TABLE>
<CAPTION>
====================================================================================================================================
Estimated Underwriting Fees Estimated Net
Purchase Price(1) Commissions and Other Expenses(2) Conversion Proceeds(3)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share(4).................................... $10.00 $.32 $9.68
- ------------------------------------------------------------------------------------------------------------------------------------
Minimum Total................................... $14,025,000 $489,000 $13,536,000
- ------------------------------------------------------------------------------------------------------------------------------------
Midpoint Total.................................. $16,500,000 $520,000 $15,980,000
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Maximum Total................................... $18,975,000 $552,000 $18,423,000
- ------------------------------------------------------------------------------------------------------------------------------------
Maximum Total, As Adjusted(5)................... $21,821,250 $588,000 $21,233,000
====================================================================================================================================
</TABLE>
<PAGE>
- ----------------------
(1) Determined on the basis of an appraisal prepared by Keller & Company, Inc.
("Keller") dated August __, 1996, which states that the estimated pro forma
market value of the Common Stock ranged from $14,025,000 to $18,975,000 or
between 1,402,500 shares and 1,897,500 shares, of Common Stock at $10.00 per
share. See "The Conversion - Stock Pricing and Number of Shares to be
Issued."
(2) Consists of the estimated costs to the Bank and the Holding Company arising
from the Conversion, including the payment to Charles Webb & Company, a
Division of Keefe, Bruyette & Woods, Inc. (" Webb") of estimated expenses of
$40,000 and estimated sales commissions ranging from $195,000 (at the
minimum) to $270,000 (at the maximum) in connection with the sale of shares
in the Offering. Such fees may be deemed to be underwriting fees. See "Use
of Proceeds" and "Pro Forma Data" for the assumptions used to arrive at
these estimates. The Holding Company has agreed to indemnify Webb against
certain liabilities, including liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act"). See "The Conversion - Marketing
Arrangements" for a more detailed description of underwriting fees and
expenses.
(3) Net Conversion proceeds may vary from the estimated amounts, depending on
the Purchase Price, the number of shares issued and the number of shares
sold subject to commissions. The Purchase Price and the actual number of
shares of Common Stock to be issued in the Conversion will not be determined
until after the close of the Offering.
(4) Assumes the sale of the midpoint number of shares. If the minimum, maximum
or 15% above the maximum number of shares are sold, estimated expenses per
share would be $.35, $.28 or $.27, respectively, resulting in estimated net
Conversion proceeds per share of $9.65, $9.72 or $9.73, respectively.
(5) As adjusted to give effect to the sale of up to an additional 284,625 shares
(15% above the maximum of the Estimated Valuation Range) which may be
offered in the Conversion without the resolicitation of subscribers or any
right of cancellation, to reflect changes in market and financial conditions
following the commencement of the Offering. See "Pro Forma Data," and "The
Conversion - Stock Pricing and Number of Shares to be Issued."
Charles Webb & Company
A Division of Keefe, Bruyette & Woods, Inc.
The date of this Prospectus is _______________, 1996
<PAGE>
(continued from prior page)
Subscription Rights are non-transferrable. Persons found to be selling or
otherwise transferring their right to purchase stock in the Subscription
Offering or purchasing Common Stock on behalf of another person will be subject
to forfeiture of such rights and possible further sanctions and penalties
imposed by the Office of Thrift Supervision (the "OTS"), an agency of the United
States Government. Subject to the prior rights of holders of Subscription Rights
and to market conditions, the Holding Company may also offer the Common Stock
for sale through Webb in a public offering to selected persons to whom this
prospectus is delivered (the "Public Offering" and when referred to together
with the Subscription Offering, the "Offering"). Depending on market conditions
and availability of shares, the shares of Common Stock may be offered for sale
in the Public Offering on a best-efforts basis by a selling group of selected
broker-dealers to be managed by Webb. The Bank and the Holding Company reserve
the right, in their absolute discretion, to accept or reject, in whole or in
part, any or all orders in the Public Offering.
The total number of shares to be issued in the Conversion will be based
upon an appraised valuation of the estimated aggregate pro forma market value of
the Holding Company and the Bank as converted. The purchase price per share
("Purchase Price") has been fixed at $10.00. Based on the current aggregate
valuation range of $14,025,000 to $18,975,000 (the "Estimated Valuation Range"),
the Holding Company is offering up to 1,897,500 shares. Depending upon the
market and financial conditions at the time of the completion of the Public
Offering, if any, the total number of shares to be issued in the Conversion may
be increased or decreased from the _________ shares offered hereby, provided
that the product of the total number of shares multiplied by the price per share
remains within, or does not exceed by more than 15% the maximum of the Estimated
Valuation Range. If the aggregate Purchase Price of the Common Stock sold in the
Conversion is below $14,025,000 or above $21,821,250, or if the Offering is
extended beyond __________________, subscribers will be permitted to modify or
cancel their subscriptions and to have their subscription funds returned
promptly with interest. Under such circumstances, if subscribers take no action,
their subscription funds will be promptly returned to them with interest. In all
other circumstances, subscriptions are irrevocable by subscribers. See "The
Conversion - Offering of Holding Company Common Stock."
With the exception of the Tax-Qualified Employee Plans, no Eligible Account
Holder, Supplemental Eligible Account Holder or Other Member may purchase in
their capacity as such in the Subscription Offering more than $150,000 of Common
Stock; no person, together with associates of and persons acting in concert with
such person, may purchase more than $150,000 of Common Stock in the Public
Offering and no person, together with associates of and persons acting in
concert with such person, may purchase more than $900,000 of Common Stock
offered in the Conversion based on the Estimated Valuation Range (as calculated
without giving effect to any increase in the Estimated Valuation Range
subsequent to the date hereof). Under certain circumstances, the maximum
purchase limitations may be increased or decreased at the sole discretion of the
Bank and the Holding Company up to 9.99% of the total number of shares of Common
Stock sold in the Conversion or to one percent of shares of Common Stock offered
in the Conversion. The minimum purchase is 25 shares. See "The Conversion -
Additional Purchase Restrictions." The Bank and the Holding Company have engaged
Webb as financial advisor and agent to consult, advise and assist in the
distribution of shares of Common Stock, on a best-efforts basis in the Offering
including, if necessary, managing selected broker-dealers to assist in selling
stock in the Public Offering. For such services, Webb will receive a marketing
fee of 1.5% of the total dollar amount of Common Stock sold in the Conversion,
excluding purchases by directors, officers, employees and their immediate family
members, and the employee stock ownership and benefit plans of the Bank and the
Holding Company. If selected dealers are used, the selected dealers will receive
a fee estimated to be up to 5.5% of the aggregate Purchase Price for all shares
of Common Stock sold in the Offering through such selected dealers. Such fees
may be deemed to be underwriting commissions. Webb and the selected dealers may
be deemed to be underwriters. See "The Conversion - Marketing Arrangements" and
"The Conversion Offering of Holding Company Common Stock."
To subscribe for shares of Common Stock in the Subscription Offering, the
Holding Company must receive an order form and certification form, together with
full payment at $10.00 per share (or appropriate instructions authorizing a
withdrawal from a deposit account at the Bank) for all shares for which
subscription is made, at any office of the Bank, by noon, Chicago, Illinois
time, on _____________, 1996, unless the Subscription Offering is extended, at
the discretion of the Board of Directors, up to an additional 45 days with the
approval of the OTS, if necessary, but without additional notice to subscribers
(the "Expiration Date"). The date by which orders must be received in the Public
Offering, if any, will be set by the Holding Company at the time of such
offering provided that, if the Offering is extended beyond __________________,
each subscriber will have the right to modify or rescind his or her
subscription. Subscription funds will be returned promptly with interest to each
subscriber unless he or she affirmatively indicates otherwise. See "The
Conversion - Offering of Holding Company Common Stock." Subscriptions paid by
check, bank draft or money order will be placed in a segregated account at the
Bank and will earn interest at the Bank's passbook rate from the date of receipt
until completion or termination of the Conversion. Payments authorized by
withdrawal from deposit accounts at the Bank 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. Authorized
withdrawals from certificate accounts for the purchase of Common Stock will be
permitted without the imposition of early withdrawal penalties or loss of
interest.
<PAGE>
The Holding Company has received preliminary approval to have the Common
Stock listed on the Nasdaq National Market under the symbol "____." 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 resales of the Common Stock can be made at or above
the Purchase Price. See "Market for Common Stock" and "The Conversion - Stock
Pricing and Number of Shares to be Issued."
2
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[MAP TO COME]
3
<PAGE>
PROSPECTUS SUMMARY
The following summary does not purport to be complete and is qualified
in its entirety by the de tailed information and Consolidated Financial
Statements appearing elsewhere herein.
PS Financial, Inc.
The Holding Company, PS Financial, Inc. was recently formed by
Preferred Savings under the laws of Delaware for the purpose of becoming a
savings and loan holding company which will own all of the outstanding capital
stock that Preferred Savings will issue in connection with the Conversion.
Immediately following the Conversion, the only significant assets of the Holding
Company will be the capital stock of Preferred Savings, a note evidencing the
Holding Company's loan to the ESOP and up to approximately 50% of the net
proceeds from the Conversion. See "Use of Proceeds." Upon completion of the
Conversion, the Holding Company's business initially will consist only of the
business of Preferred Savings. See "PS Financial, Inc."
Preferred Savings
General. Preferred Savings is a federally chartered mutual savings bank
headquartered in Chicago, Illinois. Preferred Savings currently serves the
financial needs of communities in its market area through its office located at
4800 South Pulaski Road, Chicago, Illinois 60632-4195. Its deposits are insured
up to applicable limits by the Federal Deposit Insurance Corporation ("FDIC").
At May 31, 1996, Preferred Savings had total assets of $54.9 million, deposits
of $41.9 million and total retained earnings of $12.0 million (or 21.9% of total
assets).
Preferred Savings' business involves attracting deposits from the
general public and using such deposits, together with other funds, to originate
primarily one- to four-family residential mortgage and, to a much lesser extent,
multi-family, commercial real estate and consumer loans primarily in its market
area. At May 31, 1996, $26.2 million, or 71.8%, of the Bank's total loan
portfolio consisted of one- to four-family residential mortgage loans. The Bank
also invests in mortgage-backed and other securities and other permissible
investments. See "Business - Investment Activities - Securities" and
"- Mortgage - Backed and Related Securities."
Financial and operational highlights of the Bank include the following:
o Capital Strength. At May 31, 1996, the Bank had total equity of $12.0
million (21.9% of total assets) and substantially exceeded all of the
applicable regulatory capital requirements with tangible, core and
risk-based capital ratios of 22.1%, 22.1% and 57.1%, respectively.
Assuming on a pro forma basis that $16.5 million, the midpoint of the
Estimated Valuation Range, of shares were sold in the Conversion and
approximately 50% of the net proceeds were retained by the Holding
Company, as of May 31, 1996, the Bank's capital would have been $18.1
million (29.8% of assets). See "Pro Forma Regulatory Capital Analysis."
o Profitability. Preferred Savings recorded net income of $883,000 and
$1.0 million, respectively, and a return on assets of 1.74% and 1.96%,
respectively, for the years ended February 29, 1992 and February 28,
1993. The Bank recorded net income of $942,000 and a return on assets
of 1.83% for the ten months ended December 31, 1993, and net income of
$758,000 and $1.1 million, respectively, and a return on assets of
1.46% and 1.99%, respectively for the years ended December 31, 1994 and
1995. For the five months ended May 31, 1996, the Bank had net income
of $440,000 which represents a return on assets (annualized) of 1.94%.
The Bank's net interest margin has consistently exceeded its ratio of
operating expense to average total assets. During the five months ended
May 31, 1996, the Bank's net interest margin was 5.09% while its ratio
of operating expense to average total assets (annualized) was 1.56%,
respectively.
4
<PAGE>
o Interest Rate Sensitivity. The Bank'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
and interest expense. In managing its asset/liability mix, Preferred
Savings often, depending on the relationship between long and
short-term interest rates, market conditions and consumer preference,
places greater emphasis on maximizing its net interest margin than on
matching the interest rate sensitivity of its assets and liabilities.
At May 31, 1996, the Bank's liabilities anticipated to reprice within
one year exceeded its assets anticipated to similarly reprice by $25.8
million or 47.1% of assets. At May 31, 1996, the net value of the
Bank's portfolio equity was projected to decline by 14% and 32% if
there were instantaneous increases in interest rates of 200 and 400
basis points, respectively. See "Risk Factors - Interest Rate Risk
Exposure" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Asset/Liability Management."
o Core Deposits. Management believes that the "core" portions of the
Bank's regular savings and money market accounts can have a lower cost
and be more resistant to interest rate changes than certificate
accounts. Accordingly, the Bank uses customer service initiatives in an
attempt to maintain and expand these accounts. However, the Bank's
regular savings and money market accounts decreased $1.7 million from
fiscal 1994 to fiscal 1995. Management believes that most of this
outflow represents the most interest rate sensitive portion of such
accounts (indeed, a substantial portion of the outflow is believed to
have been reinvested into certificates of deposit at the Bank) and that
a majority of the remaining balance represents the less interest rate
sensitive portion thereof. At May 31, 1996, $21.6 million, or 51.6% of
the Bank's total deposits, consisted of regular savings and money
market accounts.
The Conversion
The Offering is being made in connection with the conversion of Preferred
Savings from a federally chartered mutual savings bank to a federally chartered
stock savings bank and the formation of PS Financial, Inc. as the holding
company of Preferred Savings. The Conversion is subject to certain conditions,
including the prior approval of the Plan by the Bank's members at a Special
Meeting to be held on ____________, 1996. After the Conversion, the Bank's
current voting members (who include certain deposit account holders and
borrowers) will have no voting rights in Preferred Savings and will have no
voting rights in the Holding Company unless they become Holding Company
stockholders. Eligible Account Holders and Supplemental Eligible Account
Holders, however, will have certain liquidation rights in the Bank. See "The
Conversion - Effects of Conversion to Stock Form on Depositors and Borrowers of
the Bank - Liquidation Rights."
The Offering. The shares of Common Stock to be issued in the Conversion
are being offered at a Purchase Price of $10.00 per share in the Subscription
Offering pursuant to nontransferable Subscription Rights in the following order
of priority: (i) Eligible Account Holders (i.e., depositors whose accounts in
the Bank totaled $50.00 or more on March 31, 1995); (ii) Tax-Qualified Employee
Plans; provided, however, that the Tax Qualified Employee Plans shall have first
priority Subscription Rights to the extent that the total number of shares of
Common Stock sold in the Conversion exceeds the maximum of the Estimated
Valuation Range; (iii) Supplemental Eligible Account Holders (i.e., depositors
whose accounts in the Bank totaled $50.00 or more on September 30, 1996); (iv)
Other Members (i.e., depositors of the Bank as of ___________, 1996); and (v)
employees, officers and directors of the Bank. Subscription Rights received in
any of the foregoing categories will be subordinated to the Subscription Rights
received by those in a prior category. Subscription Rights will expire if not
exercised by noon, Chicago, Illinois time, on _______________, 1996, unless
extended (the "Expiration Date").
5
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Subject to the prior rights of holders of Subscription Rights and market
conditions at or near the completion of the Subscription Offering, any shares of
Common Stock not subscribed for in the Subscription Offering may be offered at
the same price in the Public Offering through Webb to selected persons to whom
this prospectus is delivered. To order Common Stock in connection with the
Public Offering, if any, an executed stock order and account withdrawal
authorization and certification must be received by Webb prior to the
termination of the Public Offering. The date by which orders must be received in
the Public Offering, if any, will be set by the Holding Company at the time of
such offering provided that if the Offering is extended beyond _______________,
1996, each subscriber will have the right to modify or rescind his or her
subscription. The Holding Company and the Bank reserve the absolute right to
accept or reject any orders in the Public Offering, in whole or in part.
If necessary, shares of Common Stock may also be offered in connection
with the Public Offering for sale on a best-efforts basis by selected dealers
managed by Webb. See "The Conversion - Public Offering."
The Bank and the Holding Company have engaged Webb to consult with and
advise the Holding Company and the Bank with respect to the Offering, and Webb
has agreed to solicit subscriptions and purchase orders for shares of Common
Stock in the Offering. Neither Webb nor any selected broker-dealers will have
any obligation to purchase shares of Common Stock in the Offering. Webb will
receive for its services a marketing fee of 1.5% of the total dollar amount of
Common Stock sold in the Conversion (excluding purchases by directors, officers,
employees and members of their immediate families and the employee benefit plans
of the Holding Company and for the Bank, and shares sold by selected
broker-dealers). To the extent selected broker-dealers are utilized in
connection with the sale of shares in the Public Offering, the selected dealers
will receive a fee of up to 4.5% and Webb will receive a fee of 1.0% of the
aggregate Purchase Price for all shares of Common Stock sold through such
broker-dealers. Webb will also receive certain expense reimbursements in
connection with the Offering. The Holding Company has agreed to indemnify Webb
against certain liabilities, including certain liabilities under the Securities
Act of 1933, as amended ("Securities Act"). See "The Conversion Marketing
Arrangements."
The Bank has established a Stock Information Center, which will be
managed by Webb, to coordinate the Offering, including tabulating orders and
answering questions about the Offering received by telephone. All subscribers
will be instructed to mail payment to the Stock Information Center or deliver
payment directly to the Bank's office. Payment for shares of Common Stock may be
made by cash (if delivered in person), check or money order or by authorization
of withdrawal from deposit accounts maintained with the Bank. Such funds will
not be available for withdrawal and will not be released until the Conversion is
completed or terminated. See "The Conversion - Method of Payment for
Subscriptions."
Purchase Limitations. The Plan of Conversion places limitations on the
number of shares which may be purchased in the Conversion by various categories
of persons. With the exception of the Tax-Qualified Employee Plans, no Eligible
Account Holder, Supplemental Eligible Account Holder, Other Member or director,
officer or employee may purchase in their capacity as such in the Subscription
Offering more than $150,000 of Common Stock; no person, together with associates
of and persons acting in concert with such person, may purchase more than
$150,000 of Common Stock in the Public Offering; and no person or group of
persons acting in concert (other than the Tax-Qualified Employee Plans) may
purchase more than $900,000 of Common Stock in the Conversion. The minimum
purchase limitation is 25 shares of Common Stock. These purchase limits may be
increased or decreased consistent with the Office of Thrift Supervision ("OTS")
regulations at the sole discretion of the Holding Company and the Bank. See "The
Conversion - Offering of Holding Company Common Stock."
6
<PAGE>
Restrictions on Transfer of Subscription Rights. 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. Persons found to be selling or otherwise transferring their
right to purchase stock in the Subscription Offering or purchasing Common Stock
on behalf of another person will be subject to forfeiture of such rights and
possible federal penalties and sanctions. See "The Conversion - Restrictions on
Transfer of Subscription Rights and Shares."
Stock Pricing and Number of Shares of Common Stock to be Issued in the
Conversion. The Purchase Price of the Common Stock is $10.00 per share and is
the same for all purchasers. The aggregate pro forma market value of the Holding
Company and Preferred Savings, as converted, was estimated by Keller, which is
experienced in appraising converting thrift institutions, to be the Estimated
Valuation Range. The Board of Directors has reviewed the Estimated Valuation
Range as stated in the appraisal and compared it with recent stock trading
prices as well as other recent pro forma market value estimates. The Board of
Directors has also reviewed the appraisal report, including the assumptions and
methodology utilized therein, and determined that it was not unreasonable.
Depending on market and financial conditions at the time of the
completion of the Offering, the total number of shares of Common Stock to be
issued in the Conversion may be increased or decreased significantly from the
1,897,500 shares offered hereby and the Purchase Price may be decreased.
However, subscribers will be permitted to modify or rescind their subscriptions
if the product of the total number of shares to be issued multiplied by the
price per share is less than $14,025,000 or more than $21,821,250. The appraisal
is not intended to be, and must not be interpreted as, a recommendation of any
kind as to the advisability of voting to approve the Conversion or of purchasing
shares of Common Stock. The appraisal considers Preferred Savings and the
Holding Company only as going concerns and should not be considered as any
indication of the liquidation value of Preferred Savings or the Holding Company.
Moreover, the appraisal is necessarily based on many factors which change from
time to time. There can be no assurance that persons who purchase shares in the
Conversion will be able to sell such shares at prices at or above the Purchase
Price. See "Pro Forma Data" and "The Conversion - Stock Pricing and Number of
Shares to be Issued" for a description of the manner in which such valuation was
made and the limitations on its use.
Purchases by Directors and Executive Officers
The directors and executive officers of Preferred Savings intend to
purchase, for investment purposes and at the same price as the shares are sold
to other investors in the Conversion, approximately $950,000 of Common Stock, or
6.8%, 5.8% or 5.0% of the shares to be sold in the Conversion at the minimum,
midpoint and maximum of the Estimated Valuation Range, respectively. In
addition, an amount of shares equal to an aggregate of 8% of the shares to be
issued in the Conversion is anticipated to be purchased by the ESOP. See "The
Conversion - Participation by the Board and Executive Officers."
Potential Benefits of Conversion to Directors and Executive Officers
Employee Stock Ownership Plan. The Board of Directors of the Bank has
adopted an ESOP, a tax-qualified employee benefit plan for officers and
employees of the Holding Company and the Bank. The ESOP intends to buy up to 8%
of the Common Stock issued in the Conversion (approximately $1.1 million to $1.5
million of the Common Stock based on the issuance of the minimum and the maximum
of the Estimated Valuation Range and the $10.00 per share Purchase Price). The
ESOP will purchase the shares with funds borrowed from the Holding Company, and
it is anticipated that the ESOP will repay the loans through periodic
tax-deductible contributions from the Bank over a twelve-year period. These
7
<PAGE>
contributions will increase the compensation expense of the Bank. See
"Management - Benefit Plans Employee Stock Ownership Plan" for a description of
this plan.
Stock Option and Incentive Plan and Recognition and Retention Plan. The
Board of Directors of the Holding Company intends to adopt a Stock Option and
Incentive Plan (the "Stock Option Plan") and a Recognition and Retention Plan
("RRP") to become effective upon ratification by stockholders following the
Conversion. Certain of the directors and executive officers of the Holding
Company and the Bank will receive awards under these plans. It is currently
anticipated that an amount of shares equal to 10% and 4% of the shares sold in
the Conversion will be reserved for issuance under the Stock Option Plan and
RRP, respectively. Depending upon market conditions in the future, the Holding
Company may purchase shares in the open market to fund these plans. See
"Management - Benefit Plans" for a description of these plans.
Under the proposed Stock Option Plan, it is presently intended that the
directors and executive officers be granted options to purchase, in addition to
the shares to be issued in the Conversion, an amount of shares equal to 9.2% of
the shares sold in the Conversion (or 129,030 and 174,570 shares, respectively,
of Common Stock based on the minimum and maximum of the Estimated Valuation
Range) at an exercise price equal to the market value per share of the Common
Stock on the date of grant. Such options will be awarded at no expense to the
recipients and pose no financial risk to the recipients until exercised. It is
presently anticipated that Kimberly P. Rooney, President and Chief Executive
Officer, will each receive an option to purchase an amount of shares equal to
2.5% of the shares sold in the Conversion (or 35,063 and 47,438 shares, assuming
the minimum and maximum of the Estimated Valuation Range). See "Management -
Benefit Plans - Stock Option and Incentive Plan."
The award and exercise of options pursuant to the Stock Option Plan will
not result in any expense to the Holding Company; however, when the options are
exercised, the per share earnings and book value of existing stockholders will
likely be diluted.
It is also intended that directors and executive officers be granted
(without any requirement of payment by the grantee) an amount of shares of
restricted stock awards equal to 3.7% of the shares sold in the Conversion (or
51,893 and 70,208 shares, respectively, based on the minimum and maximum of the
Estimated Valuation Range) which will vest over five years commencing one year
from stockholder ratification and which will have a total value of $518,930 and
$702,080 based on the Purchase Price of $10.00 per share at the minimum and
maximum of the Estimated Valuation Range, respectively. It is presently
anticipated that President Rooney and Chairman Ptak each will receive a
restricted stock award equal to 1.0% of the shares sold in the Conversion (or
14,025 and 18,975 shares, assuming the minimum and maximum of the Estimated
Valuation Range). The restricted stock award to President Rooney and Chairman
Ptak each would have an aggregate value ranging from $140,250 to $189,750 (at
the minimum and maximum of the Estimated Valuation Range) based upon the
original Purchase Price of $10.00 per share. See "Risk Factors - Takeover
Defensive Provisions" and "Management - Benefit Plans Recognition and Retention
Plan."
Following stockholder ratification of the RRP, the RRP will be funded
either with shares purchased in the open market or with authorized but unissued
shares. Based upon the Purchase Price of $10.00 per share, the amount required
to fund the RRP through open-market purchases would range from approximately
$561,000 (based upon the sale of shares at the minimum of the Estimated
Valuation Range) to approximately $759,000 (based upon the sale of shares at the
maximum of the Estimated Valuation Range). In the event that the per share price
of the Common Stock increases above the $10.00 per share Purchase Price
following completion of the Offering, the amount necessary to fund the RRP would
also increase. The expense related to the cost of the RRP will be recognized
over the five-year vesting period of the awards made pursuant to such plan. The
use of authorized but unissued shares to fund the RRP
8
<PAGE>
would dilute the holdings of stockholders who purchase Common Stock in the
Conversion. See Management - Benefit Plans - Recognition and Retention Plan."
The Holding Company intends to submit the RRP and the Stock Option Plan
to stockholders for ratification following completion of the Offering, but in no
event prior to six months following the completion of the Conversion. These
plans will only be effective if ratified by the stockholders. In the event the
Stock Option Plan and the RRP are not ratified by stockholders, management may
consider the adoption of alternate incentive plans, although no such plans are
currently contemplated. While the Bank believes that the RRP and the Stock
Option Plan will provide important incentives for the performance and retention
of management, the Bank has no reason to believe that the failure to obtain
shareholder ratification of such plans would result in the departure of any
members of senior management.
Employment and Severance Agreements. The Bank intends to enter into
employment agreements with Chairman Ptak and President Rooney. It is anticipated
that the agreements will provide for a salary equal to the employee's current
salary, will have an initial term of three years, subject to annual extension
for an additional year following the Bank's annual performance review and will
become effective upon the completion of the Conversion. Under certain
circumstances including a change in control, as defined in the employment
agreements, the employee will be entitled to a severance payment in lieu of
salary equal to a percentage of his base amount of compensation, as defined. See
"Management - Executive Compensation."
The Bank also intends to enter into change in control severance
agreements with three other executive officers. Such agreements have initial
terms of 12 months and become effective upon completion of the Conversion. In
the event the officer is terminated following a "change in control" (as defined
in the agreements) such officer will be entitled to a severance payment equal to
$40,000. See "Management - Executive Compensation - Employment Agreements and
Severance Agreements" for the definition of "change in control" and a more
detailed description of these agreements.
Use of Proceeds
The net proceeds from the sale of Common Stock in the Conversion
(estimated at $13.5 million, $16.0 million, $18.4 million and $21.2 million
based on sales at the minimum, midpoint, maximum and 15% above the maximum of
the Estimated Valuation Range, respectively) will substantially increase the
capital of Preferred Savings. See "Pro Forma Data." The Holding Company will
utilize approximately 50% of the net proceeds from the issuance of the Common
Stock to purchase all of the common stock of Preferred Savings to be issued upon
Conversion and will retain approximately 50% of the net proceeds. The proceeds
retained by the Holding Company will be invested initially in short-term
investments similar to those currently in the Bank's portfolio. Such proceeds
will subsequently be invested in mortgage-backed securities and investment
securities and will be available for general corporate purposes, including the
possible repurchase of shares of the Common Stock, as permitted by the OTS. The
Holding Company currently has no specific plan to make any such repurchases of
any of its Common Stock. In addition, the Holding Company intends to provide the
funding for the ESOP loan. Based upon the initial Purchase Price of $10.00 per
share, the dollar amount of the ESOP loan would range from $1.1 million (based
upon the sale of shares at the minimum of the Estimated Valuation Range) to $1.5
million (based upon the sale of shares at the maximum of the Estimated Valuation
Range). The interest rate to be charged by the Holding Company on the ESOP loan
will be based upon the Internal Revenue Service ("IRS") prescribed applicable
federal rate at the time of origination.
Finally, the Holding Company currently intends to use a portion of the
proceeds to fund a Recognition and Retention Plan ("RRP"), subject to
stockholder ratification. Following stockholder
9
<PAGE>
ratification of the RRP, the RRP will be funded either with shares purchased in
the open market or with authorized but unissued shares. Based upon the Purchase
Price of $10.00 per share, the amount required to fund the RRP through
open-market purchases would range from approximately $561,000 (based upon the
sale of shares at the minimum of the Estimated Valuation Range) to approximately
$759,000 (based upon the sale of shares at the maximum of the Estimated
Valuation Range). In the event that the per share price of the Common Stock
increases above the $10.00 per share Purchase Price following completion of the
Offering, the amount necessary to fund the RRP would also increase. The use of
authorized but unissued shares to fund the RRP could dilute the holdings of
stockholders who purchase Common Stock in the Conversion. See "Management -
Benefit Plans - Recognition and Retention Plan."
The net proceeds received by Preferred Savings will become part of
Preferred Savings' general funds for use in its business and will be used to
support the Bank's existing operations, subject to applicable regulatory
restrictions. Immediately upon the completion of the Conversion, it is
anticipated that the Bank will invest such proceeds into short-term assets.
Subsequently, the Bank intends to redirect the net proceeds to the origination
of residential loans and, to a lesser extent, commercial real estate and
consumer loans, subject to market conditions. In addition, such proceeds will be
available for the acquisition of deposits or assets or both from other
institutions, although no such acquisitions are contemplated at this time.
See "Use of Proceeds" for additional information on the utilization of
the offering proceeds as well as OTS restrictions on repurchases of the Holding
Company's stock.
Dividends
After completion of the Conversion, the Board may consider a policy of
paying quarterly cash dividends on the Common Stock, although there can be no
assurance as to whether or when the Holding Company will pay a dividend. The
declaration and payment of dividends are subject to, among other things, the
Holding Company's financial condition and results of operations, Preferred
Savings' compliance with its regulatory capital requirements, including the
fully phased-in capital requirements, tax considerations, industry standards,
economic conditions, regulatory restrictions, general business practices and
other factors. See "Dividends."
Market for Common Stock
The Holding Company has received preliminary approval to have the Common
Stock traded on the Nasdaq National Market System under the symbol "____." In
order to be traded on the Nasdaq National Market System, there must be at least
two market makers for the Common Stock. Keefe, Bruyette & Woods has indicated
its intention to make a market in the Holding Company's Common Stock following
completion of the Conversion, depending upon the volume of trading activity in
the Common Stock and subject to compliance with applicable laws and other
regulatory requirements. A second market marker has not yet been secured by the
Holding Company. The Holding Company anticipates that it will be able to secure
the two market makers necessary to enable the Common Stock to be traded on the
Nasdaq National Market System. A public market having the desirable
characteristics of depth, liquidity and orderliness, however, depends upon the
presence in the marketplace of both willing buyers and sellers of the Common
Stock at any given time, which is not within the control of the Holding Company,
Preferred Savings or any market maker. Further, no assurance can be given that
an investor will be able to resell the Common Stock at or above the Purchase
Price after the Conversion. See "Market for Common Stock" and "The Conversion -
Stock Pricing and Number of Shares to be Issued."
10
<PAGE>
Risk Factors
See "Risk Factors" for information regarding certain factors which should
be considered by prospective investors, including the Bank's limited growth
potential, difficulty in fully leveraging capital, interest rate risk exposure,
loan concentration, competition, the competitive disadvantage resulting from the
insurance premium disparity, takeover defensive provisions contained in the
Holding Company's certificate of incorporation and bylaws, post-conversion
overhead expenses, regulatory oversight, the risk of a delayed offering, the
absence of an active market for the Common Stock and the possible consequences
of amendment of the Plan of Conversion.
11
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
December 31,
May 31, ----------------------------------------- February 28, February 29,
1996 1995 1994 1993 1993 1992
---------- -------- --------- -------- --------- -----------
(In Thousands)
Selected Financial Condition Data:
- ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total assets........................... $54,853 $53,520 $51,619 $53,854 $49,974 $46,483
Cash and cash equivalents.............. 2,871 3,754 1,429 5,874 2,445 5,697
Loans receivable, net.................. 35,702 34,525 32,890 30,821 32,716 31,706
Mortgage-backed securities:
Held to maturity.................... --- --- 1,792 2,026 --- ---
Available for sale.................. 3,884 4,220 1,694 --- --- ---
Securities:
Held to maturity.................... --- --- 201 403 855 607
Available for sale.................. 11,058 9,739 7,326 9,044 8,652 3,398
Deposits............................... 41,945 41,047 40,057 41,139 40,363 37,950
Total equity........................... 12,029 11,724 10,512 9,645 8,833 7,898
Five Months Year Ended 10 Months Year Ended
Ended May 31, December 31, Ended ----------------------
----------------------- ---------------------- December 31, February 28, February 29,
1996 1995 1995 1994 1993 1993 1992
--------- ---------- ---------- -------- --------- ---------- -----------
(In Thousands)
Selected Operations Data:
- -------------------------
Total interest income.................. $1,853 $1,758 $4,268 $3,854 $3,401 $4,183 $4,265
Total interest expense................. 725 632 1,632 1,310 1,169 1,734 2,154
------- ------- ------ ------ ------ ------ ------
Net interest income................. 1,128 1,126 2,636 2,544 2,232 2,449 2,111
Provision for loan losses.............. 50 --- --- 42 27 24 24
------- -------- -------- ------- ------- ------- -------
Net interest income after provision for
loan losses.......................... 1,078 1,126 2,636 2,502 2,205 2,425 2,087
Fees and service charges............... 27 24 58 76 40 39 46
Gain (loss) on sales of securities..... --- --- --- (365) (28) --- 89
Other non-interest income.............. --- --- --- --- --- --- ---
-------- -------- -------- -------- -------- -------- --------
Total non-interest income.............. 27 24 58 (289) 12 39 135
Total non-interest expense............. 353 344 1,009 838 647 820 777
------- ------- ------ ------- ------- ------- -------
Income before taxes.................... 752 806 1,685 1,375 1,570 1,644 1,445
Income tax provision................... 312 317 630 617 628 643 562
------- ------- ------- ------- ------- ------- -------
Net income............................. $ 440 $ 489 $1,055 $ 758 $ 942 $1,001 $ 883
======= ======= ====== ====== ====== ====== ======
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Five Months Year Ended 10 Months Year Ended
Ended May 31, December 31, Ended --------------------------
-------------------- ----------------- December 31, February 28, February 29,
1996 1995 1995 1994 1993 1993 1992
------- -------- -------- -------- --------- --------- --------
Selected Financial Ratios and Other Data:
- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Performance Ratios:
Return on assets (ratio of net income to
average total assets)(1).................... 1.94% 2.25% 1.99% 1.46% 1.83% 1.96% 1.74%
Return on equity (ratio of net income to
average equity)(1).......................... 8.88 10.84 9.42 7.53 10.21 11.82 11.22
Interest rate spread information:
Average during period(1)...................... 4.20 4.54 4.26 4.38 4.78 3.96 2.58
End of period................................. 3.70 4.03 3.71 4.26 3.92 3.79 3.17
Net interest margin(2)(1)..................... 5.09 5.33 5.13 5.03 5.39 4.88 4.25
Efficiency Ratio(3)........................... 30.56 29.91 37.45 37.16 28.83 32.96 34.59
Ratio of operating expense to average total
assets(1)................................... 1.56 1.58 1.91 1.61 1.26 1.60 1.53
Ratio of average interest-earning assets to
average interest-bearing liabilities........127.58 127.06 127.21 125.08 121.78 126.60 138.71
Quality Ratios:
Non-performing assets to total assets at
end of period............................... 1.09 0.43 1.45 0.65 0.33 0.21 0.45
Allowance for loan losses to non-performing
loans....................................... 31.00 60.44 17.55 40.72 53.41 63.21 20.77
Allowance for loan losses to total loans...... 0.51 0.38 0.39 0.41 0.30 0.20 0.13
Capital Ratios:
Equity to total assets at end of period....... 21.93 21.07 21.91 20.36 17.91 17.68 16.99
Average equity to average assets.............. 21.86 20.75 21.18 19.32 17.93 16.56 15.51
</TABLE>
- ----------
(1) Ratios for the five-month and ten month periods have been annualized.
(2) Net interest income divided by average interest earning assets.
(3) The efficiency ratio represents noninterest expense as a percent of net
interest income and noninterest income before provision for loan losses.
13
<PAGE>
RISK FACTORS
The following factors, in addition to those discussed elsewhere in this
Prospectus, should be considered by investors before deciding whether to
purchase the Common Stock offered in the Offering.
Limited Growth Potential; Difficulty in Fully Leveraging Capital
The Bank experiences strong competition in its local market area in
both originating loans and attracting depositor accounts. This competition
arises principally from savings institutions and commercial banks as well as
other types of financial service companies such as mortgage bankers, securities
firms and credit unions. See "Business - Lending Activities" and
"- Competition."
In view of the increasing cost and complexity of operating a financial
institution, the Board of Directors believes that moderate growth of the Bank's
assets and liabilities is important for maintaining profitability. In addition,
the Board of Directors believes that growth will be needed in the future to
leverage the new capital raised by the Conversion. See "Use of Proceeds."
The Bank's net loans have grown from $31.7 million at February 29, 1992
to $35.7 million at May 31, 1996. Over the same period, the Bank's deposit
growth has been limited. While the Bank intends to increase its marketing
efforts somewhat in order to stimulate loan and deposit growth, in view of the
high level of competition in the Bank's market area and the absence of a branch
office network as well as an adjustable rate residential mortgage loan product
and secondary market activities, the Board believes that future internal growth
can be effectively sustained only at modest levels. As a result, the Bank's
ability to quickly leverage the net proceeds from the Conversion is likely to be
limited. Accordingly, for the near term, return on equity will decline from
current levels. See "Pro Forma Income and Equity Data" and "Use of Proceeds."
Interest Rate Risk Exposure
The Bank's profitability 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. When interest
rates rise, the Bank's net interest income tends to be adversely impacted since
its liabilities tend to reprice more quickly than its assets. Conversely, in a
declining rate environment the Bank's net interest income is generally
positively impacted since its assets tend to reprice more slowly than its
liabilities. Changes in the level of interest rates also affect the amount of
loans originated by the Bank and, thus, the amount of loan and commitment fees,
as well as the market value of the Bank's interest-earning assets. Moreover,
increases in interest rates also can result in disintermediation, which is the
flow of funds away from savings institutions into direct investments, such as
corporate securities and other investment vehicles, which generally pay higher
rates of return than savings institutions. Finally, a flattening of the "yield
curve" (i.e., a decline in the difference between long and short term interest
rates), as has occurred over the last several months, could adversely impact net
interest income to the extent that the Bank's assets have a longer average term
than its liabilities.
In managing its asset/liability mix, the Bank may, depending on the
relationship between long- and short-term interest rates, market conditions and
consumer preference and in view of its substantial capital position, place more
emphasis on managing net interest margin than on better matching the interest
rate sensitivity of its assets and liabilities in an effort to enhance net
interest income. In particular, virtually all of the Bank's loans carry fixed
interest rates. Although the Board recently determined to reduce somewhat the
level of tolerated interest rate risk, it continues to believe that the
increased net
14
<PAGE>
interest income resulting from a mismatch in the maturity of its asset and
liability portfolios can, during periods of declining or stable interest rates
and periods in which there is a substantial positive difference between long and
short term interest rates (i.e., a "positively sloped yield curve"), provide
high enough returns to justify the increased exposure to sudden and unexpected
increases in interest rates. As a result, the Bank will continue to be
significantly vulnerable to changes in interest rates and to decreases in the
difference between long and short term interest rates.
At May 31, 1996, the total amount of interest-bearing liabilities
anticipated by the Bank, based on certain assumptions, to mature or reprice
within one year exceeded the total amount of interest-earning assets to mature
or reprice in the same period resulting in a negative cumulative one-year gap
equal to 47.1% of total assets. Because of various shortcomings inherent in
using repricing assumptions in calculating the Bank's gap position, the Banks's
negative gap ratio at May 31, 1996 may not fully reflect the Bank's
vulnerability to increases in interest rates as certain assets and liabilities
may react in different degrees to, or lag behind, changes in market interest
rates even though they have similar maturities or periods to repricing. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Asset/Liability Management."
Loan Concentration in Single Market Area
At May 31, 1996, substantially all of the aggregate principal amount of
the Bank's real estate mortgage loans were secured by properties located in Cook
County, Illinois with a substantial majority of such loans located in the
southwest side of the City of Chicago. While the Bank currently believes that
its loans are sufficiently secured or adequately reserved, in the event that
real estate prices in Cook County substantially weaken or economic conditions in
Cook County decline, it is possible that the value of the real estate may be
insufficient to collateralize the Bank's loans, thus exposing the Bank to risk
of loss. See "Business - Market Area."
Competition
Preferred Savings experiences significant competition in its local
market area in both originating real estate and other loans and attracting
deposits. This competition arises from other savings institutions as well as
commercial banks, mortgage banks, credit unions and national and local
securities firms. The Bank's competitors include many significantly larger
banks, including several large regional banks with offices in the city of
Chicago. Due to their size, these large banks can achieve certain economies of
scale and as a result offer a broader range of products and services than are
currently available at the Bank. The Bank attempts to mitigate its lack of such
an extensive product line by emphasizing customer service. Such competition may
limit Preferred Savings' growth in the future. See "Business - Competition."
Competitive Disadvantage Caused by the Disparity Between BIF and SAIF Insurance
Premiums
Federal law requires that the FDIC maintain reserves at both the
Savings Association Insurance Fund ("SAIF") and the Bank Insurance Fund ("BIF")
of at least 1.25% of insured deposits. The reserves are funded through the
payment of insurance premiums by the insured institution members of each fund.
15
<PAGE>
The BIF reached this level during 1995. Upon attainment of the required reserve
level, the FDIC may reduce insurance premiums applicable to BIF-insured
institutions while retaining the premiums applicable to SAIF members, such as
the Bank, at their current levels until the SAIF reaches its required reserve
level. Proposed federal legislation provides for a one-time assessment of .85%
to .90% of insured deposits to be imposed on all SAIF-insured deposits,
including those held by commercial banks, and for BIF deposit insurance premiums
to be used to pay the Financing Corporation ("FICO") bond interest on a pro rata
basis together with SAIF premiums. If a requirement were implemented as of March
31, 1995 for the Bank to pay a one-time assessment equal to .90% of insured
deposits, the amount of such assessment would have been approximately $360,000
pretax.
In November 1995, the FDIC revised the premium schedule for BIF-insured
banks to provide for a range of 0% to .27% of deposits (as compared to the
current range of .23% to .31% of deposits for SAIF-insured institutions) with an
annual statutory minimum payment of $2,000. As a result of the BIF reaching the
required reserve ratio, the revised premium schedule took effect in January
1996. The FDIC action does not affect the premium rates currently applicable to
SAIF members, such as the Bank, which, as noted above, range from .23% to .31%
of deposits depending on the institution's capital level and other factors. As a
result, BIF members would generally pay lower premiums than SAIF members. While
the magnitude of the competitive advantage of BIF-insured institutions and its
impact on the Bank's results of operations cannot be determined at this time,
the decrease in BIF premiums could place the Bank at a material competitive
disadvantage. The Bank currently qualifies for the minimum SAIF premium level of
.23% of deposits. See "Regulation - Insurance of Accounts and Regulation by the
FDIC."
Takeover Defensive Provisions
Holding Company and Bank Governing Instruments. Certain provisions of
the Holding Company's Certificate of Incorporation and Bylaws assist the Holding
Company in maintaining its status as an independent publicly owned corporation.
These provisions provide for, among other things, limiting voting rights of
beneficial owners of more than 10% of the Common Stock, staggered terms for
directors, noncumulative voting for directors, limits on the calling of special
meetings, a fair price/supermajority vote requirement for certain business
combinations and certain notice requirements. The 10% vote limitation would not
affect the ability of an individual who is not the beneficial owner of more than
10% of the Common Stock to solicit revocable proxies in a public solicitation
for proxies for a particular meeting of stockholders and to vote such proxies.
In addition, provisions in the Bank's federal stock Charter that have an
anti-takeover effect could also be applicable to changes in control of the
Holding Company as the sole shareholder of the Bank. The Bank's Charter includes
a provision applicable for five years which prohibits acquisitions and offers to
acquire, directly or indirectly, the beneficial ownership of more than 10% of
the Bank's securities. Any person violating this restriction may not vote the
Bank's securities in excess of 10%. Any or all of these provisions may
discourage potential proxy contests and other takeover attempts, particularly
those which have not been negotiated with the Board of Directors. In addition,
the Holding Company's certificate of incorporation also authorize preferred
stock with terms to be established by the Board of Directors which may rank
prior to the Common Stock as to dividend rights, liquidation preferences, or
both, may have full or limited voting rights and may have a dilutive effect on
the ownership interests of holders of the Common Stock. See "Restrictions on
Acquisitions of Stock and Related Takeover Defensive Provisions."
Regulatory and Statutory Provisions. Federal regulations prohibit, for
a period of three years following the completion of the Conversion, any person
from offering to acquire or acquiring the beneficial ownership of more than 10%
of the stock of a converted savings institution or its holding company without
prior OTS approval. Federal law also requires OTS approval prior to the
acquisition
16
<PAGE>
of "control" (as defined in OTS regulations) of an insured institution,
including a holding company thereof. See "Restrictions on Acquisitions of Stock
and Related Takeover Defensive Provisions."
Employment Agreements, Severance Agreements and Other Benefit Plans.
The employment agreements, severance agreements, the proposed Stock Option Plan
and the proposed RRP also contain provisions that could have the effect of
discouraging takeover attempts of the Holding Company.
The Bank intends to enter into employment agreements with Chairman Ptak
and President Rooney and severance agreements with three other executive
officers. The employment agreements provide for an annual base salary in an
amount not less than the employee's current salary and an initial term of three
years. The agreements may be extended for an additional year on each annual
anniversary date, but only if such extensions are approved by the Board of
Directors. The employment agreements also provide for payment of the employee's
salary to the employee for the remainder of the term of the agreement, plus an
additional amount, the sum of which will not exceed a percentage of the
employee's base compensation, in the event there is a "change in control" of the
Bank (as defined in the agreement) where employment terminates involuntarily in
connection with such change in control or within 12 months thereafter.
The Bank also intends to enter into change in control severance
agreements with three other executive officers. Such agreements become effective
upon completion of the Conversion and have initial terms of 12 months. In the
event the officer is terminated following a change in control (as defined in the
agreements), such officer will be entitled to a severance payment of $40,000.
Currently, no officers have employment or severance agreements. For more
information regarding these agreements, see "Management - Executive Compensation
- - Employment Agreements and Severance Agreements."
Possible Dilutive Effects. The issuance of additional shares pursuant
to the proposed Stock Option Plan and RRP will result in a dilution in the
percentage of ownership of the Holding Company of those persons purchasing
Common Stock in the Conversion, assuming that the shares utilized to fund the
proposed Stock Option Plan and RRP awards come from authorized but unissued
shares. Assuming the exercise of all options available under the Stock Option
Plan and the award of all shares available under the RRP, and assuming the use
of authorized but unissued shares, the interest of stockholders will be diluted
by approximately 9.1% and 3.8%, respectively. See "Pro Forma Data," "Management
Benefit Plans - Stock Option and Incentive Plan," and "- Recognition and
Retention Plan" and "Restrictions on Acquisitions of Stock and Related Takeover
Defensive Provisions." For financial accounting purposes, certain incentive
grants under the proposed RRP will result in the recording of compensation
expense over the vesting period. See "Pro Forma Data."
Voting Control of Directors and Executive Officers. The directors and
executive officers of the Bank are anticipated to purchase an aggregate of
approximately $950,000 or approximately 6.8% of the shares offered in the
Conversion at the minimum of the Estimated Valuation Range, or 5.0% of the
shares offered in the Conversion at the maximum of the Estimated Valuation
Range. Directors and executive officers will also receive awards under the
proposed Stock Option Plan and the proposed RRP. Assuming the sale of shares at
the maximum of the Estimated Valuation Range and a market value of $10.00 per
share at the time of stockholder ratification of the RRP, the market value of
the stock to be awarded under the proposed RRP to President Rooney, Chairman
Ptak and to all directors and executive officers as a group (8 persons) would be
$189,750, $189,750 and $629,970. Assuming the purchase of $950,000 of Common
Stock in the Conversion by directors and executive officers in the aggregate (8
persons), the full vesting of the restricted stock to be awarded under the
proposed RRP and the issuance of shares from authorized but unissued shares in
connection with the exercise of all options intended to
17
<PAGE>
be awarded under the proposed Stock Option Plan the Conversion and approval of
the Stock Option Plan and the RRP by the stockholders, the shares owned by the
directors and executive officers in the aggregate would be between 18.4% (at the
maximum of the Estimated Valuation Range) and 16.4% (at the minimum of the
Estimated Valuation Range) of the outstanding shares. In addition, the ESOP is
expected to purchase 8% of the shares sold in the Conversion. This stock
ownership, if voted as a block, could defeat takeover attempts favored by other
stockholders.
Post Conversion Overhead Expense
After completion of the Conversion, the Holding Company's noninterest
expense is likely to increase as a result of the financial accounting, legal and
tax expenses usually associated with operating as a public company. See
"Regulation - Federal and State Taxation" and "Additional Information." In
addition, it is currently anticipated that the Holding Company will record
additional expense based on the proposed RRP. See "Pro Forma Data" and
"Management - Benefit Plans - Recognition and Retention Plan." Finally, the
Holding Company will also record additional expense as a result of the adoption
of the ESOP. See "Management - Benefit Plans - Employee Stock Ownership Plan."
In November 1993, the American Institute of Certified Public
Accountants ("AICPA") Accounting Standards Division issued Statement of Position
93-6 "Employers' Accounting for Employee Stock Ownership Plans" ("SOP 93-6").
SOP 93-6 requires an employer to record compensation expense in an amount equal
to the fair value of shares committed to be released to employees from an
employee stock ownership plan. Assuming shares of Common Stock appreciate in
value over time, the adoption of SOP 93-6 may increase compensation expense
relating to the ESOP to be established in connection with the Conversion as
compared with prior guidance which required the recognition of compensation
expense based on the cost of shares acquired by the ESOP. It is impossible to
determine at this time the extent of such impact on future net income. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Impact of New Accounting Standards" and "Pro Forma Data."
Regulatory Oversight
The Bank is subject to extensive regulation, supervision and
examination by the OTS as its chartering authority and primary federal
regulator, and by the FDIC, which insures its deposits up to applicable limits.
The Bank is a member of the Federal Home Loan Bank (the "FHLB") of Chicago and
is subject to certain limited regulation by the Board of Governors of the
Federal Reserve System ("Federal Reserve Board"). As the savings and loan
holding company of the Bank, the Holding Company will be subject to regulation
and oversight by the OTS. See "Regulation." Such regulation and supervision
governs the activities in which an institution can engage and is intended
primarily for the protection of the insurance fund and depositors. Regulatory
authorities have been granted extensive discretion in connection with their
supervisory and enforcement activities which are intended to strengthen the
financial condition of the Banking industry, including the imposition of
restrictions on the operation of an institution, the classification of assets by
the institution and the adequacy of an institution's allowance for loan losses.
See "Regulation - Federal Regulation of Savings Associations" and "- Regulatory
Capital Requirements." Any change in such regulation and oversight, whether by
the OTS, the Federal Reserve Board, the FDIC or Congress, could have a material
impact on the Holding Company, the Bank and their respective operations.
Risk of Delayed Offering
The Subscription Offering will expire at noon, Chicago, Illinois time,
on _______________, 1996 unless extended by the Bank and the Holding Company.
Depending on the availability of shares and
18
<PAGE>
market conditions at or near the completion of the Subscription Offering, the
Holding Company may conduct a Public Offering through Webb. If the Offering is
extended beyond _______________, 1996, all subscribers will have the right to
modify or rescind their subscriptions and to have their subscription funds
returned with interest. There can be no assurance that the Offering will not be
extended as set forth above.
A material delay in the completion of the sale of all unsubscribed
shares in the Public Offering or otherwise may result in a significant increase
in the costs in completing the Conversion. Significant changes in the Bank's
operations and financial condition, the aggregate market value of the shares to
be issued in the Conversion and general market conditions may occur during such
material delay. In the event the Conversion is not consummated within 24 months
after the date of the Special Meeting, OTS regulations would require the Bank to
charge accrued Conversion costs to then-current period operations.
See "The Conversion - Risk of Delayed Offering."
Absence of Active Market for the Common Stock
The Holding Company, as a newly organized company, has never issued
capital stock. Consequently, there is not at this time any market for the Common
Stock. The Common Stock has received preliminary approval for listing on the
Nasdaq National Market under the symbol "____." Webb has agreed to act as a
market maker and to assist the Holding Company in securing a second market maker
to make a market in the Common Stock. However, there can be no assurance that at
least two market makers will be obtained, that the Bank will receive final
approval for listing on the Nasdaq National Market, that an active and liquid
market for the Common Stock will develop or be maintained or that resales of the
Common Stock can be made at or above the Purchase Price. See "Market for Common
Stock."
Possible Consequences of Amendment to Plan of Conversion
The Plan of Conversion provides that, if deemed necessary or desirable
by the Boards of Directors of the Bank and the Holding Company, the Plan of
Conversion may be substantively amended by a two-thirds vote of the respective
Boards of Directors of the Bank and the Holding Company, as a result of comments
from regulatory authorities or otherwise, at any time with the concurrence of
the Securities and Exchange Commission ("SEC") and the OTS. Moreover, if the
Plan of Conversion is amended, subscriptions which have been received prior to
such amendment will not be refunded unless otherwise required by the SEC or the
OTS. If the Plan of Conversion is amended in a manner that is deemed to be
material to the subscribers by the Holding Company, subscription funds will be
returned to subscribers with interest unless they affirmatively elect to
increase, decrease or maintain their subscriptions. No such amendments are
currently contemplated, although the Bank reserves the right to increase or
decrease purchase limitations without a subscriber resolicitation. See "The
Conversion Approval, Interpretation, Amendment and Termination."
PS FINANCIAL, INC.
The Holding Company was formed at the direction of Preferred Savings in
July 1996 for the purpose of becoming a savings and loan holding company and
owning all of the outstanding stock of the Bank issued in the Conversion. The
Holding Company is incorporated under the laws of the State of Delaware. The
Holding Company is authorized to do business in the State of Illinois, and
generally is authorized to engage in any activity that is permitted by the
Delaware General Corporation Law. The business of the Holding Company initially
will consist only of the business of Preferred Savings. The holding company
structure will, however, provide the Holding Company with greater flexibility
than the
19
<PAGE>
Bank has to diversify its business activities, through existing or newly formed
subsidiaries, or through acquisitions or mergers of stock financial
institutions, as well as, other companies. Although there are no current
arrangements, understandings or agreements regarding any such activity or
acquisition, the Holding Company will be in a position after the Conversion,
subject to regulatory restrictions, to take advantage of any favorable
acquisition opportunities that may arise.
The assets of the Holding Company will consist initially of the stock
of Preferred Savings, a note evidencing the Holding Company's loan to the ESOP
and up to 50% of the net proceeds from the Conversion (less the amount used to
fund the ESOP loan). See "Use of Proceeds." Initially, any activities of the
Holding Company are anticipated to be funded by such retained proceeds and the
income thereon and dividends from Preferred Savings, if any. See "Dividends" and
"Regulation - Holding Company Regulation." Thereafter, activities of the Holding
Company may also be funded through sales of additional securities, through
borrowings and through income generated by other activities of the Holding
Company. At this time, there are no plans regarding such other activities other
than the intended loan to the ESOP to facilitate its purchase of Common Stock in
the Conversion. See "Management Benefit Plans - Employee Stock Ownership Plan."
The executive office of the Holding Company is located at 4800 South
Pulaski Road, Chicago, Illinois 60632-4195. Its telephone number at that address
is (312) 376-3800.
PREFERRED SAVINGS
Preferred Savings serves the financial needs of communities in its
market area through its office located at 4800 South Pulaski Road, Chicago,
Illinois. Its deposits are insured up to applicable limits by the Federal
Deposit Insurance Corporation ("FDIC"). At May 31, 1996, Preferred Savings had
total assets of $54.9 million, deposits of $41.9 million and retained earnings
of $12.0 million (or 21.9% of total assets).
Preferred Savings' business involves attracting deposits from the
general public and using such deposits, together with other funds, to originate
one- to four-family residential mortgage loans and, to a much lesser extent,
multi-family, commercial real estate, and consumer loans primarily in its market
area. At May 31, 1996, $26.2 million, or 71.8%, of the Bank's total loan
portfolio consisted of residential one- to four-family mortgage loans. See
"Business - Lending Activities."
The Bank also invests in mortgage-backed and other securities and other
permissible investments. See "Business - Investment Activities - Securities" and
"- Mortgage-Backed and Related Securities."
The executive office of the Bank is located at 4800 South Pulaski Road,
Chicago, Illinois 60632-4195. Its telephone number at that address is (312)
376-3800.
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 such net proceeds will be between $13.5 million and $18.4
million (or up to $21.2 million in the event of an increase in the aggregate pro
forma market value of the Common Stock of up to 15% above the maximum of the
Estimated Valuation Range). See "Pro Forma Data" and "The Conversion - Stock
Pricing and Number of Shares to be Issued" as to the assumptions used to arrive
at such amounts.
20
<PAGE>
In exchange for all of the common stock of Preferred Savings issued
upon conversion, the Holding Company will contribute approximately 50% of the
net proceeds from the sale of the Holding Company's Common Stock to Preferred
Savings. On an interim basis, the proceeds will be invested by the Holding
Company and Preferred Savings in short-term investments similar to those
currently in the Bank's portfolio. The specific types and amounts of short-term
assets will be determined based on market conditions at the time of the
completion of the Conversion. In addition, the Holding Company intends to
provide the funding for the ESOP loan. Based upon the initial Purchase Price of
$10.00 per share, the dollar amount of the ESOP loan would range from $1.1
million (based upon the sale of shares at the minimum of the Estimated Valuation
Range) to $1.5 million (based upon the sale of shares at the maximum of the
Estimated Valuation Range). The interest rate to be charged by the Holding
Company on the ESOP loan will be based upon the IRS prescribed applicable
federal rate at the time of origination.
The net proceeds received by Preferred Savings will become part of
Preferred Savings' general funds for use in its business and will be used to
support the Bank's existing operations, subject to applicable regulatory
restrictions. Immediately upon the completion of the Conversion, it is
anticipated that the Bank will invest such proceeds into short-term assets.
Subsequently, the Bank will redirect the net proceeds to the origination of
residential loans and, to a lesser extent, commercial real estate and consumer
loans, subject to market conditions.
After the completion of the Conversion, the Holding Company will
redirect the net proceeds invested by it in short-term assets into a variety of
mortgage-backed securities and other securities similar to those already held by
the Bank. Also, the Holding Company may use a portion of the proceeds to fund
the RRP, subject to shareholder approval of such plan. Following stockholder
ratification of the RRP, the RRP will be funded either with shares purchased in
the open market or with authorized but unissued shares. Based upon the initial
Purchase Price of $10.00 per share, the amount required to fund the RRP through
open-market purchases would range from approximately $561,000 (based upon the
sale of shares at the minimum of the Estimated Valuation Range) to approximately
$759,000 (based upon the sale of shares at the maximum of the Estimated
Valuation Range). In the event that the per share price of the Common Stock
increases above the $10.00 per share Purchase Price following completion of the
Offering, the amount necessary to fund the RRP would also increase. The use of
authorized but unissued shares to fund the RRP could dilute the holdings of
stockholders who purchase Common Stock in the Conversion. See "Business -
Lending Activities" and " - Investment Activities" and "Management Benefit Plans
- - Employee Stock Ownership Plan" and "- Recognition and Retention Plan."
The proceeds may also be utilized by the Holding Company to repurchase
(at prices which may be above or below the initial offering price) shares of the
Common Stock through an open market repurchase program subject to limitations
contained in OTS regulations, although the Holding Company currently has no
specific plan to repurchase any of its stock. In the future, the Board of
Directors of the Holding Company will make decisions on the repurchase of the
Common Stock based on its view of the appropriateness of the price of the Common
Stock as well as the Holding Company's and the Bank's investment opportunities
and capital needs. Under current OTS regulations, no repurchases may be made
within the first year following Conversion except with OTS approval under
"exceptional circumstances." During the second and third years following
Conversion, OTS regulations permit, subject to certain limitations, the
repurchase of up to five percent of the outstanding shares of stock during each
twelve-month period with a greater amount permitted with OTS approval. In
general, the OTS regulations do not restrict repurchases thereafter, other than
limits on the Bank's ability to pay dividends to the Holding Company to fund the
repurchase. For a description of the restrictions on the Bank's ability to
provide the Holding Company with funds through dividends or other distributions,
see "Dividends" and "The Conversion - Restrictions on Repurchase of Stock."
21
<PAGE>
The Holding Company or Preferred Savings might consider expansion
through the acquisition of other financial services providers (or branches,
deposits or assets thereof), although there are no specific plans, negotiations
or written or oral agreements regarding any acquisitions at this time.
DIVIDENDS
The Board of Directors may consider a policy of paying cash dividends
on the Common Stock. Dividends, when and if paid, will be subject to
determination and declaration by the Board of Directors at its discretion. They
will take into account the Holding Company's consolidated financial condition,
the Bank's regulatory capital requirements, including the fully phased-in
capital requirements, tax considerations, industry standards, economic
conditions, regulatory restrictions, general business practices and other
factors.
It is not presently anticipated that the Holding Company will conduct
significant operations independent of those of Preferred Savings for some time
following the Conversion. As such, the Holding Company does not expect to have
any significant source of income other than earnings on the net proceeds from
the Conversion retained by the Holding Company (which proceeds are currently
estimated to range from $13.5 million to $18.4 million based on the minimum and
the maximum of the Estimated Valuation Range, respectively) and dividends from
Preferred Savings, if any. Consequently, the ability of the Holding Company to
pay cash dividends to its stockholders will be dependent upon such retained
proceeds and earnings thereon, and upon the ability of Preferred Savings to pay
dividends to the Holding Company. See "Description of Capital Stock - Holding
Company Capital Stock - Dividends." Preferred Savings, like all savings
associations regulated by the OTS, is subject to certain restrictions on the
payment of dividends based on its net income, its capital in excess of the
regulatory capital requirements and the amount of regulatory capital required
for the liquidation account to be established in connection with the Conversion.
See "The Conversion - Effects of Conversion to Stock Form on Depositors and
Borrowers of the Bank - Liquidation Rights in Proposed Converted Institution"
and "Regulation Regulatory Capital Requirements" and "- Limitations on Dividends
and Other Capital Distributions." Earnings allocated to Preferred Savings'
"excess" bad debt reserves and deducted for federal income tax purposes cannot
be used by Preferred Savings to pay cash dividends to the Holding Company
without adverse tax consequences. See "Regulation - Federal and State Taxation."
MARKET FOR COMMON STOCK
Preferred Savings, as a mutual thrift institution, and the Holding
Company, as a newly organized company, have never issued capital stock.
Consequently, there is not at this time an existing market for the Common Stock.
The Common Stock has been preliminarily approved for trading on the NASDAQ
National Market System under the symbol "____" upon completion of the
Conversion. In order to be quoted on the Nasdaq National Market, among other
criteria, there must be at least two market makers for the Common Stock. Keefe,
Bruyette & Woods has agreed, subject to certain conditions, to act as a market
maker for the Holding Company's Common Stock following the Conversion, and
assist in securing a second market maker to do the same. A public trading market
having the desirable characteristics of depth, liquidity and orderliness depends
upon the presence in the marketplace of both willing buyers and sellers of the
Common Stock at any given time. Accordingly, there can be no assurance that an
active and liquid market for the Common Stock will develop or be maintained or
that resales of the Common Stock can be made at or above the Purchase Price. See
"The Conversion - Stock Pricing and Number of Shares to be Issued."
22
<PAGE>
PRO FORMA DATA
The following table sets forth the historical net income, retained
earnings and per share data of Preferred Savings at and for the five months
ended May 31, 1996 and the fiscal year ended December 31, 1995, and after giving
effect to the Conversion, the pro forma net income, capital stock and
stockholders' equity and per share data of the Holding Company at and for the
five months ended May 31, 1996 and the fiscal year ended December 31, 1995. The
pro forma data has been computed on the assumptions that (i) the specified
number of shares of Common Stock was sold at the beginning of the specified
periods and yielded net proceeds to the Holding Company as indicated, (ii) 50%
of such net proceeds were retained by the Holding Company and the remainder were
used to purchase all of the stock of Preferred Savings, and (iii) such net
proceeds, less the amount of the ESOP and RRP funding, were invested by the Bank
and Holding Company at the beginning of the periods to yield a pre-tax return of
5.91% for the five months ended May 31, 1996 and 5.45% for the fiscal year ended
December 31, 1995. The assumed return is based upon the market yield rate of
one-year U.S. Government Treasury Securities as of August 15, 1996. The use of
this current rate is viewed to be more relevant in the current interest rate
environment than the use of an arithmetic average of the weighted average yield
earned by the Bank on its interest-earning assets and the weighted average rate
paid on its deposits during such periods. In calculating the underwriting fees,
the table assumes that (i) no commission was paid on $950,000 of shares sold to
directors, officers and employees, (ii) 8% of the total shares sold in the
Conversion were sold to the ESOP at no commission, and (iii) the remaining
shares were sold at a 1.5% commission. (These assumptions represent management's
estimate as to the distribution of stock orders in the Conversion. However,
there can be no assurance that such estimate will be accurate and that a greater
proportion of shares will not be sold at a higher commission, thus increasing
offering expenses.) Fixed expenses are estimated to be $310,000. Actual
Conversion expenses may be more or less than those estimated because the fees
paid to Webb and other brokers will depend upon the categories of purchasers,
the Purchase Price and market conditions and other factors. The pro forma net
income amounts derived from the assumptions set forth herein should not be
considered indicative of the actual results of operations of the Holding Company
that would have been attained for any period if the Conversion had been actually
consummated at the beginning of such period, and the assumptions regarding
investment yields should not be considered indicative of the actual yields
expected to be achieved during any future period.
The total number of shares to be issued in the Conversion may be
increased or decreased significantly, or the price per share decreased, to
reflect changes in market and financial conditions prior to the close of the
Offering. However, if the aggregate Purchase Price of the Common Stock sold in
the Conversion is below $14,025,000 (the minimum of the Estimated Valuation
Range) or more than $21,821,250 (15% above the maximum of the Estimated
Valuation Range), subscribers will be offered the opportunity to modify or
cancel their subscriptions. See "The Conversion - Stock Pricing and Number of
Shares to be Issued."
23
<PAGE>
<TABLE>
<CAPTION>
At or For the Five Months Ended May 31, 1996
---------------------------------------------------
15% Above
Minimum Midpoint Maximum Maximum
1,402,500 1,650,000 1,897,500 2,182,125
Shares at Shares at Shares at Shares at
$10.00 per $10.00 per $10.00 per $10.00 per
Share Share Share Share
---------- ---------- ---------- ---------
(Dollars in Thousands, Except Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds .............................................. $ 14,025 $ 16,500 $ 18,975 $ 21,821
Less offering expenses and commissions ...................... (489) (520) (552) (588)
----------- ----------- ----------- -----------
Estimated net conversion proceeds(1) ....................... 13,536 15,980 18,423 21,233
Less ESOP shares ............................................ (1,122) (1,320) (1,518) (1,746)
Less RRP shares ............................................. (561) (660) (759) (873)
----------- ----------- ----------- -----------
Estimated proceeds available for investment ................ $ 11,853 $ 14,000 $ 16,146 $ 18,614
=========== =========== =========== ===========
Net Income:
Historical ................................................ $ 440 $ 440 $ 440 $ 440
Pro Forma Adjustments:
Net earnings from proceeds(2) ............................ 184 217 251 289
ESOP(3) .................................................. (52) (61) (70) (81)
RRP(4) ................................................... (29) (35) (40) (45)
----------- ----------- ----------- -----------
Pro forma net income(5) ................................ $ 543 $ 561 $ 581 $ 602
=========== =========== =========== ===========
Net Income Per Share:
Historical(6) ........................................... $ 0.34 $ 0.29 $ 0.25 $ 0.22
Pro forma Adjustments:
Net earnings from proceeds ............................. 0.14 0.14 0.14 0.14
ESOP(3) ................................................ (0.04) (0.04) (0.04) (0.04)
RRP(4) ................................................. (0.02) (0.02) (0.02) (0.02)
----------- ----------- ----------- -----------
Pro forma net income per share(4) .................. $ 0.42 $ 0.37 $ 0.33 $ 0.30
=========== =========== =========== ===========
Ratio of offering price to pro forma net income per share
(annualized) ......................................... 9.92x 11.26x 12.63x 13.89x
=========== =========== =========== ===========
Number of shares using 93-6 ............................. 1,294,198 1,522,584 1,750,972 2,013,618
Stockholders' Equity (Book Value)(7):
Historical ................................................ $ 12,029 $ 12,029 $ 12,029 $ 12,029
Pro Forma Per Share Adjustments:
Estimated net Conversion proceeds ......................... 13,536 15,980 18,423 21,233
Less common stock acquired by:
ESOP(3) .................................................. (1,122) (1,320) (1,518) (1,746)
RRP(4) ................................................... (561) (660) (759) (873)
----------- ----------- ----------- -----------
Pro forma stockholder's equity(4) .................... $ 23,882 $ 26,029 $ 28,175 $ 30,643
=========== =========== =========== ===========
Stockholders' Equity (Book Value)(7):
Per Share(6):
Historical ................................................ $ 8.58 7.29 6.34 $ 5.51
Pro Forma Per Share Adjustments:
Estimated net Conversion proceeds ......................... 9.65 9.68 9.71 9.73
Less common stock acquired by:
ESOP(3) .................................................. (0.80) (0.80) (0.80) (0.80)
RRP(4) ................................................... (0.40) (0.40) (0.40) (0.40)
----------- ----------- ----------- -----------
Pro forma book value per share(5) .................... $ 17.03 $ 15.77 $ 14.85 $ 14.04
=========== =========== =========== ===========
Pro forma price to book value ............................... 58.72% 63.41% 67.34% 71.23%
=========== =========== =========== ===========
Number of shares ............................................ 1,402,500 1,650,000 1,897,500 2,182,125
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended December 31, 1995
---------------------------------------------------
15% Above
Minimum Midpoint Maximum Maximum
1,402,500 1,650,000 1,897,500 2,182,125
Shares at Shares at Shares at Shares at
$10.00 per $10.00 per $10.00 per $10.00 per
Share Share Share Share
---------- ---------- ---------- -----------
(Dollars in Thousands, Except Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds ............................................... $ 14,025 $ 16,500 $ 18,975 $ 21,821
Less offering expenses and commissions ....................... (489) (520) (552) (588)
----------- ----------- ----------- -----------
Estimated net conversion proceeds(1) ........................ 13,536 15,980 18,423 21,233
Less ESOP shares ............................................. (1,122) (1,320) (1,518) (1,746)
Less RRP shares .............................................. (561) (660) (759) (873)
----------- ----------- ----------- -----------
Estimated proceeds available for investment ................. $ 11,853 $ 14,000 $ 16,146 $ 18,614
=========== =========== =========== ===========
Net Income:
Historical ................................................. $ 1,055 $ 1,055 $ 1,055 $ 1,055
Pro Forma Adjustments:
Net earnings from proceeds(2) ............................. 407 481 554 639
ESOP(3) ................................................... (124) (146) (168) (193)
RRP(4) .................................................... (71) (83) (96) (110)
----------- ----------- ----------- -----------
Pro forma net income(5) ................................. $ 1,267 $ 1,307 $ 1,345 $ 1,391
=========== =========== =========== ===========
Net Income Per Share:
Historical(6) ............................................ $ 0.81 $ 0.69 $ 0.60 $ 0.52
Pro forma Adjustments:
Net earnings from proceeds .............................. 0.31 0.31 0.32 0.32
ESOP(3) ................................................. (0.10) (0.10) (0.10) (0.10)
RRP(4) .................................................. (0.05) (0.05) (0.05) (0.05)
----------- ----------- ----------- -----------
Pro forma net income per share(4) ................... $ 0.97 $ 0.85 $ 0.77 $ 0.69
=========== =========== =========== ===========
Ratio of offering price to pro forma net income per share 10.31x 11.76x 12.99x 14.49x
=========== =========== =========== ===========
Number of shares using 93-6(3) .................... 1,299,650 1,529,000 1,758,350 2,022,103
Stockholders' Equity (Book Value)(7):
Historical ................................................. $ 11,724 $ 11,724 $ 11,724 $ 11,724
Pro Forma Per Share Adjustments:
Estimated net Conversion proceeds .......................... 13,536 15,980 18,423 21,233
Less common stock acquired by:
ESOP(3) ................................................... (1,122) (1,320) (1,518) (1,746)
RRP(4) .................................................... (561) (660) (759) (873)
----------- ----------- ----------- -----------
Pro forma book value(4) ............................... $ 23,577 $ 25,724 $ 27,870 $ 30,338
=========== =========== =========== ===========
Stockholders' Equity (Book Value)(7):
Per Share(6):
Historical ................................................. $ 8.36 $ 7.11 $ 6.18 $ 5.37
Pro Forma Per Share Adjustments:
Estimated net Conversion proceeds .......................... 9.65 9.68 9.71 9.73
Less common stock acquired by:
ESOP(3) ................................................... (0.80) (0.80) (0.80) (0.80)
RRP(4) .................................................... (0.40) (0.40) (0.40) (0.40)
----------- ----------- ----------- -----------
Pro forma book value per share(5) ..................... $ 16.81 $ 15.59 $ 14.69 $ 13.90
=========== =========== =========== ===========
Offering Price Per Share as a Percentage of Pro Forma
Stockholders' Equity Per Share ............................ 59.49x 64.14x 68.07x 71.94x
=========== =========== =========== ===========
Number of shares ............................................. 1,402,500 1,650,000 1,597,500 2,182,125
</TABLE>
- ----------
(1) Reflects a reduction to net proceeds for the cost of the ESOP and the RRP
(which is subject to shareholder ratification) which it is assumed will be
funded from the net proceeds retained by the Holding Company.
25
<PAGE>
(2) No effect has been given to withdrawals from savings accounts for the
purpose of purchasing Common Stock in the Conversion. For purposes of
calculating pro forma net income, proceeds attributable to purchases by the
ESOP and RRP, which purchases are to be funded by the Holding Company and
the Bank, have been deducted from net proceeds.
(3) It is assumed that 8% of the shares of Common Stock offered in the
Conversion will be purchased by the ESOP. The funds used to acquire such
shares will be borrowed by the ESOP from the net proceeds from the
Conversion retained by the Holding Company. The Bank intends to make
contributions to the ESOP in amounts at least equal to the principal and
interest requirement of the debt. The Bank's payment of the ESOP debt is
based upon equal installments of principal and interest over a 12-year
period. However, assuming the Holding Company makes the ESOP loan, interest
income earned by the Holding Company on the ESOP debt will offset the
interest paid by the Bank. Accordingly, only the principal payments on the
ESOP debt are recorded as an expense (tax-effected) to the Holding Company
on a consolidated basis. The amount of ESOP debt is reflected as a
reduction of stockholders' equity. In the event that the ESOP were to
receive a loan from an independent third party, both ESOP expense and
earnings on the proceeds retained by the Holding Company would be expected
to increase.
(4) Adjustments to both book value and net earnings have been made to give
effect to the proposed open market purchase (based upon an assumed purchase
price of $10.00 per share) following Conversion by the RRP (subject to
stockholder ratification of such plan) of an amount of shares equal to 4%
of the shares of Common Stock sold in the Conversion for the benefit of
certain directors, officers and employees. Funds used by the RRP to
purchase the shares will be contributed to the RRP by the Holding Company
if the RRP is ratified by stockholders following the Conversion. Therefore,
this funding is assumed to reduce the proceeds available for reinvestment.
For financial accounting purposes, the amount of the contribution will be
recorded as a compensation expense (although not an actual expenditure of
funds) over the period of vesting. These grants are scheduled to vest in
equal annual installments over the five years following stockholder
ratification of the RRP. However, all unvested grants will be forfeited in
the case of recipients who fail to maintain continuous service with the
Holding Company or its subsidiaries. In the event the RRP is unable to
purchase a sufficient number of shares of Common Stock to fund the RRP, the
RRP may issue authorized but unissued shares of Common Stock from the
Holding Company to fund the remaining balance. In the event the RRP is
funded by the issuance of authorized but unissued shares in an amount equal
to 4% of the shares sold in the Conversion, the interests of existing
stockholders would be diluted by approximately 3.8%.
In the event that the RRP is funded through authorized but unissued shares,
for the five months ended May 31, 1996 and year ended December 31, 1995,
pro forma net income per share would be $0.38, $0.33, $0.30, and $0.27 and
$0.95, $0.83, $0.74 and $0.67, respectively, and pro forma stockholders'
equity per share would be $16.76, $15.56, $14.66 and $13.89 and $15.78,
$14.61, $13.74 and $12.98, respectively, in each case at the minimum,
midpoint, maximum and 15% above the maximum of the Estimated Valuation
Range.
<PAGE>
(5) No effect has been given to the shares to be reserved for issuance under
the proposed Stock Option Plan which is expected to be adopted by the
Holding Company following the Conversion, subject to stockholder approval.
In the event the Stock Option Plan is funded by the issuance of authorized
but unissued shares in an amount equal to 10% of the shares sold in the
Conversion, at $10.00 per share, the interests of existing stockholders
would be diluted as follows: pro forma net income per share for the five
months ended May 31, 1996 and the year ended December 31, 1995 would be
$0.38, $0.33, $0.30, and $0.27, and $0.88, $0.77, $0.69 and $0.62,
respectively, and pro forma stockholders' equity per share would be $16.39,
$15.13, $14.41 and $13.68 and $16.19, $15.08, $14.26 and $13.55,
respectively, in each case at the minimum, midpoint, maximum and 15% above
the maximum of the Estimated Valuation Range. In the alternative, the
Holding Company may purchase shares in the open market to fund the Stock
Option Plan following stockholder approval of such plan. To the extent, the
entire 10% of the shares to be reserved for issuance under the Stock Option
Plan were funded through open market purchases at the Purchase Price of
$10.00 per share, proceeds available for reinvestment would be reduced by
$1,402,500, $1,650,000, $1,897,500 and $2,182,125 at the minimum,
midpoint, maximum and 15% above the maximum of the Estimated Valuation
Range. See "Management - Benefit Plans - Stock Option and Incentive Plan."
(6) Historical pro forma per share amounts have been computed as if the shares
of Common Stock indicated had been outstanding at the beginning of the
periods or on the dates shown, but without any adjustment of historical net
income or historical equity to reflect the investment of the estimated net
proceeds of the sale of shares in the Conversion as described above. All
ESOP shares have been considered outstanding for purposes of computing book
value per share. Pro forma share amounts have been computed by dividing the
pro forma net income or stockholders' equity (book value) by the number of
shares indicated.
(7) "Book value" represents the difference between the stated amounts of the
Bank's assets (based on historical cost) and liabilities computed in
accordance with generally accepted accounting principles. The amounts shown
do not reflect the effect of the Liquidation Account which will be
established for the benefit of Eligible and Supplemental Eligible Account
Holders in the Conversion, or the federal income tax consequences of the
restoration to income of the Bank's special bad debt reserves for income
tax purposes which would be required in the unlikely event of liquidation.
See "The Conversion - Effects of Conversion to Stock Form on Depositors and
Borrowers of the Bank" and "Regulation - Federal and State Taxation." The
amounts shown for book value do not represent fair market values or
amounts, if any, distributable to stockholders in the unlikely event of
liquidation.
26
<PAGE>
PRO FORMA REGULATORY CAPITAL ANALYSIS
At May 31, 1996, the Bank would have exceeded each of the OTS capital
requirements on both a current and a fully phased-in basis. Set forth below is a
summary of the Bank's compliance with the OTS capital standards as of May 31,
1996 based on historical capital and also assuming that the indicated number of
shares were sold as of such date using the assumptions contained under the
caption "Pro Forma Data."
<TABLE>
<CAPTION>
Pro Forma at May 31, 1996
-----------------------------------------------------------------------------------
2,182,125 Shares
1,402,500 Shares 1,650,000 Shares 1,897,500 Shares 15% above
Historical Minimum Midpoint Maximum Maximum
-------------------- ------------------- ------------------- -------------------- -----------------
Amount Percent(1) Amount Percent(1) Amount Percent(1) Amount Percent(1) Amount Percent(1)
------ ---------- ------ ---------- ------ ---------- ------ ---------- ------ ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP Capital(2)..... $12,029 21.9% $17,114 28.6% $18,039 29.6% $18,964 30.7% $20,027 31.9%
Tangible Capital(3):
Capital level..... $12,107 22.1.% $17,192 28.7% $18,117 29.8% $19,042 30.8% $20,105 32.0%
Requirement....... 823 1.5 899 1.5 913 1.5 927 1.5 943 1.5
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Excess............ $11,284 20.6% $16,293 27.2% $17,204 28.3% $18,115 29.3% $19,162 30.5%
======= ==== ======= ===== ======= ===== ======= ==== ======= ====
Core Capital:
Capital level..... $12,107 22.1% $17,192 28.7% $18,117 29.8% $19,042 30.8% $20,105 32.0%
Requirement(4).... 1,646 3.0 1,798 3.0 1,826 3.0 1,854 3.0 1,886 3.0
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Excess............ $10,461 19.1% $15,394 25.7% $16,291 26.8% $17,188 27.8% $18,219 29.0%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
Risk-Based Capital:
Capital level(5).. $12,293 57.1% $17,378 77.1% $18,303 80.6% $19,228 84.0% $20,291 87.8%
Requirement(6).... 1,721 8.0 1,802 8.0 1,817 8.0 1,832 8.0 1,849 8.0
-------- ----- -------- ----- -------- ----- ------- ----- ------- -----
Excess............ $10,572 49.1% $15,576 69.1% $16,486 72.6% 17,396 76.0% $18,442 79.8%
======= ===== ======= ==== ======= ==== ====== ==== ======= ====
</TABLE>
- ----------
(1) Pro forma amounts and percentages assume net proceeds are invested in
assets that carry a 20% risk-weight, such as short-term interest-bearing
deposits.
(2) Total retained earnings as calculated under generally accepted accounting
principles ("GAAP"). Assumes that the Bank receives 50% of the net
proceeds, offset in part, by the aggregate Purchase Price of Common Stock
acquired at a price of $10.00 per share by the ESOP in the Conversion and
the RRP (assuming stockholder ratification of such plan following
completion of the Conversion).
(3) Unrealized gains and losses on debt securities available for sale are
excluded from tangible, core and risk-based capital.
(4) In April 1991, the OTS proposed a core capital requirement for savings
associations comparable to the requirement for national banks that became
effective on November 30, 1990. This proposed core capital ratio is 3% of
total adjusted assets for thrifts that receive the highest supervisory
rating for safety and soundness ("CAMEL" rating), with a 4% to 5% core
capital requirement for all other thrifts. See "Regulation - Regulatory
Capital Requirements."
(5) Includes $186,000 of general valuation allowances, all of which qualify as
supplementary capital. See "Regulation - Regulatory Capital Requirements."
(6) Assumes reinvestment of net proceeds in 0% risk-weighted assets.
27
<PAGE>
CAPITALIZATION
Set forth below is the capitalization, including deposits, of
Preferred Savings as of May 31, 1996, and the pro forma capitalization of the
Holding Company at the minimum, the midpoint, the maximum and 15% above the
maximum of the Estimated Valuation Range, after giving effect to the Conversion
and based on other assumptions set forth in the table and under the caption "Pro
Forma Data."
<TABLE>
<CAPTION>
Holding Company - Pro Forma Based
Upon Sale at $10.00 per share
------------------------------------------------------
15% Above
Minimum Midpoint Maximum Maximum
Existing 1,402,500 1,650,000 1,897,500 2,182,125
Capitalization Shares Shares Shares Shares
-------------- ------ ------ ------ ------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Deposits(1)................................. $41,945 $41,945 $41,945 $41,945 $41,945
======= ======= ======= ======= =======
Stockholders' Equity:
Serial Preferred Stock ($0.01 par value)
authorized - 100,000 shares; none to be
outstanding............................... $ --- $ --- $ --- $ --- $ ---
Common Stock ($0.01 par value authorized
- 2,500,000 shares to be outstanding (as
shown)(2)................................. --- 14 17 19 22
Additional paid-in capital................. --- 13,522 15,963 18,404 21,211
Retained earnings, substantially
restricted(3)............................. 12,107 12,107 12,107 12,107 12,107
Less:
Net unrealized loss on securities available
for sale................................ 78 78 78 78 78
Common Stock acquired by ESOP(4).......... --- 1,122 1,320 1,518 1,746
Common Stock acquired by RRP(4)........... --- 561 660 759 873
--------- -------- -------- -------- --------
Total Stockholders' Equity.................. $12,029 $23,882 $26,029 $28,175 $30,643
======= ======= ======= ======= =======
</TABLE>
- ----------
(1) No effect has been given to withdrawals from deposit accounts for the
purpose of purchasing Common Stock in the Conversion. Any such withdrawals
will reduce pro forma deposits by the amount of such withdrawals.
(2) Does not reflect the shares of Common Stock that may be reserved for
issuance pursuant to the Stock Option Plan.
(3) See "Dividends" and "Regulation - Limitations on Dividends and Other
Capital Distributions" regarding restrictions on future dividend payments
and "The Conversion - Effects of Conversion to Stock Form on Depositors and
Borrowers of the Bank" regarding the liquidation account to be established
upon Conversion.
(4) Assumes that 8% of the shares sold in the Conversion will be purchased by
the ESOP. The funds used to acquire the ESOP shares will be borrowed from
the Holding Company. The Bank intends to make contributions to the ESOP
sufficient to service and ultimately retire the ESOP's debt. Also assumes
that an amount of shares equal to 4% of the amount of shares sold in the
Conversion will be acquired by the RRP, following shareholder ratification
of such plan after completion of the Conversion. In the event that the RRP
is funded by the issuance of authorized but unissued shares in an amount
equal to 4% of the shares sold in the Conversion, the interest of existing
stockholders would be diluted by approximately 3.8%. The amount to be
borrowed by the ESOP and the Common Stock acquired by the RRP is reflected
as a reduction of stockholders' equity. See "Management - Benefit Plans -
Employee Stock Ownership Plan" and "- Recognition and Retention Plan."
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Bank is a financial intermediary engaged primarily in attracting
deposits from the general public and using such deposits to originate one- to
four- family residential mortgage and, to a significantly lesser extent,
multi-family, commercial real estate, construction and consumer loans primarily
in its market area. The Bank's revenues are derived principally from interest
earned on loans and, to a lesser extent, from interest earned on investments and
mortgage-backed and related securities. The operations of the Bank are
influenced significantly by general economic conditions and by policies of
financial institution regulatory agencies, including the OTS and the FDIC. See
"Risk Factors - Regulatory Oversight" and "- Competitive Disadvantage Caused by
the Disparity Between BIF and SAIF Insurance Premiums." The Bank's cost of funds
is influenced by interest rates on competing investments and general market
interest rates. Lending activities are affected by the demand for financing of
real estate and other types of loans, which in turn is affected by the interest
rates at which such financings may be offered.
The Bank's net interest income is dependent primarily upon the
difference or spread between the average yield earned on loans receivable, net
and investments and the average rate paid on deposits, as well as the relative
amounts of such assets and liabilities. The Bank, like other thrift
institutions, is subject to interest rate risk to the degree that its
interest-bearing liabilities mature or reprice at different times, or on a
different basis, than its interest-earning assets.
Financial Condition
Comparison of Financial Condition at May 31, 1996 and December 31, 1995
Total assets at May 31, 1996 were $54.9 million compared to $53.5
million at December 31, 1995, an increase of $1.4 million, or 2.6%. The increase
in total assets was due primarily to increases in loans receivable and
securities available for sale, partially offset by decreases in cash and cash
equivalents and mortgage-backed securities available for sale.
Total liabilities at May 31, 1996 were $42.8 million compared to $41.8
million at December 31, 1995, an increase of $1.0 million, or 2.4%. Total
deposits increased by $900,000 from $41.0 million at December 31, 1995 to $41.9
million at May 31, 1996 due to an increase in certificates of deposit of
$300,000 and an increase in passbook savings and money markets of $600,000. In
addition, other liabilities increased by $128,000 as a result of an increase in
accrued federal and state income taxes of $83,000 and accrued interest payable
on deposit accounts, which is paid at quarter end, of $173,000.
Total equity at May 31, 1996 was $12.0 million compared to $11.7
million at December 31, 1995, an increase of $300,000, or 2.6% as a result of
$440,000 in net income for the period, offset by a change in unrealized gain
(loss) on securities available for sale from $57,000 at December 31, 1995 to
$(78,000) at May 31, 1996.
Comparison of Financial Condition at December 31, 1995 and December 31, 1994
Total assets at December 31, 1995 were $53.5 million compared to $51.6
million at December 31, 1994, an increase of $1.9 million, or 3.7%. The Bank
increased the amount of net loans
29
<PAGE>
receivable by $1.6 million, from $32.9 million at December 31, 1994 to $34.5
million at December 31, 1995, primarily due to lower levels of mortgage interest
rates in 1995, which spurred increased customer demand. Securities
available-for-sale increased by $5.0 million from $9.0 million to $14.0 million
as a result of the investment of funds from the maturity of interest-bearing
term deposits in other financial institutions and securities held-to-maturity.
The Bank also increased the amount of cash and cash equivalents from $1.4
million at December 31, 1994 to $3.8 million at December 31, 1995 as a result of
these maturities.
Total liabilities were $41.8 million at December 31, 1995 compared to
$41.1 million at December 31, 1994, an increase of $700,000, or 1.7%. Total
deposit accounts increased by $1.0 million from $40.0 million at December 31,
1994 to $41.0 million at December 31, 1995. This increase was partially offset
by a decrease in advances from borrowers for taxes and insurance of $396,000 as
a result of changes in federal regulations which became effective during 1995
reducing the amount of escrowed funds required to be maintained by the Bank for
borrowers.
Equity at December 31, 1995 was $11.7 million compared to $10.5 million
at December 31, 1994, an increase of $1.1 million or 11.4%, reflecting income of
$1.1 million for the year and a change in unrealized gains (loss) on securities
available for sale from $(101,000) at December 31, 1994 to $57,000 at December
31, 1995.
Results of Operations
The Bank's results of operations depend primarily upon the level of net
interest income, which is the difference between the interest income earned on
its interest-earning assets such as loans and securities, and the costs of the
Bank's interest-bearing liabilities, primarily deposits and borrowings. Results
of operations are also dependent upon the level of the Bank's noninterest
income, including fee income and service charges, and affected by the level of
its noninterest expenses, including its general and administrative expenses. Net
interest income depends upon the volume of interest-earning assets and
interest-bearing liabilities and the interest rate earned or paid on them,
respectively.
Comparison of Operating Results for the Five Months Ended May 31, 1996 and May
31, 1995
General. Net earnings for the five months ended May 31, 1996 were
$440,000, a decrease of $49,000 or 10.0%, from net earnings of $489,000 for the
five months ended May 31, 1995. The decrease was primarily a result of an
increase in the provision for loan losses.
Interest Income. Interest income for the five months ended May 31, 1996
was $1.9 million compared to $1.8 million for the five months ended May 31,
1995, an increase of $100,000, or 5.6%. The increase in interest income was the
result of an increase in the average balance of interest-earning assets from
$50.7 million for the five months ended May 31, 1995 to $53.1 million for the
five months ended May 31, 1996. The increase in average balance of
interest-earning assets was largely the result of a $1.5 million increase in the
average balance of loans receivable. In addition, the average balance of other
interest-earning assets decreased by $2.8 million which was reinvested in
mortgage-backed securities and US government and federal agency obligations. The
average yield on interest-earning assets increased slightly to 8.38% for the
five months ending May 31, 1996 from 8.33% for the five months ending May 31,
1995. The average yield on mortgage-backed securities increased from 5.20% for
the five months ended May 31, 1995 to 5.95% for the five months ended May 31,
1996 as a result of the purchase of higher yielding mortgage-backed securities,
and the upward repricing of adjustable-rate mortgage-backed securities which
more than offset a decrease in the yield on securities from 6.95% to 6.73% for
the same period due to the redemption of higher yielding securities. In
addition, the yield
30
<PAGE>
on other interest-earning assets decreased from 6.13% to 6.00% due primarily to
increased average balances of cash at the Federal Home Loan Bank with lower
yields combined with decreases in other interest-earning assets with higher
yields.
Interest Expense. Interest expense for the five months ended May 31,
1996 was $725,000 compared to $632,000 for the five months ended May 31, 1995,
an increase of $93,000, or 14.7%. The increase in interest expense was due in
part to an increase in the average balance of interest-bearing liabilities from
$39.9 million for the five months ended May 31,1995 to $41.6 million for the
five months ended May 31, 1996. The increase in interest expense also reflects
the higher interest rate environment, as the average cost of interest-bearing
liabilities increased 39 basis points from 3.79% for the five months ended May
31, 1995 to 4.18% for the five months ended May 31, 1996. This increase reflects
the increase in the cost of certificates of deposit from 4.74% for the five
months ended May 31, 1995 to 5.43% for the five months ended May 31, 1996. The
average balance of certificates of deposit increased from $18.0 million for the
five months ended May 31, 1995 to $20.3 million for the five months ended May
31, 1996. The increase in the average balance of certificate of deposit accounts
resulted from the increased customer demand arising from higher interest rates
paid by the Bank on these accounts, in response to higher market rates.
Net Interest Income. Net interest income remained stable at $1.1
million for the five months ended May 31, 1996 compared to the five months ended
May 31, 1995. The average net interest spread narrowed from 4.54% for the five
months ended May 31, 1995 to 4.20% for the five months ended May 31, 1996, due
to a higher average cost of interest-bearing liabilities.
Provision for Loan Losses. The Bank recorded a $50,000 provision for
loan losses for the five months ended May 31, 1996 compared to no provision for
the five months ended May 31, 1995. The increase was primarily a result of
increased delinquencies of multi-family and commercial real estate loans. At May
31, 1996, the Bank's allowance for loan losses totaled $186,000, or .51% of
total loans and 10.81% of total non-performing loans. The amount of the
provision and allowance for estimated losses on loans is influenced by current
economic conditions, actual loss experience, industry trends and other factors,
such as adverse economic conditions, including declining real estate values, in
the Bank's market area. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the Bank's allowance for
estimated losses on loans. Such agencies may require the Bank to provide
additions to the allowance based upon judgments which differ from those of
management. The absence of a loan loss provision for the five months ended May
31, 1995 is indicative of management's assessment of the adequacy of the
allowance for loan losses, given the trends in historical loss experience of the
portfolio and current economic conditions, as well as the fact that the majority
of loans are single-family residential loans and the loan-to-values are
generally less than 80%. Although management uses the best information
available, future adjustments to the allowance may be necessary due to economic,
operating, regulatory and other conditions that may be beyond the Bank's
control.
Noninterest Income. Noninterest income for the five months ended May
31, 1996 was $27,000 compared to $24,000 for the five months ended May 31, 1995,
an increase of $3,000, or 12.5%. The increase was primarily a result of an
increase in service fees collected.
Noninterest Expense. Noninterest expense was $353,000 for the five
months ended May 31, 1996 compared to $344,000 for the five months ended May 31,
1995, an increase of $9,000, or 2.6%. The increase was primarily a result of
increased loan expense of $10,000 due to the increase in the volume of loan
applications. Occupancy and equipment expense increase by $4,000 as a result of
increased property tax assessment and repairs and maintenance expenses. These
increases were partially
31
<PAGE>
offset by a decrease in compensation and benefits of $10,000 as a result of an
increase in the deferral of loan costs in accordance with Statement of Financial
Accounting Standards No. 91.
Management anticipates that non-interest expense will increase in the
future due to increased costs associated with operations as a public company,
including certain of the stock-based compensation plans proposed to be adopted
in connection with the Conversion and the hiring of additional support staff. In
addition, the deposits of savings associations such as the Bank are presently
insured by the SAIF, which, along with the BIF, is one of the two insurance
funds administered by the FDIC. Financial institutions which are members of the
BIF are experiencing substantially lower deposit insurance premiums because the
BIF has achieved its required level of reserves while the SAIF has not yet
achieved its required reserves. A recapitalization plan for the SAIF under
consideration by Congress reportedly provides for a special assessment of 0.85%
to 0.90% of deposits to be imposed on all SAIF-insured institutions to enable
the SAIF to achieve its required level of reserves. If the proposed assessment
of 0.90% was effected based on deposits as of March 31, 1995 (as proposed), the
Bank's special assessment would amount to approximately $238,000, after taxes.
Accordingly, this special assessment would significantly increase non-interest
expense and adversely affect the Holding Company's results of operations.
Conversely, depending upon the Bank's capital level and supervisory rating, and
assuming the insurance premium levels for BIF and SAIF members are again
equalized, future deposit insurance premiums are expected to decrease
significantly, to as low as $2,000 per year from the 0.23% of deposits currently
paid by the Bank, which would significantly reduce non-interest expense for
future periods if enacted as proposed. See "Risk Factors - Proposed Special
Assessment on SAIF-Insured Deposits."
Income Tax Expense. The provision for income taxes totalled $312,000
for the five months ended May 31, 1996 compared to $317,000, a decrease of
$5,000, or 1.6%. The decrease was due largely to a decrease in income before
income taxes of $54,000 and an increase interest income from U.S.
Treasury securities which is exempt from Illinois taxation.
Comparison of Operating Results for the Years Ended December 31, 1995 and
December 31, 1994
General. Net income for the year ended December 31, 1995 was $1.1
million compared to $758,000 for the year ended December 31, 1994, an increase
of $342,000, or 45.1%. The operating results were primarily affected by the
decrease in security losses and the provision for loan losses in 1995, partially
offset by an increase in noninterest expense.
Interest Income. Interest income for the year ended December 31, 1995
was $4.3 million compared to $3.9 million for the year ended December 31, 1994,
an increase of $400,000, or 10.3%. A contributing factor in the increase in
interest income was a $733,000 increase in the average balance of
interest-earning assets coupled with a 69 basis point increase in the yield on
average interest-earning assets from 7.62% for the year ended December 31, 1994
to 8.31% for the year ended December 31, 1995. The increase in the average
balance of interest-earning assets was due to increases in the average balance
of loans receivable of $2.4 million and securities of $1.9 million due to the
investment of proceeds from the repayment of maturing investment certificates of
deposit and excess cash at the FHLB. The average yield on loans decreased from
9.56% at December 31, 1994 to 9.25% at December 31, 1995 due to the general
decline in mortgage rates in 1995 as compared to 1994. The average yield on
investment securities increased from 4.46% to 7.05% during the same periods due
to the purchase of higher yielding securities and the maturity of lower yielding
securities. The average balance of other interest earning assets decreased $3.6
million due to the maturity of investment certificates of deposit while the
average yield on such assets increased from 4.28% to 6.22% due to the maturity
of lower yielding investment certificates of deposit.
32
<PAGE>
Interest Expense. Interest expense for the year ended December 31, 1995
was $1.6 million compared to $1.3 million for the year ended December 31, 1994,
an increase of $300,000, or 23.1%. The increase in interest expense reflects a
higher interest rate environment, as the average cost of interest-bearing
liabilities increased by 81 basis points from 3.24% for the year ended December
31, 1994 to 4.05% for the year ended December 31, 1995. Although total average
interest-bearing liabilities remained relatively stable, customers shifted their
deposits from savings accounts to higher yielding certificates of deposit. The
average cost of savings accounts increased from 2.85% for the year ended
December 31, 1994 to 3.02% for the year ended December 31, 1995. The average
cost of certificates of deposit increased from 3.80% to 5.22% for the same
period.
Net Interest Income. Net interest income of $2.6 million for the year
ended December 31, 1995 represented a $100,000 increase from the $2.5 million
reported for the year ended December 31, 1994. This increase in net interest
income was a result of the increase in average interest-earning assets to
average interest-bearing liabilities from 125.08% for the year ended December
31, 1994 to 127.21% for the year ended December 31, 1995. This increase was
partially offset by a narrowing of the average net interest spread from 4.38%
for the year ended December 31, 1994 to 4.26% for the year ended December 31,
1995. The narrowing of the net interest spread was a result of the average cost
of interest-bearing liabilities increasing more rapidly than the average yield
on interest-earning assets.
Provision for Loan Losses. The Bank's provision for loan losses on
loans for the year ended December 31, 1995 was zero compared to $42,000 for the
year December 31, 1994. The amount of the provision and allowance for estimated
losses on loans is influenced by current economic conditions, actual loss
experience, industry trends and other factors, such as adverse economic
conditions, including declining real estate values, in the Bank's market area.
The decrease in the provision for loan losses is indicative of management's
assessment of the adequacy of the allowance for loan losses, given the trends in
historical loss experience of the portfolio and current economic conditions, as
well as the fact that the majority of loans are single-family residential loans
and the loan-to-values are generally less than 80%. At December 31, 1995, the
Bank's allowance for loan losses totaled $136,000 or .39% of total loans and
6.49% of total non-performing loans.
Noninterest Income. Noninterest income for the year ended December 31,
1995 was $58,000 compared to $(289,000) for the year ended December 31, 1994, an
increase of $347,000. The increase was primarily a result of a $365,000 decrease
in security losses in 1995 from 1994, partially offset by an $18,000 decrease in
other income in 1995.
Noninterest Expense. Noninterest expense for the year ended December
31, 1995 was $1.0 million compared to $838,000 for the year ended December 31,
1994, an increase of $162,000, or 19.3%. The increase was primarily a result of
a $199,000 increase in compensation and benefits, partially offset by a $9,000
decrease in occupancy and equipment expense and a $19,000 decrease in other
operating expenses. The primary increase in compensation and benefits was due to
the termination of the Bank's pension plan during 1995 which resulted in an
increase in pension expense of $132,000.
Income Taxes. Income tax expense was $630,000 for the year ended
December 31, 1995 compared to $617,000 for the year ended December 31, 1994, an
increase of $13,000. The increase was largely a result of an increase in income
before income taxes from $1.4 million for the year ended December 31, 1994 to
$1.7 million for the year ended December 31, 1995, partially offset by an
increase in the deferred tax valuation allowance of $89,000 in 1994. See Note 9
of the Notes to the Consolidated Financial Statements for additional information
on the Bank's income taxes.
33
<PAGE>
Comparison of Operating Results for the Year Ended December 31, 1994 and the Ten
Months Ended December 31, 1993
General. The Bank reported net income for the year ended December 31,
1994 of $758,000 compared to net income of $942,000 for the ten months ended
December 31, 1993, a decrease of $184,000, or 19.5%. The operating results were
primarily affected by losses on securities sales of $365,000 in 1994 compared to
$28,000 in 1993 and an increase in compensation and benefits of $110,000 of
which $63,000 was due to two additional months of expense in 1994. In addition,
net interest income increased by $311,000 of which $446,000 was due to two
additional months of operations in 1994 offset by a decrease of $134,000 as a
result of the decreasing rate environment.
Interest Income. Interest income for the year ended December 31, 1994
was $3.9 million compared to $3.4 million for the ten months ended December 31,
1993, an increase of $500,000, or 14.7%. This increase in interest income was
primarily the result of two additional months of operations during 1994 as
compared to 1993. Interest income for the year ended December 31, 1994 compared
to the annualized interest income for the ten months ended December 31, 1993
decreased by $200,000. A contributing factor in the decrease in interest income
on an annualized basis was the 59 basis point decline in the average yield on
interest-earning assets from 8.21% (annualized) for the ten months ended
December 31, 1993 to 7.62% for the year ended December 31, 1994. The decrease in
interest income due to lower interest rates was partially mitigated by an
increase in average interest-earning assets from $49.7 million for the ten
months ended December 31, 1993 to $50.6 million for the year ended December 31,
1994. The average yield on loans decreased by 65 basis points, from 10.21%
(annualized) for the ten months ended December 31, 1993 to 9.56% for the year
ended December 31, 1994, primarily as a result of higher yielding loans being
repaid and replaced by loans originated at lower prevailing rates.
Interest Expense. Interest expense for the year ended December 31, 1994
was $1.3 million compared to $1.2 million for the ten months ended December 31,
1993, an increase of $100,000, or 8.3%. This increase in interest expense was
due largely to the two additional months of operations during 1994 as compared
to 1993. Interest expense for the year ended December 31, 1994 compared to the
annualized interest expense for the ten months ended December 31, 1993 decreased
by $100,000. The decrease in interest expense on an annualized basis was due in
part to the 19 basis point decline in the average cost of interest-bearing
liabilities from 3.43% (annualized) for the ten months ended December 31, 1993
to 3.24% for the year ended December 31, 1994, as a result of the Bank's
decision to reduce the rates paid on its deposits in light of the lower rate
environment experienced during fiscal 1994.
Net Interest Income. Net interest income was $2.5 million for the year
ended December 31, 1994 compared to $2.2 million on an annualized basis for the
ten months ended December 31, 1993. The decrease in annualized net interest
income resulted primarily from the narrowing of the net interest spread from
4.78% (annualized) for the ten months ended December 31, 1993 to 4.38% for the
year ended December 31, 1994. The narrowing of the net interest spread was a
result of interest-earning assets repricing more rapidly than interest-bearing
liabilities in a declining rate environment during 1994.
Provision for Loan Losses. The Bank's provision for loan losses on
loans was $42,000 for the year ended December 31, 1994 compared to $27,000 for
the ten months ended December 31, 1993. The amount of the provision and
allowance for estimated losses on loans is influenced by current economic
conditions, actual loss experience, industry trends and other factors, such as
adverse economic conditions, including declining real estate values, in the
Bank's market area. The increase in the provision for loan losses in 1994 is
indicative of management's assessment of the adequacy of the allowance for loan
losses, given the trends in historical loss experience of the portfolio and
current economic conditions.
34
<PAGE>
Noninterest Income. Noninterest income was $(289,000) for the year
ended December 31, 1994 compared to $12,000 for the ten months ended December
31, 1993, a decrease of $301,000. The decrease in noninterest income was due to
a $365,000 loss on security sales for the year ended December 31, 1994 compared
to a $28,000 loss for the ten months ended December 31, 1993. This decrease was
partially offset by an increase in other income of $36,000 due primarily to the
increased service charges and $8,000 due to two additional months of income in
1994.
Noninterest Expense. Noninterest expense was $838,000 for the year
ended December 31, 1994 compared to $647,000 for the ten months ended December
31, 1993, an increase of $191,000, or 29.5%. Compensation and benefits increased
by $110,000 of which $63,000 was due to two additional months of expense during
1994. The remaining increase of $47,000 was due to increased pension plan
expense and the addition of a Bank officer during 1994. In addition, occupancy
and equipment expense increased by $27,000 of which $18,000 was due to two
additional months of expense in 1994 and $9,000 was due to increased
expenditures on repairs and maintenance during 1994.
Income Taxes. The provision for income taxes was $617,000 for the year
ended December 31, 1994 compared to $628,000 for the ten months ended December
31, 1993, a decrease of $11,000, or 1.8%. The decrease in the provision for
income taxes was due to a decrease in pretax income of $195,000 partially offset
by an increase in the deferred tax valuation allowance in 1994.
Analysis of Net Interest Income
Net interest income represents the difference between interest earned
on interest-earning assets and interest paid on interest-bearing liabilities.
Net interest income depends on the volumes of interest-earning assets and
interest-bearing liabilities and the interest rates earned or paid on them.
35
<PAGE>
The following table presents for the periods indicated the total dollar
amount of interest income from average interest earning assets and the resultant
yields, as well as the interest expense on average interest bearing liabilities,
expressed both in dollars and rates. No tax equivalent adjustments were made.
All average balances are monthly average balances. Non-accruing loans have been
included in the table as loans carrying a zero yield.
<TABLE>
<CAPTION>
Five Months Ended May 31, Year Ended December 31,
--------------------------------------------------------- ------------------------------
1996(3) 1995(3) 1995
--------------------------- ---------------------------- ----------------------------
Average Interest Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate Balance Paid Rate
--------------------------------------------------------------------- --------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Loans receivable(1)............ $35,294 $1,377 9.36% $33,783 $1,313 9.32% $34,131 $3,156 9.25%
Securities(2).................. 10,807 303 6.73 7,735 224 6.95 9,250 652 7.05
Mortgage-backed securities..... 4,074 101 5.95 3,511 76 5.20 3,549 186 5.24
Other.......................... 2,879 72 6.00 5,674 145 6.13 4,407 274 6.22
-------- ------- -------- ----- ------- ------
Total interest-earning
assets(1)(2) ............... $53,054 1,853 8.38% $50,703 1,758 8.33% $51,337 4,268 8.31
======= ------ ======= ----- ======= -----
Interest-Earning Liabilities:
Passbook savings............... $21,334 267 3.00% $21,922 277 3.02% $21,512 649 3.02
Certificate accounts........... 20,250 458 5.43 17,982 355 4.74 18,843 983 5.22
------- ------- -------- ------- ------- ------
Total interest-bearing
liabilities ................ $41,584 725 4.18 $39,904 632 3.79 $40,355 1,632 4.05
======= ------- ---- ======= ------- ---- ======= ------ ----
Net interest income............. $1,128 $1,126 $2,636
====== ====== ======
Net interest rate spread........ 4.20% 4.54% 4.26%
==== ==== ====
Net earning assets.............. $11,470 $10,799 $10,982
======= ======= =======
Net yield on average interest-
earning assets................. 5.09% 5.33% 5.13%
==== ==== ====
Average interest-earning assets
for average interest-bearing
liabilities ................... 127.58% 127.06% 127.21%
====== ====== ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------- Ten Months Ended December 31,
1994 1993(3)
------------------------------ -----------------------------
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate
---------------------------- ----------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Loans receivable(1)............ $31,685 $3,014 9.56% $32,708 $2,783 10.21%
Securities(2).................. 7,357 327 4.46 9,919 391 4.74
Mortgage-backed securities..... 3,600 172 4.78 184 2 1.30
Other.......................... 7,962 341 4.28 6,909 225 3.91
-------- ------ -------- ------
Total interest-earning
assets(1)(2) ............... $50,604 3,854 7.62 $49,720 3,401 8.21
======= ----- ======= -----
Interest-Earning Liabilities:
Passbook savings............... $23,882 680 2.85 $24,508 575 2.82
Certificate accounts........... 16,576 630 3.80 16,320 594 4.37
-------- ------ -------- ------
Total interest-bearing
liabilities ................ $40,458 1,310 3.24 $40,828 1,169 3.43
======= ----- ---- ======= ----- ----
Net interest income............. $2,544 $2,232
====== ======
Net interest rate spread........ 4.38% 4.78%
==== ====
Net earning assets.............. $10,146 $8,892
======= ======
Net yield on average interest-
earning assets................. 5.03% 5.39%
==== =====
Average interest-earning assets
to average interest-bearing
liabilities ................... 125.08% 121.78%
====== ======
</TABLE>
- ----------
(1) Calculated net of deferred loan fees, loan discounts, loans in process and
loss reserves.
(2) Calculated based on amortized cost.
(3) Annualized yield/rate.
36
<PAGE>
The following table presents the weighted average yields earned on
loans, securities and other interest-earning assets, and the weighted average
rates paid on savings deposits and the resultant interest rate spreads at the
date indicated. Weighted average balances are based on monthly balances.
<TABLE>
<CAPTION>
At December 31,
At May 31, ------------------------------
1996 1995 1994 1993
------------- ---------------------- --------
<S> <C> <C> <C> <C>
Weighted average yield on:
Loans receivable............................................... 8.64% 8.75% 8.81% 9.15%
Mortgage-backed securities..................................... 6.08 6.08 5.51 6.00
Securities..................................................... 6.67 6.98 6.95 4.46
Other interest-earning assets.................................. 5.49 5.22 5.18 3.25
Combined weighted average yield on interest-earning
assets................................................... 7.84 7.98 7.87 7.07
Weighted average rate paid on:
Passbook savings deposits...................................... 3.02 3.02 3.05 2.81
Certificate accounts........................................... 5.33 5.58 4.33 3.67
Combined weighted average rate paid on interest-bearing
liabilities............................................... 4.14 4.27 3.61 3.15
Spread.......................................................... 3.70 3.71 4.26 3.92
</TABLE>
- ----------
(1) Excluding amortization of deferred loan fees.
37
<PAGE>
The following schedule presents the dollar amount of changes in
interest income and interest expense for major components of interest-earning
assets and interest-bearing liabilities. It distinguishes between the changes
related to outstanding balances and that due to the changes in interest rates.
For each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume (i.e.,
changes in volume multiplied by old rate) and (ii) changes in rate (i.e.,
changes in rate multiplied by old volume). For purposes of this table, changes
attributable to both rate and volume, which cannot be segregated, have been
allocated proportionately to the change due to volume and the change due to
rate.
<TABLE>
<CAPTION>
Five Months Ended Ten Months Ended
May 31, Year Ended December 31, December 31, 1993(1) vs.
1995 vs. 1996 1994 vs. 1995 Year Ended December 31, 1994
----------------------------- --------------------------------- ------------------------------
Increase Increase Increase
(Decrease) (Decrease) (Decrease)
Due to Total Due to Total Due to Total
------------- Increase --------------- Increase ---------------- Increase
Volume Rate (Decrease) Volume Rate (Decrease) Volume Rate (Decrease)
------ ---- ---------- ------ ---- ---------- ------ ---- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable.................. $ 59 $ 5 $ 64 $228 $(86) $142 $ (102) $(225) $(327)
Mortgage-backed securities........ 13 12 25 (2) 16 14 144 26 170
Securities........................ 86 (7) 79 99 226 325 (116) (26) (142)
Other............................. (70) (3) (73) (186) 119 (67) 44 27 71
----- ----- ----- ---- ---- ----- ------ ---- -----
Total interest-earning assets... $ 88 $ 7 95 $139 $275 414 $ (30) $(198) (228)
===== ===== ----- ==== ==== ---- ======= ===== -----
Interest-bearing liabilities:
Passbook savings deposits......... $ (8) $(2) (10) $(70) $(39) (31) $ (18) 8 (10)
Certificate accounts.............. 49 54 103 95 258 353 11 (94) (83)
----- --- --- ---- ---- ---- ------- ----- -----
Total interest-bearing
liabilities................... $ 41 $52 93 $ 25 $297 322 $ (7) $(86) (93)
===== === ---- ==== ==== ---- ======= ==== ----
Net interest income................ $ 2 $ 92 $(135)
==== ==== ====
</TABLE>
- ----------
(1) Ten months ended December 31, 1993 is annualized.
38
<PAGE>
Asset/Liability Management
The measurement and analysis of the exposure of the Bank to changes in
the interest rate environment is referred to as asset/liability management. One
method used to analyze the Bank's sensitivity to changes in interest rates is to
measure the difference between the amount of interest-earning assets which are
anticipated to mature or reprice within a given period of time as compared to
the amount of interest-bearing liabilities which are expected to mature or
reprice within the same period. This difference is known as the interest rate
sensitivity "gap". A gap is considered positive when the amount of interest rate
sensitive assets exceed the amount of interest rate sensitive liabilities in a
given period. A gap is considered negative when the amount of interest rate
sensitive liabilities exceed the amount of interest rate sensitive assets in a
given period.
In a period of declining interest rates, a negative gap would
theoretically be expected to enhance net interest income as maturing and/or
repricing liabilities can be replaced with lower rate liabilities more quickly
than the rate would decline on maturing assets. Conversely, a positive gap would
theoretically tend to adversely affect net interest income in a period of
declining rates. In a period of rising interest rates, a positive gap would
theoretically be expected to enhance net interest income as maturing and/or
repricing assets can be reinvested or repriced at higher rates more quickly than
maturing liabilities would increase in rate. A negative gap would tend to
adversely affect net interest income in a period of rising rates.
Historically, management of the Bank has pursued a strategy of
maintaining its net interest margin by investing in long-term fixed rate
mortgage loans which generally are higher yielding than adjustable-rate mortgage
loans. The Bank's yield on interest-earning assets has adjusted, and, management
believes will in the future continue to adjust, to changes in interest rates at
a slower rate than the cost of its interest-bearing liabilities. As a
consequence, any significant increase in interest rates will have an adverse
effect on the Bank's results of operations. Moreover, increases in interest
rates also can result in disintermediation, which is the flow of funds away from
savings institutions into direct investments, such as U.S. government and
corporate securities, and other investment vehicles which, because of the
absence of federal insurance premiums and reserve requirements, generally pay
higher rates of return than savings institutions. Although in periods of falling
interest rates the opposite effect on net interest income is expected, the Bank
has experienced prepayments of its fixed-rate mortgage loans, which has resulted
in the reinvestment of such proceeds at lower market rates. At May 31, 1996,
total interest-bearing liabilities maturing or repricing within one year
exceeded total interest-earning assets maturing or repricing in the same period
by $25.8 million, representing a negative cumulative one-year gap ratio of 47.1%
of total assets. Management believes that net interest income will be adversely
affected in the event of an increase in interest rates. See "Risk
Factors-Interest Rate Risk Exposure."
In an attempt to manage its exposure to changes in interest rates,
management monitors the Bank's interest rate risk. The Board of Directors meets
at least quarterly to review the Bank's interest rate risk position and
profitability. The Board of Directors also reviews the Bank's portfolio,
formulates investment strategies and oversees the timing and implementation of
transactions to assure attainment of the Bank's objectives in the most effective
manner. In addition, the Board anticipates reviewing on a quarterly basis the
Bank's asset/liability position, including simulations of the effect on the
Bank's capital of various interest rate scenarios.
In managing its asset/liability mix, Preferred Savings, depending on
the relationship between long- and short-term interest rates, market conditions
and consumer preference, often places more emphasis on managing net interest
margin than on better matching the interest rate sensitivity of its assets and
liabilities in an effort to enhance net interest income. Management believes
that the increased net interest income resulting from a mismatch in the maturity
of its asset and liability portfolios can, during periods
39
<PAGE>
of declining or stable interest rates, provide high enough returns to justify
the increased exposure to sudden and unexpected increases in interest rates.
Management has taken a number of steps to reduce interest rate risk.
First, the bank focuses its fixed rate loan originations on loans with
maturities of 15 years or less. At May 31, 1996, $23.0 million or 88.7% of the
Bank's one- to four family residential loan portfolio consisted of fixed rate
loans having original terms to maturity of 15 years or less. Second, the Bank
offers balloon loans of 10 years or less in an attempt to decrease its
asset/liability mismatch. Third, the Bank maintains a portfolio of securities
and liquid assets with weighted average lives of three years or less. At May 31,
1996, the Bank had $14.8 million of securities and cash items with a remaining
average life of 2.66 years. Fourth, the Bank has maintained a mortgage-backed
securities portfolio with adjustable-rates. At May 31, 1996, adjustable rate
mortgage-backed securities totaled $1.7 million which represented 3.1% of
interest-earning assets. Finally, a substantial proportion of the Bank's
liabilities consists of passbook savings accounts which are believed by
management to be somewhat less sensitive to interest rate changes than
certificate accounts.
The primary objective of Preferred Savings' investment strategy is to
provide liquidity necessary to meet funding needs as well as to address daily,
cyclical and long-term changes in the asset/liability mix, while contributing to
profitability by providing a stable flow of dependable earnings. Investments
generally include interest-bearing deposits in other federally insured financial
institutions, FHLB stock and U.S. Government securities.
Generally, the investment policy of the Bank is to invest funds among
various categories of investments and maturities based upon the Bank's need for
liquidity, to achieve the proper balance between its desire to minimize risk and
maximize yield, to provide collateral for borrowings, and to fulfill the Bank's
asset/liability management policies.
Preferred Savings' cost of funds responds to changes in interest rates
due to the relatively short-term nature of its deposit portfolio. Consequently,
the results of operations are heavily influenced by the levels of short-term
interest rates. Preferred Savings offers a range of maturities on its deposit
products at competitive rates and monitors the maturities on an ongoing basis.
40
<PAGE>
The following table sets forth the interest rate sensitivity of the
Bank's assets and liabilities and certain associated weighted average yields and
costs at May 31, 1996 on the basis of the assumptions described below.
<TABLE>
<CAPTION>
Maturing or Repricing
--------------------------------------------------------------------------
Over 6
6 Months Months to Over 1 to Over 3 to Over No Stated
or less 1 Year 3 Years 5 Years 5 Years Maturity Total
--------- ---------- ---------- --------- -------- ---------- ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest -Earning Assets
Loans receivable, gross:
Fixed-rate mortgages........... $ 1,200 $ 1,235 $ 5,163 $ 5,216 $23,348 $ --- $36,162
Adjustable-rate construction... 243 --- --- --- --- --- 243
Consumer....................... 14 1 2 --- --- --- 17
Securities available for sale:
Treasury and agency securities. 2,012 3,758 996 3,404 888 --- 11,058
Mortgage-backed securities..... 1,060 825 534 602 863 --- 3,884
Interest bearing term deposits in other
financial institutions............. --- 99 50 --- 99 --- 248
Interest earning accounts............... 2,871 --- --- --- --- --- 2,871
FHLB Stock.............................. --- --- --- --- --- 362 362
-------- --------- --------- --------- ---------- ---------- --------
Total interest-earning assets.. 7,400 5,918 6,745 9,222 25,198 362 54,845
Interest-Bearing Liabilities
Passbooks............................... 19,604 --- --- --- --- --- 19,604
Money Market accounts................... 1,998 --- --- --- --- --- 1,998
Certificates of Deposit................. 13,559 4,000 2,336 448 --- --- 20,343
-------- --------- --------- --------- ---------- ---------- --------
Total interest-bearing
liabilities ................. 35,161 4,000 2,336 448 --- --- 41,945
Interest-earning assets less interest-
bearing liabilities.................. $(27,761) $ 1,918 $ 4,409 $ 8,774 $25,198 $ 362 $12,900
======== ======== ======== ======== ======= ======== =======
Cumulative interest rate gap............ $(27,761) $(25,843) $(21,434) $(12,660) $12,538 $12,900 $12,900
======== ======== ======== ======== ======= ======= =======
Cumulative interest rate gap as a
percentage of total assets at
May 31, 1996......................... (50.56)% (47.07)% (39.04)% (23.06)% 22.84% 23.50% 23.50%
======= ======= ======= ======= ====== ====== ======
</TABLE>
The preceding table was prepared utilizing the following assumptions
regarding prepayment and decay ratios which were determined by management of the
Bank based upon its review of historical prepayment speeds and future prepayment
projections produced from industry data reflecting expected future prepayments
embedded in quarter end prices of mortgage-backed instruments actively traded in
financial markets. Fixed-rate loans were assumed to prepay monthly at annual
rates of between 8% and 55%, depending on the coupon and period to maturity.
Consumer loans were assumed to prepay monthly at an annual rate of 5% in each of
the periods. Savings accounts were assumed to decay in 6 months or less.
Finally, certificate accounts are assumed not to be withdrawn prior to maturity.
The effect of these assumptions is to quantify the dollar amount of
items that are interest-sensitive and that can be repriced within each of the
periods specified. Such repricing can occur in one of three ways: (1) the rate
of interest to be paid on an asset or liability may adjust periodically on the
basis of an interest rate index; (2) an asset or liability, such as a mortgage
loan, may amortize, permitting reinvestment of cash flows at the then-prevailing
interest rates; or (3) an asset or liability may mature, at which time the
proceeds can be reinvested at the current market rates. Management believes
these prepayment and erosion rates represent reasonable estimates based on
Preferred Savings' experience except that based upon historical experience
management believes that its savings accounts are a relatively stable source of
funds.
41
<PAGE>
Certain shortcomings are inherent in the method of analysis presented
in the foregoing table. Although certain assets and liabilities may have similar
maturities or periods of repricing, they may react in different degrees to
changes in market interest rate. The interest rates on certain types of assets
and liabilities may fluctuate in advance of changes in market interest rates,
while interest rates on other types of assets and liabilities may lag behind
changes in market interest rates. Certain assets, such as adjustable-rate
mortgages, have features which restrict changes in interest rates on a
short-term basis and over the life of the asset. In the event of a change in
interest rates, prepayment and early withdrawal levels would likely deviate
significantly from those assumed in calculating the foregoing table. The ability
of many borrowers to service their debt may decrease in the event of an interest
rate increase.
Because of various shortcomings inherent in using repricing assumptions
in calculating the Bank's gap position, the Banks's negative gap ratio at May
31, 1996 may not fully reflect the Bank's vulnerability to increases in interest
rates as certain assets and liabilities may react in different degrees to, or
lag behind, changes in market interest rates even though they have similar
maturities or periods to repricing. See "Risk Factors - Interest Rate Risk
Exposure."
Another approach used by management to quantify interest rate risk is
the net portfolio value ("NPV") analysis. In essence, this approach calculates
the difference between the present value of liabilities, expected cash flows
from assets and cash flows from off balance sheet contracts. Under OTS
regulations, an institution's "normal" level of interest rate risk in the event
of an immediate and sustained 200 basis point change in interest rates is a
decrease in the institution's NPV in an amount not exceeding 2% of the present
value of its assets. Pursuant to this regulation, thrift institutions with
greater than "normal" interest rate exposure must take a deduction from their
total capital available to meet their risk-based capital requirement. The
amount of that deduction is one-half of the difference between (a) the
institution's actual calculated exposure to the 200 basis point interest rate
increase or decrease (whichever results in the greater pro forma decrease in
NPV) and (b) its "normal" level of exposure which is 2% of the present value of
its assets. Savings institutions, however, with less than $300 million in assets
and a total capital ratio in excess of 12%, will be exempt from this requirement
unless the OTS determines otherwise. The OTS has postponed the implementation of
the rule until further notice. Since the Bank was a state-chartered savings bank
at May 31, 1996, information on its NPV was not computed by the OTS. Based upon
its asset size and capital level at May 31, 1996, the Bank would qualify for an
exemption from this rule; however, management believes that the Bank would be
required to make a deduction from capital if it were subject to this rule.
42
<PAGE>
The following table sets forth, at May 31, 1996, an analysis of the
Bank's interest rate risk as measured by the estimated changes in NPV resulting
from instantaneous and sustained parallel shifts in the yield curve (+/-400
basis points, measured in 100 basis point increments).
<TABLE>
<CAPTION>
Estimated Increase (Decrease) in NPV
Change in Interest Rates Estimated NPV ------------------------------------
(Basis Points) Amount Amount Percent
------------------------ -------------- ------------- ----------
(Dollars in Thousands)
<S> <C> <C> <C>
+400 $ 9,172 $(4,329) (32)%
+300 10,327 (3,174) (24)
+200 11,551 (1,950) (14)
+100 12,746 (755) (6)
--- 13,501 --- ---
-100 13,610 109 1
-200 13,671 170 1
-300 13,747 246 2
-400 14,214 713 5
</TABLE>
Certain assumptions utilized in assessing the interest rate risk of
thrift institutions were employed in preparing the preceding table. These
assumptions relate to interest rates, loan prepayment rates, deposit decay
rates, and the market values of certain assets under the various interest rate
scenarios. It was also assumed that delinquency rates will not change as a
result of changes in interest rates although there can be no assurance that this
will be the case. Even if interest rates change in the designated amounts, there
can be no assurance that the Bank's assets and liabilities would perform as set
forth above. In addition, a change in U.S. Treasury rates in the designated
amounts accompanied by a change in the shape of the Treasury yield curve would
cause significantly different changes to the NPV than indicated above.
Liquidity and Capital Resources
The Bank's primary sources of funds are deposits, proceeds from
principal and interest payments on loans and mortgage-backed and related
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. Preferred Savings generally manages the pricing of its deposits to
be competitive and increase core deposit relationships.
Federal regulations require Preferred Savings to maintain minimum
levels of liquid assets. The required percentage has varied from time to time
based upon economic conditions and savings flows and is currently 5% of net
withdrawable savings deposits and borrowings payable on demand or in one year or
less during the preceding calendar month. Liquid assets for purposes of this
ratio include cash, certain time deposits, U.S. Government, government agency
and corporate securities and other obligations generally having remaining
maturities of less than five years. Preferred Savings has historically
maintained its liquidity ratio for regulatory purposes at levels in excess of
those required. At May 31, 1996, Preferred Savings' liquidity ratio for
regulatory purposes was 30.5%.
The Bank'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 $718,000 and
$759,000 for the five months ended May 31, 1996 and May 31, 1995 respectively,
$1,218,000 and $1,143,000 for the years ended December 31, 1995 and December 31,
1994, respectively, and $937,000 for the ten months ended December 31, 1993. Net
cash from investing
43
<PAGE>
activities consisted primarily of disbursements for loan originations and the
purchase of investments and mortgage-backed securities, offset by principal
collections on loans, proceeds from maturation and sales of securities and
paydowns on mortgage-backed securities. Net cash from financing activities
consisted primarily of activity in deposit and escrow accounts. The net increase
(decrease) in deposits was $898,000, and $(269,000) for the five months ended
May 31, 1996 and May 31, 1995, respectively, $990,000 and $(1,082,000) for the
years ended December 31, 1995 and December 31, 1994, respectively, and $776,000
for the ten months ended December 31, 1993.
The Bank's most liquid assets are cash and short-term investments. The
levels of these assets are dependent on the Bank's operating, financing, lending
and investing activities during any given period. At May 31, 1996, cash and
short-term investments totaled $2.9 million. The Bank has other sources of
liquidity if a need for additional funds arises, including securities maturing
within one year and the repayment of loans. The Bank may also utilize the sale
of securities available-for-sale and Federal Home Loan Bank advances as a source
of funds.
At May 31, 1996, the Bank had outstanding commitments to originate
loans of $537,000, all of which had fixed interest rates. These loans are to be
secured by properties located in its market area. The Bank anticipates that it
will have sufficient funds available to meet its current loan commitments.
Certificates of deposit which are scheduled to mature in one year or less from
May 31, 1996 totaled $17.6 million. Management believes that a significant
portion of such deposits will remain with the Bank.
Liquidity management is both a daily and long-term responsibility of
management. Preferred Savings adjusts its investments in liquid assets based
upon management's assessment of (i) expected loan demand, (ii) expected deposit
flows, (iii) yields available on interest-earning deposits and investment
securities, and (iv) the objectives of its asset/liability management program.
Excess liquidity is invested generally in interest-earning overnight deposits
and short- and intermediate-term U.S. Government and agency obligations and
mortgage-backed securities of short duration. If Preferred Savings requires
funds beyond its ability to generate them internally, it has additional
borrowing capacity with the FHLB of Chicago.
Preferred Savings is subject to various regulatory capital requirements
imposed by the OTS. At May 31, 1996, Preferred Savings was in compliance with
all applicable capital requirements on a fully phased-in basis. See "Regulation
- - Regulatory Capital Requirements" and "Pro Forma Regulatory Capital Analysis
and Note 8 of the Notes to the Consolidated Financial Statements.
Preferred Savings' principal sources of funds are deposits,
amortization and prepayment of loan principal and mortgage-backed securities,
maturities of investment securities and operations. While scheduled loan
repayments and maturing investments are relatively predictable, deposit flows
and early loan repayments are more influenced by interest rates, floors and caps
on loan rates, general economic conditions and competition. Preferred Savings
generally manages the pricing of its deposits to be competitive and increase
core deposit relationships, but has from time to time decided not to pay deposit
rates that are as high as those of its competitors.
Federal regulations require Preferred Savings to maintain minimum
levels of liquid assets. The required percentage has varied from time to time
based upon economic conditions and savings flows and is currently 5% of net
withdrawable savings deposits and borrowings payable on demand or in one year or
less during the preceding calendar month. Liquid assets for purposes of this
ratio include cash, certain time deposits, U.S. Government, government agency
and corporate securities and other obligations generally having remaining
maturities of less than five years. Preferred Savings has historically
maintained its liquidity ratio for regulatory purposes at levels in excess of
those required. At May 31,
44
<PAGE>
1996, Preferred Savings' liquidity ratio for regulatory purposes was 30.5%.
See "Regulation - Liquidity."
Impact of Inflation and Changing Prices
The consolidated financial statements and related data presented herein
have been prepared in accordance with generally accepted accounting principles
which require the measurement of financial position and operating results in
terms of historical dollars without considering changes in the relative
purchasing power of money over time due to inflation. The primary impact of
inflation on the operations of the Bank is reflected in increased operating
costs. Unlike most industrial companies, virtually all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates, generally, have a more significant impact on a financial
institution's performance than does inflation. Interest rates do not necessarily
move in the same direction or to the same extent as the prices of goods and
services.
Impact of New Accounting Standards
In May 1993, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No.114, "Accounting by
Creditors for Impairment of a Loan" ("SFAS No. 114"), which has been amended by
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 Bank adopted the provisions of SFAS
No. 114 and SFAS No. 118 effective in 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 Bank.
In March 1995, the FASB issued Statement of Financial Accounting
Standards No. 121 ("SFAS No. 121"), "Accounting for the Impairment of Long Lived
Assets and for Long Lived Assets to be Disposed Of." SFAS No. 121 requires that
long lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or circumstances indicate that the carrying amount of
an asset may not be recoverable. However, SFAS No. 121 does not apply to
financial instruments, core deposit intangibles, mortgage and other servicing
rights or deferred tax assets. The adoption of SFAS No. 121 in 1996 did not have
a material impact on the results of operations or financial condition of the
Bank.
In May 1995, the FASB issued Statement of Financial Accounting
Standards No. 122 ("SFAS No. 122"), "Accounting for Mortgage Servicing Rights."
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 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. The Bank is
currently not originating mortgage loans for sale and therefore, the adoption of
this statement did not have a material impact on the results of operations or
financial condition of the Bank. SFAS No. 122 will be superseded by Statement of
Financial Accounting Standards No. 125 after December 31, 1996.
In November 1995, the FASB issued Statement of Financial Accounting
Standards No. 123 ("SFAS No. 123"), "Accounting for Stock Based Compensation,"
("SFAS No. 123"). This statement
45
<PAGE>
establishes financial accounting standard for stock-based employee compensation
plans. SFAS No. 123 permits the Bank to choose either a new fair value based
method or the current APB Opinion 25 intrinsic value based method or 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 Bank will be applicable upon the consummation of the Conversion.
In June 1996, the Financial Accounting Standards Board released
Statement of Financial Accounting Standards No. 125 ("SFAS No. 125"),
"Accounting for Transfers and Extinguishments of Liabilities." SFAS No. 125
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities. SFAS No. 125 requires a
consistent application of a financial-components approach that focuses on
control. Under that approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the liabilities it
has incurred, and derecognizes liabilities when extinguished. SFAS No. 125 also
supersedes SFAS No. 122 and requires that servicing assets and liabilities be
subsequently measured by amortization in proportion to and over the period of
estimated net servicing income or loss and requires assessment for asset
impairment or increases obligation based on their fair values. SFAS No. 125
applies to transfers and extinguishments occurring after December 31, 1996 and
early or retroactive application is not permitted. Management anticipates that
the adoption of SFAS No. 125 will not have a material impact on the financial
condition or operations of the Bank.
BUSINESS
General
As a community-oriented financial institution, Preferred Savings seeks
to serve the financial needs of communities in its market area. Preferred
Savings' business involves attracting deposits from the general public and using
such deposits, together with other funds, to originate primarily one- to
four-family residential mortgage loans and, to a lesser extent, multi-family,
commercial real estate and consumer loans in its market area. See "Risk
Factors." The Bank also invests in mortgage-backed and other securities and
other permissible investments.
The Bank offers a variety of accounts having a range of interest rates
and terms. The Bank's deposits include passbook accounts, money market accounts
and certificate accounts with terms of six months to five years. The Bank
solicits deposits only in its primary market area and does not accept brokered
deposits.
Market Area
Preferred Savings serves primarily the southwest side of Chicago and
Cook County, Illinois through its office located at 4800 South Pulaski Road in
Chicago, Illinois. Preferred Savings' market area for loans includes primarily
Cook County, Illinois and, to a lesser extent, portions of DuPage and Will
Counties, Illinois. The market area for deposits includes primarily the
southwest side of the City of Chicago including the Garfield Ridge, Archer
Heights and Brighton Park areas of Chicago. The southwest side of Chicago
includes a diverse population of low- and moderate-income neighborhoods. The
housing in these neighborhoods consists primarily of two- to six-unit apartments
and single family residences.
The Bank's market area also includes small strip shopping centers,
small retail and medical offices, and small- to medium-size manufacturing
facilities.
46
<PAGE>
Lending Activities
General. The principal lending activity of the Bank is originating for
its portfolio fixed rate mortgage loans secured by one- to four-family
residences located primarily in the Bank's market area. To a much lesser extent,
Preferred Savings also originates commercial real estate, multi-family and
consumer loans in its market area. At May 31, 1996, the Bank's total loans
receivable, net totaled $35.7 million. See "- Originations, Purchases and Sales
of Loans and Mortgage-Backed Securities" and "Use of Proceeds."
47
<PAGE>
Loan Portfolio Composition. The following table sets forth the
composition of the Bank's loan portfolio in dollar amounts and in percentages as
of the dates indicated.
<TABLE>
<CAPTION>
December 31,
May 31, --------------------------------------------------
1996 1995 1994 1993
------------------- ---------------- --------------- ---------------
Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
One- to four-family............ $26,150 71.80% $25,858 73.44% $24,711 73.62% $23,403 74.45%
Multi-family................... 6,604 18.13 6,094 17.31 5,929 17.66 5,452 17.34
Commercial..................... 3,408 9.36 2,953 8.39 2,904 8.65 2,331 7.42
Construction................... 243 0.67 286 0.81 --- --- 215 0.68
------- ------ ------- ------ ------- ---- ------- ------
Total real estate loans..... 36,405 99.96 35,191 99.95 33,544 99.93 31,401 99.89
------- ------ ------- ------ ------- ------ ------- ------
Consumer Loans:
Deposit account................. 17 0.04 18 0.05 24 0.07 35 0.11
------- ------ ------- ------ ------- ------- ------- ------
Total loans................. 36,422 100.00% 35,209 100.00% 33,568 100.00% 31,436 100.00%
====== ====== ====== ======
Less:
Loans in process................ --- --- --- ---
Deferred fees and discounts..... 534 548 542 521
Allowance for loan losses....... 186 136 136 94
------- ------- ------- -------
Total loans receivable, net.. $35,702 $34,525 $32,890 $30,821
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
February 28, February 29,
1993 1992
---------------- ----------------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Real Estate Loans:
One- to four-family............ $25,411 76.32% $24,670 76.51%
Multi-family................... 6,157 18.49 6,046 18.75
Commercial..................... 1,681 5.05 1,424 4.42
Construction................... --- --- --- ---
------- ---- --------- ------
Total real estate loans..... 33,249 99.86 32,140 99.68
------- ------ ------- ------
Consumer Loans:
Deposit account................. 45 0.14 105 0.32
------- ------ ------- ------
Total loans................. 33,294 100.00% 32,245 100.00%
====== ======
Less:
Loans in process................ --- ---
Deferred fees and discounts..... 511 496
Allowance for loan losses....... 67 43
------- ---------
Total loans receivable, net.. $32,716 $31,706
======= =======
</TABLE>
48
<PAGE>
The following table shows the composition of the Bank's loan portfolio
by fixed- and adjustable-rate at the dates indicated.
<TABLE>
<CAPTION>
December 31,
May 31, -------------------------------------------------------------------
1996 1995 1994 1993
-------------------------- -------------------------------------------------------------------
Amount Percent Amount Percent Amount Percent Amount Percent
-------------------------- --------- -------- --------- --------- ------- --------
(Dollars in Thousands)
Fixed-Rate Loans:
Real estate
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family............ $26,150 71.80% $25,858 73.44% $24,711 73.62% $23,403 74.45%
Multi-family................... 6,604 18.13 6,094 17.31 5,929 17.66 5,452 17.34
Commercial..................... 3,408 9.36 2,953 8.39 2,904 8.65 2,331 7.42
Construction................... --- --- --- --- --- --- 215 0.68
------- -------- ------- ------ --------- ------ ------ -----
Total real estate loans..... 36,162 99.29 34,905 99.14 33,544 99.93 31,401 99.89
Consumer loans.................. 15 0.04 16 0.04 15 0.05 19 0.06
------- -------- ------- ------ ------- ------ ------ -----
Total fixed-rate loans...... 36,177 99.33 34,921 99.18 33,559 99.98 31,420 99.95
------- -------- ------- ------ ------- ------ ------ -----
Adjustable-Rate Loans:
Real estate - construction...... 243 0.67 286 0.81 --- --- --- ---
Consumer loans.................. 2 --- 2 0.01 9 0.02 16 0.05
------- -------- ------- ------ ------- ------ ------ -----
Total adjustable-rate loans. 245 0.67 288 0.82 9 0.02 16 0.05
------- -------- ------- ------ ------- ------ ------ -----
Total loans................. 36,422 100.00% 35,209 100.00% 33,568 100.00% 31,436 100.00%
====== ====== ====== ======
Less
Loans in process................ --- --- --- ---
Deferred fees and discounts..... 534 548 542 521
Allowance for loan losses....... 186 136 136 94
------- ------- ------- --------
Total loans receivable, net.. $35,702 $34,525 $32,890 $30,821
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
February 28, February 29,
1993 1992
------------------------ --------------------
Amount Percent Amount Percent
------------ -------- ------ ---------
Fixed-Rate Loans:
Real estate
<S> <C> <C> <C> <C>
One- to four-family............ $25,411 76.32% $24,670 76.51%
Multi-family................... 6,157 18.49 6,046 18.75
Commercial..................... 1,681 5.05 1,424 4.42
Construction................... --- --- --- ---
------- ------ ------- --------
Total real estate loans..... 33,249 99.86 32,140 99.68
Consumer loans.................. 23 0.07 32 0.10
------- ------ ------- -------
Total fixed-rate loans...... 33,272 99.93 32,172 99.78
------- -------
Adjustable-Rate Loans:
Real estate - construction...... --- --- --- ---
Consumer loans.................. 22 0.07 73 0.22
------- ------ ------- -------
Total adjustable-rate loans. 22 0.07 73 0.22
------- ------ ------- -------
Total loans................. 33,294 100.00% 32,245 100.00%
====== ======
Less
Loans in process................ --- ---
Deferred fees and discounts..... 511 496
Allowance for loan losses....... 67 43
------- -------
Total loans receivable, net.. $32,716 $31,706
======= =======
</TABLE>
49
<PAGE>
The following schedule illustrates the interest rate sensitivity of the
Bank's loan portfolio at May 31, 1996. Mortgages which have adjustable or
renegotiable interest rates are shown as maturing in the period during which the
contract is due. The schedule does not reflect the effects of possible
prepayments or enforcement of due-on-sale clauses.
<TABLE>
<CAPTION>
Real Estate
-----------------------------------------------------------------------------------------------------
One- to Four-Family Multi-family Commercial Construction
----------------------- --------------------- ---------------------- -----------------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Amount Rate Amount Rate Amount Rate Amount Rate
------------------------------------- ------------------------ -------------------------------------
(Dollars in Thousands)
Due During
Period Ending
May 31,
<C> <C> <C> <C> <C> <C> <C> <C> <C>
1997................... $ 31 7.43% $ 14 9.50% $ --- --% $ 243 9.25%
1998................... 323 8.37 --- --- --- --- --- ---
1999 and 2000.......... 281 9.50 269 9.91 164 10.60 --- ---
2001 to 2005........... 3,676 8.78 2,981 8.85 1,857 9.47 --- ---
2006 to 2020........... 21,839 8.32 3,340 9.27 1,387 9.37 --- ---
2021 and following..... --- --- --- --- --- --- --- ---
--------- --------- --------- -------
Total: $26,150 8.52% $ 6,604 9.11% $3,408 9.48% $ 243 9.25%
======= ======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
Consumer Total
----------------- ---------------------
Weighted Weighted
Average Average
Amount Rate Amount Rate
--------- ---------- --------- ---------
(Dollars in Thousands)
Due During
Period Ending
May 31,
<C> <C> <C> <C> <C>
1997................... $ 14 7.83% $ 302 9.01%
1998................... --- --- 323 8.37
1999 and 2000.......... 3 4.00 717 9.88
2001 to 2005........... --- --- 8,514 8.84
2006 to 2020........... --- --- 26,566 8.53
2021 and following..... --- --- --- ---
-------- -------
Total: $ 17 7.18% $36,422 8.64%
======== =======
</TABLE>
The total amount of loans due after May 31, 1997 which have
predetermined interest rates is $36.1 million, while the total amount of loans
due after such dates which have floating or adjustable interest rates is $0.
50
<PAGE>
Under federal law, the aggregate amount of loans that the Bank is
permitted to make to any one borrower is generally limited to 15% of unimpaired
capital and surplus (25% if the security for such loan has a "readily
ascertainable" value or 30% for certain residential development loans). At May
31, 1996, based on the above, the Bank's regulatory loans-to-one borrower limit
was approximately $1.8 million. On the same date, the Bank had no borrowers with
outstanding balances in excess of this amount. As of May 31, 1996, the largest
dollar amount outstanding or committed to be lent to one borrower or, group of
related borrowers, was 13 loans totaling $1.3 million secured by multi-family
and one- to four-family real estate. The second largest group of loans
outstanding to a group of related borrowers was 5 loans totaling $1.2 million
secured by multi-family real estate. At May 31, 1996 these loans have been
performing in accordance with their terms.
All of the Bank's lending is subject to its written underwriting
standards and to loan origination procedures. Decisions on loan applications are
made on the basis of detailed applications and property valuations (consistent
with the Bank's appraisal policy). The loan applications are designed primarily
to determine the borrower's ability to repay and the more significant items on
the application are verified through use of credit reports, financial
statements, tax returns or confirmations. All loans originated by Preferred
Savings are approved by the full board.
The Bank requires title insurance or other evidence of title on its
mortgage loans, as well as fire and extended coverage casualty insurance in
amounts at least equal to the principal amount of the loan or the value of
improvements on the property, depending on the type of loan. The Bank also
requires flood insurance to protect the property securing its interest when the
property is located in a flood plain.
One- to Four-Family Residential Real Estate Lending. The cornerstone of
the Bank's lending program is the origination of loans secured by mortgages on
owner-occupied one- to four-family residences. Historically, the Bank focused on
fixed rate loans with 15 year terms with 25 year amortization maturities.
Substantially all of the Bank's one- to four-family residential mortgage
originations are secured by properties located in its market area. All mortgage
loans originated by the Bank are retained and serviced by it.
As of May 31, 1996, $14.4 million or 54.9% the Bank's one- to
four-family residential loan portfolio was secured by properties with two or
more units. At that date, the average outstanding residential loan balance was
approximately $61,000.
The Bank currently offers fixed-rate mortgage loans with maturities
from 15 to 25 years and balloon loans with terms of up to 15 years with 25 year
amortization schedules. Interest rates and fees charged on these fixed-rate
loans are established on a regular basis according to market conditions. See
"- Originations, Purchases and Sales of Loans and Mortgage-Backed Securities."
The Bank also originates a limited number of loans secured by
condominiums located in its market area. Condominium loans are made on
substantially the same terms as one- to four-family loans.
At May 31, 1996, the Bank had $1.3 million of condominium loans.
Preferred Savings will generally lend up to 80% (or up to 85% on a
case-by-case basis) of the lesser of the sales price or appraised value of the
security property on owner occupied one- to four-family loans. The loan-to-value
ratio on non-owner occupied, one- to four-family loans is generally 80% of the
lesser of the sales price or appraised value of the security property. Non-owner
occupied one- to four-family loans may pose a greater risk to the Bank than
traditional owner occupied one- to four-family loans. In underwriting one- to
four-family residential real estate loans, the Bank currently evaluates both the
borrower's ability to make principal, interest and escrow payments, the value of
the property that will secure the loan and debt to income ratios.
51
<PAGE>
Residential loans do not currently include prepayment penalties, are
non-assumable and do not produce negative amortization. Properties securing one-
to four-family residential real estate loans made by Preferred Savings are
appraised by independent appraisers.
Since under its current policy, the Bank originates all mortgage loans
for its portfolio, the Bank's loans are not underwritten to permit their sale in
the secondary market.
The Bank's residential mortgage loans customarily include due-on-sale
clauses giving the Bank the right to declare the loan immediately due and
payable in the event that, among other things, the borrower sells or otherwise
disposes of the property subject to the mortgage and the loan is not repaid.
Multi-family and Commercial Real Estate Lending. In recognition of the
many small apartment buildings and businesses in the Bank's market area and in
order to increase the interest rate sensitivity and yield of its loan portfolio
and to complement residential lending opportunities, the Bank has originated
permanent multi-family and commercial real estate loans. At May 31, 1996, the
Bank had $3.4 million in commercial real estate loans, representing 9.4% of the
total loan portfolio, and $6.6 million in multi-family loans, or 18.1% of the
Bank's total loan portfolio.
The Bank's multi-family and commercial real estate loan portfolio
includes loans secured by small apartment buildings, office buildings and other
income producing properties located in its market area.
The Bank's permanent multi-family and commercial real estate loans
generally carry a maximum term of 15 years and have fixed rates. These loans are
generally made in amounts of up to 80% of the lesser of the appraised value or
the purchase price of the property. Appraisals on properties securing
multi-family and commercial real estate loans are performed by an independent
appraiser designated by the Bank at the time the loan is made. All appraisals on
multi-family or commercial real estate loans are reviewed by the Bank's board.
In addition, the Bank's underwriting procedures require verification of the
borrower's credit history, income and financial statements, banking
relationships, references and income projections for the property. The Bank
obtains personal guarantees on these loans.
The table below sets forth, by type of security property, the number
and amount of Preferred Savings' multi-family and commercial real estate loans
at May 31, 1996. Substantially all of the loans referred to in the table below
are secured by properties located in the Bank's market area.
<TABLE>
<CAPTION>
Outstanding Amount
Number of Principal Non-Performing
Loans Balance or of Concern
----- ------- -------------
(Dollars in Thousands)
<S> <C> <C> <C>
Commercial real estate:
Small business facilities....................................... 18 $2,156 $211
Office buildings................................................ 5 659 ---
Apartment buildings............................................. 4 281 ---
Three flats..................................................... 3 312 ---
Multi-family........................................................ 44 6,604 299
----- ----- ------
Total multi-family and commercial real estate loans............. 74 $10,012 $ 510
===== ======= ======
</TABLE>
At May 31, 1996, the Bank's largest commercial real estate or
multi-family loan outstanding totaled $321,000 and was secured by a 15 unit
apartment complex located in Berwyn, Illinois.
52
<PAGE>
Multi-family and commercial real estate loans may present a higher
level of risk than loans secured by one- to four-family residences. This greater
risk is due to several factors, including the concentration of principal in a
limited number of loans and borrowers, the effects of general economic
conditions on income producing properties and the increased difficulty of
evaluating and monitoring these types of loans. At May 31, 1996, one
multi-family loan totaling $299,000 was delinquent 90 days or more. On the same
date, there were no commercial real estate loans delinquent 90 days or more.
Construction Lending. The Bank occasionally purchases participation
interests in construction loans to builders or developers for the construction
of small residential or commercial properties. Such properties are generally
located in Illinois. At May 31, 1996 the Bank's construction lending portfolio
consisted of a participation interest in a construction loan of $243,000 or .67%
of the Bank's real estate loan portfolio.
Consumer Lending. Federally chartered savings institutions may invest
up to 35% of assets in consumer loans (including any investment in investment
grade and commercial paper and corporate debt securities). The Bank originates
consumer loans secured by deposit accounts. At May 31, 1996, consumer loans
totaled $17,000, or 0.04% of the Bank's total loan portfolio. In order to
increase the yield and interest rate sensitivity of its loan portfolio,
management is also considering offering various types of home equity loans.
Originations and Purchases of Loans
Real estate loans are originated by Preferred Savings' staff through
referrals from existing customers or real estate agents.
The Bank's ability to originate loans is dependent upon customer demand
for loans in its market and to a limited extent, various marketing efforts.
Demand is affected by both the local economy and the interest rate environment.
See "- Market Area." Under current policy, all loans originated by Preferred
Savings are retained in the Bank's portfolio. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Asset/Liability
Management."
In the past, the Bank has purchased participation interests in
construction loans originated by a local financial institution. All such loans
are secured. At May 31, 1996, the Bank had $243,000 of participation interests
in construction loans. The Bank intends to continue to purchase such loans in
the future, subject to market conditions.
From time to time, in order to supplement loan originations, the Bank
has acquired mortgage-backed and other securities which are held, depending on
the investment intent, in the "held-to-maturity" or "available-for-sale"
portfolios. See "- Investment Activities - Mortgage-Backed Securities" and Note
2 to the Notes to Consolidated Financial Statements.
53
<PAGE>
The following table shows the loan origination, purchase, sale and
repayment activities of the Bank for the periods indicated.
<TABLE>
<CAPTION>
Five Months Ended Year Ended 10 Months
May 31, December 31, Ended
-------------------------- -------------------- December 31,
1996 1995 1995 1994 1993
----------- ------------ ---------- --------- ----------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Originations by type:
Real estate - one- to four-family........... $ 2,499 $ 2,255 $ 5,162 $ 6,951 $ 6,050
- multi-family.................. 1,250 421 821 1,180 ---
- commercial.................... 1,031 445 1,270 1,315 1,080
Passbook.................................... 9 2 9 12 40
-------- -------- -------- -------- --------
Total loans originated................. 4,789 3,123 7,262 9,458 7,170
------- ------- ------- ------- -------
Purchases:
Real estate - construction.................. --- --- 551 --- ---
Sales and Repayments:
Principal repayments........................ 3,151 1,820 5,533 7,596 9,935
Increase (decrease) in other items, net..... (461) 56 (645) 207 870
-------- -------- -------- -------- --------
Net increase (decrease)................ $ 1,177 $ 1,359 $ 1,635 $ 2,069 $(1,895)
======= ======= ======= ======= =======
</TABLE>
Delinquencies and Non-Performing Assets
Delinquency Procedures. When a borrower fails to make a required
payment on a loan, the Bank attempts to cure the delinquency by contacting the
borrower. Generally, Bank personnel work with the delinquent borrower on a case
by case basis to solve the delinquency. Generally, a late notice is sent on all
delinquent loans over 20 days delinquent. Additional written and verbal contacts
may be made with the borrower between 30 and 60 days after the due date. If the
loan is contractually delinquent for 90 days, the Bank may institute appropriate
action to foreclose on the property. If a borrower agrees to a payment plan to
bring a delinquent loan current, a designated lending officer monitors the loan
for compliance with the payment agreement. If foreclosed, the property is sold
at public sale and may be purchased by the Bank.
Real estate acquired by Preferred Savings as a result of foreclosure or
by deed in lieu of foreclosure is classified as real estate owned until it is
sold. When property is acquired by foreclosure or deed in lieu of foreclosure,
it is recorded at the lower of cost or estimated fair value less estimated
selling costs. After acquisition, all costs incurred in maintaining the property
are expensed. Costs relating to the development and improvement of the property,
however, are capitalized. The Bank had no real estate acquired as a result of
foreclosure during the last five years.
54
<PAGE>
The following table sets forth the Bank's loan delinquencies by type,
by amount and by percentage of type at May 31, 1996.
<TABLE>
<CAPTION>
Loans Delinquent For:
-----------------------------------------------------------------
30-59 Days 60-89 Days
------------------------------- -------------------------------
Percent Percent
of Loan of Loan
Number Amount Category Number Amount Category
-------- ------- --------- ------- -------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Real Estate:
One- to four-family........... 9 $ 707 2.70% 3 $ 217 0.83%
Multi-family.................. --- --- --- 1 299 4.53
Commercial real estate........ 1 211 6.19 --- --- ---
Construction or development... --- --- --- --- --- ---
Consumer...................... --- --- --- --- --- ---
Commercial business........... --- --- --- --- --- ---
Consumer........................ --- --- --- --- --- ---
Commercial business............. --- --- --- --- --- ---
Total...................... 10 $ 918 2.27% 4 $ 516 1.42%
=== ====== ==== ======
</TABLE>
<TABLE>
<CAPTION>
Loans Delinquent For:
--------------------------------
90 Days and Over Total Delinquent Loans
-------------------------------- ------------------------------
Percent Percent
of Loan of Loan
Number Amount Category Number Amount Category
---------- ---------- ---------- -------- -------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Real Estate:
One- to four-family........... 7 $ 600 2.29% 19 $ 1,524 5.83%
Multi-family.................. --- --- --- 1 299 4.53
Commercial real estate........ --- --- --- 1 211 6.19
Construction or development... --- --- --- --- --- ---
Consumer...................... --- --- --- --- --- ---
Commercial business........... --- --- --- --- --- ---
Consumer........................ --- --- --- --- --- ---
Commercial business............. --- --- --- --- --- ---
Total...................... 7 $ 600 1.65% 21 $2,034 7.78%
=== ====== ==== ======
</TABLE>
55
<PAGE>
Classification of Assets. Federal regulations require that each savings
institution classify its own assets on a regular basis. In addition, in
connection with examinations of savings institutions, OTS and FDIC examiners
have authority to identify problem assets and, if appropriate, require them to
be classified. There are three classifications for problem assets: Substandard,
Doubtful and Loss. Substandard assets have one or more defined weaknesses and
are characterized by the distinct possibility that the Bank will sustain some
loss if the deficiencies are not corrected. Doubtful assets have the weaknesses
of Substandard assets, with the additional characteristics that the weaknesses
make collection or liquidation in full on the basis of currently existing facts,
conditions and values questionable, and there is a high possibility of loss. An
asset classified Loss is considered uncollectible and of such little value that
continuance as an asset on the balance sheet of the institution is not
warranted. Assets classified as Substandard or Doubtful require the institution
to establish prudent general allowances for loan losses. If an asset or portion
thereof is classified as a loss, the institution charges off such amount against
the loan loss allowance. If an institution does not agree with an examiner's
classification of an asset, it may appeal this determination to the District
Director of the OTS.
On the basis of management's review of its assets, at May 31, 1996, the
Bank had classified a total of $600,000 of its loans consisting of one- to
four-family residential real estate as follows:
May 31, 1996
------------
(In Thousands)
Substandard................................... $600
Doubtful...................................... ---
Loss.......................................... ---
------
Total.................................... $600
====
At May 31, 1996, Preferred Savings' classified assets consist of the
non-performing loans. As of the date hereof, these asset classifications are
materially consistent with those of the OTS and FDIC. When loans are classified
as a "loss," they are charged off against the loan loss allowance.
56
<PAGE>
Non-Performing Assets. The table below sets forth the amounts and
categories of non-performing assets in the Bank's loan portfolio. For all years
presented, the Bank has had no troubled debt restructurings (which involve
forgiving a portion of interest or principal on any loans or making loans at a
rate materially less than that of market rates). Foreclosed assets include
assets acquired in settlement of loans.
<TABLE>
<CAPTION>
December 31,
May 31, ---------------------------- February 28, February 29,
1996 1995 1994 1993 1993 1992
--------- -------- -------- -------- ------------ ------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-accruing loans over 90 days delinquent:
One- to four-family....................... $ 584 $ 775 $ 334 $ 170 $ 106 $ 207
Multi-family.............................. --- --- --- --- --- ---
Commercial real estate.................... --- --- --- --- --- ---
Commercial business....................... --- --- --- --- --- ---
--------- --------- --------- --------- --------- ---------
Total.................................. 584 775 334 170 106 207
--------- --------- --------- --------- --------- ---------
Accruing loans delinquent more than 90 days. 16 --- --- 6 --- ---
Foreclosed assets........................... --- --- --- --- --- ---
Total non-performing assets................. $ 600 $ 775 $ 334 $ 176 $ 106 $ 207
======== ======== ========= ========= ========= =========
Total as a percentage of total assets....... 1.09% 1.45% 0.65% 0.33% 0.21% 0.45%
======= ====== ======= ======= ======= =======
</TABLE>
For the year ended December 31, 1995 and for the five months ended May
31, 1996, gross interest income which would have been recorded had the
non-accruing loans been current in accordance with their original terms amounted
to $69,000 and $22,000, respectively. The amounts that were included in interest
income on such loans were $58,000 and $14,000 for the year ended December 31,
1995, and for the five months ended May 31, 1996, respectively.
At May 31, 1996, the Bank's non-accruing loans greater than 90 days
included 7 loans secured by single-family real estate totaling $600,000.
The following is a description of all non-accruing loans over $200,000.
Other Assets of Concern. In addition to the non-performing assets set
forth in the table above, as of May 31, 1996, there were $510,000 in loans or
other assets with respect to which known information about the possible credit
problems of the borrowers or the cash flows of the security properties have
caused management to have concerns as to the ability of the borrowers to comply
with present loan repayment terms and which may result in the future inclusion
of such items in the non-performing asset categories.
The following is a description of all other assets of concern over
$250,000.
In October 1992, the Bank originated a $322,000 loan secured by a
16 unit apartment building located in Cicero, Illinois. Due to financial
difficulties of the borrower, the loan became delinquent in December 1995.
At May 31, 1996, the loan was 75 days delinquent and had an outstanding balance
of $299,000. The Bank is continuing to closely monitor this loan.
Management considers the Bank's non-performing and "of concern" assets
in establishing its allowance for loan losses.
57
<PAGE>
The following table sets forth an analysis of the Bank's allowance for
loan losses.
<TABLE>
<CAPTION>
Five Months Year Ended 10 Months Year Ended
Ended May 31, December 31, Ended -----------------------
------------------- ------------------ December 31, February 28, February 29,
1996 1995 1995 1994 1993 1993 1992
-------- -------- ------------------ ------------ ----------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of period....................... $136 $136 $136 $ 94 $ 67 $ 43 $ 19
Charge-offs.......................................... --- --- --- --- --- --- ---
Recoveries........................................... --- --- --- --- --- --- ---
Net charge-offs...................................... --- --- --- --- --- --- ---
Additions charged to operations...................... 50 --- --- 42 27 24 24
----- ------ ------ ----- ----- ----- -----
Balance at end of period............................. $186 $136 $136 $136 $ 94 $ 67 $ 43
==== ==== ==== ==== ==== ==== ====
Ratio of net charge-offs during the period to
average loans outstanding during the period......... ---% ---% ---% ---% ---% ---% ---%
==== ===== ====== ==== ====== ====== ======
Ratio of net charge-offs during the period to
average non-performing assets....................... ---% ---% ---% ---% ---% ---% ---%
==== ===== ====== ==== ====== ====== ======
Ratio of allowance for loan losses to total loans.... 0.51% 0.38% 0.39% 0.41% 0.30% 0.20% 0.13%
==== ==== ==== ==== ==== ==== ====
</TABLE>
58
<PAGE>
The distribution of the Bank's allowance for losses on loans
at the dates indicated is summarized as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------
May 31, 1996 1995 1994
------------------------------- ---------------------------- -------------------------------
Percent Percent Percent
of Loans of Loans of Loans
Loan in Each Loan in Each Loan in Each
Amount of Amounts Category Amount of Amounts Category Amount of Amounts Category
Loan Loss by to Total Loan Loss by to Total Loan Loss by to Total
Allowance Category Loans Allowance Category Loans Allowance Category Loans
--------- -------- ----- --------- -------- ----- --------- -------- -----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family... $ 26 $26,150 71.80% $ 26 $25,858 73.44% $ 25 $24,711 73.62%
Multi-family.......... 17 6,604 18.13 15 6,094 17.31 15 5,929 17.66
Commercial real estate 8 3,408 9.36 7 2,953 8.39 7 2,904 8.65
Construction.......... 1 243 .67 1 286 .81 -- -- --
Consumer.............. -- 17 .04 -- 18 .05 -- 24 .07
Unallocated........... 134 -- -- 87 -- -- 89 -- --
---- ------- ------ ---- ------- ------ ---- ------- ------
Total............ $186 $36,422 100.00% $136 $35,209 100.00% $136 $33,568 100.00%
==== ======= ====== ==== ======= ====== ==== ======= ======
</TABLE>
<TABLE>
<CAPTION>
December 31,
----------------------------
1993 February 28, 1993 February 29, 1992
---------------------------- ------------------------------- ----------------------------
Percent Percent Percent
of Loans of Loans of Loans
Loan in Each Loan in Each Loan in Each
Amount of Amounts Category Amount of Amounts Category Amount of Amounts Category
Loan Loss by to Total Loan Loss by to Total Loan Loss by to Total
Allowance Category Loans Allowance Category Loans Allowance Category Loans
--------- -------- ----- --------- -------- ----- --------- -------- -----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family... $23 $23,403 74.45% $25 $25,411 76.32% $25 $24,670 76.51%
Multi-family.......... 14 5,452 17.34 15 6,157 18.49 15 6,046 18.75
Commercial real estate 6 2,546 8.10 4 1,681 5.05 3 1,424 4.42
Construction.......... -- -- -- -- -- -- -- -- --
Consumer.............. -- 35 .11 -- 45 .14 -- 105 .32
Unallocated........... -- 51 -- -- 23 -- -- -- --
--- ------- ------ --- ------- ------ --- ------- ------
Total............ $94 $31,436 100.00% $67 $33,294 100.00% $43 $32,245 100.00%
=== ======= ====== === ======= ====== === ======= ======
</TABLE>
59
<PAGE>
The allowance for loan losses is established through a provision for
loan losses charged to earnings based on management's evaluation of the risk
inherent in its entire loan portfolio. Such evaluation, which includes a review
of all loans of which full collectibility may not be reasonably assured,
considers the market value of the underlying collateral, growth and composition
of the loan portfolio, delinquency trends, adverse situations that may affect
the borrower's ability to repay, prevailing and projected economic conditions
and other factors that warrant recognition in providing for an adequate
allowance for loan losses. In determining the general reserves under these
policies, historical charge-offs and recoveries, changes in the mix and levels
of the various types of loans, net realizable values, the current and
prospective loan portfolio and current economic conditions are considered.
While management believes that it uses the best information available
to determine the allowance for loan losses, unforeseen economic and market
conditions could result in adjustments to the allowance for loan losses, and net
earnings could be significantly affected, if circumstances differ substantially
from the assumptions used in making the final determination.
Investment Activities
General. Preferred Savings must maintain minimum levels of investments
and other assets that qualify as liquid assets under OTS regulations. Liquidity
may increase or decrease depending upon the availability of funds and
comparative yields on investments in relation to the return on loans.
Historically, Preferred Savings has maintained liquid assets at levels
significantly above the minimum requirements imposed by the OTS regulations and
above levels believed adequate to meet the requirements of normal operations,
including potential deposit outflows. At May 31, 1996, Preferred Savings'
liquidity ratio for regulatory purposes was 30.5%. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Asset/Liability
Management" and "- Liquidity and Capital Resources."
Generally, the investment policy of Preferred Savings is to invest
funds among categories of investments and maturities based upon the Bank's
asset/liability management policies, investment quality, loan and deposit
volume, liquidity needs and performance objectives. Prior to December 31, 1993,
the Bank recorded its investments in its investment securities portfolio at the
lower of cost or current market value if held for sale or at amortized cost if
held for investment. Unrealized declines in the market value of securities held
to maturity were not reflected in the financial statements; however, unrealized
losses in the market value of securities held for sale were recorded as a charge
to current earnings. Effective December 31, 1993, Preferred Savings adopted SFAS
115. As required by SFAS 115, securities are classified into three categories:
trading, held-to-maturity and available-for-sale. Securities that are bought and
held principally for the purpose of selling them in the near term are classified
as trading securities and are reported at fair value with unrealized gains and
losses included in trading account activities in the statement of operations.
Securities that Preferred Savings has the positive intent and ability to hold to
maturity are classified as held-to-maturity and reported at amortized cost. All
other securities not classified as trading or held-to-maturity are classified as
available-for-sale. At May 31, 1996, Preferred Savings had no securities which
were classified as trading and no securities classified as held-to-maturity.
Available-for-sale securities are reported at fair value with unrealized gains
and losses included, on an after-tax basis, in a separate component of retained
earnings. At May 31, 1996, $11.1 million of securities and $3.9 million of
mortgage-backed securities were classified as available-for-sale.
Securities. 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, certain certificates of
deposit of insured banks and savings institutions, certain bankers' acceptances,
repurchase agreements and federal funds. Subject to various restrictions,
federally chartered savings institutions may also invest their assets in
commercial paper, investment grade corporate debt securities
60
<PAGE>
and mutual funds whose assets conform to the investments that a federally
chartered savings institution is otherwise authorized to make directly.
In order to supplement loan volume and to increase holding of its short
and medium term assets, the Bank invests in liquidity investments and in
high-quality investments, such as U.S. Treasury and agency obligations. At May
31, 1996 and December 31, 1995, the Bank's securities portfolio totaled $11.1
million and $9.7 million, respectively. At May 31, 1996, the Bank did not own
any investment securities of a single issuer which exceeded 10% of the Bank's
retained earnings, other than U.S. government securities and federal agency
obligations. See Note 2 of the Notes to the Consolidated Financial Statements
for additional information regarding the Bank's securities portfolio.
61
<PAGE>
The following table sets forth the composition of the Bank's securities
at the dates indicated.
<TABLE>
<CAPTION>
December 31,
--------------------------
May 31, 1996 1995
-------------------------- --------------------------
Carrying % of Carrying % of
Value Total Value Total
----- ----- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Securities held-to-maturity:
U.S. government securities......................... $ --- ---% $ --- ---%
Securities available-for-sale:
U.S. government securities......................... 2,511 22.71 3,527 36.22
Federal agency obligations......................... 8,547 77.29 6,212 63.78
Marketable equity securities....................... --- --- --- ---
------- ------ ------ -------
Total securities................................ $11,058 100.00% $9,739 100.00%
======= ====== ====== ======
Average remaining life of securities................. 2.66 yrs. 3.97 yrs.
Other interest-earning assets:
Interest-bearing deposits with other banks......... $ 2,758 88.40% $ 3,086 90.05%
Repurchase agreements.............................. --- --- --- ---
Money market mutual finds.......................... --- --- --- ---
Federal funds sold................................. --- --- --- ---
Federal Home Loan Bank Stock....................... 362 11.60 341 9.95
------- ------- ------- ------
Total........................................... $ 3,120 100.00% $ 3,427 100.00%
======= ====== ======= ======
</TABLE>
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------
1994 1993
-------------------------- ----------------------
Carrying % of Carrying % of
Value Total Value Total
----- ----- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Securities held-to-maturity:
U.S. government securities......................... $ 201 2.67% $ 403 4.27%
Securities available-for-sale:
U.S. government securities......................... 4,880 64.84 2,999 31.74
Federal agency obligations......................... 2,445 32.49 --- ---
Marketable equity securities....................... --- --- 6,045 63.99
------ ------ ------- ------
Total securities................................ $7,526 100.00% $9,447 100.00%
====== ====== ====== ======
Average remaining life of securities................. 2.00 yrs. 1.41 yrs.(1)
Other interest-earning assets:
Interest-bearing deposits with other banks......... $ 6,060 95.15% $ 7,151 72.13%
Repurchase agreements.............................. --- --- 750 7.57
Money market mutual finds.......................... --- --- 165 1.66
Federal funds sold................................. --- --- 1,500 15.13
Federal Home Loan Bank Stock....................... 309 4.85 348 3.51
------- ------ ------- ------
Total........................................... $ 6,369 100.00% $ 9,914 100.00%
======= ====== ======= ======
</TABLE>
62
<PAGE>
The composition and maturities of the securities portfolio, excluding
FHLB stock, are indicated in the following table.
<TABLE>
<CAPTION>
May 31, 1996
-----------------------------------------------------------------------------------------
Less Than 1 to 5 5 to 10 Over
1 Year Years Years 10 Years Total Securities
-------------- ------- ------- ------------- --------------------------
Carrying Value Carrying Value Carrying Value Carrying Value Carrying Value Fair Value
-------------- -------------- -------------- -------------- -------------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. government securities.... $ 1,515 $ 996 $ --- $ --- $ 2,511 $ 2,511
Federal agency obligations.... 4,255 3,405 887 --- 8,547 8,547
------- ------- ------- ------- -------- --------
Total investment securities... $ 5,770 $ 4,401 $ 887 $ --- $11,058 $11,058
======= ======= ====== ======= ======= =======
Weighted average yield........ 5.76% 5.61% 18.72% ---% 6.74%
</TABLE>
See Note 2 of the Notes to the Consolidated Financial Statements for a
discussion of the Bank's securities portfolio.
Mortgage-Backed Securities. In order to supplement loan and investment
activities, the Bank invests in mortgage-backed and related securities.
Consistent with its asset/liability management strategy, at May 31,
1996, $1.7 million, or 42.7% of Preferred Savings' mortgage-backed securities
have adjustable interest rates. For information regarding the Bank's
mortgage-backed securities portfolio, see Note 2 of the Notes to the
Consolidated Financial Statements.
As of May 31, 1996, all of the mortgage-backed securities owned by the
Bank were issued, insured or guaranteed either directly or indirectly by a
federal agency. As a result, the Bank did not have any mortgage-backed or
related securities in excess of 10% of retained earnings except for federal
agency obligations.
To assess price volatility, the Federal Financial Institutions
Examination Council ("FFIEC") adopted a policy in 1992 which requires an annual
"stress" test of mortgage derivative securities. This policy, which has been
adopted by the OTS, requires the Bank to annually test its CMOs and other
mortgage-related securities to determine whether they are high-risk or
nonhigh-risk securities. Mortgage derivative products with an average life or
price volatility in excess of a benchmark 30-year, mortgage-backed, pass-through
security are considered high-risk mortgage securities. Under the policy, savings
institutions may generally only invest in high-risk mortgage securities in order
to reduce interest rate risk. In addition, all high-risk mortgage securities
acquired after February 9, 1992 which are classified as high risk at the time of
purchase must be carried in the institution's trading account or as assets held
for sale. At May 31, 1996, none of the Bank's mortgage-backed securities were
classified as "high-risk."
63
<PAGE>
The following table sets forth the composition of the Bank's
mortgage-backed securities at the dates indicated.
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------
May 31, 1996 1995 1994 1993
------------------- ----------------- ------------------ ----------------
Carrying % of Carrying % of Carrying % of Carrying % of
Value Total Value Total Value Total Value Total
----- ----- ----- ----- ----- ----- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities held to maturity:
FNMA......................................... $ --- ---% $ --- ---% $1,792 51.41% $2,026 100.00%
Mortgage-backed securities available for sale:
GNMA......................................... 706 18.18 766 18.15 773 22.17 --- ---
FNMA......................................... 2,223 57.23 2,426 57.49 --- --- --- ---
FHLMC........................................ 955 24.59 1,028 24.36 921 26.42 --- ---
------- ------ ------ ------ ------ ------ -------- ----
Total mortgage-backed securities.......... $3,884 100.00% $4,220 100.00% $3,486 100.00% $2,026 100.00%
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
64
<PAGE>
The following table sets forth the contractual maturities of the Bank's
mortgage-backed securities at May 31, 1996.
<TABLE>
<CAPTION>
Due In May 31,
------------------------------------------------------ 1996
Less than 1 to 5 to 10 Over Balance
1 Year 5 Years Years 10 Years Outstanding
------------- ----------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Federal Home Loan Mortgage Corporation....... $ --- $ --- $ --- $ 955 $ 955
Federal National Mortgage Association........ --- 1,397 826 --- 2,223
Government National Mortgage Association..... --- 706 --- --- 706
------- ------- ------ ------ ------
Total................................... $ --- $2,103 $ 826 $ 955 $3,884
======= ====== ====== ====== ======
</TABLE>
At May 31, 1996, the dollar amount of all mortgage-backed securities
due after May 31, 1997, which had fixed interest rates and floating or
adjustable rates totaled $2.2 million and $1.7 million, respectively.
The market values of a portion of the Bank's mortgage-backed securities
held-to-maturity have been from time to time lower than their carrying values.
However, for financial reporting purposes, such declines in value are considered
to be temporary in nature since they have been due to changes in interest rates
rather than credit concerns. See Note 2 of the Notes to the Consolidated
Financial Statements.
The following table shows mortgage-backed securities purchase, sale and
repayment activities of the Bank for the periods indicated.
<TABLE>
<CAPTION>
Five Months Ended Year Ended 10 Months
May 31, December 31, Ended
------------------------ --------------------- December 31,
1996 1995 1995 1994 1993
----------- ---------- ---------- -------- -------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Purchases:
Adjustable-rate(1).................. $ --- $ --- $ 1,023 $ 2,047 $ ---
Fixed-rate(1)....................... --- --- 917 --- 2,026
--------- --------- --------- --------- -------
Total purchases.............. --- --- 1,940 2,047 2,026
Sales:
Adjustable-rate(1).................. --- --- 814 --- ---
Repayments:
Principal repayments................ 295 200 476 437 ---
Other increase (decrease)........... (41) 95 84 (150) ---
------- -------- --------- ------- -------
Net increase (decrease)...... $ (336) $ (105) $ 734 $ 1,460 $ 2,026
======== ======= ======== ======= =======
</TABLE>
- ----------
(1) Consists of pass-through securities.
65
<PAGE>
Sources of Funds
General. The Bank's primary sources of funds are deposits, payments
(including prepayments) of loan principal, interest earned on loans and
securities, repayments of securities, borrowings and funds provided from
operations.
Deposits. Preferred Savings offers deposit accounts having a wide range
of interest rates and terms. The Bank's deposits consist of passbook, money
market and various certificate accounts. The Bank does not currently offer
transaction accounts but may consider offering such accounts in the future
depending on the level of consumer demand for such accounts in its market area.
The Bank only solicits deposits in its market area and does not currently use
brokers to obtain deposits.
The variety of deposit accounts offered by the Bank has allowed it to
be competitive in obtaining funds and to respond with flexibility to changes in
consumer demand. As a result, as customers have become more interest rate
conscious, the Bank has become more susceptible to short-term fluctuations in
deposit flows. In the future, the Bank may offer transaction accounts to meet
the needs of changing customers as well as increase its deposit promotion and
advertising.
Management believes that the "core" portion of the Bank's regular
savings and money market accounts can have a lower cost and be more resistant to
interest rate changes than certificate accounts. These accounts decreased $1.7
million during fiscal 1995. Although a majority of such funds were believed by
management to have been reinvested in certificate accounts. However, management
believes that this outflow represents the most interest rate sensitive portion
of such accounts and that the majority of the remaining portion of the Bank's
regular savings and money market accounts are relatively stable sources of
deposits. The Bank continues to utilize customer service and marketing
initiatives in an effort to maintain and increase the volume of such deposits.
However, the ability of the Bank to attract and maintain these accounts (as well
as certificate accounts) has been and will be affected by market conditions.
66
<PAGE>
The following table sets forth the savings flows at the Bank during the
periods indicated.
<TABLE>
<CAPTION>
10 Months
Five Months Ended Year Ended Ended
May 31, December 31, December 31,
---------------------- ---------------------- ------------
1996 1995 1995 1994 1993
--------- --------- --------- --------- ------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Opening balance.......................... $ 41,047 $ 40,057 $ 40,057 $ 41,139 $ 40,363
Deposits................................. 11,721 9,566 24,295 24,604 15,841
Withdrawals.............................. (11,322) (10,238) (24,759) (26,856) (16,193)
Interest credited........................ 499 403 1,454 1,170 1,128
-------- -------- -------- -------- --------
Ending balance........................... $ 41,945 $ 39,788 $ 41,047 $ 40,057 $ 41,139
======== ======== ======== ======== ========
Net increase (decrease).................. $ 898 $ (269) $ 990 $ (1,082) $ 776
========= ========= ========= ======== =========
Percent increase (decrease).............. 2.19% (0.67)% 2.47% (2.63)% 1.92%
------ ------ ------ ------ ------
</TABLE>
67
<PAGE>
The following table sets forth the dollar amount of savings deposits in
the various types of deposit programs offered by the Bank as of the dates
indicated.
<TABLE>
<CAPTION>
May 31, December 31,
------------------------ ------------------------------------------------------------------
1996 1995 1994 1993
------------------------ ------------------------ ------------------- ------------------
Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ -------- ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Transactions and Savings Deposits:
- ----------------------------------
Passbook Accounts - 3.00%(1)............ $19,604 46.74% $19,409 47.29% $20,750 51.80% $22,989 55.88%
Money Market Accounts - 3.25%(1)........ 1,998 4.76 1,601 3.90 1,924 4.80 2,029 4.93
-------- ------ -------- ------ -------- ------ -------- ------
Total Non-Certificates.................. 21,602 51.50 21,010 51.19 22,674 56.60 25,018 60.81
-------- ------ -------- ------ -------- ------ -------- ------
Certificates:
- -------------
0.00 - 3.99%.......................... 4 0.01 49 0.12 5,130 12.81 12,935 31.44
4.00 - 5.99%.......................... 18,570 44.27 16,222 39.52 11,669 29.13 2,343 5.70
6.00 - 7.99%.......................... 1,769 4.22 3,766 9.17 494 1.23 668 1.62
8.00 and over.......................... --- --- --- --- 90 .23 175 .43
-------- ------ -------- -------- --------- ------- --------- -------
Total Certificates...................... 20,343 48.50 20,037 48.81 17,383 43.40 16,121 39.19
-------- ------ -------- ------ -------- ------ -------- ------
Total Deposits.......................... $41,945 100.00% $41,047 100.00% $40,057 100.00% $41,139 100.00%
======= ====== ======= ====== ======= ====== ======= ======
</TABLE>
- ----------
(1) At May 31, 1996.
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<PAGE>
The following table shows rate and maturity information for the Bank's
certificates of deposit as of May 31, 1996.
<TABLE>
<CAPTION>
Less Than 1 to 2 2 to 3 3 to 4 4 to 5
1 Year Years Years Years Years Total
----------- ------------ ------------ ---------- ----------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
3.00 - 3.99%.......... $ 4 $ --- $ --- $ --- $ --- $ 4
4.00 - 4.99%.......... 743 --- --- --- --- 743
5.00 - 5.99%.......... 15,752 1,079 847 11 138 17,827
6.00 - 6.99%.......... 900 410 --- 90 111 1,511
7.00 - 7.99%.......... 160 --- --- 98 --- 258
-------- ----------- ----------- -------- ---------- --------
$17,559 $ 1,489 $ 847 $ 199 $ 249 $20,343
======= =========== =========== ======== ========== =======
</TABLE>
The following table indicates the amount of the Bank's certificates of
deposit and other deposits by time remaining until maturity as of May 31, 1996.
<TABLE>
<CAPTION>
Maturity
--------------------------------------------------
Over Over
3 Months 3 to 6 6 to 12 Over
or Less Months Months 12 months Total
------- ------ ------ --------- -----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Certificates of deposit of less than $100,000.... $ 6,266 $ 6,481 $ 3,899 $ 2,684 $19,330
Certificates of deposit of $100,000 or more...... 610 203 100 100 1,013
-------- -------- -------- -------- --------
Total certificates of deposit.................... $ 6,876 $ 6,684 $ 3,999 $ 2,784 $20,343
======= ======= ======= ======= =======
</TABLE>
For additional information regarding the composition of the Bank's
deposits, see Note 6 of the Notes to the Consolidated Financial Statements.
Borrowings. In the past, the Bank has not utilized borrowings to fund
its operations. Preferred Savings' available sources of funds include advances
from the FHLB of Chicago and other borrowings. As a member of the FHLB of
Chicago, the Bank is required to own capital stock in the FHLB of Chicago and is
authorized to apply for advances from the FHLB of Chicago. Each FHLB credit
program has its own interest rate, which may be fixed or variable, and range of
maturities. The FHLB of Chicago may prescribe the acceptable uses for these
advances, as well as limitations on the size of the advances and repayment
provisions.
Subsidiary Activities
As a federally chartered savings bank, Preferred Savings is permitted
by OTS regulations to invest up to 2% of its assets in the stock of, or loans
to, service corporation subsidiaries, and may invest an additional 1% of its
assets in service corporations where such additional funds are used for
inner-city or community development purposes. In addition to investments in
service corporations, federal institutions are permitted to invest an unlimited
amount in operating subsidiaries engaged solely in activities which a federal
savings association may engage in directly.
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<PAGE>
At May 31, 1996, Preferred Savings had one wholly owned service
corporation, Preferred Service Corporation (the "Subsidiary"). The Subsidiary,
an Illinois corporation, was incorporated in 1969 and sells casualty, disability
and credit life insurance on an agency basis.
The Subsidiary had nominal net income for the five months ended May 31,
1996 and the year ended December 31, 1995, respectively. At May 31, 1996,
Preferred Savings' investment in the Subsidiary totaled $4,300.
Competition
Preferred Savings faces strong competition both in originating real
estate loans and in attracting deposits. Competition in originating loans comes
primarily from commercial banks, credit unions mortgage bankers and other
savings institutions, which also make loans secured by real estate located in
Cook County, Illinois. At May 31, 1996, there were 344 savings institutions, 551
commercial bank offices, 40 savings bank offices and 265 credit unions located
in Cook County, Illinois. Preferred Savings competes for loans principally on
the basis of the interest rates and loan fees it charges, the types of loans it
originates and the quality of services it provides to borrowers.
Competition for those deposits is principally from commercial banks,
credit unions, mutual funds, securities firms and other savings institutions
located in the same communities. The ability of the Bank to attract and retain
deposits depends on its ability to provide an investment opportunity that
satisfies the requirements of investors as to rate of return, liquidity, risk,
convenient locations and other factors. The Bank competes for these deposits by
offering competitive rates, convenient business hours and a customer oriented
staff. At May 31, 1996, Preferred Savings' share of deposits in its market area
was approximately .04%.
Employees
At May 31, 1996, the Bank had a total of 15 full-time employees. None
of the Bank's employees are represented by any collective bargaining agreement.
Management considers its employee relations to be good.
Properties
Preferred Savings conducts its business at its stand-alone office
located at 4800 South Pulaski Road, Chicago, Illinois. The Bank's 5,000 square
foot office was acquired in 1980 and had a net book value of $314,000 at May 31,
1996. At May 31, 1996, the total net book value of Preferred Savings' premises
and equipment (including land, building and leasehold improvements, and
furniture, fixtures and equipment) was approximately $457,000.
The Bank's depositor and borrower customer files are maintained by an
independent data processing company. The net book value of the data processing
and computer equipment utilized by the Bank at May 31, 1996 was approximately
$5,000.
Legal Proceedings
From time to time, Preferred Savings is involved as plaintiff or
defendant in various legal proceedings arising in the normal course of its
business. While the ultimate outcome of these various legal proceedings cannot
be predicted with certainty, it is the opinion of management that the resolution
of these legal actions should not have a material effect on the Holding
Company's and Preferred Savings' financial position or results of operations.
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<PAGE>
REGULATION
General
Preferred Savings is a federally chartered savings bank, the deposits
of which are federally insured and backed by the full faith and credit of the
United States Government. Accordingly, Preferred Savings is subject to broad
federal regulation and oversight extending to all its operations. Preferred
Savings is a member of the FHLB of Chicago and is subject to certain limited
regulation by the Board of Governors of the Federal Reserve System ("Federal
Reserve Board"). Prior to August, 1996, the Bank was a state chartered savings
bank and was subject to the regulation of the State of Illinois Office of Banks
and Real Estate (the "Illinois Office of Banks"). As the savings and loan
holding company of Preferred Savings, the Holding Company also is subject to
federal regulation and oversight. The purpose of the regulation of the Holding
Company and other holding companies is to protect subsidiary savings
associations. Preferred Savings is a member of the Savings Association Insurance
Fund ("SAIF") and the deposits of Preferred Savings are insured by the FDIC. As
a result, the FDIC has certain regulatory and examination authority over
Preferred Savings.
Certain of these regulatory requirements and restrictions are discussed
below or elsewhere in this document.
Federal Regulation of Savings Associations
The OTS has extensive authority over the operations of savings
associations. As part of this authority, Preferred Savings is required to file
periodic reports with the OTS and is subject to periodic examinations by the OTS
and the FDIC. Prior to its conversion to a federal charter in August 1996, the
Bank was examined and filed periodic reports with the Illinois Office of Banks.
The last regular Illinois Office of Banks, OTS and FDIC examinations of
Preferred Savings were as of May 1994, March 1992 and August 1992, respectively.
Under agency scheduling guidelines, it is likely that another examination will
be initiated in the near future. When these examinations are conducted by the
OTS and the FDIC, the examiners may require Preferred Savings to provide for
higher general or specific loan loss reserves. All savings associations are
subject to a semi-annual assessment, based upon the savings association's total
assets, to fund the operations of the OTS.
The OTS also has extensive enforcement authority over all
savings institutions and their holding companies, including Preferred Savings
and the Holding Company. This enforcement authority includes, among other
things, the ability to assess civil money penalties, to issue cease-and-desist
or removal orders and to initiate injunctive actions. In general, these
enforcement actions may be initiated for violations of laws and regulations and
unsafe or unsound practices. Other actions or inactions may provide the basis
for enforcement action, including misleading or untimely reports filed with the
OTS. Except under certain circumstances, public disclosure of final enforcement
actions by the OTS is required.
In addition, the investment, lending and branching authority of
Preferred Savings is prescribed by federal laws and it is prohibited from
engaging in any activities not permitted by such laws. For instance, no savings
institution may invest in non-investment grade corporate debt securities. In
addition, the permissible level of investment by federal associations in loans
secured by non-residential real property may not exceed 400% of total capital,
except with approval of the OTS. Federal savings associations are also generally
authorized to branch nationwide. Preferred Savings is in compliance with the
noted restrictions.
Preferred Savings' general permissible lending limit for
loans-to-one-borrower is equal to the greater of $500,000 or 15% of unimpaired
capital and surplus (except for loans fully secured by certain readily
marketable collateral, in which case this limit is increased to 25% of
unimpaired capital and
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<PAGE>
surplus). At May 31, 1996, Preferred Savings' lending limit under this
restriction was $1.8 million. Assuming the sale of the minimum number of shares
in the Conversion at May 31, 1996, that limit would be increased to $2.9
million. Preferred Savings is in compliance with the loans-to-one-borrower
limitation.
The OTS, as well as the other federal banking agencies, has adopted
guidelines establishing safety and soundness standards on such matters as loan
underwriting and documentation, internal controls and audit systems, interest
rate risk exposure and compensation and other employee benefits. Any institution
which fails to comply with these standards must submit a compliance plan. A
failure to submit a plan or to comply with an approved plan will subject the
institution to further enforcement action. The OTS and the other federal banking
agencies have also proposed additional guidelines on asset quality and earnings
standards. No assurance can be given as to whether or in what form the proposed
regulations will be adopted.
Insurance of Accounts and Regulation by the FDIC
Preferred Savings is a member of the SAIF, which is administered by the
FDIC. Deposits are insured up to applicable limits by the FDIC and such
insurance is backed by the full faith and credit of the United States
Government. As insurer, the FDIC imposes deposit insurance premiums and is
authorized to conduct examinations of and to require reporting by FDIC-insured
institutions. It also may prohibit any FDIC-insured institution from engaging in
any activity the FDIC determines by regulation or order to pose a serious risk
to the FDIC. The FDIC also has the authority to initiate enforcement actions
against savings associations, after giving the OTS an opportunity to take such
action, and may terminate the deposit insurance if it determines that the
institution has engaged in unsafe or unsound practices or is in an unsafe or
unsound condition.
The FDIC's deposit insurance premiums are assessed through a risk-based
system under which all insured depository institutions are placed into one of
nine categories and assessed insurance premiums based upon their level of
capital and supervisory evaluation. Under the system, institutions classified as
well capitalized (i.e., a core capital ratio of at least 5%, a ratio of Tier 1
or core capital to risk-weighted assets ("Tier 1 risk-based capital") of at
least 6% and a risk-based capital ratio of at least 10%) and considered healthy
pay the lowest premium while institutions that are less than adequately
capitalized (i.e., core or Tier 1 risk-based capital ratios of less than 4% or a
risk-based capital ratio of less than 8%) and considered of substantial
supervisory concern pay the highest premium. Risk classification of all insured
institutions will be made by the FDIC for each semi-annual assessment period.
For the first six months of 1995, the assessment schedule for Bank Insurance
Fund ("BIF") members and SAIF members ranged from .23% to .31% of deposits.
The FDIC is authorized to increase assessment rates, on a semiannual
basis, if it determines that the reserve ratio of the SAIF will be less than the
designated reserve ratio of 1.25% of SAIF-insured deposits. In setting these
increased assessments, the FDIC must seek to restore the reserve ratio to that
designated reserve level, or such higher reserve ratio as established by the
FDIC. The FDIC may also impose special assessments on SAIF members to repay
amounts borrowed from the United States Treasury or for any other reason deemed
necessary by the FDIC.
As is the case with the SAIF, the FDIC is authorized to adjust the
insurance premium rates for banks that are insured by the BIF of the FDIC in
order to maintain the reserve ratio of the BIF at 1.25% of BIF-insured deposits.
As a result of the BIF reaching its statutory reserve ratio the FDIC revised the
premium schedule for BIF-insured institutions to provide a range of .04% to .31%
of deposits. The revisions became effective in the third quarter of 1995. In
addition, the BIF rates were further revised, effective January 1996, to provide
a range of 0% to .27% with a minimum annual assessment of $2,000.
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<PAGE>
The SAIF rates, however, were not adjusted. As a result of these revisions, BIF
members will generally pay lower premiums.
The SAIF is not expected to attain the designated reserve ratio until
the year 2002 due to the shrinking deposit base for SAIF assessments and the
requirement that SAIF premiums be used to make the interest payments on bonds
issued by the Financing Corporation ("FICO") in order to finance the costs of
resolving thrift failures in the 1980s. As a result, SAIF members will generally
be subject to higher deposit insurance premiums than BIF members until, all
things being equal, the SAIF attains the required reserve ratio.
The effect of this disparity on Preferred Savings and other SAIF
members is uncertain at this time. It may have the effect of permitting
BIF-insured institutions to offer loan and deposit products on more attractive
terms than SAIF members due to the cost savings achieved through lower deposit
premiums, thereby placing SAIF members at a competitive disadvantage. In order
to eliminate this disparity a number of proposals to recapitalize the SAIF have
been recently considered by the United States Congress. The plan under current
consideration provides for a one-time assessment, anticipated to range from .80%
to .90%, to be imposed on all deposits assessed at the SAIF rates as of March
31, 1995, including those held by commercial banks, and for BIF deposit
insurance premiums to be used to pay the FICO bond interest on a pro rata basis
together with SAIF premiums. The BIF and SAIF would be merged into one fund as
soon as practicable, but no later than January 1, 1998. There can be no
assurance that any particular proposal will be enacted or that premiums for
either BIF or SAIF members will not be adjusted in the future by the FDIC or by
legislative action.
Regulatory Capital Requirements
Federally insured savings associations, such as Preferred Savings, are
required to maintain a minimum level of regulatory capital. The OTS has
established capital standards, including a tangible capital requirement, a
leverage ratio (or core capital) requirement and a risk-based capital
requirement applicable to such savings associations. These capital requirements
must be generally as stringent as the comparable capital requirements for
national banks. The OTS is also authorized to impose capital requirements in
excess of these standards on individual associations on a case-by-case basis.
The capital regulations require tangible capital of at least 1.5% of
adjusted total assets (as defined by regulation). Tangible capital generally
includes common stockholders' equity and retained income, and certain
noncumulative perpetual Preferred Savings stock and related income. In addition,
all intangible assets, other than a limited amount of purchased mortgage
servicing rights, must be deducted from tangible capital for calculating
compliance with the requirement. At May 31, 1996, Preferred Savings did not have
any intangible assets recorded as assets on its financial statements.
The OTS regulations establish special capitalization requirements for
savings associations that own subsidiaries. In determining compliance with the
capital requirements, all subsidiaries engaged solely in activities permissible
for national banks or engaged in certain other activities solely as agent for
its customers are "includable" subsidiaries that are consolidated for capital
purposes in proportion to the association's level of ownership. For excludable
subsidiaries the debt and equity investments in such subsidiaries are deducted
from assets and capital.
Assuming the Bank would have been subject to the OTS capital
requirements, at May 31, 1996, Preferred Savings had tangible capital of $12.1
million, or 22.1% of adjusted total assets, which is approximately $11.3 million
above the minimum requirement of 1.5% of adjusted total assets in effect on that
date. On a pro forma basis, after giving effect to the sale of the minimum,
midpoint and maximum number of shares of Common Stock offered in the Conversion
and investment of 50% of the net proceeds in assets not excluded for tangible
capital purposes, Preferred Savings would have had
73
<PAGE>
tangible capital equal to 28.7%, 29.8% and 30.8%, respectively, of adjusted
total assets at May 31, 1996, which is $16.3 million, $17.2 million and $18.1
million, respectively, above the requirement.
The capital standards also require core capital equal to at least 3% of
adjusted total assets. Core capital generally consists of tangible capital plus
certain intangible assets, including a limited amount of purchased credit card
relationships. As a result of the prompt corrective action provisions discussed
below, however, a savings association must maintain a core capital ratio of at
least 4% to be considered adequately capitalized unless its supervisory
condition is such to allow it to maintain a 3% ratio. At May 31, 1996, Preferred
Savings had no intangibles which were subject to these tests.
At May 31, 1996, Preferred Savings had core capital equal to $12.1
million, or 22.1% of adjusted total assets, which is $10.5 million above the
minimum leverage ratio requirement of 3% as in effect on that date. On a pro
forma basis, after giving effect to the sale of the minimum, midpoint and
maximum number of shares of Common Stock offered in the Conversion and
investment of 50% of the net proceeds in assets not excluded from core capital,
Preferred Savings would have had core capital equal to 28.7%, 29.8% and 30.8%,
respectively, of adjusted total assets at May 31, 1996, which is $15.4 million,
$16.3 million and $17.2 million, respectively, above the requirement.
The OTS risk-based requirement requires savings associations to have
total capital of at least 8% of risk-weighted assets. Total capital consists of
core capital, as defined above, and supplementary capital. Supplementary capital
consists of certain permanent and maturing capital instruments that do not
qualify as core capital and general valuation loan and lease loss allowances up
to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used
to satisfy the risk-based requirement only to the extent of core capital. The
OTS is also authorized to require a savings association to maintain an
additional amount of total capital to account for concentration of credit risk
and the risk of non-traditional activities. At May 31, 1996, Preferred Savings
had $186,000 of general loss reserves that qualify as supplementary capital,
which was less than 1.25% of risk-weighted assets.
Certain exclusions from capital and assets are required to be made for
the purpose of calculating total capital. Such exclusions consist of equity
investments (as defined by regulation) and that portion of land loans and
nonresidential construction loans in excess of an 80% loan-to-value ratio and
reciprocal holdings of qualifying capital instruments. Preferred Savings had no
such exclusions from capital and assets at May 31, 1996.
In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet items, will be multiplied by a risk weight,
ranging from 0% to 100%, based on the risk inherent in the type of asset. For
example, the OTS has assigned a risk weight of 50% for prudently underwritten
permanent one- to four-family first lien mortgage loans not more than 90 days
delinquent and having a loan to value ratio of not more than 80% at origination
unless insured to such ratio by an insurer approved by the FNMA or FHLMC.
The OTS has adopted a final rule that requires every savings
association with more than normal interest rate risk exposure to deduct from its
total capital, for purposes of determining compliance with such requirement, an
amount equal to 50% of its interest-rate risk exposure multiplied by the present
value of its assets. This exposure is a measure of the potential decline in the
net portfolio value of a savings association, greater than 2% of the present
value of its assets, based upon a hypothetical 200 basis point increase or
decrease in interest rates (whichever results in a greater decline). Net
portfolio value is the present value of expected cash flows from assets,
liabilities and off-balance sheet contracts. The rule provides for a two quarter
lag between calculating interest rate risk and recognizing any deduction from
capital. The rule will not become effective until the OTS evaluates the process
by which savings associations may appeal an interest rate risk deduction
determination. It is uncertain as to when this evaluation may be completed. Any
savings association with less than $300 million in assets and a total
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<PAGE>
capital ratio in excess of 12% is exempt from this requirement unless the OTS
determines otherwise. Based upon its capital level and assets size at May 31,
1996, Preferred Savings would qualify for an exemption from the requirement.
On May 31, 1996, Preferred Savings had total capital of $12.3 million
(including $12.1 million in core capital and $186,000 in qualifying
supplementary capital) and risk-weighted assets of $21.5 million; or total
capital of 57.2% of risk-weighted assets. This amount was $10.6 million above
the 8% requirement in effect on that date. On a pro forma basis, after giving
effect to the sale of the minimum, midpoint and maximum number of shares of
Common Stock offered in the Conversion, the infusion to Preferred Savings of 50%
of the net Conversion proceeds and the investment of those proceeds to Preferred
Savings in 20% risk-weighted government securities, Preferred Savings would have
had total capital of 77.1%, 80.6% and 84.0%, respectively, of risk-weighted
assets, which is above the current 8% requirement by $15.6 million, $16.5
million and $17.4 million, respectively.
The OTS and the FDIC are authorized and, under certain circumstances
required, to take certain actions against savings associations that fail to meet
their capital requirements. The OTS is generally required to take action to
restrict the activities of an "undercapitalized association" (generally defined
to be one with less than either a 4% core capital ratio, a 4% Tier 1
risked-based capital ratio or an 8% risk-based capital ratio). Any such
association must submit a capital restoration plan and until such plan is
approved by the OTS may not increase its assets, acquire another institution,
establish a branch or engage in any new activities, and generally may not make
capital distributions. The OTS is authorized to impose the additional
restrictions that are applicable to significantly undercapitalized associations.
As a condition to the approval of the capital restoration plan, any
company controlling an undercapitalized association must agree that it will
enter into a limited capital maintenance guarantee with respect to the
institution's achievement of its capital requirements.
Any savings association that fails to comply with its capital plan or
is "significantly undercapitalized" (i.e., Tier 1 risk-based or core capital
ratios of less than 3% or a risk-based capital ratio of less than 6%) must be
made subject to one or more of additional specified actions and operating
restrictions which may cover all aspects of its operations and include a forced
merger or acquisition of the association. An association that becomes
"critically undercapitalized" (i.e., a tangible capital ratio of 2% or less) is
subject to further mandatory restrictions on its activities in addition to those
applicable to significantly undercapitalized associations. In addition, the OTS
must appoint a receiver (or conservator with the concurrence of the FDIC) for a
savings association, with certain limited exceptions, within 90 days after it
becomes critically undercapitalized. Any undercapitalized association is also
subject to the general enforcement authority of the OTS and the FDIC, including
the appointment of a conservator or a receiver.
The OTS is also generally authorized to reclassify an association into
a lower capital category and impose the restrictions applicable to such category
if the institution is engaged in unsafe or unsound practices or is in an unsafe
or unsound condition.
The imposition by the OTS or the FDIC of any of these measures on
Preferred Savings may have a substantial adverse effect on Preferred Savings'
operations and profitability and the value of the Common Stock purchased in the
Conversion. Holding Company stockholders do not have preemptive rights, and
therefore, if the Holding Company is directed by the OTS or the FDIC to issue
additional shares of Common Stock, such issuance may result in the dilution in
the percentage of ownership of the Holding Company of those persons purchasing
shares in the Conversion.
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<PAGE>
Limitations on Dividends and Other Capital Distributions
OTS regulations impose various restrictions on savings associations
with respect to their ability to make distributions of capital, which include
dividends, stock redemptions or repurchases, cash-out mergers and other
transactions charged to the capital account. OTS regulations also prohibit a
savings association from declaring or paying any dividends or from repurchasing
any of its stock if, as a result, the regulatory capital of the association
would be reduced below the amount required to be maintained for the liquidation
account established in connection with its mutual to stock conversion. See "The
Conversion--Effects of Conversion to Stock Form on Depositors and Borrowers of
the Bank" and "-Restrictions on Repurchase of Stock."
Generally, savings associations, such as Preferred Savings, that before
and after the proposed distribution meet their capital requirements, may make
capital distributions during any calendar year equal to the greater of 100% of
net income for the year-to-date plus 50% of the amount by which the lesser of
the association's tangible, core or risk-based capital exceeds its capital
requirement for such capital component, as measured at the beginning of the
calendar year, or 75% of its net income for the most recent four quarter period.
However, an association deemed to be in need of more than normal supervision by
the OTS may have its dividend authority restricted by the OTS. Preferred Savings
may pay dividends in accordance with this general authority.
Savings associations proposing to make any capital distribution need
only submit written notice to the OTS 30 days prior to such distribution.
Savings associations that do not, or would not meet their current minimum
capital requirements following a proposed capital distribution, however, must
obtain OTS approval prior to making such distribution. The OTS may object to the
distribution during that 30-day period notice based on safety and soundness
concerns. See "- Regulatory Capital Requirements."
The OTS has proposed regulations that would revise the current capital
distribution restrictions. Under the proposal a savings association that is a
subsidiary of a holding company may make a capital distribution with notice to
the OTS provided that it has a CAMEL 1 or 2 rating, is not of supervisory
concern, and would remain adequately capitalized (as defined in the OTS prompt
corrective action regulations) following the proposed distribution. Savings
associations that would remain adequately capitalized following the proposed
distribution but do not meet the other noted requirements must notify the OTS 30
days prior to declaring a capital distribution. The OTS stated it will generally
regard as permissible that amount of capital distributions that do not exceed
50% of the institution's excess regulatory capital plus net income to date
during the calendar year. A savings association may not make a capital
distribution without prior approval of the OTS and the FDIC if it is
undercapitalized before, or as a result of, such a distribution. As under the
current rule, the OTS may object to a capital distribution if it would
constitute an unsafe or unsound practice. No assurance may be given as to
whether or in what form the regulations may be adopted.
Liquidity
All savings associations, including Preferred Savings are required to
maintain an average daily balance of liquid assets equal to a certain percentage
of the sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. For a discussion of what Preferred
Savings includes in liquid assets, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources." This liquid asset ratio requirement may vary from time to time
(between 4% and 10%) depending upon economic conditions and savings flows of all
savings associations. At the present time, the minimum liquid asset ratio is 5%.
In addition, short-term liquid assets (e.g., cash, certain time
deposits, certain bankers acceptances and short-term United States Treasury
obligations) currently must constitute at least 1% of the
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<PAGE>
association's average daily balance of net withdrawable deposit accounts and
current borrowings. Penalties may be imposed upon associations for violations of
either liquid asset ratio requirement. At May 31, 1996, Preferred Savings was in
compliance with both requirements, with an overall liquid asset ratio of 30.5%
and a short-term liquid assets ratio of 18.7%.
Accounting
An OTS policy statement applicable to all savings associations
clarifies and re-emphasizes that the investment activities of a savings
association must be in compliance with approved and documented investment
policies and strategies, and must be accounted for in accordance with GAAP.
Under the policy statement, management must support its classification of and
accounting for loans and securities (i.e., whether held for investment, sale or
trading) with appropriate documentation. Preferred Savings is in compliance with
these amended rules.
The OTS has adopted an amendment to its accounting regulations, which
may be made more stringent than GAAP by the OTS, to require that transactions be
reported in a manner that best reflects their underlying economic substance and
inherent risk and that financial reports must incorporate any other accounting
regulations or orders prescribed by the OTS.
Qualified Thrift Lender Test
All savings associations, including Preferred Savings, are required to
meet a qualified thrift lender ("QTL") test to avoid certain restrictions on
their operations. This test requires a savings association to have at least 65%
of its portfolio assets (as defined by regulation) in qualified thrift
investments on a monthly average for nine out of every 12 months on a rolling
basis. Such assets primarily consist of residential housing related loans and
investments. At May 31, 1996, Preferred Savings met the test and has always met
the test since its effectiveness.
Any savings association that fails to meet the QTL test must convert to
a national bank charter, unless it requalifies as a QTL and thereafter remains a
QTL. If an association does not requalify and converts to a national bank
charter, it must remain SAIF-insured until the FDIC permits it to transfer to
the BIF. If such an association has not yet requalified or converted to a
national bank, its new investments and activities are limited to those
permissible for both a savings association and a national bank, and it is
limited to national bank branching rights in its home state. In addition, the
association is immediately ineligible to receive any new FHLB borrowings and is
subject to national bank limits for payment of dividends. If such association
has not requalified or converted to a national bank within three years after the
failure, it must divest of all investments and cease all activities not
permissible for a national bank. In addition, it must repay promptly any
outstanding FHLB borrowings, which may result in prepayment penalties. If any
association that fails the QTL test is controlled by a holding company, then
within one year after the failure, the holding company must register as a bank
holding company and become subject to all restrictions on bank holding
companies. See "- Holding Company Regulation."
Community Reinvestment Act
Under the Community Reinvestment Act ("CRA"), every FDIC insured
institution has a continuing and affirmative obligation consistent with safe and
sound banking practices to help meet the credit needs of its entire community,
including low and moderate income neighborhoods. The CRA does not establish
specific lending requirements or programs for financial institutions nor does it
limit an institution's discretion to develop the types of products and services
that it believes are best suited to its particular community, consistent with
the CRA. The CRA requires the OTS, in connection with the examination of
Preferred Savings, to assess the institution's record of meeting the credit
needs of its community and to take such record into account in its evaluation of
certain applications, such as a merger
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or the establishment of a branch, by Preferred Savings. An unsatisfactory rating
may be used as the basis for the denial of an application by the OTS.
The federal banking agencies, including the OTS, have recently revised
the CRA regulations and the methodology for determining an institution's
compliance with the CRA. Due to the heightened attention being given to the CRA
in the past few years, Preferred Savings may be required to devote additional
funds for investment and lending in its local community. Preferred Savings was
examined for CRA compliance in March 1995 and received a rating of satisfactory.
Transactions with Affiliates
Generally, transactions between a savings association or its
subsidiaries and its affiliates are required to be on terms as favorable to the
association as transactions with non-affiliates. In addition, certain of these
transactions, such as loans to an affiliate, are restricted to a percentage of
the association's capital. Affiliates of Preferred Savings include the Holding
Company and any company which is under common control with Preferred Savings. In
addition, a savings association may not lend to any affiliate engaged in
activities not permissible for a bank holding company or acquire the securities
of most affiliates. Preferred Savings' subsidiary is not deemed an affiliate,
however; the OTS has the discretion to treat a subsidiary of savings
associations as an affiliate on a case-by-case basis.
Certain transactions with directors, officers or controlling persons
are also subject to conflict of interest regulations enforced by the OTS. These
conflict of interest regulations and other statutes also impose restrictions on
loans to such persons and their related interests. Among other things, such
loans must be made on terms substantially the same as for loans to unaffiliated
individuals.
Holding Company Regulation
The Holding Company will be a unitary savings and loan holding company
subject to regulatory oversight by the OTS. As such, the Holding Company is
required to register and file reports with the OTS and is subject to regulation
and examination by the OTS. In addition, the OTS has enforcement authority over
the Holding Company and its non-savings association subsidiaries which also
permits the OTS to restrict or prohibit activities that are determined to be a
serious risk to the subsidiary savings association.
As a unitary savings and loan holding company, the Holding Company
generally is not subject to activity restrictions. If the Holding Company
acquires control of another savings association as a separate subsidiary, it
would become a multiple savings and loan holding company, and the activities of
the Holding Company and any of its subsidiaries (other than Preferred Savings or
any other SAIF-insured savings association) would become subject to such
restrictions unless such other associations each qualify as a QTL and were
acquired in a supervisory acquisition.
If Preferred Savings fails the QTL test, the Holding Company must
obtain the approval of the OTS prior to continuing after such failure, directly
or through its other subsidiaries, any business activity other than those
approved for multiple savings and loan holding companies or their subsidiaries.
In addition, within one year of such failure the Holding Company must register
as, and will become subject to, the restrictions applicable to bank holding
companies. The activities authorized for a bank holding company are more limited
than are the activities authorized for a unitary or multiple savings and loan
holding company. See "- Qualified Thrift Lender Test."
The Holding Company must obtain approval from the OTS before acquiring
control of any other SAIF-insured association. Such acquisitions are generally
prohibited if they result in a multiple savings and loan holding company
controlling savings associations in more than one state. However, such
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interstate acquisitions are permitted based on specific state authorization or
in a supervisory acquisition of a failing savings association.
Federal Securities Law
The stock of the Holding Company is registered with the SEC under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Holding
Company is subject to the information, proxy solicitation, insider trading
restrictions and other requirements of the SEC under the Exchange Act.
Holding Company stock held by persons who are affiliates (generally
officers, directors and principal stockholders) of the Holding Company may not
be resold without registration or unless sold in accordance with certain resale
restrictions. If the Holding Company meets specified current public information
requirements, each affiliate of the Holding Company is able to sell in the
public market, without registration, a limited number of shares in any
three-month period.
Federal Reserve System
The Federal Reserve Board requires all depository institutions to
maintain non-interest bearing reserves at specified levels against their
transaction accounts (primarily checking, NOW and Super NOW checking accounts).
At May 31, 1996, Preferred Savings was in compliance with these reserve
requirements. The balances maintained to meet the reserve requirements imposed
by the Federal Reserve Board may be used to satisfy liquidity requirements that
may be imposed by the OTS. See "-Liquidity."
Savings associations are authorized to borrow from the Federal Reserve
Bank "discount window," but Federal Reserve Board regulations require
associations to exhaust other reasonable alternative sources of funds, including
FHLB borrowings, before borrowing from the Federal Reserve Bank.
Federal Home Loan Bank System
Preferred Savings is a member of the FHLB of Chicago, which is one of
12 regional FHLBs, that administers the home financing credit function of
savings associations. Each FHLB serves as a reserve or central bank for its
members within its assigned region. It is funded primarily from proceeds derived
from the sale of consolidated obligations of the FHLB System. It makes loans to
members (i.e., advances) in accordance with policies and procedures, established
by the board of directors of the FHLB, which are subject to the oversight of the
Federal Housing Finance Board. All advances from the FHLB are required to be
fully secured by sufficient collateral as determined by the FHLB. In addition,
all long-term advances are required to provide funds for residential home
financing.
As a member, Preferred Savings is required to purchase and maintain
stock in the FHLB of Chicago. At May 31, 1996, Preferred Savings had $362,000 in
FHLB stock, which was in compliance with this requirement. In past years,
Preferred Savings has received substantial dividends on its FHLB stock. Over the
past five calendar years such dividends have averaged 6.1% and were 6.2% for
calendar year 1995.
Under federal law the FHLBs are required to provide funds for the
resolution of troubled savings associations and to contribute to low- and
moderately priced housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-income housing
projects. These contributions have affected adversely the level of FHLB
dividends paid and could continue to do so in the future. These contributions
could also have an adverse effect on the value of FHLB stock in the future. A
reduction in value of Preferred Savings' FHLB stock may result in a
corresponding reduction in Preferred Savings' capital.
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For the year ended December 31, 1995, dividends paid by the FHLB of
Chicago to Preferred Savings totaled $22,000, which constitute a $3,000 increase
from the amount of dividends received in calendar year 1994. The $10,000
dividend received for the five months ended May 31, 1996 reflects an annualized
rate of 6.6%, or 0.4% below the rate for calendar 1995.
Federal and State Taxation
Savings associations such as Preferred Savings that meet certain
definitional tests relating to the composition of assets and other conditions
prescribed by the Internal Revenue Code of 1986, as amended (the "Code"), are
permitted to establish reserves for bad debts and to make annual additions
thereto which may, within specified formula limits, be taken as a deduction in
computing taxable income for federal income tax purposes. The amount of the bad
debt reserve deduction for "non-qualifying loans" is computed under the
experience method. The amount of the bad debt reserve deduction for "qualifying
real property loans" (generally loans secured by improved real estate) may be
computed under either the experience method or the percentage of taxable income
method (based on an annual election).
Under the experience method, the bad debt reserve deduction is an
amount determined under a formula based generally upon the bad debts actually
sustained by the savings association over a period of years.
The percentage of specially computed taxable income that is used to
compute a savings association's bad debt reserve deduction under the percentage
of taxable income method (the "percentage bad debt deduction") is 8%. The
percentage bad debt deduction thus computed is reduced by the amount permitted
as a deduction for non-qualifying loans under the experience method. The
availability of the percentage of taxable income method permits qualifying
savings associations to be taxed at a lower effective federal income tax rate
than that applicable to corporations generally (approximately 31.3% assuming the
maximum percentage bad debt deduction).
If an association's specified assets (generally, loans secured by
residential real estate or deposits, educational loans, cash and certain
government obligations) constitute less than 60% of its total assets, the
association may not deduct any addition to a bad debt reserve and generally must
include existing reserves in income over a four year period. No representation
can be made as to whether Preferred Savings will meet the 60% test for
subsequent taxable years.
Under the percentage of taxable income method, the percentage bad debt
deduction cannot exceed the amount necessary to increase the balance in the
reserve for "qualifying real property loans" to an amount equal to 6% of such
loans outstanding at the end of the taxable year or the greater of (i) the
amount deductible under the experience method or (ii) the amount which when
added to the bad debt deduction for "non-qualifying loans" equals the amount by
which 12% of the amount comprising savings accounts at year-end exceeds the sum
of surplus, undivided profits and reserves at the beginning of the year. At May
31, 1996, the 6% limitation did not restrict the percentage bad debt
deduction available to Preferred Savings, however the 12% limitation restricted
the bad debt deduction.
In addition to the regular income tax, corporations, including savings
associations such as Preferred Savings, generally are subject to a minimum tax.
An alternative minimum tax is imposed at a minimum tax rate of 20% on
alternative minimum taxable income, which is the sum of a corporation's regular
taxable income (with certain adjustments) and tax preference items, less any
available exemption. The alternative minimum tax is imposed to the extent it
exceeds the corporation's regular income tax and net operating losses can offset
no more than 90% of alternative minimum taxable income. For taxable years
beginning after 1986 and before 1996, corporations, including savings
associations such as Preferred Savings, are also subject to an environmental tax
equal to 0.12% of the excess of alternative
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minimum taxable income for the taxable year (determined without regard to net
operating losses and the deduction for the environmental tax) over $2 million.
To the extent earnings appropriated to a savings association's bad debt
reserves for "qualifying real property loans" and deducted for federal income
tax purposes exceed the allowable amount of such reserves computed under the
experience method and to the extent of the association's supplemental reserves
for losses on loans ("Excess"), such Excess may not, without adverse tax
consequences, be utilized for the payment of cash dividends or other
distributions to a shareholder (including distributions on redemption,
dissolution or liquidation) or for any other purpose (except to absorb bad debt
losses). As of December 31, 1995, Preferred Savings' Excess for tax purposes
totaled approximately $1.6 million.
Preferred Savings and its subsidiary file consolidated federal income
tax returns on a fiscal year basis using the cash method of accounting. The
Holding Company intends to file consolidated federal income tax returns with
Preferred Savings and its subsidiary. [CONFIRM] Savings associations, such as
Preferred Savings, that file federal income tax returns as part of a
consolidated group are required by applicable Treasury regulations to reduce
their taxable income for purposes of computing the percentage bad debt deduction
for losses attributable to activities of the non-savings association members of
the consolidated group that are functionally related to the activities of the
savings association member.
Preferred Savings and its consolidated subsidiary have not been audited
by the IRS with respect to consolidated federal income tax returns in the past
five years. With respect to years examined by the IRS, either all deficiencies
have been satisfied or sufficient reserves have been established to satisfy
asserted deficiencies. In the opinion of management, any examination of still
open returns (including returns of subsidiary and predecessors of, or entities
merged into, Preferred Savings) would not result in a deficiency which could
have a material adverse effect on the financial condition of Preferred Savings
and its consolidated subsidiary.
Illinois Taxation. For Illinois income tax purposes, the Bank is taxed
at an effective rate equal to 7.18% of Illinois taxable income. For these
purposes, "Illinois Taxable Income" generally means federal taxable income,
subject to certain adjustments (including the addition of interest income on
state and municipal obligations and the exclusion of interest income on United
States Treasury obligations).
Delaware Taxation. As a Delaware holding company, the Holding Company
is exempted from Delaware corporate income tax but is required to file an annual
report with and pay an annual fee to the State of Delaware. The Holding Company
is also subject to an annual franchise tax imposed by the State of Delaware.
MANAGEMENT
Directors and Executive Officers of the Holding Company and the Bank
Directors and Executive Officers of the Holding Company. The Board of
Directors of the Holding Company currently consists of six members. The
directors of the Holding Company are currently comprised of the directors of the
Bank and Lorraine G. Ptak. See "- Directors of the Bank." Each Director of the
Holding Company has served as such since August 1996. Directors of the Holding
Company will serve three-year staggered terms so that one-third of the directors
will be elected at each annual meeting of stockholders. The terms of the current
directors of the Holding Company are the same as that of the Bank's board. The
term of Ms. Ptak expires in 1999. The Holding Company intends to pay directors a
fee for attendance at Board meetings of $250. See also "- Directors and
Executive Officers of the Bank." For information regarding stock options and
restricted stock proposed to be awarded to directors following stockholder
ratification of such plans, see "- Benefit Plans."
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The business experience of L.G. Ptak, a director of the Holding
Company and an executive officer of the Bank, is set forth below.
L. G. Ptak, age 71. Ms. Ptak is currently serving as
Secretary-Treasurer of the Bank, a position she has held since 1975. Mrs. Ptak
is also a director of the Holding Company. Ms. Ptak is the wife of Chairman S.
J. Ptak and the mother of President Rooney.
The executive officers of the Holding Company are elected annually and
hold office until their respective successors have been elected and qualified or
until death, resignation or removal by the Board of Directors. The following
table sets forth information regarding executive officers of the Holding
Company. Each executive officer of the Holding Company has held his or her
position since the incorporation of the Holding Company in July 1996.
Name Title
- ------------------- -----------------------------------------------
S. J. Ptak Chairman of the Board
Kimberly P. Rooney President, Chief Executive Officer and Director
Jeffrey Przybyl Treasurer and Chief Financial Officer
L. G. Ptak Director and Secretary
The Holding Company does not initially intend to pay executive officers any fees
in addition to fees payable to such persons as executive officers of the Bank.
For information regarding compensation of directors and executive officers of
the Bank, see "Management - Director Compensation" and "- Executive
Compensation." For information regarding stock options and restricted stock
proposed to be awarded to directors and executive officers following stockholder
ratification of the Holding Company's stock-based plans, see "- Benefit Plans."
Board of Directors of the Bank. Prior to the Conversion, the direction
and control of the Bank, as a mutual savings institution, was vested in its
Board of Directors. Upon conversion of the Bank to stock form, each of the
directors of the Bank will continue to serve as a director of the converted
Bank. The Board of Directors of the Bank currently consists of five members. The
directors serve three-year staggered terms so that approximately one-third of
the directors are elected at each annual meeting of members. Because the Holding
Company will own all of the issued and outstanding shares of capital stock of
the Bank after the Conversion, directors of the Holding Company will elect the
directors of the Bank.
The following table sets forth certain information regarding the
directors of the Bank.
<TABLE>
<CAPTION>
Director Term
Name Position(s) Held With the Bank Age(1) Since Expires
- ------------------- ------------------------------------------------- ------ ----- -------
<S> <C> <C> <C> <C>
S. J. Ptak Chairman of the Board 71 1969 1999
Kimberly P. Rooney President, Chief Executive Officer and Director 39 1989 1999
Edward Wolak Director 72 1969 1998
Jeanine M. McInerney Director 38 1996 1997
Rocco Di Iorio Director 64 1990 1997
</TABLE>
- ----------
(1) At May 31, 1996.
The business experience of each director of the Holding Company or the
Bank for at least the past five years is set forth below.
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Sylvester J. Ptak. Mr. Ptak is the Chairman of the Board and Vice
President of the Bank, a position he has held since 1995. Mr. Ptak has been a
member of the Board of Directors of the Bank since 1969. He also served as
Secretary of the Bank from 1969 to 1975 and President and Chief Executive
Officer of the Bank from 1975 to 1995. Mr. Ptak is the father of President
Rooney and husband of Secretary-Treasurer Lorraine Ptak. As Chairman of the
Board and Vice President of the Bank, Mr. Ptak supervises the lending
department.
Kimberly P. Rooney. Ms. Rooney is currently serving as President and
Chief Executive Officer of the Bank, a position she has held since 1995. Prior
to joining the Bank as President, Ms. Rooney served as an attorney for the Bank.
From time to time, Ms. Rooney performs legal work for long time clients. Ms.
Rooney is the daughter of Chairman Ptak and Secretary-Treasurer Lorraine Ptak.
Edward Wolak. Mr. Wolak is a retired plant engineer with Crown Stove,
Inc., a position he held for approximately 40 years. Mr. Wolak is the spouse of
Lorraine Ptak's sister.
Jeanine McInerny. Ms. McInerny is a clinical nurse consultant with
Healthpoint Medical. She has been employed as a nurse for approximately 15
years.
Rocco Di Iorio. Mr. Di Iorio is a retired sewer contractor.
Executive Officers Who Are Not Directors. Each of the executive
officers of the Bank will retain his or her office in the converted Bank.
Officers are elected annually by the Board of Directors of the Bank. The
business experience of the executive officers who are not also directors is set
forth below. L. G. Ptak is also an executive officer of the Bank. Her business
experience is set forth on the preceding page.
Jeffrey Przybyl, age 30. Mr. Przybyl is currently serving as Chief
Financial Officer of the Bank, a position he has held since 1993. As Chief
Financial Officer, Mr. Przybyl is responsible for overseeing the accounting and
financial reporting functions of the Bank.
Marianne I. Maciejewski, age 58. Ms. Maciejewski is currently serving
as Vice President of the Bank, a position she has held since 1995. As Vice
President of the Bank, Ms. Maciejewski is responsible for overseeing the
compliance function of the Bank. Prior to serving as Vice President, Ms.
Maciejewski served in various capacities with the Bank since 1985. Marianne I.
Maciejewski is the mother of Linda Peterson.
Linda M. Peterson, age 38. Ms. Peterson is currently serving as Vice
President of the Bank. In that capacity, Ms. Peterson is responsible for
overseeing the mortgage lending functions of the Bank. Ms. Peterson joined the
Bank in 1987 as a loan officer. Linda Peterson is the daughter of executive
officer Maciejewski.
Indemnification
The Certificate of Incorporation of the Holding Company provides that a
director or officer of the Holding Company shall be indemnified by the Holding
Company to the fullest extent authorized by the General Corporation Law of the
State of Delaware against all expenses, liability and loss reasonably incurred
or suffered by such person in connection with his activities as a director or
officer or as a director or officer of another company, if the director or
officer held such position at the request of the Holding Company. Delaware law
requires that such director, officer, employee or agent, in order to be
indemnified, must have acted in good faith and in a manner reasonably believed
to be not opposed to the best interests of the Holding Company, and, with
respect to any criminal action or proceeding, did not have reasonable cause to
believe his or her conduct was unlawful.
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The Certificate of Incorporation and Delaware law also provide that the
indemnification provisions of such Certificate and the statute are not exclusive
of any other right which a person seeking indemnification may have or later
acquire under any statute, provision of the Certificate of Incorporation, Bylaws
of the Holding Company, agreement, vote of stockholders or disinterested
directors or otherwise.
These provisions may have the effect of deterring shareholder
derivative actions, since the Holding Company may ultimately be responsible for
expenses for both parties to the action. A similar effect would not be expected
for third-party claims.
In addition, the Certificate of Incorporation and Delaware law also
provide that the Holding Company may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Holding
Company or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the Holding
Company has the power to indemnify such person against such expense, liability
or loss under the Delaware General Corporation Law. The Holding Company may
obtain such insurance.
Meetings and Committees of Board of Directors
The Bank. The Bank's Board of Directors meets on a monthly basis. The
Board of Directors met 12 times during the fiscal year ended December 31, 1995.
During fiscal 1995, no director of the Bank attended fewer than 75% of the
aggregate of the total number of Board meetings and the total number of meetings
held by the committees of the Board of Directors on which he served.
The Bank has standing Loan, Proxy, Investment, Audit, CRA and Interest
Rate Risk Committees.
The Loan Committee meets to approve all loans originated by the Bank
and sets interest rates for all loan types. The entire Board of Directors
comprises the loan committee. This committee met approximately 12 times during
calendar year 1995.
The Proxy Committee is comprised of Chairman Ptak, President Rooney and
Secretary-Treasurer Ptak. This Committee meets to vote proxies at a special or
annual meeting of the Bank. This committee met one time during calendar year
1995.
The Investment Committee develops investment objectives and performance
standards consistent with the Bank's financial needs and reviews the Bank's
investment policies and recommends changes to the full Board. This committee is
comprised of Chairman Ptak, President Rooney and Chief Financial Officer Przybyl
and met 12 times during calendar year 1995.
The Audit Committee meets at least annually to review and recommend the
Bank's engagement of external auditors. Such committee reviews audit reports and
related matters and acts as the liaison between Preferred Savings' internal and
external auditors and the Board. Directors Di Iorio and Wolak currently comprise
the committee. This committee met one time in 1995.
The CRA Committee meets on a monthly basis to review compliance with
the Community Reinvestment Act. The CRA Committee is composed of the entire
board of directors and executive officer Maciejewski. This committee met 12
times during calendar year 1995.
The Interest Rate Risk Committee is comprised of Chairman Ptak,
Director Rooney and officer Przybyl. This committee meets quarterly to review
the Bank's interest rate risk position and product mix and make recommendations
for adjustments to the full Board. This committee met four times in fiscal 1995.
The Holding Company. In August 1996, the Board of Directors of the
Holding Company established standing Executive, Audit, Compensation and
Nominating Committees. These committees did not meet during fiscal 1995.
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Director Compensation
Directors of the Bank are paid a monthly fee of $300 for service on the
Board of Directors. Directors do not receive any additional compensation for
committee meetings attended.
Executive Compensation
The following table sets forth information concerning the compensation
for services in all capacities to Preferred Savings for the fiscal year ended
December 31, 1995 of the Bank's Chief Executive Officer. No executive officer's
aggregate annual compensation (salary plus bonus) exceeded $100,000 in fiscal
1995.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Summary Compensation Table
- ----------------------------------------------------------------------------------------------------------------------------------
Long Term Compensation
Annual Compensation(1) Awards
- ----------------------------------------------------------------------------------------------------------------------------------
Other Annual Restricted Stock Options/ All Other
Name and Principal Position Year Salary($) Bonus($) Compensation($) Award ($)(2) SARs (#)(2) Compensation($)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Kimberly P. Rooney, President and
Chief Executive Officer 1995 $55,200 $24,000 $--- $ N/A N/A $---
S.J. Ptak, Chairman of the Board 1995 $36,000 $20,000 $--- $ N/A N/A $---
===================================================================================================================================
</TABLE>
- ----------
(1) In accordance with the transitional provisions applicable to the
revised rules on executive officer and director compensation disclosure
adopted by the SEC, as informally interpreted by the SEC's Staff,
Summary Compensation information is excluded for the fiscal years ended
December 31, 1994 and 1993.
(2) Pursuant to the proposed Stock Option Plan, the Holding Company intends
to grant Ms. Rooney and Mr. Ptak an option to purchase a number of
shares equal to 2.5% and 2.5%, respectively (35,063 and 35,063 shares
at the minimum and 47,438 and 47,438 shares at the maximum of the
Estimated Valuation Range) of the total number of shares of Common
Stock issued in the Conversion at an exercise price equal to the market
value per share of the Common Stock on the date of grant. See "- Stock
Option and Incentive Plan." In addition, pursuant to the proposed RRP,
the Holding Company intends to grant to Ms. Rooney and Mr. Ptak a
number of shares of restricted stock equal to 1% and 1%, respectively
(14,025 shares and 14,025 shares at the minimum and 18,975 and 18,975
shares at the maximum of the Estimated Valuation Range) of the total
number of shares of Common Stock sold in the Conversion. See
"- Management Recognition Plan."
Employment Agreements and Severance Agreements. The Bank intends to
enter into employment agreements with Chairman Ptak and President Rooney
providing for an initial term of three years. The agreements have been filed
with the OTS as part of the application of the Holding Company for approval to
become a savings and loan holding company. The employment agreements become
effective upon completion of the Conversion and provides for an annual base
salary in an amount not less than each individual's respective current salary
and provide for an annual extension subject to the performance of an annual
formal evaluation by disinterested members of the Board of Directors of the
Bank. The agreements also provide for termination upon the employee's death, for
cause or in certain events specified by OTS regulations. The employment
agreements are also terminable by the employee upon 90 days' notice to the Bank.
The employment agreements provide for payment to Chairman Ptak and
President Rooney of an amount equal to 299% of their five-year annual average
base compensation, respectively, in the event there is a "change in control" of
the Bank where employment involuntarily terminates in connection with such
change in control or within twelve months thereafter. For the purposes of the
employment agreements, a "change in control" is defined as any event which would
require the filing of an application for acquisition of control or notice of
change in control pursuant to 12 C.F.R. Section 574.3 or 4. Such events are
generally triggered prior to the acquisition or control of 10% of the Holding
Company's common stock. See "Restrictions on Acquisitions of Stock and Related
Takeover Defensive Provisions." If the
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employment of Chairman Ptak or President Rooney had been terminated as of May
31, 1996 under circumstances entitling them to severance pay as described above,
they would have been entitled to receive a lump sum cash payment of
approximately $135,000 and $225,000, respectively. The agreements also provide
for the continued payment to Chairman Ptak and President Rooney of health
benefits for the remainder of the term of their contract in the event such
individual is involuntarily terminated in the event of change in control.
The Bank intends to enter into change in control severance agreements
with Officers Jeffrey Przybyl, Marianne Maciejewski and Linda Peterson. The
agreements become effective upon completion of the Conversion and provide for an
initial term of 12 months. The agreements provide for extensions of one year, on
each anniversary of the effective date of the agreement, subject to a formal
performance evaluation performed by disinterested members of the Board of
Directors of the Bank. The agreement provides for termination for cause or in
certain events specified by OTS regulations.
The agreements provide for a lump sum payment to the employee of
$40,000 and the continued payment for the remaining term of the contract of life
and health insurance coverage maintained by the Bank in the event there is a
"change in control" of the Bank where employment terminates involuntarily in
connection with such change in control. This termination payment is subject to
reduction by the amount of all other compensation to the employee deemed for
purposes of the Code to be contingent on a "change in control," and may not
exceed one time the employee's average annual compensation over the most recent
five-year period or be non-deductible by the Bank for federal income tax
purposes. For the purposes of the agreements, a "change in control" is defined
as any event which would require the filing of an application for acquisition of
control or notice of change in control pursuant to 12 C.F.R. Section 574.3 or 4
or any successor regulation. Such events are generally triggered prior to the
acquisition of control of 10% of the Company's Common Stock. See "Restrictions
on Acquisitions of Stock and Related Takeover Defensive Provisions."
Benefit Plans
General. Preferred Savings currently provides insurance benefits to its
employees, including health and life insurance, subject to certain deductibles
and copayments.
Pension Plan. Prior to June 30, 1995, the Bank maintained a defined
benefit pension plan for the benefit of its employees. The Pension Plan was
terminated as of June 30, 1995. The noncontributory defined benefit pension plan
covered all employees who met certain minimum service requirements. See Note 7
to the Notes to Consolidated Financial Statements. The benefits were distributed
during the year.
Employee Stock Ownership Plan. The Boards of Directors of Preferred
Savings and the Holding Company have approved the adoption of an ESOP for the
benefit of employees of Preferred Savings. The ESOP is also designed to meet the
requirements of an employee stock ownership plan as described at Section
4975(e)(7) of the Code and Section 407(d)(6) of the Employee Retirement Income
Security Act
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of 1974, as amended ("ERISA"), and, as such, the ESOP is empowered to borrow in
order to finance purchases of the Common Stock.
It is anticipated that the ESOP will be funded with a loan from the
Holding Company (not to exceed an amount equal to 8% of the gross Conversion
proceeds). The interest rate of the ESOP loan will be equal to the applicable
federal interest rate as determined by the Internal Revenue Service for the
month in which the loan is made, as calculated pursuant to Section 1274(d) of
the Code.
GAAP generally requires that any borrowing by the ESOP from an
unaffiliated lender be reflected as a liability in the Holding Company's
Consolidated Financial Statements, whether or not such borrowing is guaranteed
by, or constitutes a legally binding contribution commitment of, the Holding
Company or the Bank. The funds used to acquire the ESOP shares will be borrowed
from the Holding Company. Since the Holding Company will finance the ESOP debt,
the ESOP debt will be eliminated through consolidation and no liability will be
reflected on the Holding Company's consolidated financial statements. In
addition, shares purchased with borrowed funds will, to the extent of the
borrowings, be excluded from stockholders' equity, representing unearned
compensation to employees for future services not yet performed. Consequently,
if the ESOP purchases already-issued shares in the open market, the Holding
Company's consolidated liabilities will increase to the extent of the ESOP's
borrowings, and total and per share stockholders' equity will be reduced to
reflect such borrowings. If the ESOP purchases newly issued shares from the
Holding Company, total stockholders' equity would neither increase nor decrease,
but per share stockholders' equity and per share net income would decrease
because of the increase in the number of outstanding shares. In either case, as
the borrowings used to fund ESOP purchases are repaid, total stockholders'
equity will correspondingly increase.
All employees of the Bank are eligible to participate in the ESOP after
they attain age 21 and complete one year of service. The Bank's contribution to
the ESOP is allocated among participants on the basis of their relative
compensation. Each participant's account will be credited with cash and shares
of Holding Company Common Stock based upon compensation earned during the year
with respect to which the contribution is made. Contributions credited to a
participant's account become fully vested upon such participant's completing six
years of service. Credit will be given for prior years of service for vesting
purposes. ESOP participants are entitled to receive distributions from their
ESOP accounts only upon termination of service. Distributions will be made in
cash and in whole shares of the Holding Company's Common Stock. Fractional
shares will be paid in cash. Participants will not incur a tax liability until a
distribution is made.
Each participating employee is entitled to instruct the trustee of the
ESOP as to how to vote the shares allocated to his or her account. The trustee
will not be affiliated with the Holding Company or Preferred Savings.
The ESOP may be amended by the Board of Directors, except that no
amendment may be made which would reduce the interest of any participant in the
ESOP trust fund or divert any of the assets of the ESOP trust fund for purposes
other than the benefit of participants or their beneficiaries.
Stock Option and Incentive Plan. Among the benefits to the Bank
anticipated from the Conversion is the ability to attract and retain personnel
through the prudent use of stock options and other stock-related incentive
programs. The Board of Directors of the Holding Company intends to adopt the
Stock Option Plan, subject to ratification by stockholders of the Holding
Company at a meeting to be held not earlier than six months after completion of
the Conversion. Under the terms of the proposed Stock Option Plan, stock options
covering shares representing an aggregate of up to 10% of the shares of Common
Stock issued in the Conversion may be granted to directors, officers and
employees of the Holding Company or its subsidiaries under the Stock Option
Plan.
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Options granted under the Stock Option Plan may be either options that
qualify under the Code as "incentive stock options" (options that afford
preferable tax treatment to recipients upon compliance with certain restrictions
and that do not normally result in tax deductions to the employer) or options
that do not so qualify. The exercise price of stock options granted under the
Stock Option Plan is required to be at least equal to the fair market value per
share of the stock on the date of grant. All grants are made in consideration of
past and future services rendered to the Bank, and in an amount deemed necessary
to encourage the continued retention of the officers and directors who are
considered necessary for the continued success of the Bank. In this regard, all
options are intended to vest in five equal annual installments commencing one
year from the date of grant, subject to the continued service of the holder of
such option.
The proposed Stock Option Plan provides for the grant of stock
appreciation rights ("SARs") at any time, whether or not the participant then
holds stock options, granting the right to receive the excess of the market
value of the shares represented by the SARs on the date exercised over the
exercise price. SARs generally will be subject to the same terms and conditions
and exercisable to the same extent as stock options.
Limited SARs may be granted at the time of, and must be related to, the
grant of a stock option or SAR. The exercise of one will reduce to that extent
the number of shares represented by the other. Limited SARs will be exercisable
only for the 45 days following the expiration of the tender or exchange offer,
during which period the related stock option or SAR will be exercisable.
However, no SAR or Limited SAR will be exercisable by a 10% beneficial owner,
director or senior officer within six months of the date of its grant. The
Holding Company has no present intention to grant any SARs or Limited SARs.
The proposed Stock Option Plan will be administered by the Holding
Company's Compensation Committee which will consist of at least two
disinterested directors. The Compensation Committee will select the recipients
and terms of awards made pursuant to the Stock Option Plan. OTS regulations
limit the amount of shares that may be awarded pursuant to stock-based plans to
each individual officer, each non-employee director and all non-employee
directors of a group to 25%, 5% and 30%, respectively, of the total shares
reserved for issuance under each such stock-based plan.
The Compensation Committee, presently consisting of non-employee
Directors Wolak, McInerney and Di Iorio, intends to grant options in amounts
expressed as a percentage of the shares issued in the Conversion, as follows:
President Rooney - 2.5%, S.J. Ptak - 2.5%, and to all executive officers as a
group (6 persons) - 6.8%. In addition, under the terms of the Stock Option Plan,
each non-employee director of the Holding Company at the time of stockholder
ratification of the Stock Option Plan will be granted an option to purchase
shares of Common Stock equal to .5% of the shares sold in the Conversion. The
remaining balance of the available awards is unallocated and reserved for future
use. All options will expire 10 years after the date such option was granted,
which, for the option grants listed above, is expected to be the date of
stockholder ratification of the Stock Option Plan. All proposed option grants to
officers are subject to modification by the Compensation Committee based upon
its performance evaluation of the option recipients at the time of stockholder
ratification of the Stock Option Plan following completion of the Conversion.
After stockholder ratification, the Stock Option Plan will be funded
either with shares purchased in the open market or with authorized but unissued
shares of Common Stock. The use of authorized but unissued shares to fund the
Stock Option Plan could dilute the holdings of stockholders who purchased Common
Stock in the Conversion. See "Pro Forma Data." In no event will the Stock Option
Plan acquire an amount of shares, which, in the aggregate, represent more than
10% of the shares issued in the Conversion.
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Under SEC regulations, so long as certain criteria are met, an optionee
may be able to exercise the option at the Purchase Price and immediately sell
the underlying shares at the then-current market price without incurring
short-swing profit liability. This ability to exercise and immediately resell,
which under the SEC regulations applies to stock option plans in general, allows
the optionee to realize the benefit of an increase in the market price for the
stock without the market risk which would be associated with a required holding
period for the stock after payment of the exercise price. Under SEC regulations,
the short-swing liability period now runs for six months before and after the
option grant. All grants are subject to ratification of the Stock Option Plan by
stockholders of the Holding Company following completion of the Conversion.
Recognition and Retention Plan. The Holding Company intends to
establish the RRP in order to provide employees with a proprietary interest in
the Holding Company in a manner designed to encourage such persons to remain
with the Holding Company and the Bank. The RRP will be subject to ratification
by stockholders at a meeting to be held not earlier than six months after the
completion of the Conversion. The Holding Company will contribute funds to the
RRP to enable it to acquire in the open market or from authorized but unissued
shares (with the decision between open market or authorized but unissued shares
based on the Holding Company's future stock price, alternate investment
opportunities and capital needs), following stockholder ratification of such
plan, an amount of stock equal to 4% of the shares of Common Stock issued in the
Conversion.
The Compensation Committee of the Board of Directors of the Holding
Company will administer the proposed RRP. Under the terms of the proposed RRP,
awards ("Awards") can be granted to key employees in the form of shares of
Common Stock held by the RRP. Awards are non-transferable and non-assignable.
OTS regulations limit the amount of shares that may be awarded pursuant to
stock-based plans to each individual officer, each non-employee director and all
non-employee directors of a group to 25%, 5% and 30%, respectively, of the total
shares reserved for issuance under each such stock-based plan.
Recipients will earn (i.e., become vested in), over a period of time,
the shares of Common Stock covered by the Award. Awards made pursuant to the RRP
will vest in five equal annual installments commencing one year from the date of
grant. Awards will be 100% vested upon termination of employment due to death or
disability. In addition, no awards under the RRP to directors and executive
officers shall vest in any year in which the Bank is not meeting all of its
fully phased-in capital requirements. When shares become vested and are actually
distributed in accordance with the RRP, but in no event prior to such time, the
participants will also receive amounts equal to any accrued dividends with
respect thereto. Earned shares are distributed to recipients as soon as
practicable following the date on which they are earned.
The Compensation Committee presently intends to grant restricted stock
awards at the Purchase Price, in amounts expressed as a percentage of the shares
sold in the Conversion, as follows: to President Rooney - 1.0%, S.J. Ptak -1.0%,
and to all executive officers as a group (6 persons) - 2.75%. Pursuant to the
terms of the proposed RRP, each non-employee director of the Holding Company at
the time of stockholder ratification of the RRP will be awarded an amount of
shares equal to .25% of the shares sold in the Conversion. All proposed RRP
awards to officers of the Bank are subject to modification by the Compensation
Committee based upon its performance evaluation of the award recipients at the
time of stockholder ratification of the RRP following completion of the
Conversion.
After stockholder ratification, the RRP will be funded either with
shares purchased in the open market or with authorized but unissued shares of
Common Stock issued to the RRP by the Holding Company. The use of authorized but
unissued shares to fund the RRP could dilute the holdings of stockholders who
had purchased Common Stock in the Conversion. In the event the RRP purchases
stock in the open market at prices above the initial Purchase Price, the total
RRP expense may be above that
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disclosed under the caption "Pro Forma Data." In no event will the RRP acquire
an amount of shares which, in the aggregate, represent more than 4% of the
shares issued in the Conversion.
Certain Transactions
The Bank follows a policy of granting loans to the Bank's directors,
officers and employees. The loans to executive officers and directors are made
in the ordinary course of business and on the same terms and conditions as those
of comparable transactions prevailing at the time, in accordance with the Bank's
underwriting guidelines and do not involve more than the normal risk of
collectibility or present other unfavorable features. All loans to directors and
executive officers cannot exceed $25,000 or 5% of the Bank's capital and
unimpaired surplus, whichever is greater, unless a majority of the Board of
Directors approves the credit in advance and the individual requesting the
credit abstains from voting. Under the Bank's policy the Bank may make loans to
executive officers to finance a child's education or to finance the purchase,
construction, maintenance or improvement of the borrower's residence. Loans to
executive officers for other purposes are permitted as long as they qualify as
low or minimal risk loans and do not exceed 2.5% of the Bank's capital and
unimpaired surplus, or $25,000, whichever is greater up to a maximum of
$100,000. All loans by the Bank to its directors and executive officers are
subject to OTS regulations restricting loans and other transactions with
affiliated persons of the Bank. Federal law currently requires that all loans to
directors and executive officers be made on terms and conditions comparable to
those for similar transactions with non-affiliates. Loans to all directors and
executive officers and their associates, including outstanding balances and
commitments totaled $193,000 at May 31, 1996, which was 1.6% of the Bank's
retained earnings at that date. At May 31, 1996, there were no loans to any
single director, executive officer or their affiliates made at preferential
rates or terms which in the aggregate exceeded $60,000 during the three years
ended December 31, 1995.
THE CONVERSION
The Board of Directors of the Bank and the OTS have approved the Plan
of Conversion. OTS approval does not constitute a recommendation or endorsement
of the Plan of Conversion. Certain terms used in the following summary of the
material terms of the Conversion are defined in the Plan of Conversion, a copy
of which may be obtained by contacting Preferred Savings.
General
The Board of Directors of the Bank unanimously adopted the Plan,
subject to approval by the OTS and the members of the Bank. Pursuant to the
Plan, the Bank will convert from a federally chartered mutual savings bank to a
federally chartered stock savings bank, with the concurrent formation of a
holding company.
The Conversion will be accomplished through amendment of the Bank's
federal charter to authorize capital stock, at which time the Bank will become a
wholly owned subsidiary of the Holding Company. The Conversion will be accounted
for as a pooling of interests.
Subscription Rights have been granted to the Eligible Account Holders
as of March 31, 1995, Tax-Qualified Employee Plans of the Bank and Holding
Company, Supplemental Eligible Account Holders as of September 30, 1996, Other
Members, and officers, directors and employees of the Bank. Additionally,
subject to the availability of shares and market conditions at or near the
completion of the Subscription Offering, the Common Stock may be offered for
sale in a Public Offering to selected persons on a best-efforts basis through
Webb. See "- Offering of Holding Company Common Stock." Subscriptions for shares
will be subject to the maximum and minimum purchase limitations set forth in the
Plan of Conversion.
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Business Purposes
Preferred Savings has several business purposes for the Conversion. The
sale of Holding Company Common Stock will have the immediate result of providing
the Bank with additional equity capital in order to support the expansion of its
existing operations, subject to market conditions. See "Business." The sale of
the Common Stock is the most effective means of increasing the Bank's permanent
capital and does not involve the high interest cost and repayment obligation of
subordinated debt. In addition, investment of that part of the net Conversion
proceeds paid by the Holding Company to the Bank is expected to provide
additional operating income to further increase the Bank's capital on a
continuing basis.
The Board of Directors of the Bank believes that a holding company
structure could facilitate the acquisition of both mutual and stock savings
institutions in the future as well as other companies. If a multiple holding
company structure is utilized in a future acquisition, the acquired savings
institution would be able to operate on a more autonomous basis as a wholly
owned subsidiary of the Holding Company rather than as a division of the Bank.
For example, the acquired savings institution could retain its own directors,
officers and corporate name as well as having representation on the Board of
Directors of the Holding Company. As of the date hereof, there are no plans or
understandings regarding the acquisition of any other institutions.
The Board of Directors of the Bank also believes that a holding company
structure can facilitate the diversification of the Bank's business activities.
While diversification will be maximized if a unitary holding company structure
is utilized because the types of business activities permitted to a unitary
holding company are broader than those of a multiple holding company, either
type of holding company may engage in a broader range of activities than may a
thrift institution directly. Currently, there are no plans that the Holding
Company engage in any material activities apart from holding the shares of the
Bank and investing the remaining net proceeds from the sale of Common Stock in
the Conversion.
The preferred stock and additional common stock of the Holding Company
being authorized in the Conversion will be available for future acquisitions and
for issuance and sale to raise additional equity capital, generally without
stockholder approval or ratification, but subject to market conditions. Although
the Holding Company currently has no plans with respect to future issuances of
equity securities, the more flexible operating structure provided by the Holding
Company and the stock form of ownership is expected to assist the Bank in
competing more aggressively with other financial institutions in its principal
market area.
The Conversion will structure the Bank in the stock form used in the
United States by all commercial banks, most major business corporations and an
increasing number of savings institutions. The Conversion will permit the Bank's
members to become stockholders of the Holding Company, thereby allowing members
to own stock in the financial organization in which they maintain deposit
accounts or with which they have a borrowing relationship. Such ownership should
encourage members to promote the Bank to others, thereby further contributing to
the Bank's earnings potential.
The Bank is also expected to benefit from its management and employees
owning stock, because stock ownership is viewed as an effective performance
incentive and a means of attracting, retaining and compensating personnel.
Effects of Conversion to Stock Form on Depositors and Borrowers of the Bank
Voting Rights. Deposit account holders will have no voting rights in
the converted Bank or the Holding Company and will therefore not be able to
elect directors of either entity or to control their affairs. These rights are
currently accorded to deposit account holders with regard to the Bank.
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Subsequent to Conversion, voting rights will be vested exclusively in the
Holding Company as the sole stockholder of the Bank. Voting rights as to the
Holding Company will be held exclusively by its stockholders. Each purchaser of
Holding Company Common Stock shall be entitled to vote on any matters to be
considered by the Holding Company stockholders. A stockholder will be entitled
to one vote for each share of Common Stock owned, subject to certain limitations
applicable to holders of 10% or more of the shares of the Common Stock. See
"Description of Capital Stock."
Deposit Accounts and Loans. The general terms of the Bank's deposit
accounts, the balances of the individual accounts and the existing FDIC
insurance coverage will not be affected by the Conversion. Furthermore, the
Conversion will not affect the loan accounts, the balances of these accounts, or
the obligations of the borrowers under their individual contractual arrangements
with the Bank.
Tax Effects. The Bank has received an opinion from Silver, Freedman &
Taff, L.L.P. with regard to federal income taxation, and an opinion from Crow,
Chizek and Company LLP with regard to Illinois taxation, to the effect that the
adoption and implementation of the Plan of Conversion set forth herein will not
be taxable for federal or Illinois tax purposes to the Bank or the Holding
Company. See "- Income Tax Consequences."
Liquidation Rights. The Bank has no plans to liquidate, either before
or subsequent to the completion of the Conversion. However, if there should ever
be a complete liquidation, either before or after Conversion, deposit account
holders would receive the protection of insurance by the FDIC up to applicable
limits. Subject thereto, liquidation rights before and after Conversion would be
as follows:
Liquidation Rights in Present Mutual Institution. In addition to the
protection of FDIC insurance up to applicable limits, in the event of a
complete liquidation of the Bank, each holder of a deposit account in
the Bank in its present mutual form would receive his or her pro rata
share of any assets of the Bank remaining after payment of claims of
all creditors (including the claims of all depositors in the amount of
the withdrawal value of their accounts). Such holder's pro rata share
of such remaining assets, if any, would be in the same proportion of
such assets as the balance in his or her deposit account was to the
aggregate balance in all deposit accounts in the Bank at the time of
liquidation.
Liquidation Rights in Proposed Converted Institution. After Conversion,
each deposit account holder, in the event of a complete liquidation of
the Bank, would have a claim of the same general priority as the claims
of all other general creditors of the Bank in addition to the
protection of FDIC insurance up to applicable limits. Therefore, except
as described below, the deposit account holder's claim would be solely
in the amount of the balance in his or her deposit account plus accrued
interest. The holder would have no interest in the assets of the Bank
above that amount.
The Plan of Conversion provides that there shall be established, upon
the completion of the Conversion, a special "liquidation account" for
the benefit of Eligible Account Holders (i.e., eligible depositors at
March 31, 1995) and Supplemental Account Holders (eligible depositors
at September 30, 1996) in an amount equal to the net worth of the Bank
as of the date of its latest consolidated statement of financial
condition contained in the final prospectus relating to the sale of
shares of Holding Company Common Stock in the Conversion. Each Eligible
Account Holder and Supplemental Eligible Account Holder would have an
initial interest in such liquidation account for each deposit account
held in the Bank on the qualifying date. An Eligible Account Holder and
Supplemental Eligible Account Holder's interest as to each deposit
account would be in the same
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proportion of the total liquidation account as the balance in his or
her account on March 31, 1995 and September 30, 1996, respectively, was
to the aggregate balance in all deposit accounts of Eligible Account
Holders and Supplemental Eligible Account Holders on such dates.
However, if the amount in the deposit account of an Eligible Account
Holder or Supplemental Eligible Account Holder on any annual closing
date of the Bank is less than the lowest amount in such account on
March 31, 1995 or September 30, 1996 and on any subsequent closing
date, then the account holder's interest in this special liquidation
account would be reduced by an amount proportionate to any such
reduction, and the account holder's interest would cease to exist if
such deposit account were closed.
In addition, the interest in the special liquidation account would
never be increased despite any increase in the balance of the account
holders' related accounts after Conversion, and would only decrease.
Any assets remaining after the above liquidation rights of Eligible
Account Holders and Supplemental Eligible Account Holders were
satisfied would be distributed to the Holding Company as the sole
stockholder of the Bank.
No merger, consolidation, purchase of bulk assets with assumption of
deposit accounts and other liabilities, or similar transaction, whether
the Bank, as converted, or another SAIF-insured institution is the
surviving institution, is deemed to be a complete liquidation for
purposes of distribution of the liquidation account and, in any such
transaction, the liquidation account would be assumed to the full
extent authorized by regulations of the OTS as then in effect. The OTS
has stated that the consummation of a transaction of the type described
in the preceding sentence in which the surviving entity is not a
SAIF-insured institution would be reviewed on a case-by-case basis to
determine whether the transaction should constitute a "complete
liquidation" requiring distribution of any then remaining balance in
the liquidation account. While the Bank believes that such a
transaction should not constitute a complete liquidation, there can be
no assurance that the OTS will not adopt a contrary position.
Common Stock. For information as to the characteristics of the Common
Stock to be issued under the Plan of Conversion, see "Dividends" and
"Description of Capital Stock." Common Stock issued under the Plan of Conversion
cannot, and will not, be insured by the FDIC or any other governmental agency.
The Bank will continue, immediately after completion of the Conversion,
to provide its services to depositors and borrowers pursuant to its existing
policies and will maintain the existing management and employees of the Bank.
Other than for payment of certain expenses incident to the Conversion, no assets
of the Bank will be distributed in the Conversion. Preferred Savings will
continue to be a member of the FHLB System, and its deposit accounts will
continue to be insured by the FDIC. The affairs of Preferred Savings will
continue to be directed by the existing Board of Directors and management.
Offering of Holding Company Common Stock
Under the Plan of Conversion, 1,897,500 shares of Holding Company
Common Stock will be offered for sale, subject to certain restrictions described
below, initially through the Offering. Federal conversion regulations require,
with certain exceptions, that all shares offered in a conversion be sold in
order for the conversion to become effective.
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The Subscription Offering will expire at noon, Chicago, Illinois time,
on _______________, 1996 (the "Subscription Expiration Date") unless extended by
the Bank and the Holding Company. Depending on the availability of shares and
market conditions at or near the completion of the Subscription Offering, the
Holding Company may effect a Public Offering of shares to selected persons
through Webb. To order Common Stock in connection with the Public Offering, if
any, an executed stock order and account withdrawal authorization and
certification must be received by Webb prior to the termination of the Public
Offering. The date by which orders must be received in the Public Offering, if
any, will be set by the Holding Company at the time of such offering. OTS
regulations require that all shares to be offered in the Conversion be sold
within a period ending not more than 45 days after the Subscription Expiration
Date (or such longer period as may be approved by the OTS) or, despite approval
of the Plan of Conversion by members, the Conversion will not be effected and
Preferred Savings will remain in mutual form. This period expires on
_______________, 1996, unless extended with the approval of the OTS. In
addition, if the Offering is extended beyond _______________, 1996, all
subscribers will have the right to modify or rescind their subscriptions and to
have their subscription funds returned promptly with interest. In the event that
the Conversion is not effected, all funds submitted and not previously refunded
pursuant to the Offering will be promptly refunded to subscribers with interest
at the Bank's current passbook rate and all withdrawal authorizations will be
terminated.
Stock Pricing and Number of Shares to be Issued
Federal regulations require that the aggregate purchase price of the
securities of a thrift institution sold in connection with its conversion must
be based on an appraised aggregate market value of the institution as converted
(i.e., taking into account the expected receipt of proceeds from the sale of the
securities in the conversion), as determined by an independent valuation.
Keller, which is experienced in the valuation and appraisal of business
entities, including thrift institutions involved in the conversion process, was
retained by the Bank to prepare an appraisal of the estimated pro forma market
value of the Bank and the Holding Company upon Conversion.
Keller will receive a fee of approximately $15,000 for its appraisal in
addition to its reasonable out-of-pocket expenses incurred in connection with
the appraisal. Keller has also agreed to assist in the preparation of the Bank's
business plan and to perform certain records management services for the Bank
for a separate fee of $5,000. The Bank has agreed to indemnify Keller under
certain circumstances against liabilities and expenses (including legal fees)
arising out of, related to, or based upon the Conversion.
Keller has prepared an appraisal of the estimated pro forma market
value of the Bank as converted. The Keller appraisal concluded that, at
September 29, 1996, an appropriate range for the estimated pro forma market
value of the Bank and the Holding Company was from a minimum of $14,025,000 to a
maximum of $18,975,000 with a midpoint of $16,500,000 million. Assuming that the
shares are sold at $10.00 per share in the Conversion, the estimated number of
shares to be issued in the Conversion is expected to be between 1,402,500 and
1,897,500. The Purchase Price of $18,975,000 was determined by discussion among
the Boards of Directors of the Bank, the Holding Company and Keller, taking into
account, among other factors, (i) the requirement under OTS regulations that the
Common Stock be offered on a manner that would achieve the widest distribution
of shares and (ii) liquidity in the Common Stock subsequent to the Conversion.
The appraisal involved a comparative evaluation of the operating and
financial statistics of the Bank with those of other thrift institutions. The
appraisal also took into account such other factors as the market for thrift
institution stocks generally, prevailing economic conditions, both nationally
and in Illinois, which affect the operations of thrift institutions, the
competitive environment within which the Bank operates and the effect of the
Bank becoming a subsidiary of the Holding Company. No detailed individual
analysis of the separate components of the Holding Company's and the Bank's
assets and
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liabilities was performed in connection with the evaluation. The Plan of
Conversion requires that all of the shares subscribed for in the Offering be
sold at the same price per share. The Board of Directors reviewed the appraisal,
including the methodology and the appropriateness of the assumptions utilized by
Keller and determined that in its opinion the appraisal was not unreasonable.
The Estimated Valuation Range may be amended with the approval of the OTS in
connection with changes in the financial condition or operating results of the
Bank or market conditions generally. As described below, an amendment to the
Estimated Valuation Range above $21,821,250 would not be made without a
resolicitation of subscriptions and/or proxies except in limited circumstances.
If, upon completion of the Offering, at least the minimum number of
shares are subscribed for, Keller, after taking into account factors similar to
those involved in its prior appraisal, will determine its estimate of the pro
forma market value of the Bank and the Holding Company upon Conversion, as of
the close of the Offering.
If, based on the estimate of Keller, the aggregate pro forma market
value is not within the Estimated Valuation Range, Keller, upon the consent of
the OTS, will determine a new Estimated Valuation Range ("Amended Valuation
Range"). If the aggregate pro forma market value of the Bank as converted and
the Holding Company has increased in the Amended Valuation Range to an amount
that does not exceed $21,821,250 (i.e., 15% above the maximum of the Estimated
Valuation Range), then the number of shares to be issued may be increased to
accommodate such increase in value without a resolicitation of subscriptions
and/or proxies. In such event the Bank and the Holding Company do not intend to
resolicit subscriptions and/or proxies unless the Bank and the Holding Company
then determine, after consultation with the OTS, that circumstances otherwise
require such a resolicitation. If, however, the aggregate pro forma market value
of the Holding Company and the Bank, as converted, at that time is less than
$14,025,000 or more than $21,821,250, a resolicitation of subscribers and/or
proxies may be made, the Plan of Conversion may be terminated or such other
actions as the OTS may permit may be taken. In the event that upon completion of
the Offering, the pro forma market value of the Holding Company and Bank, as
converted, is below $14,025,000 or above $21,821,250 (15% above the maximum of
the Estimated Valuation Range), the Holding Company intends to file the revised
appraisal with the SEC by post-effective amendment to its Registration Statement
on Form S-1. See "Additional Information." If the Plan of Conversion is
terminated, all funds would be returned promptly with interest at the rate of
the Bank's current passbook rate, and holds on funds authorized for withdrawal
from deposit accounts would be released. If there is a resolicitation of
subscriptions, subscribers will be given the opportunity to cancel or change
their subscriptions and to the extent subscriptions are so canceled or reduced,
funds will be returned with interest at the Bank's current passbook rate and
holds on funds authorized for withdrawal from deposit accounts will be released
or reduced. Stock subscriptions received by the Holding Company and the Bank may
not be withdrawn by the subscriber and, if accepted by the Holding Company and
the Bank, are final. If the Conversion is not completed prior to _______, 1998
(two years after the date of the Special Meeting), the Plan of Conversion will
automatically terminate.
Any increase in the total number of shares of Common Stock to be
offered in the Conversion will dilute a subscriber's percentage ownership
interest and will reduce the pro forma net income and net worth on a per share
basis. A decrease in the number of shares to be issued in the Conversion will
increase a subscriber's proportionate ownership interest and will increase both
pro forma net income and net worth on a per share basis while decreasing that
amount on an aggregate basis.
No sale of the shares will take place unless, prior thereto, Keller
confirms to the OTS that, to the best of Keller's knowledge and judgment,
nothing of a material nature has occurred which would cause Keller to conclude
that the actual Purchase Price on an aggregate basis is incompatible with its
estimate of the aggregate pro forma market value of the Holding Company and the
Bank as converted
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at the time of the sale. If, however, the facts do not justify such a statement,
the Offering or other sale may be canceled, a new Estimated Valuation Range set
and new offering held.
In preparing its valuation of the pro forma market value of the Bank
and the Holding Company upon Conversion, Keller relied upon and assumed the
accuracy and completeness of all financial and statistical information provided
by the Bank and the Holding Company. Keller also considered information based
upon other publicly available sources which it believes are reliable. However,
Keller does not guarantee the accuracy and completeness of such information and
did not independently verify the financial statements and other data provided by
the Bank and the Holding Company or independently value the assets or
liabilities of the Bank and the Holding Company. The appraisal is not intended
to be, and must not be interpreted as, a recommendation of any kind as to the
advisability of voting to approve the Conversion or of purchasing shares of
Common Stock. The appraisal considers Preferred Savings and the Holding Company
only as going concerns and should not be considered as any indication of the
liquidation value of Preferred Savings or the Holding Company. Moreover, the
appraisal is necessarily based on many factors which change from time to time.
There can be no assurance that persons who purchase shares in the Conversion
will be able to sell such shares at prices at or above the Purchase Price.
Subscription Offering
In accordance with OTS regulations, non-transferable Subscription
Rights have been granted under the Plan of Conversion to the following persons
in the following order of priority: (1) Eligible Account Holders (deposit
account holders of the Bank maintaining an aggregate balance of $50 or more as
of March 31, 1995), (2) Tax-Qualified Employee Plans; provided, however, that
the Tax-Qualified Employee Plans shall have first priority Subscription Rights
to the extent that the total number of shares of Common Stock sold in the
Conversion exceeds the maximum of the Estimated Valuation Range; (3)
Supplemental Eligible Accounts Holders (deposit account holders of the Bank
maintaining a balance of $50 or more as of September 30, 1996), (4) Other
Members (depositors and certain borrowers of the Bank at the close of business
on ___________, 1996, the voting record date for the Special Meeting) and (5)
officers, directors and employees of the Bank. All subscriptions received will
be subject to the availability of Holding Company 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.
Category No. 1 is reserved for the Bank's Eligible Account Holders.
Subscription Rights to purchase shares under this category will be allocated
among Eligible Account Holders to permit each such depositor to purchase shares
in this Category in an amount equal to the greater of $150,000 of Common Stock,
one-tenth of one percent (.10%) of the total shares offered in the Conversion,
or 15 times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Common Stock to be issued by a
fraction of which the numerator is the amount of the qualifying deposits of the
Eligible Account Holder and the denominator is the total amount of the
qualifying deposit of the Eligible Account Holders in the Bank, in each case on
the Eligibility Record Date. To the extent shares are oversubscribed in this
category, shares shall be allocated first to permit each subscribing Eligible
Account Holder to purchase, to the extent possible, 100 shares and thereafter
among each subscribing Eligible Account Holder pro rata in the same proportion
that his Qualifying Deposit bears to the total Qualifying Deposits of all
subscribing Eligible Account Holders whose subscriptions remain unsatisfied.
Category No. 2 provides for the issuance of Subscription Rights to
Tax-Qualified Employee Plans to purchase up to 10% of the total amount of shares
of Common Stock issued in the Subscription Offering on a second priority basis.
However, such plans shall not, in the aggregate, purchase more than 10% of the
Holding Company Common Stock issued. The ESOP intends to purchase a total of 8%
of the Common Stock issued in the Conversion under this category. Subscription
Rights received pursuant to
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this category shall be subordinated to all rights received by Eligible Account
Holders to purchase shares pursuant to Category No. 1; provided, however, that
notwithstanding any provision of the Plan of Conversion to the contrary, the
Tax-Qualified Employee Plans shall have first priority Subscription Rights to
the extent that the total number of shares of Common Stock sold in the
Conversion exceeds the maximum of the Estimated Valuation Range.
Category No. 3 is reserved for the Bank's Supplemental Eligible Account
Holders. Subscription Rights to purchase shares under this category will be
allocated among Supplemental Eligible Account Holders to permit each such
depositor to purchase shares in this Category in an amount equal to the greater
of $150,000 of Common Stock, one-tenth of one percent (.10%) of the total shares
of Common Stock offered in the Conversion, or 15 times the product (rounded down
to the next whole number) obtained by multiplying the total number of shares of
Common Stock to be issued by a fraction of which the numerator is the amount of
the qualifying deposit of the Supplemental Eligible Account Holder and the
denominator is the total amount of the qualifying deposit of the Supplemental
Eligible Account Holders in the converting Bank in each case on September 30,
1996 (the "Supplemental Eligibility Record Date"), subject to the overall
purchase limitation after satisfying the subscriptions of Eligible Account
Holders and Tax Qualified Employee Plans. Any non-transferable Subscription
Rights received by an Eligible Account Holder shall reduce, to the extent
thereof, the subscription rights to be distributed to such person as a
Supplemental Eligible Account Holder. In the event of an oversubscription for
shares, the shares available shall be allocated first to permit each subscribing
Supplemental Eligible Account Holder, to the extent possible, to purchase a
number of shares sufficient to make his total allocation (including the number
of shares, if any, allocated in accordance with Category No. 1) equal to 100
shares, and thereafter among each subscribing Supplemental Eligible Account
Holder pro rata in the same proportion that his Qualifying Deposit bears to the
total Qualifying Deposits of all subscribing Supplemental Eligible Account
Holders whose subscriptions remain unsatisfied.
Category No. 4 provides, to the extent that shares are then available
after satisfying the subscriptions of Eligible Account Holders, Tax-Qualified
Employee Plans and Supplemental Eligible Account Holders, for the issuance of
Subscription Rights to Other Members to purchase in this Category up to the
greater of $150,000 of Common Stock, or one-tenth of one percent (.10%) of the
Common Stock offered in the Conversion. In the event of an oversubscription, the
shares available shall be allocated among the subscribing Other Members pro rata
in the same proportion that his number of votes on the Voting Record Date bears
to the total number of votes on the Voting Record Date of all subscribing Other
Members on such date. Such number of votes shall be determined based on the
Bank's mutual charter and bylaws in effect on the date of approval by members of
this Plan of Conversion.
Each depositor (including individual retirement accounts ("IRAs") and
Keogh account beneficiaries) as of ___________, 1996 and the date of the Special
Meeting is entitled at the Special Meeting to cast one vote for each $100 or
fraction thereof, of the aggregate withdrawal value of all of such depositor's
savings accounts in the Bank as of the applicable voting record date, up to a
maximum of 1,000 votes. However, no member may vote more than 1,000 votes. In
general, accounts held in different ownership capacities will be treated as
separate memberships for purposes of applying the 1,000 vote limitation. For
example, if two persons hold a $100,000 account in their joint names and each of
the persons also holds a separate account for $100,000 in his own name, each
person would be entitled to 1,000 votes for each separate account and they would
together be entitled to cast 1,000 votes on the basis of the joint account for a
total of 3,000 votes.
Category No. 5 provides for the issuance of Subscription Rights to
officers, directors and employees of the Bank, to purchase in this Category up
to $150,000 of the Common Stock to the extent that shares are available after
satisfying the subscriptions of eligible subscribers in preference Categories 1,
2, 3 and 4. In the event of an oversubscription, the available shares will be
allocated pro rata among all subscribers in this category based on the number of
shares ordered by each subscriber.
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Public Offering
To the extent that shares remain available and subject to market
conditions at or near the completion of the Subscription Offering, the Holding
Company may offer shares pursuant to the Plan to selected persons in a Public
Offering on a best-efforts basis through Webb in such a manner as to promote a
wide distribution of the Common Stock. Any orders received in connection with
the Public Offering, if any, will receive a lower priority than orders properly
made in the Subscription Offering by persons properly exercising Subscription
Rights. In addition depending on market conditions, Webb may utilize selected
broker-dealers ("Selected Dealers") in connection with the sale of shares in the
Public Offering. Common Stock sold in the Public Offering will be sold at $10.00
per share and hence will be sold at the same price as all other shares in the
Conversion. The Holding Company and the Bank have the right to reject orders, in
whole or in part, in their sole discretion in the Public Offering.
No person, together with any associate or group of persons acting in
concert, will be permitted to purchase more than $150,000 of Common Stock in the
Public Offering. To order Common Stock in connection with the Public Offering,
if any, an executed stock order and account withdrawal authorization and
certification must be received by Webb prior to the termination of the Public
Offering. The date by which orders must be received in the Public Offering will
be set by the Holding Company at the time of commencement of the Public
Offering; provided however, if the Offering is extended beyond _______________,
199_, each subscriber will have the opportunity to maintain, modify or rescind
his or her subscription. In such event, all subscription funds will be promptly
returned with interest to each subscriber unless he or she affirmatively
indicates otherwise.
It is estimated that the Selected Dealers will receive a negotiated
commission of up to 1.0% of the Common Stock sold by the Selected Dealers,
payable by the Holding Company, and Webb will also receive a fee of 4.5% of
Common Stock sold by such firms. Such fees in the aggregate will not exceed
5.5%. See "- Marketing Arrangements.
Webb may enter into agreements with Selected Dealers to assist in the
sale of shares in the Public Offering. Selected Dealers may only solicit
indications of interest from their customers to place orders with the Holding
Company as of a certain date ("Order Date") for the purchase of shares of
Conversion Stock with the authorization of Webb. When and if Webb and the
Holding Company believe that enough indications of interest and orders have been
received to consummate the Conversion, Webb will request, as of the Order Date,
Selected Dealers to submit orders to purchase shares for which they have
received indications of interest from their customers. Selected Dealers will
send confirmation of the orders to such customers on the next business day after
the Order Date. Customers who authorize Selected Dealers to debit their
brokerage accounts are required to have the funds for payment in their account
on but not before the closing date of the Conversion. On the closing date,
Selected Dealers will remit funds to the account that the Holding Company
established for each Selected Dealer. Each customer's funds so forwarded to the
Holding Company, along with all other accounts held in the same title, will be
insured up to the applicable legal limit. After payment has been received by the
Holding Company from Selected Dealers, funds will earn interest at the Bank's
passbook rate until the completion of the Offering. In the event the Conversion
is not consummated as described above, funds with interest will be returned
promptly to the Selected Dealers, who, in turn, will promptly credit their
customers' brokerage account.
In the event the Holding Company determines to conduct a Public
Offering, persons to whom a prospectus is delivered may subscribe for shares of
Common Stock by submitting a completed stock order and account withdrawal
authorization (provided by Webb) and an executed certification along with
immediately available funds (which may be obtained by debiting a Webb account)
to Webb by not later than the public offering expiration date (as established by
the Holding Company). Promptly upon receipt of available funds, together with a
properly executed stock order and account withdrawal authorization
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and certification, Webb will forward such funds to Preferred Savings to be
deposited in a subscription escrow account.
If a subscription in the Public Offering is accepted, promptly after
the completion of the Conversion, a certificate for the appropriate amount of
shares will be forwarded to Webb as nominee for the beneficial owner. In the
event that a subscription is not accepted or the Conversion is not consummated,
the Bank will promptly refund with interest the subscription funds to Webb which
will then return the funds to subscribers' accounts. If the aggregate pro forma
market value of the Company and the Bank, as converted, is less than $14.0
million or more than $21.8 million, each subscriber will have the right to
modify or rescind his or her subscription.
If a Public Offering is held, the opportunity to subscribe for shares
of Common Stock in the Public Offering is subject to the right of the Bank and
the Holding Company, in their sole discretion, to accept or reject any such
orders in whole or in part.
Additional Purchase Restrictions
The Plan also provides for certain additional limitations to be placed
upon the purchase of shares in the Conversion. Specifically, no person (other
than a Tax-Qualified Employee Plan) by himself or herself or with an associate,
and no group of persons acting in concert, may subscribe for or purchase more
than $900,000 of Common Stock. For purposes of this limitation, an associate of
a person does not include a Tax-Qualified Employee Plan or Non-Tax Qualified
Employee Plan in which the person has a substantial beneficial interest or
serves as a trustee or in a similar fiduciary capacity. Moreover, for purposes
of this paragraph, shares held by one or more Tax Qualified or Non-Tax Qualified
Employee Plans attributed to a person shall not be aggregated with shares
purchased directly by or otherwise attributable to that person except for that
portion of a plan which is self-directed by a person. See "- Stock Pricing and
Number of Shares to be Issued" regarding potential changes in Subscription
Rights in the event of a decrease in the number of shares to be issued in the
Conversion. Officers and directors and their associates may not purchase, in the
aggregate, more than 35% of the shares to be sold in the Conversion. For
purposes of the Plan, the members of the Board of Directors are not deemed to be
acting in concert solely by reason of their Board membership. For purposes of
this limitation, an associate of an officer or director does not include a
Tax-Qualified Employee Plan. Moreover, any shares attributable to the officers
and directors and their associates, but held by a Tax-Qualified Employee Plan
(other than that portion of a plan which is self-directed) shall not be included
in calculating the number of shares which may be purchased under the limitations
in this paragraph. Shares purchased by employees who are not officers or
directors of the Bank, or their associates, are not subject to this limitation.
The term "associate" is used above to indicate any of the following
relationships with a person: (i) any corporation or organization (other than the
Holding Company or the Bank or a majority-owned subsidiary of the Holding
Company or the Bank) of which a person is an officer or partner or is, directly
or indirectly, the beneficial owner of 10% or more of any class of equity
security; (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; 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 Holding Company or the Bank or any subsidiary of the
Holding Company or the Bank.
The Boards of Directors of the Holding Company and the Bank, in their
sole discretion, may increase the maximum purchase limitations referred to above
up to 9.99% of the total shares to be offered in the Offering, provided that
orders for shares exceeding 5.0% of the shares being offered in the Offering
shall not exceed, in the aggregate, 10% of the shares being offered in the
Offering or decrease the maximum purchase limitation to one percent of the
Common Stock offered in the Conversion. Requests to purchase additional shares
of Common Stock under this provision will be allocated by the Boards of
Directors on a pro rata basis giving priority in accordance with the priority
rights set forth
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above. Depending on market and financial conditions, the Boards of Directors of
the Holding Company and the Bank, with the approval of the OTS and without
further approval of the members, may increase or decrease any of the above
purchase limitations.
To the extent that shares are available, each subscriber must subscribe
for a minimum of 25 shares. In computing the number of shares to be allocated,
all numbers will be rounded down to the next whole number.
Common Stock purchased in the Conversion will be freely transferable
except for shares purchased by executive officers and directors of the Bank or
the Holding Company. See "- Restrictions on Transfer of Subscription Rights and
Shares."
Marketing Arrangements
Preferred Savings has retained Webb, a broker-dealer registered with
the Securities and Exchange Commission (the "SEC") and a member of the National
Association of Securities Dealers, Inc. (the "NASD"), to consult with and advise
the Bank and to assist in the distribution of shares in the Offering on a
best-efforts basis. Webb is headquartered in Dublin, Ohio and its phone number
is (614) 766-8400. Among the services Webb will perform are (i) training and
educating Preferred Savings employees, who will be performing certain
ministerial functions in the Offering, regarding the mechanics and regulatory
requirements of the stock sale process, (ii) keeping records of orders for
shares of Common Stock, (iii) targeting Preferred Savings' sales efforts
including preparation of marketing materials, (iv) assisting in the collection
of proxies from Members for use at the Special Meeting, and (v) providing its
registered stock representatives to staff the Stock Information Center and
meeting with and assisting potential subscribers. For its services, Webb will
receive a success fee of 1.5% of the aggregate Purchase Price of Common Stock
sold in the Subscription Offering, excluding Common Stock purchased by
directors, officers and employees of the Association, or members of their
immediate families and purchases by tax-qualified plans. A management fee of
$25,000, payable in four monthly installments of $6,250, is being applied
against this fee. If the Subscription and Community Offering is terminated
before completion, Webb will be entitled to retain such monthly payments already
accrued or received and shall be entitled to reimbursement for all reasonable
expenses (not to exceed $5,000).
To the extent registered broker-dealers are utilized, the Holding
Company will pay a fee (to be negotiated, but not to exceed 4.5% of the
aggregate Purchase Price of shares of Common Stock sold in the Public Offering)
to such Selected Dealers, including any sponsoring dealer fees. The Holding
Company will also pay Webb a fee of 1.0% of the aggregate Purchase Price of
shares of Common Stock sold in the Offering by Selected Dealers, which together
with the fee to be paid to Selected Dealers will result in an aggregate fee not
to exceed 5.5% of the Common Stock sold in the Offering. Fees paid to Webb and
to any other broker-dealer may be deemed to be underwriting fees, and Webb and
such other broker-dealers may be deemed to be underwriters. The Holding Company
has agreed to reimburse Webb for its reasonable out-of-pocket expenses (not to
exceed $5,000), and its legal fees and expenses (not to exceed $35,000) and to
indemnify Webb against certain claims or liabilities, including certain
liabilities under the Securities Act.
In the event there is a Public Offering, procedures may be implemented
to permit a purchaser to pay for his or her shares with funds held by or
deposited with Webb or a "Selected Dealer." See "- Public Offering."
Directors and executive officers of the Holding Company and the Bank
may, to a limited extent, participate in the solicitation of offers to purchase
Common Stock. Sales will be made from a Stock Information Center located away
from the publicly accessible areas (including teller windows) of the Bank's
office. Other employees of the Bank may participate in the Offering in
administrative capacities,
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providing clerical work in effecting a sales transaction or answering questions
of a potential purchaser provided that the content of the employee's responses
is limited to information contained in this Prospectus or other offering
document. Other questions of prospective purchasers will be directed to
executive officers or registered representatives of Webb Such other employees
have been instructed not to solicit offers to purchase Common Stock or provide
advice regarding the purchase of Common Stock. To the extent permitted under
applicable law, directors and executive officers of the Holding Company and the
Bank may participate in the solicitation of offers to purchase Common Stock,
except in the State of Texas where only a representative of Webb will be able to
offer and sell securities to Texas residents. The Holding 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 officers, directors and
employees to participate in the sale of Common Stock. No officer, director or
employee of the Holding Company or the Bank 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.
The Bank and the Holding Company 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 pursuant to the Plan of Conversion reside.
However, no shares will be offered or sold under the Plan of Conversion to any
such person who (1) resides in a foreign country or (2) resides in a state of
the United States in which a small number of persons otherwise eligible to
subscribe for shares under the Plan of Conversion reside or as to which the Bank
and the Holding Company determine that compliance with the securities law of
such state would be impracticable for reasons of cost or otherwise, including,
but not limited to, a requirement that the Bank or the Holding Company or any of
their officers, directors or employees register, under the securities laws of
such state, as a broker, dealer, salesmen or agent. No payments will be made in
lieu of the granting of Subscription Rights to any such person.
Method of Payment for Subscriptions
To purchase shares in the Subscription Offering, an executed order form
and certification form with the required payment for each share subscribed for,
or with appropriate authorization for withdrawal from the Bank's deposit account
(which may be given by completing the appropriate blanks in the order form),
must be received by the Bank by noon, Chicago, Illinois time, on
_______________, 1996. 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.
To order Common Stock in connection with the Public Offering, if any,
an executed stock order and account withdrawal authorization and certification
must be received by Webb prior to the termination of the Public Offering. The
date by which orders must be received in the Public Offering will be set by the
Holding Company at the time of commencement of the Public Offering; provided
however, if the Offering is extended beyond _______________, 1996, each
subscriber will have the opportunity to maintain, modify or rescind his or her
subscription. In such event, all subscription funds will be promptly returned
with interest to each subscriber unless he or she affirmatively indicates
otherwise. In addition, the Holding Company and the Bank are not obligated to
accept orders submitted on photocopies or facsimile order forms.
The Holding Company and the Bank 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 order form or stock order and
account withdrawal authorization may not be modified, amended or rescinded
without the consent of the Holding Company and the Bank unless the Conversion
has not been completed by _________, 1996.
Payment for subscriptions in the Subscription Offering, may be made (i)
in cash if delivered in person at the office of the Bank, (ii) by check, bank
draft or money order or (iii) by authorization of
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withdrawal from deposit accounts maintained with the Bank. Interest will be paid
on payments made by cash, check, bank draft or money order, whether or not the
Conversion is completed or terminated, at the Bank's current passbook rate from
the date payment is received until the completion or termination of the
Conversion. If payment is made by authorization of withdrawal from deposit or
certificate accounts, the funds authorized to be withdrawn from such account
will continue to accrue interest at the contractual rates until completion or
termination of the Conversion. Such funds will be unavailable to the depositor
until completion or termination of the Conversion.
If a subscriber authorizes the Bank to withdraw the amount of the
Purchase Price from his certificate account, the Bank will do so as of the
effective date of Conversion. The Bank will waive any applicable penalties for
early withdrawal from certificate accounts at Preferred Savings for the purpose
of purchasing Common Stock. 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 rate paid on the
remaining balance of the certificate will earn interest the then-current
passbook rate.
Owners of self-directed IRAs may under certain circumstances use the
assets of such IRAs to purchase shares of Common Stock in the Offering, provided
that such IRAs are self-directed and are not maintained at the Bank. Persons
with IRAs maintained at the Bank must have their accounts transferred to an
unaffiliated institution or broker to purchase shares of Common Stock in the
Offering. In addition, the provisions of the ERISA and Internal Revenue Service
regulations require that officers, directors and 10% stockholders who use
self-directed IRA funds to purchase shares of Common Stock in the Offering make
such purchases for the exclusive benefit of the IRAs.
If the ESOP subscribes for shares during the Subscription Offering,
such plan 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 the Purchase Price upon consummation of the Conversion, provided that there
is in force from the time of its subscription until such time, a loan commitment
to lend to the ESOP, at such time, the aggregate Purchase Price of the shares
for which it subscribed.
For information regarding the submission of orders in connection with
the Public Offering, see "- Public Offering."
All refunds and any interest due will be paid after completion of the
Conversion. 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 Bank, or to such other address as may be specified in properly
completed 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.
To ensure that each purchaser receives a prospectus at least 48 hours
prior to the Expiration Date in accordance with Rule 15c2-8 under the Exchange
Act, no prospectus will be mailed any later than five days prior to such date or
hand delivered any later than two days prior to such date. Execution of the
order form will confirm receipt or delivery in accordance with Rule 15c2-8.
Order forms will only be distributed with a prospectus. The Bank will accept for
processing only orders submitted on original order forms with the form of
certification. Photocopies or facsimile copies of order forms or certifications
will not be accepted. Payment by cash, check, money order, bank draft or debit
authorization to an existing account at the Bank must accompany the order form.
No wire transfers will be accepted.
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
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the Eligibility Record Date (March 31, 1995), Supplemental Eligibility Record
Date (September 30, 1996) and/or the Voting Record Date (___________, 1996) and
borrowers as of the Voting Record Date must list all accounts on the stock order
form giving all names on each account and the account number as of the
applicable record date.
In addition to the foregoing, if shares are offered through Selected
Dealers, 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 Bank 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 who indicated an interest and seek
their confirmation as to their intent to purchase. Those indicating an intent to
purchase shall forward executed order forms and certifications 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 Bank for deposit in a segregated account.
If such alternative procedure is employed, purchasers' funds are not required to
be in their accounts with Selected Dealers until the debit date.
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, Tax-Qualified Employee Plans, Supplemental Eligible Account
Holders, Other Members and employees, officers and directors, 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
executed 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 OTS
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 Bank and the Holding Company may 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 the
transfer of such rights.
Except as to directors and executive officers of the Bank and the
Holding Company, the shares of Common Stock sold in the Conversion will be
freely transferable. Shares purchased by directors, executive officers or their
associates in the Conversion shall be subject to the restrictions that said
shares shall not be sold during the period of one year following the date of
purchase, except in the event of the death of the stockholder. Accordingly,
stock certificates issued by the Holding Company to directors, executive
officers and their associates shall bear a legend giving appropriate notice of
such restriction and, in addition, the Bank and the Holding Company will give
appropriate instructions to the transfer agent for the Common Stock with respect
to the applicable restriction upon transfer of any restricted shares. Any shares
issued at a later date as a stock dividend, stock split or otherwise, to holders
of restricted stock, shall be subject to the same restrictions that may apply to
such restricted stock. Holding Company stock (like the stock of most companies)
is subject to the requirements of the Securities Act. Accordingly, Holding
Company stock may be offered and sold only in compliance with registration
requirements or pursuant to an applicable exemption from registration.
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Holding Company stock received in the Conversion by persons who are not
"affiliates" of the Holding Company may be resold without registration. Shares
received by affiliates of the Holding Company (primarily the directors, officers
and principal stockholders of the Holding Company) will be subject to the resale
restrictions of Rule 144 under the Securities Act, which are discussed below.
Rule 144 generally requires that there be publicly available certain
information concerning the Holding Company, and that sales thereunder be made in
routine brokerage transactions or through a market maker. If the conditions of
Rule 144 are satisfied, each affiliate (or group of persons acting in concert
with one or more affiliates) is entitled to sell in the public market, without
registration, in any three-month period, a number of shares which does not
exceed the greater of (i) 1% of the number of outstanding shares of Holding
Company stock, or (ii) if the stock is admitted to trading on a national
securities exchange or reported through the automated quotation system of a
registered securities bank, the average weekly reported volume of trading during
the four weeks preceding the sale.
Participation by the Board and Executive Officers
The directors and executive officers of Preferred Savings have
indicated their intention to purchase in the Conversion an aggregate of $950,000
of Common Stock, equal to 6.8%, 5.8%, 5.0% or 4.4% of the number of shares to be
issued in the Offering, at the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Valuation Range, respectively. The following table sets
forth information regarding Subscription Rights to Common Stock intended to be
exercised by each of the directors of the Bank, including members of their
immediate family and their IRAs, and by all directors and executive officers as
a group. The following table assumes that 1,650,000 shares, the midpoint of the
Estimated Valuation Range, of Common Stock are issued at the Purchase Price of
$10.00 per share and that sufficient shares will be available to satisfy the
subscriptions indicated. The table does not include shares to be purchased
through the ESOP (8% of shares issued in the Conversion) or awarded under the
proposed RRP (an amount of shares which may be acquired after stockholder
ratification of such plan equal to 4% of the shares sold in the Conversion) or
proposed Stock Option Plan (an amount of shares which may be issued after
stockholder ratification of such plan equal to 10% of the shares sold in the
Conversion).
<TABLE>
<CAPTION>
Number of
Aggregate Shares at Percent of
Purchase $10.00 Shares at
Name Title Price per Share(1) Midpoint
- --------------------------- --------------------------------------------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
Sylvester J. Ptak Chairman of the Board $350,000 35,000 2.1%
Kimberly P. Rooney President, Chief Executive Officer and Director $200,000 20,000 1.2
Edward Wolak Director $100,000 10,000 0.6
Jeanine M. McInerney Director $100,000 10,000 0.6
Rocco Di Iorio Director $100,000 10,000 0.6
All other executive $100,000 10,000 0.6
officers as a group
All directors and $950,000 95,000 5.8%
executive officers as a
group (8 persons)
</TABLE>
- ----------
(1) Does not include subscriptions by the ESOP, or options which are
intended to be granted under the proposed Stock Option Plan or
restricted stock awards which are intended to be granted under the
proposed RRP, subject to stockholder ratification of such plans.
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Risk of Delayed Offering
The completion of the sale of all unsubscribed shares in the Offering
will be dependent, in part, upon the Bank's operating results and market
conditions at the time of the Offering. Under the Plan of Conversion, all shares
offered in the Conversion must be sold within a period ending 24 months from the
date of the Special Meeting. While the Bank and the Holding Company anticipate
completing the sale of shares offered in the Conversion within this period, if
the Board of Directors of the Bank and the Holding Company are of the opinion
that economic conditions generally or the market for publicly traded thrift
institution stocks make undesirable a sale of the Common Stock, then the
Offering may be delayed until such conditions improve.
A material delay in the completion of the sale of all unsubscribed
shares in the Public Offering or otherwise may result in a significant increase
in the costs of completing the Conversion. Significant changes in the Bank's
operations and financial condition, the aggregate market value of the shares to
be issued in the Conversion and general market conditions may occur during such
material delay. In the event the Conversion is not consummated within 24 months
after the date of the Special Meeting of Members, the Bank would charge accrued
Conversion costs to then current period operations.
Approval, Interpretation, Amendment and Termination
All interpretations of the Plan of Conversion, as well as the
completeness and validity of order forms and stock order and account withdrawal
authorizations, will be made by the Bank and the Holding Company and will be
final, subject to the authority of the OTS and the requirements of applicable
law. The Plan of Conversion provides that, if deemed necessary or desirable by
the Boards of Directors of the Bank and the Holding Company, the Plan of
Conversion may be substantively amended by the Boards of Directors of the Bank
and the Holding Company, as a result of comments from regulatory authorities or
otherwise, at any time with the concurrence of the OTS and the SEC. In the event
the Plan of Conversion is substantially amended, other than a change in the
maximum purchase limits set forth herein, the Holding Company intends to notify
subscribers of the change and to refund subscription funds with interest unless
subscribers affirmatively elect to increase, decrease or maintain their
subscriptions. The Plan of Conversion will terminate if the sale of all shares
is not completed within 24 months after the date of the Special Meeting of
Members. The Plan of Conversion may be terminated by the Boards of Directors of
the Holding Company and the Bank with the concurrence of the OTS, at any time. A
specific resolution approved by a two-thirds vote of the Boards of Directors of
the Holding Company and the Bank would be required to terminate the Plan of
Conversion prior to the end of such 24-month period.
Restrictions on Repurchase of Stock
For a period of three years following Conversion, the Holding Company
may not repurchase any shares of its capital stock, except in the case of an
offer to repurchase on a pro rata basis made to all holders of capital stock of
the Holding Company. Any such offer shall be subject to the prior approval of
the OTS. Furthermore, the Holding Company may not repurchase any of its stock
(i) if the result thereof would be to reduce the regulatory capital of the Bank
below the amount required for the liquidation account to be established pursuant
to OTS regulations and (ii) except in compliance with the requirements of the
OTS' capital distribution rule.
The above limitations are subject to the OTS conversion rules which
generally provide that the Holding Company may repurchase its capital stock
provided (i) no repurchases occur within one year following the Conversion
(subject to certain exceptions), (ii) repurchases during the second and third
year after conversion are part of an open market stock repurchase program that
does not allow for a repurchase of more than 5% of the Holding Company's
outstanding capital stock during a 12-month period, (iii) the
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repurchases do not cause the Bank to become undercapitalized, and (iv) the
Holding Company provides notice to the OTS at lease 10 days prior to the
commencement of a repurchase program and the OTS does not object to such
regulations. In addition, the above limitations do not preclude repurchases of
capital stock by the Holding Company in the event applicable federal regulatory
limitations are subsequently liberalized.
Income Tax Consequences
Consummation of the Conversion is expressly conditioned upon prior
receipt by the Bank of either a ruling from the IRS or an opinion of Silver,
Freedman & Taff, L.L.P. with respect to federal taxation, and an opinion of
Crowe, Chizek and Company LLP with respect to Illinois taxation, to the effect
that consummation of the Conversion will not be taxable to the converted Bank or
the Holding Company. The full text of the Silver, Freedman & Taff, L.L.P.
opinion, the Keller Letter (hereinafter defined) and the Crowe, Chizek and
Company LLP opinion, which opinions are summarized herein, were filed with the
SEC as exhibits to the Holding Company's Registration Statement on Form S-1. See
"Additional Information."
An opinion which is summarized below has been received from Silver,
Freedman & Taff, L.L.P. with respect to the proposed Conversion of the Bank to
the stock form. The Silver, Freedman Taff, L.L.P. opinion states that (i) the
Conversion will qualify as a reorganization under Section 368(a)(1)(F) of the
Internal Revenue Code of 1986, as amended, and no gain or loss will be
recognized to the Bank in either its mutual form or its stock form by reason of
the proposed Conversion, (ii) no gain or loss will be recognized to the Bank in
its stock form upon the receipt of money and other property, if any, from the
Holding Company for the stock of the Bank; and no gain or loss will be
recognized to the Holding Company upon the receipt of money for Common Stock of
the Holding Company; (iii) the assets of the Bank in either its mutual or its
stock form will have the same basis before and after the Conversion; (iv) the
holding period of the assets of the Bank in its stock form will include the
period during which the assets were held by the Bank in its mutual form prior to
Conversion; (v) gain, if any, will be realized by the depositors of the Bank
upon the constructive issuance to them of withdrawable deposit accounts of the
Bank in its stock form, nontransferable subscription rights to purchase Holding
Company Common Stock and/or interests in the Liquidation Account (any such gain
will be recognized by such depositors, but only in an amount not in excess of
the fair market value of the subscription rights and Liquidation Account
interests received); (vi) the basis of the account holder's savings accounts in
the Bank after the Conversion will be the same as the basis of his or her
savings accounts in the Bank prior to the Conversion; (vii) the basis of each
account holder's interest in the Liquidation Account is assumed to be zero;
(viii) based on the Keller Letter, as hereinafter defined, the basis of the
subscription rights will be zero; (ix) the basis of the Holding Company Common
Stock to its stockholders will be the purchase price thereof; (x) a
stockholder's holding period for Holding Company Common Stock acquired through
the exercise of subscription rights shall begin on the date on which the
subscription rights are exercised and the holding period for the Conversion
Stock purchased in the Offering will commence on the date following the date on
which such stock is purchased; (xi) the Bank in its stock form will succeed to
and take into account the earnings and profits or deficit in earnings and
profits, of the Bank, in its mutual form, as of the date of Conversion; (xii)
the Bank, immediately after Conversion, will succeed to and take into account
the bad debt reserve accounts of the Bank, in mutual form, and the bad debt
reserves will have the same character in the hands of the Bank after Conversion
as if no Conversion had occurred; and (xiii) the creation of the Liquidation
Account will have no effect on the Bank's taxable income, deductions or addition
to reserve for bad debts either in its mutual or stock form.
The opinion from Silver, Freedman & Taff, L.L.P. is based, among other
things, on certain assumptions, including the assumptions that the exercise
price of the Subscription Rights to purchase Holding Company Common Stock will
be approximately equal to the fair market value of that stock at the time of the
completion of the proposed Conversion. With respect to the Subscription Rights,
the Bank
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will receive a letter from Keller (the "Keller Letter") which, based on certain
assumptions, will conclude that the Subscription Rights to be received by
Eligible Account Holders, Supplemental Eligible Account Holders and other
eligible subscribers do not have any economic value at the time of distribution
or at the time the Subscription Rights are exercised, whether or not a Public
Offering takes place.
The Bank has also received an opinion of Silver, Freedman & Taff,
L.L.P. to the effect that, based in part on the Keller Letter: (i) no taxable
income will be realized by depositors as a result of the exercise of
non-transferable Subscription Rights to purchase shares of Holding Company
Common Stock at fair market value; (ii) no taxable income will be recognized by
borrowers, directors, officers and employees of the Bank on the receipt or
exercise of Subscription Rights to purchase shares of Holding Company Common
Stock at fair market value; and (iii) no taxable income will be realized by the
Bank or Holding Company on the issuance of Subscription Rights to eligible
subscribers to purchase shares of Holding Company Common Stock at fair market
value.
Notwithstanding the Keller Letter, if the Subscription Rights are
subsequently found to have a fair market value and are deemed a distribution of
property, it is Silver, Freedman & Taff, L.L.P.'s opinion that gain or income
will be recognized by various recipients of the Subscription Rights (in certain
cases, whether or not the rights are exercised) and the Bank and/or the Holding
Company may be taxable on the distribution of the Subscription Rights. In any
event, all recipients are encouraged to consult with their own tax advisors as
to the tax consequences which may result.
With respect to Illinois taxation, the Bank has received an opinion
from Crowe, Chizek and Company LLP to the effect that the Illinois tax
consequences to the Bank, in its mutual or stock form, the Holding Company,
eligible account holders, parties receiving Subscription Rights, parties
purchasing conversion stock, and other parties participating in the Conversion
will be the same as the federal income tax consequences described above.
Unlike a private letter ruling, the opinions of Silver, Freedman &
Taff, L.L.P. and Crowe, Chizek and Company LLP, as well as the Keller Letter,
have no binding effect or official status, and no assurance can be given that
the conclusions reached in any of those opinions would be sustained by a court
if contested by the IRS or the Delaware or Illinois tax authorities.
RESTRICTIONS ON ACQUISITIONS OF STOCK AND
RELATED TAKEOVER DEFENSIVE PROVISIONS
Although the Boards of Directors of the Bank and the Holding Company
are not aware of any effort that might be made to obtain control of the Holding
Company after Conversion, the Board of Directors, as discussed below, believe
that it is appropriate to include certain provisions as part of the Holding
Company's certificate of incorporation to protect the interests of the Holding
Company and its stockholders from takeovers which the Board of Directors of the
Holding Company might conclude are not in the best interests of the Bank, the
Holding Company or the Holding Company's stockholders.
The following discussion is a general summary of material provisions of
the Holding Company's certificate of incorporation and bylaws and certain other
regulatory provisions which may be deemed to have an "anti-takeover" effect. The
following description of certain of these provisions is necessarily general and,
with respect to provisions contained in the Holding Company's certificate of
incorporation and bylaws and the Bank's proposed stock charter and bylaws,
reference should be made in each case to the document in question, each of which
is part of the Bank's Conversion Application filed with the OTS and the Holding
Company's Registration Statement filed with the SEC. See "Additional
Information."
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Provisions of the Holding Company's Certificate of Incorporation and Bylaws
Directors. Certain provisions of the Holding Company's certificate of
incorporation and bylaws will impede changes in majority control of the Board of
Directors. The Holding Company's certificate of incorporation provides that the
Board of Directors of the Holding Company will be divided into three classes,
with directors in each class elected for three-year staggered terms except for
the initial directors. Thus, assuming a Board of eight directors, it would take
two annual elections to replace a majority of the Holding Company's Board. The
Holding Company's certificate of incorporation also provides that the size of
the Board of Directors may be increased or decreased only by a majority vote of
the whole Board or by a vote of 80% of the shares eligible to be voted at a duly
constituted meeting of stockholders called for such purpose. The bylaws also
provide that any vacancy occurring in the Board of Directors, including a
vacancy created by an increase in the number of directors, shall be filled for
the remainder of the unexpired term by a majority vote of the directors then in
office. Finally, the bylaws impose cer tain notice and information requirements
in connection with the nomination by stockholders of candidates for election to
the Board of Directors or the proposal by stockholders of business to be acted
upon at an annual meeting of stockholders.
The certificate of incorporation provides that a director may only be
removed for cause by the affirmative vote of 80% of the shares eligible to vote.
Restrictions on Call of Special Meetings. The certificate of
incorporation of the Holding Company provides that a special meeting of
stockholders may be called only pursuant to a resolution of the Board of
Directors and for only such business as directed by the Board. Stockholders are
not authorized to call a special meeting.
Absence of Cumulative Voting. The Holding Company's certificate of
incorporation does not provide for cumulative voting rights in the election of
directors.
Authorization of Preferred Stock. The certificate of incorporation of
the Holding Company authorizes 100,000 shares of serial preferred stock, $.01
par value. The Holding Company is authorized to issue preferred stock from time
to time in one or more series subject to applicable provisions of law, and the
Board of Directors is authorized to fix the designations, powers, preferences
and relative participating, optional and other special rights of such shares,
including voting rights (which could be multiple or as a separate class) and
conversion rights. In the event of a proposed merger, tender offer or other
attempt to gain control of the Holding Company that the Board of Directors does
not approve, it might be possible for the Board of Directors to authorize the
issuance of a series of preferred stock with rights and preferences that would
impede the completion of such a transaction. If the Holding Company issued any
preferred stock which disparately reduced the voting rights of the Common Stock
within the meaning of Rule 19c-4 under the Exchange Act, the Common Stock could
be required to be delisted from the Nasdaq System. An effect of the possible
issuance of preferred stock, therefore, may be to deter a future takeover
attempt. The Board of Directors has no present plans or understandings for the
issuance of any preferred stock and does not intend to issue any preferred stock
except on terms which the Board deems to be in the best interests of the Holding
Company and its stockholders.
Limitation on Voting Rights. The certificate of incorporation of the
Holding Company provides that in no event shall any record owner of any
outstanding Common Stock which is beneficially owned, directly or indirectly, by
a person who beneficially owns in excess of 10% of the then outstanding shares
of Common Stock (the "Limit"), be entitled or permitted to any vote in respect
of the shares held in excess of the Limit. This limitation would not inhibit any
person from soliciting (or voting) proxies from other beneficial owners for more
than 10% of the Common Stock or from voting such proxies. Bene ficial ownership
is to be determined pursuant to Rule 13d-3 of the General Rules and Regulations
of the
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Exchange Act, and in any event includes shares beneficially owned by any
affiliate of such person, shares which such person or his affiliates (as defined
in the certificate of incorporation) 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 directors, officers and employees of the Bank or the
Holding Company. This provision will be enforced by the Board of Directors to
limit the voting rights of persons beneficially owning more than 10% of the
stock and thus could be utilized in a proxy contest or other solicitation to
defeat a proposal that is desired by a majority of the stockholders.
Procedures for Certain Business Combinations. The Holding Company's
certificate of incorporation requires that certain business combinations
(including transactions initiated by management) between the Holding Company (or
any majority-owned subsidiary thereof) and a 10% or more stockholder either (i)
be approved by at least 80% of the total number of outstanding voting shares,
voting as a single class, of the Holding Company, (ii) be approved by two-thirds
of the continuing Board of Directors (i.e., persons serving prior to the 10%
stockholder becoming such) or (iii) involve consideration per share generally
equal to that paid by such 10% stockholder when it acquired its block of stock.
It should be noted that, since the Board and management intend to
purchase approximately $950,000 of the shares offered in the Conversion and may
control the voting of additional shares through the ESOP and proposed RRP and
Stock Option Plan, the Board and management may be able to block the approval of
combinations requiring an 80% vote even where a majority of the stockholders
vote to approve such combinations.
Amendment to Certificate of Incorporation and Bylaws. Amendments to the
Holding Company's certificate of incorporation must be approved by the Holding
Company's Board of Directors and also by a majority of the outstanding shares of
the Holding Company's voting stock, provided, however, that approval by at least
80% of the outstanding voting stock is generally required for certain provisions
(i.e., provisions relating to number, classification, election and removal of
directors; amendment of bylaws; call of special stockholder meetings; offers to
acquire and acquisitions of control; director liability; certain business
combinations; power of indemnification; and amendments to provisions relating to
the foregoing in the certificate of incorporation).
The bylaws may be amended by a majority vote of the Board of Directors
or the affirmative vote of at least 80% of the total votes eligible to be voted
at a duly constituted meeting of stockholders.
Purpose and Takeover Defensive Effects of the Holding Company's
Certificate of Incorporation and Bylaws. The Board of Directors of the Bank
believes that the provisions described above are prudent and will reduce the
Holding Company's vulnerability to takeover attempts and certain other
transactions which have not been negotiated with and approved by its Board of
Directors. These provisions will also assist the Bank in the orderly deployment
of the conversion proceeds into productive assets during the initial period
after the Conversion. The Board of Directors believes these provisions are in
the best interest of the Bank and of the Holding Company and its stockholders.
In the judgment of the Board of Directors, the Holding Company's Board will be
in the best position to determine the true value of the Holding Company and to
negotiate more effectively for what may be in the best interests of its
stockholders. Accordingly, the Board of Directors believes that it is in the
best interests of the Holding Company and its stockholders to encourage
potential acquirors to negotiate directly with the Board of Directors of the
Holding Company and that these provisions will encourage such negotiations and
discourage hostile takeover attempts. It is also the view of the Board of
Directors that these provisions should not discourage persons from proposing a
merger or other transaction at prices reflective of the true value of the
Holding Company and which is in the best interests of all stockholders.
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Attempts to take over financial institutions and their holding
companies have recently become increasingly common. Takeover attempts which have
not been negotiated with and approved by the Board of Directors present to
stockholders the risk of a takeover on terms which may be less favorable than
might otherwise be available. A transaction which is negotiated and approved by
the Board of Directors, on the other hand, can be carefully planned and
undertaken at an opportune time in order to obtain maximum value for the Holding
Company and its stockholders, with due consideration given to matters such as
the management and business of the acquiring corporation and maximum strategic
development of the Holding Company's assets.
An unsolicited takeover proposal can seriously disrupt the business and
management of a corporation and cause it great expense. Although a tender offer
or other takeover attempt may be made at a price substantially above then
current market prices, such offers are sometimes made for less than all of the
outstanding shares of a target company. As a result, stockholders may be
presented with the alternative of partially liquidating their investment at a
time that may be disadvantageous, or retaining their investment in an enterprise
which is under different management and whose objectives may not be similar to
those of the remaining stockholders. The concentration of control, which could
result from a tender offer or other takeover attempt, could also deprive the
Holding Company's remaining stockholders of the benefits of certain protective
provisions of the Exchange Act, if the number of beneficial owners becomes less
than the 300 required for Exchange Act registration.
Despite the belief of the Bank and the Holding Company as to the
benefits to stockholders of these provisions of the Holding Company's
certificate of incorporation and bylaws, these provisions may also have the
effect of discouraging a future takeover attempt which would not be approved by
the Holding Company's Board, but pursuant to which stockholders may receive a
substantial premium for their shares over then current market prices. As a
result, stockholders who might desire to participate in such a transaction may
not have any opportunity to do so. Such provisions will also render the removal
of the Holding Company's Board of Directors and of management more difficult.
The Board will enforce the voting limitation provisions of the charter in proxy
solicitations and accordingly could utilize these provisions to defeat proposals
that are favored by a majority of the stockholders. The Boards of Directors of
the Bank and the Holding Company, however, have concluded that the potential
benefits outweigh the possible disadvantages.
Pursuant to applicable law, at any annual or special meeting of its
stockholders after the Conversion, the Holding Company may adopt additional
charter provisions regarding the acquisition of its equity securities that would
be permitted to a Delaware corporation. The Holding Company and the Bank do not
presently intend to propose the adoption of further restrictions on the
acquisition of the Holding Company's equity securities.
Other Restrictions on Acquisitions of Stock
Delaware Anti-Takeover Statute. The Delaware General Corporation Law
(the "DGCL") provides that buyers who acquire more than 15% of the outstanding
stock of a Delaware corporation, such as the Holding Company, are prohibited
from completing a hostile takeover of such corporation for three years. However,
the takeover can be completed if (i) the buyer, while acquiring the 15%
interest, acquires at least 85% of the corporation's outstanding stock (the 85%
requirement excludes shares held by directors who are also officers and certain
shares held under employee stock plans), or (ii) the takeover is approved by the
target corporation's board of directors and two-thirds of the shares of
outstanding stock of the corporation (excluding shares held by the bidder).
However, these provisions of the DGCL do not apply to Delaware
corporations with less than 2,000 stockholders or which do not have voting stock
listed on a national exchange or listed for quotation with a registered national
securities association. No prediction can be made as to whether the Holding
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Company will be listed on Nasdaq National Market or have 2,000 stockholders.
Preferred Savings 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 this provision. At the present time, the Board of Directors
does not intend to propose any such amendment.
Federal Regulation. A federal regulation prohibits any person prior to
the completion of a conversion from transferring, or entering into any agreement
or understanding to transfer, the legal or beneficial ownership of the
subscription rights issued under a plan of conversion or the stock to be issued
upon their exercise. This regulation also prohibits any person prior to the
completion of a conversion from offering, or making an announcement of an offer
or intent to make an offer, to purchase such subscription rights or stock. For
three years following conversion, this regulation prohibits any person, without
the prior approval of the OTS, from acquiring or making an offer to acquire (if
the offer is opposed by the savings association) more than 10% of the stock of
any converted savings institution if such person is, or after consummation of
such acquisition would be, the beneficial owner of more than 10% of such stock.
In the event that any person, directly or indirectly, violates this regulation,
the secu rities beneficially owned by such person in excess of 10% may not be
counted as shares entitled to vote and may not be voted by any person or counted
as voting shares in connection with any matter submitted to a vote of
stockholders. Like the charter provisions outlined above, these federal
regulations can make a change in control more difficult, even if desired by the
holders of the majority of the shares of the stock. The Board of Directors
reserves the right to ask the OTS or other federal regulators to enforce these
restrictions against persons seeking to obtain control of the Holding Company,
whether in a proxy solicitation or otherwise. The policy of the Board is that
these legal restrictions must be observed in every case, including instances in
which an acquisition of control of the Holding Company is favored by a majority
of the stockholders.
Federal law provides that no company, "directly or indirectly or acting
in concert with one or more persons, or through one or more subsidiaries, or
through one or more transactions," may acquire "control" of a savings
association at any time without the prior approval of the OTS. In addition,
federal regulations require that, prior to obtaining control of a savings
association, a person, other than a company, must give 60 days' prior notice to
the OTS and have received no OTS objection to such acquisition of control. Any
company that acquires such control becomes a "savings and loan holding company"
subject to registration, examination and regulation as a savings and loan
holding company. Under federal law (as well as the regulations referred to
below) the term "savings association" includes state and federally chartered
SAIF-insured institutions and federally chartered savings banks whose accounts
are insured by the FDIC's BIF and holding companies thereof.
Control, as defined under federal law, in general means ownership,
control of or holding irrevocable proxies representing more than 25% of any
class of voting stock, control in any manner of the election of a majority of a
savings association's directors, or a determination by the OTS that the acquiror
has the power to direct, or directly or indirectly to exercise a controlling
influence over, the management or policies of the institution. Acquisition of
more than 10% of any class of a savings association's voting stock, if the
acquiror also is subject to any one of eight "control factors," constitutes a
rebuttable determination of control under the OTS regulations. Such control
factors include the acquiror being one of the two largest stockholders. The
determination of control may be rebutted by submission to the OTS, prior to the
acquisition of stock or the occurrence of any other circumstances giving rise to
such determination, of a statement setting forth facts and circumstances which
would support a finding that no control relationship will exist and containing
certain undertakings. The OTS regulations provide that persons or companies
which acquire beneficial ownership exceeding 10% or more of any class of a
savings association's stock must file with the OTS a certification that the
holder is not in control of such institution, is not subject to a rebuttable
determination of control and will take no action which would result in a
determination or rebuttable determination of control without prior notice to or
approval of the OTS, as applicable.
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DESCRIPTION OF CAPITAL STOCK
Holding Company Capital Stock
The 2,600,000 shares of capital stock authorized by the Holding Company
certificate of incorporation are divided into two classes, consisting of
2,500,000 shares of Common Stock (par value $.01 per share) and 100,000 shares
of serial preferred stock (par value $.01 per share). The Holding Company
currently expects to issue between 1,402,500 and 1,897,500 shares (subject to
increase to 2,182,125) of Common Stock in the Conversion and no shares of serial
preferred stock. The aggregate par value of the issued shares will constitute
the capital account of the Holding Company on a consolidated basis. Upon payment
of the Purchase Price, all shares issued in the Conversion will be duly
authorized, fully paid and nonassessable. The balance of the purchase price of
Common Stock, less expenses of Conversion, will be reflected as paid-in capital
on a consolidated basis. See "Capitalization."
Each share of the Common Stock will have the same relative rights and
will be identical in all respects with each other share of the Common Stock. The
Common Stock of the Holding Company will represent non-withdrawable capital,
will not be of an insurable type and will not be insured by the FDIC.
Under Delaware law, the holders of the Common Stock will possess
exclusive voting power in the Holding Company. Each stockholder will be entitled
to one vote for each share held on all matters voted upon by stockholders,
subject to the limitation discussed under "Restrictions on Acquisitions of Stock
and Related Takeover Defensive Provisions - Provisions of the Holding Company's
Certificate of Incorporation and Bylaws - Limitation on Voting Rights." If the
Holding Company issues preferred stock subsequent to the Conversion, holders of
the preferred stock may also possess voting powers.
Liquidation or Dissolution. In the event of any liquidation,
dissolution or winding up of the Bank, the Holding Company, as the sole holder
of the Bank's capital stock would be entitled to receive, after payment or
provision for payment of all debts and liabilities of the Bank (including all
deposit accounts and accrued interest thereon) and after distribution of the
balance in the special liquidation account to Eligible and Supplemental Account
Holders, all assets of the Bank available for distribution. In the event of
liquidation, dissolution or winding up of the Holding Company, the holders of
its Common Stock would be entitled to receive, after payment or provision for
payment of all its debts and liabilities, all of the assets of the Holding
Company available for distribution. See "The Conversion Effects of Conversion to
Stock Form on Depositors and Borrowers of the Bank." If preferred stock is
issued subsequent to the Conversion, the holders thereof may have a priority
over the holders of Common Stock in the event of liquidation or dissolution.
No Preemptive Rights. Holders of the Common Stock will not be entitled
to preemptive rights with respect to any shares which may be issued. The Common
Stock will not be subject to call for redemption, and, upon receipt by the
Holding Company of the full purchase price therefor, each share of the Common
Stock will be fully paid and nonassessable.
Preferred Stock. After Conversion, the Board of Directors of the
Holding Company will be authorized to issue 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. Preferred
stock may rank prior to the Common Stock as to dividend rights, liquidation
preferences, or both, and may have full or limited voting rights. The holders of
preferred stock will be entitled to vote as a separate class or series under
certain circumstances, regardless of any other voting rights which such holders
may have.
112
<PAGE>
Except as discussed above, the Holding Company has no present plans for
the issuance of the additional authorized shares of Common Stock or for the
issuance of any shares of preferred stock. In the future, the authorized but
unissued and unreserved shares of Common Stock will be available for general
corporate purposes, including but not limited to possible issuance as stock
dividends or stock splits, in future mergers or acquisitions, under a cash
dividend reinvestment and stock purchase plan, in a future underwritten or other
public offering, or under a stock based employee plan. The authorized but
unissued shares of preferred stock will similarly be available for issuance in
future mergers or acquisitions, in a future underwritten public offering or
private placement or for other general corporate purposes. Except as described
herein or as otherwise required to approve the transaction in which the
additional authorized shares of common stock or authorized shares of preferred
stock would be issued, no stockholder approval will be required for the issuance
of these shares. Accordingly, the Board of Directors of the Holding Company,
without stockholder approval, can issue preferred stock with voting and
conversion rights which could adversely affect the voting power of the holders
of Common Stock.
Restrictions on Acquisitions. See "Restrictions on Acquisitions of
Stock and Related Takeover Defensive Provisions" for a description of certain
provisions of the Holding Company's certificate of incorporation and bylaws
which may affect the ability of the Holding Company's stockholders to
participate in certain transactions relating to acquisitions of control of the
Holding Company.
Dividends. The Holding Company's Board of Directors may consider a
policy of paying cash dividends on the Common Stock in the future. No decision
has been made, however, as to the amount or timing of such dividends, if any.
The declaration and payment of dividends are subject to, among other things, the
Holding Company's then current and projected consolidated operating results,
financial condition, regulatory restrictions, future growth plans and other
factors the Board deems relevant. Therefore, no assurance can be given that any
dividends will be declared.
The ability of the Holding Company to pay cash dividends to its
stockholders will be dependent, in part, upon the ability of the Bank to pay
dividends to the Holding Company. OTS regulations do not permit the Bank to
declare or pay a cash dividend on its stock or repurchase shares of its stock if
the effect thereof would be to cause its regulatory capital to be reduced below
the amount required for the liquidation account or to meet applicable regulatory
capital requirements. See "Regulation - Limitations on Dividends and Other
Capital Distributions" for information regarding OTS regulations governing the
Bank's ability to pay dividends to the Holding Company.
Delaware law generally limits dividends of the Holding Company to an
amount equal to the ex cess of its net assets over its paid-in capital or, if
there is no such excess, to its net earnings for the current and immediately
preceding fiscal year. In addition, as the Holding Company does not anticipate,
for the immediate future, engaging in activities other than (i) investing in
cash, short-term securities and investment and mortgage-backed securities
similar to those invested in by the Bank and (ii) holding the stock of Preferred
Savings, the Holding Company's ability to pay dividends will be limited, in
part, by the Bank's ability to pay dividends, as set forth above.
Earnings appropriated to the Bank's "Excess" bad debt reserves and
deducted for federal income tax purposes cannot be used by the Bank to pay cash
dividends to the Holding Company without adverse tax consequences. See
"Regulation - Federal and State Taxation."
LEGAL AND TAX MATTERS
The legality of the Common Stock and the federal income tax
consequences of the Conversion will be passed upon for Preferred Savings by the
firm of Silver, Freedman & Taff, L.L.P. (a limited liability partnership
including professional corporations), 7th Floor, East Tower, 1100 New York
Avenue,
113
<PAGE>
NW, Washington, DC 20005. Silver, Freedman & Taff, L.L.P. has consented to the
references herein to its opinions. The Illinois income tax consequences of the
Conversion will be passed upon by Crowe, Chizek and Company LLP. Crowe, Chizek
and Company LLP has consented to references herein to its opinion. Webb has been
represented in the Conversion by McDermott, Will & Emery, 227 West Monroe
Street, Chicago, IL 60606-5096.
EXPERTS
The consolidated financial statements of Preferred Savings and its
subsidiary as of December 31, 1995, 1994 and 1993 included in this Prospectus
have been audited by Crowe, Chizek and Company LLP, independent auditors, as
indicated in their report which is included herein and has been so included in
reliance upon such report, given the authority of that firm as experts in
accounting and auditing.
Keller has consented to the inclusion herein of the summary of its
letter to the Bank setting forth its opinion as to the estimated pro forma
market value of the Holding Company and the Bank as converted and to the
reference to its opinion that subscription rights received by Eligible Account
Holders, Supplemental Eligible Account Holders and other eligible subscribers do
not have any economic value.
ADDITIONAL INFORMATION
The Holding 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 can be examined without charge at the public reference facilities of
the SEC located at 450 Fifth Street, NW, Washington, DC 20549, and copies of
such material can be obtained from the SEC at prescribed rates. The statements
contained herein as to the contents of any contract or other document filed as
an exhibit to the Registration Statement are, of necessity, brief descriptions
thereof which describe only the material provisions of such documents; each such
statement is qualified by reference to such contract or document.
The Bank 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 offices of the OTS, 1700 G Street,
NW, Washington, DC 20552 and at the Chicago District Office of the OTS, Suite
1300, 200 West Madison Street, Chicago, Illinois 60606, without charge.
In connection with the Conversion, the Holding Company will register
the Common Stock with the SEC under Section 12(g) of the Exchange Act, and, upon
such registration, the Holding Company and the holders of its Common 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 Holding Company has
undertaken that it will not terminate such registration for a period of at least
three years following the Conversion.
A copy of the Certificate of Incorporation and Bylaws of the Holding
Company are available without charge from the Bank.
114
<PAGE>
PREFERRED SAVINGS BANK
Chicago, Illinois
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PREFERRED SAVINGS BANK
Chicago, Illinois
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
May 31, 1996 and 1995 (Unaudited)
CONTENTS
REPORT OF INDEPENDENT AUDITORS...................................... F-1
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION................. F-2
CONSOLIDATED STATEMENTS OF INCOME.............................. F-3
CONSOLIDATED STATEMENTS OF EQUITY.............................. F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS.......................... F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS..................... F-7
All schedules are omitted because the required information
is not applicable or is included in the Consolidated
Financial Statements and related notes.
Financial Statements of the Holding Company have not
been provided because PS Financial, Inc. has
not conducted any operations to date and
has not been capitalized.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Preferred Savings Bank
Chicago, Illinois
We have audited the accompanying consolidated statements of financial condition
of Preferred Savings Bank, and its wholly-owned subsidiary as of December 31,
1995 and 1994, and the related consolidated statements of income, equity and
cash flows for the years ended December 31, 1995 and 1994 and the ten months
ended December 31, 1993. These financial statements are the responsibility of
the Bank'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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Preferred Savings
Bank and its wholly-owned subsidiary at December 31, 1995 and 1994, and the
results of their operations and their cash flows for the years ended December
31, 1995 and 1994 and the ten months ended December 31, 1993, in conformity with
generally accepted accounting principles.
As discussed in Note 2 to the financial statements, the Bank changed its method
of accounting for debt securities as of December 31, 1993 to adopt the
provisions of Statement of Financial Accounting Standards No. 115.
Crowe, Chizek and Company LLP
Oak Brook, Illinois
March 1, 1996
<PAGE>
PREFERRED SAVINGS BANK
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, 1995 and 1994
May 31, 1996 (Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
(Unaudited)
May 31, -----December 31,-----
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
ASSETS
Cash on hand and in banks $ 361,740 $ 916,175 $ 619,979
Interest-bearing deposit accounts in other
financial institutions 2,509,564 2,837,617 808,702
-------------- -------------- --------------
Total cash and cash equivalents 2,871,304 3,753,792 1,428,681
Interest-bearing term deposits in other financial
institutions 248,000 248,000 5,250,818
Securities available-for-sale (Note 2) 11,058,390 9,738,928 7,325,698
Mortgage-backed securities
available-for-sale (Note 2) 3,883,734 4,220,095 1,694,349
Securities held-to-maturity (fair value:
1994 - $201,500) (Note 2) - - 200,899
Mortgage-backed securities
held-to-maturity (fair value: 1994 - $1,618,528)
(Note 2) - - 1,791,511
Loans receivable, net (Notes 3 and 4) 35,701,500 34,525,038 32,890,017
Federal Home Loan Bank stock 362,100 341,400 308,600
Premises and equipment, net (Note 5) 456,678 466,647 457,129
Accrued interest receivable 246,721 180,960 104,645
Other assets 24,324 45,456 166,424
-------------- -------------- --------------
Total assets $ 54,852,751 $ 53,520,316 $ 51,618,771
============== ============== ==============
LIABILITIES AND EQUITY
Liabilities
Deposits (Note 6) $ 41,944,953 $ 41,046,705 $ 40,057,209
Advances from borrowers for taxes and
insurance 409,356 459,105 854,801
Accrued interest payable 244,765 71,874 44,332
Deferred income taxes 5,794 126,974 68,206
Other liabilities 218,948 91,258 82,720
-------------- -------------- --------------
Total liabilities 42,823,816 41,795,916 41,107,268
Commitments (Note 10)
Equity
Retained earnings, substantially restricted
(Notes 8 and 9) 12,106,999 11,666,976 10,612,445
Net unrealized gain (loss) on securities
available-for-sale (Note 2) (78,064) 57,424 (100,942)
-------------- -------------- --------------
Total equity 12,028,935 11,724,400 10,511,503
-------------- -------------- --------------
Total liabilities and equity $ 54,852,751 $ 53,520,316 $ 51,618,771
============== ============== ==============
</TABLE>
- -------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
PREFERRED SAVINGS BANK
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1995, 1994 and
Ten months ended December 31, 1993
Five months ended May 31, 1996 and 1995 (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-----(Unaudited)-----
-----May 31,----- -----December 31,-----
------- ------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Interest income
Loans $ 1,377,206 $ 1,312,450 $ 3,156,211 $ 3,013,874 $ 2,782,592
Securities 302,747 224,079 651,687 327,052 391,551
Mortgage-backed securities 101,722 76,386 186,495 171,514 2,317
Other interest-earning assets 71,914 144,959 274,084 341,281 225,094
------------ ------------ ------------ ------------ ------------
1,853,589 1,757,874 4,268,477 3,853,721 3,401,554
Interest expense on deposits (Note 6) 725,297 631,544 1,632,593 1,310,243 1,169,110
------------ ------------ ------------ ------------ ------------
Net interest income 1,128,292 1,126,330 2,635,884 2,543,478 2,232,444
Provision for loan losses (Note 4) 50,000 - - 41,722 27,278
------------ ------------ ------------ ------------ ------------
Net interest income after provision for
loan losses 1,078,292 1,126,330 2,635,884 2,501,756 2,205,166
Noninterest income
Net loss on sale of securities - - (218) (365,331) (27,650)
Other 26,555 23,847 58,343 75,922 39,899
------------ ------------ ------------ ------------ ------------
26,555 23,847 58,125 (289,409) 12,249
Noninterest expense
Compensation and benefits 181,847 191,613 627,651 428,803 318,550
Occupancy and equipment expense 43,889 40,178 106,927 116,493 89,413
Data processing 19,462 18,130 42,800 39,730 33,887
Federal deposit insurance premiums 39,519 38,642 92,921 94,366 78,000
Other operating expenses 68,203 55,323 139,069 158,369 127,526
------------ ------------ ------------ ------------ ------------
352,920 343,886 1,009,368 837,761 647,376
------------ ------------ ------------ ------------ ------------
Income before income tax provision 751,927 806,291 1,684,641 1,374,586 1,570,039
Provision for income taxes (Note 9) 311,904 317,467 630,110 616,799 627,903
------------ ------------ ------------ ------------ ------------
Net income $ 440,023 $ 488,824 $ 1,054,531 $ 757,787 $ 942,136
============ ============ ============ ============ ============
</TABLE>
- -------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
PREFERRED SAVINGS BANK
CONSOLIDATED STATEMENTS OF EQUITY
Years ended December 31, 1995 and 1994
Ten months ended December 31, 1993 Five
months ended May 31, 1996 (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Unrealized
Gain (Loss)
on Securities
Retained Available-
Earnings for-Sale Total
-------- ------------- -----
<S> <C> <C> <C>
Balance at February 28, 1993 $ 8,912,522 $ (79,736) $ 8,832,786
Effect of adopting Statement of
Financial Accounting Standards
No. 115, as of December 31, 1993 (Note 2) - (1,262) (1,262)
Change in unrealized gain (loss) on
securities available-for-sale - (128,934) (128,934)
Net income 942,136 - 942,136
--------------- ----------- --------------
Balance at December 31, 1993 9,854,658 (209,932) 9,644,726
Change in unrealized gain (loss) on
securities available-for-sale - 108,990 108,990
Net income 757,787 - 757,787
--------------- ----------- --------------
Balance at December 31, 1994 10,612,445 (100,942) 10,511,503
Reclassification of securities from
held-to-maturity to available-for-
sale, net of tax of $12,626 (Note 2) - (19,966) (19,966)
Change in unrealized gain (loss) on
securities available-for-sale - 178,332 178,332
Net income 1,054,531 - 1,054,531
--------------- ----------- --------------
Balance at December 31, 1995 11,666,976 57,424 11,724,400
Change in unrealized gain (loss) on
securities available-for-sale - (135,488) (135,488)
Net income 440,023 - 440,023
--------------- ----------- --------------
Balance at May 31, 1996 (unaudited) $ 12,106,999 $ (78,064) $ 12,028,935
=============== =========== ==============
</TABLE>
- -------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
PREFERRED SAVINGS BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1995 and 1994
Ten months ended December 31, 1993 Five
months ended May 31, 1996 and 1995 (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-----(Unaudited)-----
-----May 31,----- -----December 31,-----
------- ------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net income $ 440,023 $ 488,824 $ 1,054,531 $ 757,787 $ 942,136
Adjustments to reconcile net
income to net cash from
operating activities
Depreciation 12,787 13,979 34,570 34,188 27,625
Amortization of discounts and
premiums on securities 11,263 (13,180) 89,163 (29,971) 1,738
Provision for loan losses 50,000 - - 41,722 27,278
Net loss on sale of securities
available-for-sale - - 218 365,331 27,650
Stock dividends received on
Federal Home Loan Bank stock - (4,700) (4,700) - -
Change in
Deferred loan origination fees (13,999) 12,676 6,292 20,556 9,747
Accrued interest receivable
and other assets (44,629) (591,126) 44,653 (69,294) (895)
Other liabilities and deferred
income taxes 262,442 852,432 (6,251) 22,233 (98,011)
------------ ------------ ------------ ------------ ------------
Net cash provided by
operating activities 717,887 758,905 1,218,476 1,142,552 937,268
Cash flows from investing activities
Proceeds from sales of securities
available-for-sale - - 1,018,903 10,889,706 3,292,713
Proceeds from sale of mortgage-
backed securities available-for-sale - - 814,194 - -
Purchase of Federal Home Loan
Bank stock (20,700) (28,100) (28,100) - -
Proceeds from sale of Federal
Home Loan Bank stock - - - 39,000 -
Proceeds from repayments of
securities held-to-maturity - 95,053 238,070 226,271 -
Proceeds from repayment of
securities available-for-sale 295,388 105,265 238,257 210,905 -
Proceeds from maturities of
securities available-for-sale 3,000,000 2,300,000 4,900,000 3,000,000 200,000
Proceeds from maturity of
securities held-to-maturity - - - 200,000 -
Purchase of securities available-
for-sale (4,508,281) (3,770,156) (8,046,167) (12,312,033) (3,592,875)
Purchase of mortgage-backed
securities available-for-sale - - (1,939,739) (4,072,879) -
Net (increase) decrease in interest-
bearing term deposits in other
financial institutions - 2,329,460 5,002,818 (579,818) (374,000)
Net change in loans (1,212,463) (1,371,564) (1,641,313) (2,131,081) 1,858,072
Capital expenditures, net (2,818) (11,598) (44,088) (25,377) (32,787)
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
investing activities (2,448,874) (351,640) 512,835 (4,555,306) 1,351,123
</TABLE>
- -------------------------------------------------------------------------------
(Continued)
F-5
<PAGE>
PREFERRED SAVINGS BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1995 and 1994
Ten months ended December 31, 1993
Five months ended May 31, 1996 and 1995 (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-----(Unaudited)-----
-----May 31,----- -----December 31,-----
------- ------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cash flows from financing activities
Net increase (decrease) in
deposits $ 898,248 $ (269,496) $ 989,496 $ (1,082,199) $ 776,010
Net increase (decrease) in
advances from borrowers for
taxes and insurance (49,749) (42,100) (395,696) 49,422 364,543
------------ ------------ ------------ ------------ ------------
Net cash provided by (used
in) financing activities 848,499 (311,596) 593,800 (1,032,777) 1,140,553
------------ ------------ ------------ ------------ ------------
Net change in cash and cash
equivalents (882,488) 95,669 2,325,111 (4,445,531) 3,428,944
Cash and cash equivalents,
beginning of period 3,753,792 1,428,681 1,428,681 5,874,212 2,445,268
------------ ------------ ------------ ------------ ------------
Cash and cash equivalents,
end of period $ 2,871,304 $ 1,524,350 $ 3,753,792 $ 1,428,681 $ 5,874,212
============ ============ ============ ============ ============
Supplemental disclosures of cash
flow information
Cash paid during the year for
Interest $ 552,406 $ 445,449 $ 1,605,763 $ 1,301,692 $ 1,187,074
Income taxes 229,000 146,214 640,734 612,000 717,140
Supplemental schedule of noncash
investing activities
Amounts due to broker for
purchase of mortgage-
backed securities - - - - 2,025,625
Transfer of securities from
held-to-maturity to available-
for-sale on December 1, 1995 - - 1,571,423 - -
</TABLE>
- -------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
PREFERRED SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
May 31, 1996 and 1995 (Unaudited)
- ------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations: Preferred Savings Bank (the "Bank") is a
federally-chartered mutual savings bank. Through its main office, the Bank
offers a variety of financial services to customers on the southwestern side of
the city of Chicago, Illinois. Financial services consist primarily of consumer
loans secured by residential real estate and savings and certificate of deposit
accounts.
Principles of Consolidation: The accompanying financial statements include the
accounts of the Bank and its wholly-owned subsidiary, Preferred Service
Corporation, which engages in limited insurance activities. All significant
intercompany balances and transactions have been eliminated. The consolidated
financial statements for the five-month periods ended May 31, 1996 and 1995 are
unaudited but, in the opinion of management, reflect all necessary adjustments,
consisting only of normal recurring items necessary for fair presentation.
Use of Estimates in the Preparation of Financial Statements: The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Fiscal Year: During 1993, the Bank changed its fiscal year end from February 28
to December 31. Accordingly, the December 31, 1993 statements of income, equity,
and cash flows reflect operations from March 1, 1993 through December 31, 1993.
Recognition of Interest Income on Loans: Interest income on mortgage and share
loans is accrued over the term of the loans based on the principal balance
outstanding.
Loan Fees: Loan origination fees, net of certain direct loan origination costs,
are deferred and recognized over the life of the loan as a yield adjustment.
Securities: Securities are classified as held-to-maturity when the Bank has the
positive intent and ability to hold those securities to maturity. Accordingly,
they are stated at cost, adjusted for amortization of premiums and accretion of
discounts. All other securities are classified as available-for-sale since the
Bank may decide to sell those securities in response to changes in market
interest rates, liquidity needs, changes in yields or alternative investments
and for other reasons. These securities are carried at market value with
unrealized gains and losses charged or credited, net of income taxes, to a
valuation allowance included as a separate component of equity. Realized gains
and losses on disposition are based on the net proceeds and the adjusted
carrying amounts of the securities sold, using the specific identification
method.
- -------------------------------------------------------------------------------
(Continued)
F-7
<PAGE>
PREFERRED SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
May 31, 1996 and 1995 (Unaudited)
- ------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Premises and Equipment: Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed using principally the
straight-line method over the estimated useful lives of the assets. The cost and
accumulated depreciation of assets retired or sold are eliminated from the
financial statements, and the gain or loss on disposition is credited or charged
to operations when it is realized.
Income Taxes: The Bank and its subsidiary file a consolidated income tax return.
The provision for income taxes is based on an asset and liability approach in
accordance with Statement of Financial Accounting Standards No. 109. The asset
and liability approach requires the recognition of deferred tax liabilities and
assets for the expected future tax consequences of temporary differences between
the carrying amounts and the tax bases of assets and liabilities.
Allowance for Losses on Loans: The allowance for loan losses is increased by
charges to income and decreased by charge-offs (net of recoveries). Estimating
the risk of loss is necessarily subjective. Accordingly, management maintains
the allowance at levels considered adequate to cover losses based on past loan
loss experience, known and inherent risks in the portfolio, adverse situations
that may affect the borrower's ability to repay, estimated value of any
underlying collateral, and current and prospective economic conditions.
Statement of Financial Accounting Standards No. 114 was adopted at January 1,
1995. Under this standard, loans considered to be impaired 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 increase, such
increase is reported as bad debt expense. Adoption of this statement did not
have a material effect on the Bank's earnings or financial condition.
Cash and Cash Equivalents: Cash and cash equivalents include cash on hand,
amounts due from banks, and federal funds sold. The Bank reports net cash flows
for customer loan transactions, deposit transactions, and time deposits in other
financial institutions.
Impact of New Accounting Standards: In March 1995, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards No.
121 ("SFAS No. 121"), "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of." SFAS No. 121 requires that long-lived
assets and certain identifiable intangibles be reviewed for impairment whenever
events or circumstances indicate that the carrying amount of an asset may not be
recoverable. However, SFAS No. 121 does not apply to financial instruments, core
deposit intangibles, mortgage and other servicing rights, or deferred tax
assets. The adoption of SFAS No. 121 has no material effect on the Bank's income
or financial condition.
- -------------------------------------------------------------------------------
(Continued)
F-8
<PAGE>
PREFERRED SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
May 31, 1996 and 1995 (Unaudited)
- -------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In May 1995, the FASB issued Statement of Financial Accounting Standards No. 122
("SFAS No. 122"), "Accounting for Mortgage Servicing Rights." 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 31, 1995. The
adoption of this statement had no material impact on the Bank's earnings or
financial condition. As discussed below, SFAS No. 122 will be superseded by SFAS
No. 125 after December 31, 1996.
In November 1995, the FASB issued Statement of Financial Accounting Standards
No. 123, ("SFAS No. 123"), "Accounting for Stock-Based Compensation." This
statement establishes financial accounting standards for stock-based employee
compensation plans. SFAS No. 123 permits the Bank 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 has been applied in financial statements of companies
that continue to follow current practice in accounting for such arrangements
under APB Opinion 25. SFAS No. 123 applies to all stock-based employee
compensation plans in which an employer grants shares of its stock or other
equity instruments to employees except for employee stock ownership plans. Any
effect that this statement will have on the Bank will be applicable upon
consummation of the Conversion (See Note 12).
In June 1996, the FASB released Statement of Financial Accounting Standards No.
125, "Accounting for Transfers and Extinguishments of Liabilities". SFAS No. 125
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities. SFAS No. 125 requires a
consistent application of a financial-components approach that focuses on
control. Under that approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the liabilities it
has incurred, and derecognizes liabilities when extinguished. SFAS No. 125 also
supersedes SFAS No. 122 and requires that servicing assets and liabilities be
subsequently measured by amortization in proportion to and over the period of
estimated net servicing income or loss and requires assessment for asset
impairment or increased obligation based on their fair values. SFAS No. 125
applies to transfers and extinguishments occurring after December 31, 1996 and
early or retroactive application is not permitted. Management anticipates that
the adoption of SFAS No. 125 will not have a material impact on the financial
condition or operations of the Bank.
- -------------------------------------------------------------------------------
(Continued)
F-9
<PAGE>
PREFERRED SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
May 31, 1996 and 1995 (Unaudited)
- -------------------------------------------------------------------------------
NOTE 2 - SECURITIES
Effective December 31, 1993, the Bank adopted the provisions of Statement of
Financial Accounting Standards No. 115 ("SFAS No. 115"), "Accounting for Certain
Investment in Debt and Equity Securities." SFAS No. 115 requires corporations to
classify debt securities as either held-to-maturity, trading, or
available-for-sale. The net unrealized loss on securities available-for-sale at
December 31, 1993, due to the adoption of SFAS No. 115, is included as a
separate component of equity in the statement of financial condition and
represents primarily the effect of adjusting securities available-for-sale to
fair value.
Securities are summarized as follows:
<TABLE>
<CAPTION>
(Unaudited)
-------------------------May 31, 1996------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ----------- ---------- -------
<S> <C> <C> <C> <C>
Securities available-for-sale
U.S. Treasury securities and
obligations of U.S. government agencies $ 11,138,455 $ 51,568 $ (131,633) $ 11,058,390
-------------- ----------- ----------- ---------------
Mortgage-backed securities available-for-sale
Federal Home Loan Mortgage Corporation 951,444 3,565 - 955,009
Federal National Mortgage Association 2,268,097 - (44,996) 2,223,101
Government National Mortgage Association 710,038 - (4,414) 705,624
-------------- ----------- ----------- ---------------
3,929,579 3,565 (49,410) 3,883,734
-------------- ----------- ----------- ---------------
$ 15,068,034 $ 55,133 $ (181,043) $ 14,942,124
============== =========== =========== ===============
-----------------------December 31, 1995---------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ----------- ---------- -------
Securities available-for-sale
U.S. Treasury securities and
obligations of U.S. government agencies $ 9,633,725 $ 111,766 $ (6,563) $ 9,738,928
-------------- ----------- ----------- ---------------
Mortgage-backed securities available-for-sale
Federal Home Loan Mortgage Corporation 1,023,209 4,548 - 1,027,757
Federal National Mortgage Association 2,445,030 4,935 (23,986) 2,425,979
Government National Mortgage Association 764,440 1,919 - 766,359
-------------- ----------- ----------- ---------------
4,232,679 11,402 (23,986) 4,220,095
-------------- ----------- ----------- ---------------
$ 13,866,404 $ 123,168 $ (30,549) $ 13,959,023
============== =========== =========== ===============
</TABLE>
- -------------------------------------------------------------------------------
(Continued)
F-10
<PAGE>
PREFERRED SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
May 31, 1996 and 1995 (Unaudited)
- -------------------------------------------------------------------------------
NOTE 2 - SECURITIES (Continued)
<TABLE>
<CAPTION>
----------------------December 31, 1994----------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ----------- ---------- -------
<S> <C> <C> <C> <C>
Securities available-for-sale
U.S. Treasury securities and
obligations of U.S. government agencies $ 7,364,125 $ 11,441 $ (49,868) $ 7,325,698
-------------- ----------- ----------- ---------------
Mortgage-backed securities available-for-sale
Federal Home Loan Mortgage Corporation 982,757 - (61,773) 920,984
Government National Mortgage Association 840,011 - (66,646) 773,365
-------------- ----------- ----------- ---------------
1,822,768 - (128,419) 1,694,349
-------------- ----------- ----------- ---------------
$ 9,186,893 $ 11,441 $ (178,287) $ 9,020,047
============== =========== =========== ===============
----------------------December 31, 1994----------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ----------- ---------- -------
Securities held-to-maturity
U.S. Treasury securities $ 200,899 $ 601 $ - $ 201,500
-------------- ----------- ----------- ---------------
Mortgage-backed securities
held-to-maturity
Federal National
Mortgage Association 1,791,511 - (172,983) 1,618,528
-------------- ----------- ----------- ---------------
$ 1,992,410 $ 601 $ (172,983) $ 1,820,028
============== =========== =========== ===============
</TABLE>
The Bank holds $1,750,000, $1,000,000, and $499,274 of U.S. government agency
bonds which are structured notes issued by the Federal Home Loan Bank at May 31,
1996 (unaudited), December 31, 1995, and December 31, 1994, respectively.
Mortgage-backed securities included gross premiums of $35,307 at May 31, 1996
(unaudited). Mortgage-backed securities at December 31, 1995 and 1994 included
gross premiums of $43,019 and $46,171, respectively.
Sales of securities are summarized as follows:
<TABLE>
<CAPTION>
(Unaudited) For the ten
For the five months ended For the year ended months ended
-----May 31,----- ---December 31,--- December 31,
1996 1995 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Proceeds from sales $ - $ - $ 1,833,097 $ 10,889,706 $ 3,292,713
Gross realized gains - - 11,799 - 19,376
Gross realized losses - - 12,017 365,331 47,026
</TABLE>
- -------------------------------------------------------------------------------
(Continued)
F-11
<PAGE>
PREFERRED SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
May 31, 1996 and 1995 (Unaudited)
- ------------------------------------------------------------------------------
NOTE 2 - SECURITIES (Continued)
On December 1, 1995, the Bank reclassified its only held-to-maturity security as
available-for-sale in accordance with "A Guide to Implementation of Statement
115 on Accounting for Certain Investments in Debt and Equity Securities." The
amortized cost and unrealized loss on the security transferred were $1,571,423
and $32,592, respectively.
The amortized cost and estimated market value of debt securities, by contractual
maturity, are shown below. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
<TABLE>
<CAPTION>
(Unaudited)
May 31, 1996 December 31, 1995
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ----------- ---------- -------
<S> <C> <C> <C> <C>
Securities available-for-sale
Due in less than one year $ 5,747,406 $ 5,769,922 $ 3,982,357 $ 4,030,449
Due after one year through five years 4,491,049 4,400,624 4,247,543 4,300,385
Due after five years 900,000 887,844 1,403,825 1,408,094
------------- -------------- ------------- --------------
11,138,455 11,058,390 9,633,725 9,738,928
Mortgage-backed securities 3,929,579 3,883,734 4,232,679 4,220,095
------------- -------------- ------------- --------------
$ 15,068,034 $ 14,942,124 $ 13,866,404 $ 13,959,023
============= ============== ============= ==============
</TABLE>
NOTE 3 - LOANS RECEIVABLE
Loans receivable consist of the following at:
<TABLE>
<CAPTION>
(Unaudited)
May 31, -----December 31,-----
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
First mortgage loans
Principal balances
Secured by one to four family residences $ 26,150,250 $ 25,858,435 $ 24,711,361
Secured by other properties 6,603,873 6,094,352 5,928,557
Secured by commercial real estate 3,407,374 2,951,752 2,903,347
Construction loans 243,361 286,076 -
-------------- -------------- --------------
36,404,858 35,190,615 33,543,265
Less net deferred loan origination fees (534,038) (548,037) (541,745)
------------- -------------- --------------
First mortgage loans, net 35,870,820 34,642,578 33,001,520
Share loans 16,680 18,460 24,497
Less allowance for loan losses (186,000) (136,000) (136,000)
-------------- -------------- --------------
$ 35,701,500 $ 34,525,038 $ 32,890,017
============== ============== ==============
</TABLE>
- -------------------------------------------------------------------------------
(Continued)
F-12
<PAGE>
PREFERRED SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
May 31, 1996 and 1995 (Unaudited)
- ------------------------------------------------------------------------------
NOTE 3 - LOANS RECEIVABLE (Continued)
The principal balance of loans greater than 90 days delinquent on nonaccrual
status at May 31, 1996, December 31, 1995, and December 31, 1994 was
approximately $584,000 (unaudited), $775,000, and $334,000, respectively. The
interest income that would have been recorded under the original terms of such
loans approximated $69,000 (unaudited) for the five months ended May 31, 1996,
and $22,000 and $80,000 for the years ended December 31, 1995 and 1994,
respectively.
The Bank did not have any impaired loans for the five months ended May 31, 1996
(unaudited), or for the year ended December 31, 1995.
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
(Unaudited) For the ten
For the five months ended For the year ended months ended
-----May 31,----- ---December 31,--- December 31,
1996 1995 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Balance, beginning of period $ 136,000 $ 136,000 $ 136,000 $ 94,278 $ 67,000
Provision for loan losses 50,000 - - 41,722 27,278
----------- ----------- ----------- ----------- -----------
Balance, end of period $ 186,000 $ 136,000 $ 136,000 $ 136,000 $ 94,278
=========== =========== =========== =========== ===========
</TABLE>
NOTE 5 - PREMISES AND EQUIPMENT
Premises and equipment consist of the following at:
<TABLE>
<CAPTION>
(Unaudited)
May 31, -----December 31,-----
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Land $ 95,052 $ 95,052 $ 95,052
Building and improvements 506,239 504,590 495,660
Furniture and equipment 287,732 286,563 289,992
------------- ------------ ------------
Total cost 889,023 886,205 880,704
Accumulated depreciation 432,345 419,558 423,575
------------- ------------ ------------
$ 456,678 $ 466,647 $ 457,129
============= ============ ============
</TABLE>
Depreciation expense was $12,787 for the five months ending May 31, 1996
(unaudited), $34,570, and $34,188, for the years ending December 31, 1995 and
1994, respectively, and $27,625 for the ten months ended December 31, 1993.
- -------------------------------------------------------------------------------
(Continued)
F-13
<PAGE>
PREFERRED SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
May 31, 1996 and 1995 (Unaudited)
- ------------------------------------------------------------------------------
NOTE 6 - DEPOSITS
Deposits are summarized as follows at:
<TABLE>
<CAPTION>
(Unaudited)
Weighted
Average
Rate at (Unaudited) -----------------December 31,-----------------
May 31, ---May 31, 1996--- ---------1995--------- ---------1994---------
1996 Amount Percent Amount Percent Amount Percent
---- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Money market 3.25% $ 1,998,331 4.8% $ 1,601,293 3.9% $ 1,923,676 4.8%
Passbook savings 3.00 19,603,599 46.7 19,408,484 47.3 20,750,087 51.8
--------------- ----- ------------- ------ ------------- -------
21,601,930 51.5 21,009,777 51.2 22,673,763 56.6
Certificate of deposit
3.00% to 3.99% 4,298 - 49,267 .1 5,129,652 12.8
4.00 to 4.99 743,303 1.8 949,999 2.3 9,785,657 24.5
5.00 to 5.99 17,827,011 42.5 15,271,374 37.2 1,883,633 4.7
6.00 to 6.99 1,510,760 3.6 3,383,343 8.2 200,460 .5
7.00 to 7.99 257,651 .6 382,945 1.0 293,644 .7
8.00 to 8.99 - - - 90,400 .2
--------------- ----- ------------- ------ ------------- -------
5.33 20,343,023 48.5 20,036,928 48.8 17,383,446 43.4
--------------- ----- ------------- ------ ------------- -------
$ 41,944,953 100.0% $ 41,046,705 100.0% $ 40,057,209 100.0%
=============== ===== ============= ====== ============= =====
</TABLE>
The aggregate amount of short-term jumbo certificates of deposit with a minimum
denomination of $100,000 was approximately $1,013,000 at May 31, 1996
(unaudited) and $1,052,000 and $1,049,000 at December 31, 1995 and 1994,
respectively. Deposits greater than $100,000 are not insured.
At May 31, 1996 (unaudited), scheduled maturities of certificates of deposit are
as follows:
<TABLE>
<CAPTION>
Less than One to Two to Three to Four to
One year Two years Three years Four years Five years Total
--------- --------- ----------- ---------- ---------- -----
<C> <C> <C> <C> <C> <C> <C>
3.00 to 3.99% $ 4,298 $ - $ - $ - $ - $ 4,298
4.00 to 4.99 743,303 - - - - 743,303
5.00 to 5.99 15,752,009 1,078,951 846,873 10,996 138,182 17,827,011
6.00 to 6.99 899,594 410,539 - 90,063 110,564 1,510,760
7.00 to 7.99 159,721 - - 97,930 - 257,651
------------- ------------ ------------ ------------- ------------- ----------------
$ 17,558,925 $ 1,489,490 $ 846,873 $ 198,989 $ 248,746 $ 20,343,023
============= ============ ============ ============= ============= ================
</TABLE>
- -------------------------------------------------------------------------------
(Continued)
F-14
<PAGE>
PREFERRED SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
May 31, 1996 and 1995 (Unaudited)
- ------------------------------------------------------------------------------
NOTE 6 - DEPOSITS (Continued)
At December 31, 1995, scheduled maturities of certificates of deposit are as
follows:
<TABLE>
<CAPTION>
Less than One to Two to Three to Four to
One year Two years Three years Four years Five years Total
--------- --------- ----------- ---------- ---------- -----
<C> <C> <C> <C> <C> <C> <C>
3.00 to 3.99% $ 49,267 $ - $ - $ - $ - $ 49,267
4.00 to 4.99 949,999 - - - - 949,999
5.00 to 5.99 13,012,057 1,286,300 716,336 219,374 37,307 15,271,374
6.00 to 6.99 2,665,465 520,126 - 83,810 113,942 3,383,343
7.00 to 7.99 276,538 - - - 106,407 382,945
------------- ------------ ------------ ------------- ------------- ----------------
$ 16,953,326 $ 1,806,426 $ 716,336 $ 303,184 $ 257,656 $ 20,036,928
============= ============ ============ ============= ============= ================
</TABLE>
Interest expense on deposits is summarized as follows:
<TABLE>
<CAPTION>
(Unaudited) For the ten
For the five months ended For the year ended months ended
-----May 31,----- ---December 31,--- December 31,
1996 1995 1995 1994 1993
---- ---- ---- ---- ------------
<S> <C> <C> <C> <C> <C>
Money market $ 23,321 $ 25,060 $ 57,075 $ 62,903 $ 49,016
Passbook savings 243,665 251,348 592,841 617,344 526,248
Certificate of deposit 458,311 355,136 982,677 629,996 593,846
------------- ------------- ------------- ------------- --------------
$ 725,297 $ 631,544 $ 1,632,593 $ 1,310,243 $ 1,169,110
============= ============= ============= ============= ==============
</TABLE>
NOTE 7 - RETIREMENT BENEFITS
During 1995, The Board of Directors authorized the termination of the Bank's
defined benefit pension plan which covered substantially all full time
employees. The termination was effective June 30, 1995, and participants in the
plan became fully vested on that date. Accordingly, the Bank recorded a pretax
curtailment loss of $62,715. The settlement of the vested accumulated benefit
obligation by the purchase of annuity contracts for, or lump-sum payments to,
each covered employee will be completed during 1996.
The following table sets forth the Plan's funded status and amounts recognized
in the Bank's consolidated statements of financial condition at December 31,
1995 and 1994.
- -------------------------------------------------------------------------------
(Continued)
F-15
<PAGE>
PREFERRED SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
May 31, 1996 and 1995 (Unaudited)
- ------------------------------------------------------------------------------
NOTE 7 - RETIREMENT BENEFITS (Continued)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation
Vested $ (463,184) $ (307,551)
Nonvested - (279)
------------ ------------
$ (463,184) $ (307,830)
============ ============
Projected benefit obligation $ (463,184) $ (391,223)
Plan assets at fair value, primarily certificates
of deposit at Preferred Savings Bank and
mutual funds 463,184 438,858
------------ ------------
Plan assets in excess of (less than) projected
benefit obligation - 47,635
Unrecognized net loss from past experience
different from that assumed and effects of
changes in assumptions - 19,603
Unrecognized net transition obligation at
February 18, 1989 being recognized over 23
years - 61,534
Unrecognized prior service cost at July 1, 1993 arising from plan
amendment being recognized
over 23 years - 3,365
------------ ------------
Prepaid pension cost $ - $ 132,137
============ ============
</TABLE>
Net pension cost consists of the following:
<TABLE>
<CAPTION>
Ten
Months
Year Ended Ended
-------December 31,------- December 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Service costs - benefits earned during the period $ 10,077 $ 17,104 $ 9,044
Interest cost on projected benefit obligation 33,118 29,929 30,371
Actual return on plan assets (17,930) (17,303) (20,558)
Net amortization and deferral (10,720) (7,178) (9,712)
Curtailment loss 62,715 - -
----------- ----------- -----------
$ 77,260 $ 22,552 $ 9,145
=========== =========== ===========
</TABLE>
- -------------------------------------------------------------------------------
(Continued)
F-16
<PAGE>
PREFERRED SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
May 31, 1996 and 1995 (Unaudited)
- ------------------------------------------------------------------------------
NOTE 7 - RETIREMENT BENEFITS (Continued)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Assumptions used to develop the net periodic pension cost were:
Discount rate 7.00% 8.00% 7.25%
Expected long-term rate of return on assets 7.00 6.50 7.50
Rate of increase in compensation levels through
date of curtailment 4.00 4.00 4.00
</TABLE>
NOTE 8 - REGULATORY MATTERS
The Bank is required to maintain minimum amounts of capital to total "risk
weighted" assets, as defined by the banking regulators. At May 31, 1996 and
December 31, 1995, the Bank is required to have a minimum Tier 1 capital
(retained earnings, excluding valuation allowance on securities
available-for-sale) ratio to "risk weighted" assets of 4.00% and a total capital
ratio (retained earnings plus general loan loss allowance, excluding valuation
allowance on securities available-for-sale to "risk weighted" assets) of 8.00%,
respectively. The Bank's actual ratios on May 31, 1996 (unaudited) were 56.28%
and 56.91%, respectively. The Bank's actual ratios on December 31, 1995 were
58.37% and 59.05%, respectively. The Bank's leverage ratio (retained earnings,
excluding valuation allowance on securities available-for-sale, as a percent of
total average assets) at May 31, 1996 (unaudited) and December 31, 1995 was
22.34% and 22.19%, respectively, compared to minimum required amounts of 4.00%
to 5.00%.
NOTE 9 - INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
(Unaudited) For the ten
For the five months ended For the year ended months ended
-----May 31,----- ---December 31,--- December 31,
1996 1995 1995 1994 1993
---- ---- ---- ---- ------------
<S> <C> <C> <C> <C> <C>
Current
Federal $ 313,623 $ 341,955 $ 582,286 $ 528,090 $ 513,793
State 36,420 42,502 90,155 95,347 117,960
------------ ------------ ----------- ----------- -----------
350,043 384,457 672,441 623,437 631,753
Deferred (38,139) (66,990) (42,331) (95,393) (3,850)
Change in valuation allowance - - - 88,755 -
------------ ------------ ----------- ----------- -----------
$ 311,904 $ 317,467 $ 630,110 $ 616,799 $ 627,903
============ ============ =========== =========== ===========
</TABLE>
- -------------------------------------------------------------------------------
(Continued)
F-17
<PAGE>
PREFERRED SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
May 31, 1996 and 1995 (Unaudited)
- ------------------------------------------------------------------------------
NOTE 9 - INCOME TAXES (Continued)
The net deferred tax liability included in other liabilities in the accompanying
statements of financial condition consists of the following at:
<TABLE>
<CAPTION>
(Unaudited)
May 31, ----------December 31,-------
1996 1995 1994
---------- ---- ----
<S> <C> <C> <C>
Gross deferred tax liabilities
Deferred loan fees $ (33,153) $ (33,928) $ (42,812)
Accrual to cash (20,260) (40,098) (25,047)
Accumulated depreciation (58,493) (56,649) (55,778)
Accrued pension expense - - (51,190)
FHLB stock dividend (13,790) (13,790) (11,969)
Net unrealized gain on securities
available-for-sale - (35,195) -
------------- ------------ ------------
(125,696) (179,660) (186,796)
Gross deferred tax assets
Loan loss reserve 72,056 52,686 52,686
Capital loss carryforward 103,225 103,225 103,225
Net unrealized loss on
securities available-for-sale 47,846 - 65,904
Other - -
------------- ------------ ------------
223,127 155,911 221,815
Valuation allowance (103,225) (103,225) (103,225)
------------- ------------ ------------
Net deferred tax liability $ (5,794) $ (126,974) $ (68,206)
============= ============ ============
</TABLE>
The income tax provision differs from the amounts determined by applying the
statutory U.S. federal income tax rate as a result of the following items:
- -------------------------------------------------------------------------------
(Continued)
F-18
<PAGE>
PREFERRED SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
May 31, 1996 and 1995 (Unaudited)
- ------------------------------------------------------------------------------
NOTE 9 - INCOME TAXES (Continued)
<TABLE>
<CAPTION>
(Unaudited)
--------------------May 31,-------------------
1 9 9 6 1 9 9 5
------- -------
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Income tax computed at the
statutory rate $ 272,655 34.0% $ 274,139 34.0%
Other 15,211 1.9 15,276 1.9
----------- ------ ----------- ------
Total federal income tax 287,866 35.9 289,415 35.9
State income tax, net of
federal tax benefit 24,038 3.0 28,052 3.5
----------- ------ ----------- ------
$ 311,904 38.9% $ 317,467 39.4%
=========== ====== =========== ======
</TABLE>
<TABLE>
<CAPTION>
Ten
Months
Year Ended Ended
---------------December 31,----------------- ------December 31,----
1 9 9 5 1 9 9 4 1 9 9 3
------- ------- -------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Income tax computed at the
statutory rate $ 572,778 34.0% $ 467,359 34.0% $ 533,813 34.0%
Deferred tax valuation allowance - - 88,755 6.5 - -
Other 1,522 0.1 (54) - 45,693 2.9
----------- ------ ----------- ----- ----------- ------
Total federal income tax 574,300 34.1 556,060 40.5 579,506 36.9
State income tax, net of
federal tax benefit 55,810 3.3 60,739 4.4 48,397 3.1
----------- ------ ----------- ------ ----------- ------
$ 630,110 37.4% $ 616,799 44.9% $ 627,903 40.0%
=========== ====== =========== ====== =========== ======
</TABLE>
Under the Internal Revenue Code, the Bank may, for tax purposes, deduct a
provision for bad debts in excess of such provisions recorded in the financial
statements. Accordingly, retained earnings at May 31, 1996 (unaudited) and
December 31, 1995 include approximately $1,591,000 on which no provision for
federal income taxes has been made. 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 related amount of unrecognized
deferred tax liability was approximately $620,000.
- -------------------------------------------------------------------------------
(Continued)
F-19
<PAGE>
PREFERRED SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
May 31, 1996 and 1995 (Unaudited)
- ------------------------------------------------------------------------------
NOTE 10 - FINANCIAL INSTRUMENTS AND COMMITMENTS
The Bank is party to financial instruments with off-balance-sheet risk in the
normal course of business to meet financing needs of its customers. These
financial instruments include commitments to fund loans and previously approved
unused lines of credit. The Bank's exposure to credit loss in the event of
nonperformance by the parties to these financial instruments is represented by
the contractual amount of the instruments. The Bank uses the same credit policy
for commitments as it uses for on-balance-sheet items. At May 31, 1996
(unaudited), these financial instruments consist of commitments to extend credit
totaling $537,000. At December 31, 1995 and 1994, these financial instruments
consist of commitments to extend credit totaling $612,000 and $634,000,
respectively. All 1996 (unaudited) and 1995 commitments had fixed rates ranging
from 8.0% to 8.5% and terms up to 30 days.
Since many commitments expire without being used, the amount above does not
necessarily represent a future cash commitment. Collateral may be obtained upon
exercise of a commitment. The amount of collateral is determined by management
and may include residential real estate.
The primary financial instruments where concentrations of credit risk may exist
are securities and loans. Securities are discussed in Note 2. The Bank's
principal loan customers are located in Chicago and the southwest portion of
Cook County including Cicero and Berwyn. Most loans are secured by specific
collateral, including residential and commercial real estate.
The deposits of savings associations such as the Bank are presently insured by
the Savings Association Insurance Fund (SAIF), which, along with the Bank
Insurance Fund (BIF), is one of the two insurance funds administered by the
Federal Deposit Insurance Corporation (FDIC). It is anticipated that SAIF will
not be adequately capitalized until 2002, absent a substantial increase in
premium rates or the imposition of special assessments or other significant
developments, such as a merger of SAIF and the BIF. A recapitalization plan
under consideration by the Treasury Department, the FDIC, the Office of Thrift
Supervision (OTS), and the Congress provides for a special assessment of .85% to
.90% to be imposed on all SAIF-insured deposits. No assurance can be given,
however, as to whether the recapitalization plan will be adopted.
NOTE 11 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 defines the fair value of a
financial instrument as the amount at which the instrument could be exchanged in
a current transaction between willing parties, other than in a forced or
liquidation sale. The methods and assumptions used to determine fair values for
each class of financial instruments are presented below:
- -------------------------------------------------------------------------------
(Continued)
F-20
<PAGE>
PREFERRED SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
May 31, 1996 and 1995 (Unaudited)
- ------------------------------------------------------------------------------
NOTE 11 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
(Continued)
<TABLE>
<CAPTION>
(Unaudited)
---May 31, 1996--- ---December 31, 1995---
Approximate Estimated Approximate Estimated
Carrying Fair Carrying Fair
Value Value Value Value
----------- --------- ----------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Financial Assets
Cash on hand and in banks $ 362 $ 362 $ 916 $ 916
Interest-bearing deposits in other
financial institutions 2,510 2,510 2,838 2,838
Interest-bearing term deposits in other
financial institutions 248 248 248 248
Securities available-for-sale 14,942 14,942 13,959 13,959
Loans receivable, net 35,702 36,593 34,525 35,280
Federal Home Loan Bank stock 362 362 341 341
Accrued interest receivable 247 247 181 181
Financial Liabilities
Money market and passbook savings (21,602) (21,602) (21,010) (21,010)
Certificates of deposits (20,343) (20,806) (20,037) (20,076)
Accrued interest payable (245) (245) (72) (72)
</TABLE>
For purposes of the above, the following assumptions were used. The estimated
fair value for cash, interest bearing deposits with financial institutions,
Federal Home Loan Bank stock, accrued interest receivable, money market and
savings deposits, and accrued interest payable are considered to approximate
their carrying values. The estimated fair value for securities
available-for-sale is based on quoted market values for the individual
securities or for equivalent securities. The estimated fair value for loans is
based on estimates of the rate the Bank would charge for similar loans at May
31, 1996 and December 31, 1995, applied for the time period until estimated
payment. The estimated fair value of certificates of deposit is based on
estimates of the rate the Bank would pay on such deposits at May 31, 1996 and
December 31, 1995, applied for the time period until maturity. Loan commitments
are not included in the table above as their estimated fair value is immaterial.
Other assets and liabilities of the Bank that are not defined as financial
instruments, such as property and equipment, are not included in the above
disclosures. Also not included are nonfinancial instruments typically not
recognized in the financial statements, such as loan servicing rights, customer
goodwill, and similar items.
- -------------------------------------------------------------------------------
(Continued)
F-21
<PAGE>
PREFERRED SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
May 31, 1996 and 1995 (Unaudited)
- ------------------------------------------------------------------------------
NOTE 11 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
(Continued)
While the above estimates are based on management's judgment of the most
appropriate factors, there is no assurance that were the Bank to have disposed
of these items on May 31, 1996 and December 31, 1995, the fair values would have
been achieved, because the market value may differ depending on the
circumstances. The estimated fair values at May 31, 1996 and December 31, 1995
should not necessarily be considered to apply at subsequent dates.
NOTE 12 - ADOPTION OF PLAN OF CONVERSION (UNAUDITED)
On May 21, 1996, the Board of Directors of the Bank, subject to regulatory
approval and approval by the members of the Bank, adopted a Plan of Conversion
to convert from a state mutual savings bank to a federal stock savings bank with
the concurrent formation of a holding company and the adoption of a federal
thrift charter. The conversion is expected to be accomplished through the
amendment of the Bank's charter and the sale of the holding company's common
stock in an amount equal to the consolidated pro forma market value of the
holding company and the Bank after giving effect to the conversion. A
subscription offering of the shares of common stock will be offered initially to
the Bank's eligible deposit account holders, then to other members of the Bank.
Any shares of the holding company's common stock not sold in the subscription
offering will be offered for sale to the general public, giving preference to
the Bank's market area.
The Board of Directors of the Bank or the holding company intend to adopt an
Employee Stock Ownership Plan and various stock option and incentive plans,
subject to ratification by the stockholders of the holding company after
conversion, if such stockholder approval is required by any regulatory body
having jurisdiction to require such approval. In addition, the Board of
Directors is authorized to enter into employment contracts with key employees.
At the time of conversion, the Bank will establish a liquidation account in an
amount equal to its total net worth as of the latest statement of financial
condition appearing in the final prospectus. The liquidation account will be
maintained for the benefit of eligible depositors who continue to maintain their
accounts at the Bank 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 liquidation account balance is
not available for payment of dividends.
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-22
<PAGE>
================================================================================
No person has been authorized to give any information or to make any
representation other than as contained in this Prospectus in connection with the
offering made hereby, and, if given or made, such other information or
representation must not be relied upon as having been authorized by the Holding
Company or the Bank. 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 Holding Company or the Bank since any of
the dates as of which information is furnished herein or since the date hereof.
--------------
TABLE OF CONTENTS
Page
----
Prospectus Summary........................................
Selected Consolidated Financial Information...............
Risk Factors..............................................
PS Financial, Inc.........................................
Preferred Savings.........................................
Use of Proceeds...........................................
Dividends.................................................
Market for Common Stock...................................
Pro Forma Data............................................
Pro Forma Regulatory Capital Analysis.....................
Capitalization............................................
Consolidated Statements of Operations.....................
Management's Discussion and Analysis of Financial
Condition and Results of Operations....................
Business .................................................
Regulation................................................
Management ...............................................
The Conversion............................................
Restrictions on Acquisitions of Stock and Related
Takeover Defensive Provisions..........................
Description of Capital Stock..............................
Legal and Tax Matters.....................................
Experts...................................................
Additional Information....................................
Index to Consolidated Financial Statements................ F-1
Until the later of _______________, 1996 or 25 days after commencement of
the offering of Common Stock, all dealers effecting transactions in the
registered securities, whether or not participating in this distribution, may be
required to deliver a prospectus. This is in addition to the obligation of
dealers to deliver a prospectus when acting as underwriters and with respect to
their unsold allotments or subscriptions.
================================================================================
<PAGE>
================================================================================
1,897,500 Shares
PS FINANCIAL, INC.
(Proposed Holding Company for Preferred Savings)
COMMON STOCK
----------
PROSPECTUS
----------
CHARLES WEBB & COMPANY
A Division of Keefe, Bruyette & Woods, Inc.
_______, 1996
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
Set forth below is an estimate of the amount of fees and expenses
(other than underwriting discounts and commissions) to be incurred in connection
with the issuance of the shares.
SEC registration fees............................................. $ 7,525
NASD fee.......................................................... 5,000
Nasdaq registration fee........................................... 15,000
OTS filing fees................................................... 8,400
Counsel fees and expenses......................................... 95,000
Accounting fees and expenses...................................... 60,000
Appraisal and business plan fees and expenses..................... 22,000
Conversion agent fees and expenses................................ 15,000
Marketing agent's expenses........................................ 5,000
Marketing agent's counsel fees and expenses....................... 35,000
Printing, postage and mailing..................................... 30,000
Blue sky fees and expenses........................................ 5,000
Other expenses.................................................... 7,075
TOTAL........................................................ $310,000
- -------------------
(1) Based on maximum of Estimated Valuation Range and assumptions set forth
under "Pro Forma Data" in the Prospectus.
Item 14. Indemnification of Directors and Officers
Article Eleventh of the Holding Company's Certificate of Incorporation
provides for indemnification of directors and officers of the Holding Company
against any and all liabilities, judgments, fines and reasonable settlements,
costs, expenses and attorneys' fees incurred in any actual, threatened or
potential proceeding, except to the extent that such indemnification is limited
by Delaware law and such law cannot be varied by contract or bylaw. Article
Eleventh also provides for the authority to purchase insurance with respect
thereto.
Section 145 of the General Corporation Law of the State of Delaware
authorizes a corporation's Board of Directors to grant indemnity under certain
circumstances to directors and officers, when made, or threatened to be made,
parties to certain proceedings by reason of such status with the corporation,
against judgments, fines, settlements and expenses, including
II-1
<PAGE>
attorneys' fees. In addition, under certain circumstances such persons may be
indemnified against expenses actually and reasonably incurred in defense of a
proceeding by or on behalf of the corporation. Similarly, the corporation, under
certain circumstances, is authorized to indemnify directors and officers of
other corporations or enterprises who are serving as such at the request of the
corporation, when such persons are made, or threatened to be made, parties to
certain proceedings by reason of such status, against judgments, fines,
settlements and expenses, including attorneys' fees; and under certain
circumstances, such persons may be indemnified against expenses actually and
reasonably incurred in connection with the defense or settlement of a proceeding
by or in the right of such other corporation or enterprise. Indemnification is
permitted where such person (i) was acting in good faith; (ii) was acting in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation or other corporation or enterprise, as appropriate; (iii) with
respect to a criminal proceeding, has no reasonable cause to believe his conduct
was unlawful; and (iv) was not adjudged to be liable to the corporation or other
corporation or enterprise (unless the court where the proceeding was brought
determines that such person is fairly and reasonably entitled to indemnity).
Unless ordered by a court, indemnification may be made only following a
determination that such indemnification is permissible because the person being
indemnified has met the requisite standard of conduct. Such determination may be
made (i) by the Board of Directors of the Holding Company by a majority vote of
a quorum consisting of directors not at the time parties to such proceeding; or
(ii) if such a quorum cannot be obtained or the quorum so directs, then by
independent legal counsel in a written opinion; or (iii) by the stockholders.
Section 145 also permits expenses incurred by directors and officers in
defending a proceeding to be paid by the corporation in advance of the final
disposition of such proceedings upon the receipt of an undertaking by the
director or officer to repay such amount if it is ultimately determined that he
is not entitled to be indemnified by the corporation against such expenses.
Item 15. Recent Sales of Unregistered Securities
The Registrant is newly incorporated, solely for the purpose of acting
as the holding company of Preferred Savings Bank pursuant to the Plan of
Conversion (filed as Exhibit 2 herein), and no sales of its securities have
occurred to date; except for the sale of one share to the incorporator which was
required in order to register the Registrant as a foreign corporation in
Illinois. The sale was made in a transaction not involving a public offering in
reliance upon Section 4(2) of the Securities Act of 1933. The sale was made to
Ms. Rooney who as an officer of the Registrant has access to the type of
information that could be obtained through the registration process and based
upon her background and position with the Registrant had the knowledge and the
experience in financial and business matters of the Registrant to enable her to
evaluate the merits and risks of the investment. Such share will be redeemed by
the Registrant upon completion of the initial public offering.
II-2
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits:
1.1 Letter Agreement regarding marketing and consulting services
1.2 Form of Agency Agreement*
2 Plan of Conversion
3.1 Certificate of Incorporation of the Holding Company
3.2 Bylaws of the Holding Company
3.3 Charter of Preferred Savings in stock form
3.4 Bylaws of Preferred Savings in stock form
4 Form of Stock Certificate of the Holding Company
5 Opinion of Silver, Freedman & Taff, L.L.P. with respect to legality of
stock
8.1 Opinion of Silver, Freedman & Taff, L.L.P. with respect to Federal
income tax consequences of the Conversion
8.2 Opinion of Crowe, Chizek and Company LLP with respect to Illinois
income tax consequences of the Conversion
8.3 Opinion of Keller & Company, Inc. with respect to Subscription Rights
10.1 Form of Proposed Stock Option and Incentive Plan
10.2 Form of Proposed Recognition and Retention Plan
10.3 Employee Stock Ownership Plan
10.4 Form of Employment Agreement with Kimberly P. Rooney
10.5 Form of Employment Agreement with Sylvester J. Ptak
10.6 Form of Change in Control Severance Agreement
22 Subsidiaries
24.1 Consent of Silver, Freedman & Taff, L.L.P.
24.2 Consent of Crowe, Chizek and Company, LLP
24.3 Consent of Keller & Company, Inc.
25 Power of Attorney (set forth on signature page)
99.1 Appraisal*
99.2 Proxy Statement and form of proxy to be furnished to Preferred Savings
account holders
99.3 Stock Order Form, Order Form Instructions and Certification
99.4 Question and Answer Brochure
99.5 Advertising, Training and Community Informational Meeting Materials*
99.6 Letter Agreement regarding Appraisal Services and Business Plan
Preparation
- ----------
* To be filed by amendment.
II-3
<PAGE>
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; and
(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.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the 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 director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and it will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant
II-4
<PAGE>
to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
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.
II-5
<PAGE>
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 Chicago,
Illinois on August 29, 1996.
PS FINANCIAL, INC.
By: /s/ Kimberly P. Rooney
------------------------------------
Kimberly P. Rooney, President,
Chief Executive Officer and
Director
(Duly Authorized Representative)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Kimberly P. Rooney or Sylvester J. Ptak
as his or her true and lawful attorney-in-fact and agent, with full power of
substitution and re-substitution, for her and in her name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and all other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
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 said attorney-in-
fact and agent or her substitute or substitutes may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
/s/ Kimberly P. Rooney /s/ Sylvester J. Ptak
- ------------------------------------------- -----------------------------
Kimberly P. Rooney, President, Chief Sylvester J. Ptak
Executive Officer and Director Chairman
(Principal Executive and Operating Officer)
Date: August 29, 1996 Date: August 29, 1996
II-6
<PAGE>
/s/ Rocco Di Iorio /s/ Edward S. Wolak
- --------------------------------- ---------------------------------------
Rocco Di Iorio, Director Edward S. Wolak, Director
Date: August 29, 1996 Date: August 29, 1996
/s/ Jeanine M. McInerney /s/ Jeffrey Przybyl
- --------------------------------- ----------------------------------------
Jeanine M. McInerney, Director Jeffrey Przybyl, Treasurer and Chief
Financial Officer (Principal Financial and
Accounting Officer)
Date: August 29, 1996 Date: August 29, 1996
/s/ Lorraine G. Ptak
- ----------------------------------------
Lorraine G. Ptak, Director and Secretary
Date: August 29, 1996
II-7
<PAGE>
As filed with the Securities and Exchange Commission on , 1996
Registration No. 333-
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-----------------
EXHIBITS TO THE
FORM S-1
UNDER
THE SECURITIES ACT OF 1933
-----------------
PS FINANCIAL, INC.
4800 South Pulaski Road
Chicago, Illinois 60632
===============================================================================
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page Number in
Sequentially Numbered
Registration
Statement
Exhibits: ---------------------
<S> <C> <C>
1.1 Letter Agreement regarding marketing and consulting services
1.2 Form of Agency Agreement*
2 Plan of Conversion
3.1 Certificate of Incorporation of the Holding Company
3.2 Bylaws of the Holding Company
3.3 Charter of Preferred Savings in stock form
3.4 Bylaws of Preferred Savings in stock form
4 Form of Stock Certificate of the Holding Company
5 Opinion of Silver, Freedman & Taff, L.L.P. with Respect to Legality
of Stock
8.1 Opinion of Silver, Freedman & Taff, L.L.P. with respect to Federal
income tax consequences of the Conversion
8.2 Opinion of Crowe, Chizek and Company LLP with respect to Illinois
income tax consequences of the Conversion
8.3 Opinion of Keller & Company, Inc. with respect to Subscription
Rights
10.1 Form of Proposed Stock Option and Incentive Plan
10.2 Form of Proposed Recognition and Retention Plan
10.3 Employee Stock Ownership Plan
10.4 Form of Employment Agreement with Kimberly P. Rooney
10.5 Form of Employment Agreement with Sylvester J. Ptak
10.6 Form of Change in Control Severance Agreement
22 Subsidiaries
24.1 Consent of Silver, Freedman & Taff, L.L.P.
24.2 Consent of Crowe, Chizek and Company LLP
24.3 Consent of Keller & Company, Inc.
25 Power of Attorney (set forth on signature page)
27 Financial Data Schedule
99.1 Appraisal*
99.2 Proxy Statement and form of proxy to be furnished to Preferred
Savings account holders
99.3 Stock Order Form, Order Form Instructions and Certification
99.4 Question and Answer Brochure
99.5 Advertising, Training and Community Informational Meeting
Materials
99.6 Letter Agreement regarding Appraisal Services and Business Plan
Preparation
</TABLE>
- ----------------
* To be filed by amendment
<PAGE>
EXHIBIT 1.1
Letter Agreement regarding marketing
and consulting services
<PAGE>
EXHIBIT 1.1
LOGO
------------------Charles Webb & Company------------------
Investment Bankers and Financial Advisors
July 1, 1996
Ms. Kim P. Rooney
Chief Executive Officer
Preferred Savings Bank
4800 S. Pulaski Road
Chicago, IL 60632-4195
Dear Ms Rooney:
This proposal is in connection with Preferred Savings Bank'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.
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.)
<PAGE>
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, 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.
<PAGE>
(c) 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(c), 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.
Client will reimburse Webb for reasonable out of pocket expenses,
including costs of travel, meals and lodging, photocopying, telephone,
facsimile, and couriers. Such reimbursement will be based upon documentation and
will not exceed $5,000 without prior approval of Client.
Webb shall be reimbursed for the reasonable fees and expenses of their
Counsel. The selection of such counsel will be done by Webb, with the approval
of the Bank. Such legal fees and expenses shall not exceed $35,000.00.
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 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.
<PAGE>
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.
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/ Patricia A. McJoynt
--------------------------
Patricia A. McJoynt
Executive Vice President
PREFERRED SAVINGS BANK
By: Kim P. Rooney 7-5-96
-------------------------- -------------
KIM P. ROONEY Date
Chief Executive Officer
<PAGE>
EXHIBIT A
CONVERSION SERVICES PROPOSAL
TO PREFERRED SAVINGS BANK
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.
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.
<PAGE>
Conversion Offering Enhancement Services- Continued
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 2
PREFERRED SAVINGS BANK
Chicago, Illinois
PLAN OF CONVERSION
From Mutual to Stock Form of Organization
I. GENERAL
On May 21, 1996, the Board of Directors of Preferred Savings Bank (the
"Bank") adopted a plan to change the Bank's charter from an Illinois Savings
Bank to a federally chartered savings bank. On the same date, the Board adopted
a Plan of Conversion whereby the Bank would convert from a mutual savings
institution to a stock savings institution to be known as "Preferred Savings
Bank." The Plan includes, as part of the conversion, the concurrent formation of
a holding company, to be named in the future. The Plan provides that
non-transferable subscription rights to purchase Holding Company Conversion
Stock will be offered first to Eligible Account Holders of record as of the
Eligibility Record Date, then to the Bank's Tax-Qualified Employee Plans, then
to Supplemental Eligible Account Holders of record as of the Supplemental
Eligibility Record Date, then to Other Members, and then to directors, officers
and employees. Concurrently with, at any time during, or promptly after the
Subscription Offering, and on a lowest priority basis, an opportunity to
subscribe may also be offered to certain members of the public in a Direct
Community Offering or a Public Offering, or both. The price of the Holding
Company Conversion Stock will be based upon an independent appraisal of the Bank
and will reflect its estimated pro forma market value, as converted. It is the
desire of the Board of Directors of the Bank to attract new capital to the Bank
in order to increase its capital, support future savings growth and increase the
amount of funds available for residential and other mortgage lending. The
Converted Bank is also expected to benefit from its management and other
personnel having a stock ownership in its business, since stock ownership is
viewed as an effective performance incentive and a means of attracting,
retaining and compensating management and other personnel. No change will be
made in the Board of Directors or management as a result of the Conversion.
It is contemplated that the Bank will convert its mutual charter from a
state charter to a federal charter prior to the approval of the conversion
application.
II. DEFINITIONS
Acting in Concert: The term "acting in concert" shall have the same
meaning given it in Section 574.2(c) of the Rules and Regulations of the OTS.
Actual Subscription Price: The price per share, determined as provided
in Section V of the Plan, at which Holding Company Conversion Stock will be sold
in the Subscription Offering.
Affiliate: An "affiliate" of, or a Person "affiliated" with, a
specified Person, is a Person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by or is under common control with,
the Person specified.
Associate: The term "associate," when used to indicate a relationship
with any Person, means (i) any corporation or organization (other than the
Holding Company, the Bank or a majority-owned subsidiary of the Holding Company)
of which such Person is an officer or partner or is, directly or indirectly, the
beneficial owner of ten percent or more of any class of equity securities, (ii)
any trust or other estate in which such Person has a substantial beneficial
interest or as to which such Person serves as trustee or in a similar fiduciary
capacity, 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
<PAGE>
officer of the Holding Company or the Bank or any subsidiary of the Holding
Company; provided, however, that any Tax-Qualified or Non-Tax-Qualified
Employee Plan shall not be deemed to be an associate of any director or officer
of the Holding Company or the Bank, to the extent provided in Section V hereof.
Bank: Preferred Savings Bank or such other name as the institution may
adopt.
Conversion: Change of the Bank's charter and bylaws to federal stock
charter and bylaws; sale by the Holding Company of Holding Company Conversion
Stock; and issuance and sale by the Converted Bank of Converted Bank Common
Stock to the Holding Company, all as provided for in the Plan.
Converted Bank: The federally chartered stock savings institution
resulting from the Conversion of the Bank in accordance with the Plan.
Deposit Account: Any withdrawable or repurchasable account or deposit
in the Bank.
Direct Community Offering: The offering to the general public of any
unsubscribed shares which may be effected as provided in Section V hereof.
Eligibility Record Date: The close of business on March 31, 1995.
Eligible Account Holder: Any Person holding a Qualifying Deposit in the
Bank on the Eligibility Record Date.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Holding Company: A corporation which upon completion of the Conversion
will own all of the outstanding common stock of the Converted Bank, and the name
of which will be selected in the future.
Holding Company Conversion Stock: Shares of common stock, par value
$.01 per share, to be issued and sold by the Holding Company as a part of the
Conversion; provided, however, that for purposes of calculating Subscription
Rights and maximum purchase limitations under the Plan, references to the number
of shares of Holding Company Conversion Stock shall refer to the number of
shares offered in the Subscription Offering.
Market Maker: A dealer (i.e., any Person who engages directly or
indirectly as agent, broker or principal in the business of offering, buying,
selling, or otherwise dealing or trading in securities issued by another Person)
who, with respect to a particular security, (i) regularly publishes bona fide,
competitive bid and offer quotations in a recognized inter-dealer quotation
system; or (ii) furnishes bona fide competitive bid and offer quotations on
request; and (iii) is ready, willing, and able to effect transactions in
reasonable quantities at his quoted prices with other brokers or dealers.
Maximum Subscription Price: The price per share of Holding Company
Conversion Stock to be paid initially by subscribers in the Subscription
Offering.
Member: Any Person or entity that qualifies as a member of the Bank
pursuant to its charter and bylaws.
Non-Tax-Qualified Employee Plan: Any defined benefit plan or defined
contribution plan of the Bank or the Holding Company, such as an employee stock
2
<PAGE>
ownership plan, stock bonus plan, profit-sharing plan or other plan, which with
its related trust does not meet the requirements to be "qualified" under
Section 401 of the Internal Revenue Code.
OTS: Office of Thrift Supervision, Department of the Treasury, and its
successors.
Officer: An executive officer of the Holding Company or the Bank,
including the Chairman of the Board, President, Executive Vice Presidents,
Senior Vice Presidents in charge of principal business functions, Secretary and
Treasurer.
Order Forms: Forms to be used in the Subscription Offering to exercise
Subscription Rights.
Other Members: Members of the Bank, other than Eligible Account
Holders, Tax-Qualified Employee Plans or Supplemental Eligible Account Holders,
as of the Voting Record Date.
Person: An individual, a corporation, a partnership, an association, a
joint-stock company, a trust, any unincorporated organization, or a government
or political subdivision thereof.
Plan: This Plan of Conversion of the Bank, including any amendment
approved as provided in this Plan.
Public Offering: The offering for sale to certain members of the public
of any shares of Holding Company Conversion Stock not subscribed for in the
Subscription Offering or the Direct Community Offering, if any.
Public Offering Price: The price per share at which any unsubscribed
shares of Holding Company Conversion Stock are initially offered for sale in the
Public Offering.
Qualifying Deposit: The aggregate balance of $50 or more of each
Deposit Account of an Eligible Account Holder as of the Eligibility Record Date
or of a Supplemental Eligible Account Holder as of the Supplemental Eligibility
Record Date.
SAIF: Savings Association Insurance Fund.
SEC: Securities and Exchange Commission.
Special Meeting: The Special Meeting of Members called for the purpose
of considering and voting upon the Plan of Conversion.
Subscription Offering: The offering of shares of Holding Company
Conversion Stock for subscription and purchase pursuant to Section V of the
Plan.
Subscription Rights: Non-transferable, non-negotiable, personal rights
of the Bank's Eligible Account Holders, Tax-Qualified Employee Plans,
Supplemental Eligible Account Holders, Other Members, and directors, Officers
and employees to subscribe for shares of Holding Company Conversion Stock in the
Subscription Offering.
Supplemental Eligibility Record Date: The last day of the calendar
quarter preceding approval of the Plan by the OTS.
3
<PAGE>
Supplemental Eligible Account Holder: Any person holding a Qualifying
Deposit in the Bank (other than an officer or director and their associates) on
the Supplemental Eligibility Record Date.
Tax-Qualified Employee Plans: Any defined benefit plan or defined
contribution plan of the Bank or the Holding Company, 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.
Underwriters: The investment banking firm or firms agreeing to sell
Holding Company Conversion Stock in the Public Offering.
Voting Record Date: The date set by the Board of Directors in
accordance with federal regulations for determining Members eligible to vote at
the Special Meeting.
III. STEPS PRIOR TO SUBMISSION OF PLAN OF CONVERSION TO THE MEMBERS FOR
APPROVAL
Prior to submission of the Plan of Conversion to its Members for
approval, the Bank must receive from the OTS approval of the Application for
Approval of Conversion to convert to the federal stock form of organization. The
following steps must be taken prior to such regulatory approval:
A. The Board of Directors shall adopt the Plan by not less than a two-thirds
vote.
B. The Bank shall notify its Members of the adoption of the Plan by publishing a
statement in a newspaper having a general circulation in each community in
which the Bank maintains an office.
C. Copies of the Plan adopted by the Board of Directors shall be made available
for inspection at each office of the Bank.
D. The Bank will promptly cause an Application for Approval of Conversion on
Form AC to be prepared and filed with the OTS, an Application on Form H-(e)1
(or other applicable form) to be prepared and filed with the OTS and a
Registration Statement on Form S-1 to be prepared and filed with the SEC.
E. Upon receipt of notice from the OTS to do so, the Bank shall notify its
Members that it has filed the Application for Approval of Conversion by
posting notice in each of its offices and by publishing notice in a newspaper
having general circulation in each community in which the Bank maintains an
office.
IV. CONVERSION PROCEDURE
Following approval of the application by the OTS, the Plan will be
submitted to a vote of the Members at the Special Meeting. If the Plan is
approved by Members holding a majority of the total number of votes entitled to
be cast at the Special Meeting, the Bank will take all other necessary steps
pursuant to applicable laws and regulations to convert to a federal stock
savings institution as part of a concurrent holding company formation pursuant
to the terms of the Plan.
The Holding Company Conversion Stock will be offered for sale in the
Subscription Offering at the Maximum Subscription Price to Eligible Account
Holders, Tax-Qualified Employee Plans, Supplemental Eligible Account Holders,
4
<PAGE>
Other Members and directors, Officers and employees of the Bank, prior to or
within 45 days after the date of the Special Meeting. The Bank may, either
concurrently with, at any time during, or promptly after the Subscription
Offering, also offer the Holding Company Conversion Stock to and accept
subscriptions from other Persons in a Direct Community Offering; provided that
the Bank's Eligible Account Holders, Tax-Qualified Employee Plans, Supplemental
Eligible Account Holders, Other Members and directors, Officers and employees
shall have the priority rights to subscribe for Holding Company Conversion Stock
set forth in Section V of this Plan. However, the Holding Company and the Bank
may delay commencing the Subscription Offering beyond such 45-day period in the
event there exist unforeseen material adverse market or financial conditions. If
the Subscription Offering commences prior to the Special Meeting, subscriptions
will be accepted subject to the approval of the Plan at the Special Meeting.
The period for the Subscription Offering and Direct Community Offering
will be not less than 20 days nor more than 45 days unless extended by the Bank.
Upon completion of the Subscription Offering and the Direct Community Offering,
if any, any unsubscribed shares of Holding Company Conversion Stock will, if
feasible, be sold to the Underwriters for resale to the general public in the
Public Offering. If for any reason the Public Offering of all shares not sold in
the Subscription Offering and Direct Community Offering cannot be effected, the
Holding Company and the Bank will use their best efforts to obtain other
purchasers, subject to OTS approval. Completion of the sale of all shares of
Holding Company Conversion Stock not sold in the Subscription Offering and
Direct Community Offering is required within 45 days after termination of the
Subscription Offering, subject to extension of such 45-day period by the Holding
Company and the Bank with the approval of the OTS. The Holding Company and the
Bank may jointly seek one or more extensions of such 45-day period if necessary
to complete the sale of all shares of Holding Company Conversion Stock. In
connection with such extensions, subscribers and other purchasers will be
permitted to increase, decrease or rescind their subscriptions or purchase
orders to the extent required by the OTS in approving the extensions. Completion
of the sale of all shares of Holding Company Conversion Stock is required within
24 months after the date of the Special Meeting.
V. STOCK OFFERING
A. Total Number of Shares and Purchase Price of Conversion Stock
The total number of shares of Holding Company Conversion Stock to be
issued and sold in the Conversion will be determined jointly by the Boards
of Directors of the Holding Company and the Bank prior to the commencement
of the Subscription Offering, subject to adjustment if necessitated by
market or financial conditions prior to consummation of the Conversion. The
total number of shares of Holding Company Conversion Stock shall also be
subject to increase in connection with any oversubscriptions in the
Subscription Offering or Direct Community Offering.
The aggregate price for which all shares of Holding Company Conversion
Stock will be sold will be based on an independent appraisal of the
estimated total pro forma market value of the Holding Company and the
Converted Bank. Such appraisal shall be performed in accordance with OTS
guidelines and will be updated as appropriate under or required by
applicable regulations.
The appraisal will be made by an independent investment banking or
financial consulting firm experienced in the area of thrift institution
appraisals. The appraisal will include, among other things, an analysis of
the historical and pro forma operating results and net worth of the
5
<PAGE>
Converted Bank and a comparison of the Holding Company, the Converted Bank
and the Conversion Stock with comparable thrift institutions and holding
companies and their respective outstanding capital stocks.
Based upon the independent appraisal, the Boards of Directors of the
Holding Company and the Bank will jointly fix the Maximum Subscription
Price.
If, following completion of the Subscription Offering and Direct
Community Offering, a Public Offering is effected, the Actual Subscription
Price for each share of Holding Company Conversion Stock will be the same
as the Public Offering Price at which unsubscribed shares of Holding
Company Conversion Stock are initially offered for sale by the Underwriters
in the Public Offering. The Public Offering Price will be a price
negotiated by the Holding Company and the Bank with the Underwriters, not
in excess of the Maximum Subscription Price. The price paid by the
Underwriters for each unsubscribed share will be the Public Offering Price
less a negotiated underwriting discount.
If, upon completion of the Subscription Offering and Direct Community
Offering, all of the Holding Company Conversion Stock is subscribed for or
only a limited number of shares remain unsubscribed for, or if a Public
Offering otherwise cannot be effected, the Actual Subscription Price for
each share of Holding Company Conversion Stock will be determined by
dividing the estimated appraised aggregate pro forma market value of the
Holding Company and the Converted Bank, based on the independent appraisal
as updated upon completion of the Subscription Offering or other sale of
all of the Holding Company Conversion Stock, by the total number of shares
of Holding Company Conversion Stock to be issued and sold by the Holding
Company upon Conversion. Such appraisal will then be expressed in terms of
a specific aggregate dollar amount rather than as a range.
B. Subscription Rights
Non-transferable Subscription Rights to purchase shares will be issued
without payment therefor to Eligible Account Holders, Tax-Qualified
Employee Plans, Supplemental Eligible Account Holders, Other Members and
directors, Officers and employees of the Bank as set forth below.
1. Preference Category No. 1: Eligible Account Holders
Each Eligible Account Holder shall receive non-transferable
Subscription Rights to subscribe for shares of Holding Company
Conversion Stock in an amount equal to the greater of $150,000, or
one-tenth of one percent (.10%) of the total offering of shares, or 15
times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of common stock to be issued by a
fraction of which the numerator is the amount of the qualifying deposit
of the Eligible Account Holder and the denominator is the total amount
of qualifying deposits of all Eligible Account Holders in the converting
Bank in each case on the Eligibility Record Date.
If sufficient shares are not available to cover all of the orders in
this priority category, shares shall be allocated first to permit each
subscribing Eligible Account Holder to purchase to the extent possible
100 shares, and thereafter among each subscribing Eligible Account
Holder pro rata in the same proportion that his Qualifying Deposit bears
to the total Qualifying Deposits of all subscribing Eligible Account
Holders whose subscriptions remain unsatisfied.
6
<PAGE>
Non-transferable Subscription Rights to purchase Holding Company
Conversion Stock received by directors and Officers of the Bank and
their Associates, based on their increased deposits in the Bank in the
one-year period preceding the Eligibility Record Date, shall be
subordinated to all other subscriptions involving the exercise of
non-transferable Subscription Rights of Eligible Account Holders.
2. Preference Category No. 2: Tax-Qualified Employee Plans
Each Tax-Qualified Employee Plan shall be entitled to receive
non-transferable Subscription Rights to purchase up to 10% of the shares
of Holding Company Conversion Stock, provided that singly or in the
aggregate such plans (other than that portion of such plans which is
self-directed) shall not purchase more than 10% of the shares of the
Holding Company Conversion Stock. Subscription Rights received pursuant
to this Category shall be subordinated to all rights received by
Eligible Account Holders to purchase shares pursuant to Category No. 1;
provided, however, that notwithstanding any other provision of this Plan
to the contrary, the Tax-Qualified Employee Plans shall have a first
priority Subscription Right to the extent that the total number of
shares of Holding Company Conversion Stock sold in the Conversion
exceeds the maximum of the appraisal range as set forth in the
subscription prospectus.
3. Preference Category No. 3: Supplemental Eligible Account Holders
Each Supplemental Eligible Account Holder shall receive
non-transferable Subscription Rights to subscribe for shares of Holding
Company Conversion Stock in an amount equal to the greater of $150,000,
or one-tenth of one percent (.10%) of the total offering of shares, or
15 times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of common stock to be issued by a
fraction of which the numerator is the amount of 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 the converting Bank in each case on the Supplemental
Eligibility Record Date.
Subscription Rights received pursuant to this category shall be
subordinated to all Subscription Rights received by Eligible Account
Holders and Tax-Qualified Employee Plans pursuant to Category Nos. 1 and
2 above.
Any non-transferable Subscription Rights to purchase shares received
by an Eligible Account Holder in accordance with Category No. 1 shall
reduce to the extent thereof the Subscription Rights to be distributed
to such person pursuant to this Category.
In the event of an oversubscription for shares under the provisions
of this subparagraph, the shares available shall be allocated first to
permit each subscribing Supplemental Eligible Account Holder to
purchase, to the extent possible, a number of shares sufficient to make
his total allocation (including the number of shares, if any, allocated
in accordance with Category No. 1) equal to 100 shares, and thereafter
among each subscribing Supplemental Eligible Account Holder pro rata in
the same proportion that his Qualifying Deposit bears to the total
Qualifying Deposits of all subscribing Supplemental Eligible Account
Holders whose subscriptions remain unsatisfied.
7
<PAGE>
4. Preference Category No. 4: Other Members
Each Other Member shall receive non-transferable Subscription Rights
to subscribe for shares of Holding Company Conversion Stock remaining
after satisfying the subscriptions provided for under Category Nos. 1
through 3 above, subject to the following conditions:
a. each Other Member shall be entitled to subscribe for an amount of
shares equal to the greater of $150,000, or one-tenth of one percent
(.10%) of the total offering of shares of common stock in the
Conversion, to the extent that Holding Company Conversion Stock is
available.
b. In the event of an oversubscription for shares under the provisions
of this subparagraph, the shares available shall be allocated among
each subscribing Other Member pro rata in the same proportion that
his number of votes on the Voting Record Date bears to the total
number of votes on the Voting Record Date of all subscribing Other
Members on such date. Such number of votes shall be determined based
on the Bank's mutual charter and bylaws in effect on the date of
approval by members of this Plan of Conversion.
5. Preference Category No. 5: Directors, Officers and Employees
Each director, Officer and employee of the Bank as of the date of
the commencement of the Subscription Offering shall be entitled to
receive non-transferable Subscription Rights to purchase shares of the
Holding Company Conversion Stock to the extent that shares are available
after satisfying subscriptions under Category Nos. 1 through 4 above.
The shares which may be purchased under this Category are subject to the
following conditions:
a. The total number of shares which may be purchased under this
Category may not exceed 25% of the number of shares of Holding
Company Conversion Stock.
b. The maximum amount of shares which may be purchased under this
Category by any Person is $150,000 of Holding Company Conversion
Stock. In the event of an oversubscription for shares under the
provisions of this subparagraph, the shares available shall be
allocated pro rata among all subscribers in this Category.
C. Public Offering and Direct Community Offering
1. Any shares of Holding Company Conversion Stock not subscribed for in the
Subscription Offering may be offered for sale in a Direct Community
Offering. This may involve an offering of all unsubscribed shares
directly to the general public. The Direct Community Offering, if any,
shall be for a period of not less than 20 days nor more than 45 days
unless extended by the Holding Company and the Bank, and shall commence
concurrently with, during or promptly after the Subscription Offering.
The purchase price per share to the general public in a Direct Community
Offering shall be the same as the Actual Subscription Price. The Holding
Company and the Bank may use an investment banking firm or firms on a
best efforts basis to sell the unsubscribed shares in the Subscription
and Direct Community Offering. The Holding Company and the Bank may pay
a commission or other fee to such investment banking firm or firms
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as to the shares sold by such firm or firms in the Subscription and
Direct Community Offering and may also reimburse such firm or firms for
expenses incurred in connection with the sale. The Holding Company
Conversion Stock will be offered and sold in the Direct Community
Offering, in accordance with OTS regulations, so as to achieve the
widest distribution of the Holding Company Conversion Stock. No person,
by himself or herself, or with an Associate or group of Persons acting
in concert, may subscribe for or purchase more than $150,000 of Holding
Company Conversion Stock in the Direct Community Offering. Further, the
Bank may limit total subscriptions under this Section V.C.1 so as to
assure that the number of shares available for the Public Offering may
be up to a specified percentage of the number of shares of Holding
Company Conversion Stock. Finally, the Bank may reserve shares offered
in the Direct Community Offering for sales to institutional investors.
In the event of an oversubscription for shares in the Direct Community
Offering, shares may be allocated (to the extent shares remain
available) first to cover any reservation of shares for a public
offering or institutional orders, next to cover orders of natural
persons residing in Cook County, Illinois then to cover the orders of
any other person subscribing for shares in the Direct Community Offering
so that each such person may receive 1,000 shares, and thereafter, on a
pro rata basis to such persons based on the amount of their respective
subscriptions.
The Bank and the Holding Company, in their sole discretion, may reject
subscriptions, in whole or in part, received from any Person under this
Section V.C. Further, the Bank and the Holding Company may, at their
sole discretion, elect to forego a Direct Community Offering and instead
effect a Public Offering as described below.
2. Any shares of Holding Company Conversion Stock not sold in the
Subscription Offering or in the Direct Community Offering, if any, may
then be sold to selected members of the public at the Public Offering
Price in the Public Offering. The Holding Company Common Stock, will be
offered and sold in the Public Offering, if any, in accordance with OTS
regulations so as to achieve the widest distribution of the Holding
Company Common Stock. It is expected that the Public Offering will
commence as soon as practicable after termination of the Subscription
Offering and the Direct Community Offering, if any. The Public Offering
shall be completed within 45 days after the termination of the
Subscription Offering, unless such period is extended as provided in
Section IV hereof. No person by himself or herself, or with an Associate
or group of persons acting in concert, may subscribe for or purchase
more than $150,000 of Holding Company Conversion Stock in the Public
Offering, if any. The Public Offering Price and the underwriting
discount shall be determined as provided in Section V.A hereof and set
forth in the underwriting agreement between the Holding Company, the
Bank and the Underwriters. Such underwriting agreement shall be filed
with the OTS and the SEC.
3. If for any reason a Public Offering of unsubscribed shares of Holding
Company Conversion Stock cannot be effected and any shares remain unsold
after the Subscription Offering and the Direct Community Offering, if
any, the Boards of Directors of the Holding Company and the Bank will
seek to make other arrangements for the sale of the remaining shares.
Such other arrangements will be subject to the approval of the OTS and
to compliance with applicable securities laws.
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<PAGE>
D. Additional Limitations Upon Purchases of Shares of Holding Company Conversion
Stock
The following additional limitations shall be imposed on all purchases
of Holding Company Conversion Stock in the Conversion:
1. No Person, by himself or herself, or with an Associate or group of
Persons acting in concert, may subscribe for or purchase in the
Conversion more than $900,000 of Holding Company Conversion Stock. For
purposes of this paragraph, an Associate of a Person does not include a
Tax-Qualified or Non-Tax Qualified Employee Plan in which the person has
a substantial beneficial interest or serves as a trustee or in a similar
fiduciary capacity. Moreover, for purposes of this paragraph, shares
held by one or more Tax-Qualified or Non-Tax Qualified Employee Plans
attributed to a Person shall not be aggregated with shares purchased
directly by or otherwise attributable to that Person.
2. Directors and Officers and their Associates may not purchase in all
categories in the Conversion an aggregate of more than 35% of the
Holding Company Conversion Stock. For purposes of this paragraph, an
Associate of a Person does not include any Tax-Qualified Employee Plan.
Moreover, any shares attributable to the Officers and directors and
their Associates, but held by one or more Tax-Qualified Employee Plans
shall not be included in calculating the number of shares which may be
purchased under the limitation in this paragraph.
3. The minimum number of shares of Holding Company Conversion Stock that
may be purchased by any Person in the Conversion is 25 shares, provided
sufficient shares are available (provided that the aggregate price for
any minimum share purchase shall not exceed $500).
4. The Boards of Directors of the Holding Company and the Bank may, in
their sole discretion, increase the maximum purchase limitation referred
to in subparagraph 1. herein up to 9.99%, provided that orders for
shares exceeding 5% of the shares being offered in the Conversion shall
not exceed, in the aggregate, 10% of the shares being offered in the
Conversion. Requests to purchase additional shares of Holding Company
Conversion Stock under this provision will be allocated by the Boards of
Directors on a pro rata basis giving priority in accordance with the
priority rights set forth in this Section V.
Depending upon market and financial conditions, the Boards of Directors of
the Holding Company and the Bank, with the approval of the OTS and without
further approval of the Members, may increase or decrease any of the above
purchase limitations.
For purposes of this Section V, the directors of the Holding Company and
the Bank shall not be deemed to be Associates or a group acting in concert
solely as a result of their serving in such capacities.
Each Person purchasing Conversion Stock in the Conversion shall be deemed
to confirm that such purchase does not conflict with the above purchase
limitations.
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E. Restrictions and Other Characteristics of Holding Company Conversion Stock
Being Sold
1. Transferability. Holding Company Conversion Stock purchased by Persons
other than directors and Officers of the Holding Company or the Bank
will be transferable without restriction. Shares purchased by directors
or Officers shall not be sold or otherwise disposed of for value for a
period of one year from the date of Conversion, except for any
disposition of such shares (i) following the death of the original
purchaser, or (ii) resulting from an exchange of securities in a merger
or acquisition approved by the applicable regulatory authorities. Any
transfers that could result in a change of control of the Bank or the
Holding Company or result in the ownership by any Person or group acting
in concert of more than 10% of any class of the Bank's or the Holding
Company's equity securities are subject to the prior approval of the
OTS.
The certificates representing shares of Holding Company Conversion Stock
issued to directors and Officers shall bear a legend giving appropriate
notice of the one-year holding period restriction. Appropriate
instructions shall be given to the transfer agent for such stock with
respect to the applicable restrictions relating to the transfer of
restricted stock. Any shares of common stock of the Holding Company
subsequently issued as a stock dividend, stock split, or otherwise, with
respect to any such restricted stock, shall be subject to the same
holding period restrictions for Holding Company or Bank directors and
Officers as may be then applicable to such restricted stock.
No director or Officer of the Holding Company or of the Bank, or
Associate of such a director or Officer, shall purchase any outstanding
shares of capital stock of the Holding Company for a period of three
years following the Conversion without the prior written approval of the
OTS, except through a broker or dealer registered with the SEC or in a
"negotiated transaction" involving more than one percent of the then-
outstanding shares of common stock of the Holding Company. 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. This limitation shall not apply to
purchases of Holding Company Common Stock made and held by any
tax-qualified or non-tax qualified employee stock benefit plan which may
be attributed to an Officer or director of the Bank or the Holding
Company.
2. Repurchase and Dividend Rights. For a period of three years following
Conversion, the Converted Bank shall not repurchase any shares of its
capital stock, except in the case of an offer to repurchase on a pro
rata basis made to all holders of capital stock of the Converted Bank.
Any such offer shall be subject to the prior approval of the OTS. A
repurchase of qualifying shares of a director shall not be deemed to be
a repurchase for purposes of this Section V.E.2.
Present regulations also provide that the Converted Bank may not declare
or pay a cash dividend on or repurchase any of its stock (i) if the
result thereof would be to reduce the regulatory capital of the
Converted Bank below the amount required for the liquidation account to
be established pursuant to Section XIII hereof, and (ii) except in
compliance with requirements of Section 563.134 of the Rules and
Regulations of the OTS.
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The above limitations are subject to Section 563b.3 (g)(3) of the Rules
and Regulations of the OTS, which generally provides that the Converted
Bank may repurchase its capital stock provided (i) no repurchases occur
within one year following conversion, (ii) repurchases during the second
and third year after conversion are part of an open market stock
repurchase program that does not allow for a repurchase of more than 5%
of the Bank's outstanding capital stock during a twelve-month period
without OTS approval, (iii) the repurchases do not cause the Bank to
become undercapitalized, and (iv) the Bank provides notice to the OTS at
least 10 days prior to the commencement of a repurchase program and the
OTS does not object. In addition, the above limitations shall not
preclude payments of dividends or repurchases of capital stock by the
Converted Bank in the event applicable federal regulatory limitations
are liberalized or waived by the OTS subsequent to OTS approval of the
Plan.
3. Voting Rights. After Conversion, holders of deposit accounts will not
have voting rights in the Bank or the Holding Company. Exclusive voting
rights as to the Bank will be vested in the Holding Company, as the sole
stockholder of the Bank. Voting rights as to the Holding Company will be
held exclusively by its stockholders.
F. Exercise of Subscription Rights; Order Forms
1. If the Subscription Offering occurs concurrently with the solicitation
of proxies for the Special Meeting, the subscription prospectus and
Order Form may be sent to each Eligible Account Holder, Tax-Qualified
Employee Plan, Supplemental Eligible Account Holder, Other Member, and
director, Officer and employee at their last known address as shown on
the records of the Bank. However, the Bank may, and if the Subscription
Offering commences after the Special Meeting the Bank shall, furnish a
subscription prospectus and Order Form only to Eligible Account Holders,
Tax-Qualified Employee Plans, Supplemental Eligible Account Holders,
Other Members, and directors, Officers and employees who have returned
to the Bank by a specified date prior to the commencement of the
Subscription Offering a post card or other written communication
requesting a subscription prospectus and Order Form. In such event, the
Bank shall provide a postage-paid post card for this purpose and make
appropriate disclosure in its proxy statement for the solicitation of
proxies to be voted at the Special Meeting and/or letter sent in lieu of
the proxy statement to those Eligible Account Holders, Tax- Qualified
Employee Plans or Supplemental Eligible Account Holders who are not
Members on the Voting Record Date.
2. Each Order Form will be preceded or accompanied by a subscription
prospectus describing the Holding Company and the Converted Bank and the
shares of Holding Company Conversion Stock being offered for
subscription and containing all other information required by the OTS or
the SEC or necessary to enable Persons to make informed investment
decisions regarding the purchase of Holding Company Conversion Stock.
3. The Order Forms (or accompanying instructions) used for the Subscription
Offering will contain, among other things, the following:
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<PAGE>
(i) A clear and intelligible explanation of the Subscription Rights
granted under the Plan to Eligible Account Holders, Tax-Qualified
Employee Plans, Supplemental Eligible Account Holders, Other
Members, and directors, Officers and employees;
(ii) A specified expiration date by which Order Forms must be returned to
and actually received by the Bank or its representative for purposes
of exercising Subscription Rights, which date will be not less than
20 days after the Order Forms are mailed by the Bank;
(iii) The Maximum Subscription Price to be paid for each share subscribed
for when the Order Form is returned;
(iv) A statement that 25 shares is the minimum number of shares of
Holding Company Conversion Stock that may be subscribed for under
the Plan;
(v) A specifically designated blank space for indicating the number of
shares being subscribed for;
(vi) A set of detailed instructions as to how to complete the Order Form
including a statement as to the available alternative methods of
payment for the shares being subscribed for;
(vii) Specifically designated blank spaces for dating and signing the
Order Form;
(viii) An acknowledgement that the subscriber has received the subscription
prospectus;
(ix) A statement of the consequences of failing to properly complete and
return the Order Form, including a statement that the Subscription
Rights will expire on the expiration date specified on the Order
Form unless such expiration date is extended by the Holding Company
and the Bank, and that the Subscription Rights may be exercised only
by delivering the Order Form, properly completed and executed, to
the Bank or its representative by the expiration date, together with
required payment of the Maximum Subscription Price for all shares of
Holding Company Conversion Stock subscribed for;
(x) A statement that the Subscription Rights are non-transferable and
that all shares of Holding Company Conversion Stock subscribed for
upon exercise of Subscription Rights must be purchased on behalf of
the Person exercising the Subscription Rights for his own account;
and
(xi) A statement that, after receipt by the Bank or its representative, a
subscription may not be modified, withdrawn or canceled without the
consent of the Bank.
G. Method of Payment
Payment for all shares of Holding Company Conversion Stock subscribed
for, computed on the basis of the Maximum Subscription Price, must
accompany all completed Order Forms. Payment may be made in cash (if
presented in Person), by check, or, if the subscriber has a Deposit Account
in the Bank (including a certificate of deposit), the subscriber may
authorize the Bank to charge the subscriber's account.
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If a subscriber authorizes the Bank to charge his or her account, the
funds will continue to earn interest, but may not be used by the subscriber
until all Holding Company Conversion Stock has been sold or the Plan of
Conversion is terminated, whichever is earlier. The Bank will allow
subscribers to purchase shares by withdrawing funds from certificate
accounts without the assessment of early withdrawal penalties with the
exception of prepaid interest in the form of promotional gifts. In the case
of early withdrawal of only a portion of such account, the certificate
evidencing such account shall be canceled if the remaining balance of the
account is less than the applicable minimum balance requirement, in which
event the remaining balance will earn interest at the passbook rate. This
waiver of the early withdrawal penalty is applicable only to withdrawals
made in connection with the purchase of Holding Company Conversion Stock
under the Plan of Conversion. Interest will also be paid, at not less than
the then- current passbook rate, on all orders paid in cash, by check or
money order, from the date payment is received until consummation of the
Conversion. Payments made in cash, by check or money order will be placed
by the Bank in an escrow or other account established specifically for this
purpose.
In the event of an unfilled amount of any subscription order, the
Converted Bank will make an appropriate refund or cancel an appropriate
portion of the related withdrawal authorization, after consummation of the
Conversion, including any difference between the Maximum Subscription Price
and the Actual Subscription Price (unless subscribers are afforded the
right to apply such difference to the purchase of additional whole shares).
If for any reason the Conversion is not consummated, purchasers will have
refunded to them all payments made and all withdrawal authorizations will
be canceled in the case of subscription payments authorized from accounts
at the Bank.
If any Tax-Qualified Employee Plans or Non-Tax-Qualified Employee Plans
subscribe for shares during the Subscription Offering, such plans will not
be required to pay for the shares subscribed for at the time they
subscribe, but may pay for such shares of Holding Company Conversion Stock
subscribed for upon consummation of the Conversion. In the event that,
after the completion of the Subscription Offering, the amount of shares to
be issued is increased above the maximum of the appraisal range included in
the Prospectus, the Tax Qualified and Non-Tax Qualified Employee Plans
shall be entitled to increase their subscriptions by a percentage equal to
the percentage increase in the amount of shares to be issued above the
maximum of the appraisal range provided that such subscriptions shall
continue to be subject to applicable purchase limits and stock allocation
procedures.
H. Undelivered, Defective or Late Order Forms; Insufficient Payment
The Boards of Directors of the Holding Company and the Bank shall have
the absolute right, in their sole discretion, to reject any Order Form,
including but not limited to, any Order Forms which (i) are not delivered
or are returned by the United States Postal Service (or the addressee
cannot be located); (ii) are not received back by the Bank or its
representative, or are received after the termination date specified
thereon; (iii) are defectively completed or executed; (iv) are not
accompanied by the total required payment for the shares of Holding Company
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Conversion Stock subscribed for (including cases in which the subscribers'
Deposit Accounts or certificate accounts are insufficient to cover the
authorized withdrawal for the required payment); or (v) are submitted by or
on behalf of a Person whose representations the Boards of Directors of the
Holding Company and the Bank believe to be false or who they otherwise
believe, either alone or acting in concert with others, is violating,
evading or circumventing, or intends to violate, evade or circumvent, the
terms and conditions of this Plan. In such event, the Subscription Rights
of the Person to whom such rights have been granted will not be honored and
will be treated as though such Person failed to return the completed Order
Form within the time period specified therein. The Bank may, but will not
be required to, waive any irregularity relating to any Order Form or
require submission of corrected Order Forms or the remittance of full
payment for subscribed shares by such date as the Bank may specify. The
interpretation of the Holding Company and the Bank of the terms and
conditions of this Plan and of the proper completion of the Order Form will
be final, subject to the authority of the OTS.
I. Member in Non-Qualified States or in Foreign Countries
The Holding Company and the Bank will make reasonable efforts to comply
with the securities laws of all states in the United States in which
Persons entitled to subscribe for Holding Company Conversion Stock pursuant
to the Plan reside. However, no shares will be offered or sold under the
Plan of Conversion to any such Person who (1) resides in a foreign country
or (2) resides in a state of the United States in which a small number of
Persons otherwise eligible to subscribe for shares under the Plan of
Conversion reside or as to which the Holding Company and the Bank determine
that compliance with the securities laws of such state would be
impracticable for reasons of cost or otherwise, including, but not limited
to, a requirement that the Holding Company or the Bank or any of their
officers, directors or employees register, under the securities laws of
such state, as a broker, dealer, salesman or agent. No payments will be
made in lieu of the granting of Subscription Rights to any such Person.
VI. FEDERAL STOCK CHARTER AND BYLAWS
A. As part of the Conversion, the Bank will take all appropriate steps to
amend its charter to read in the form of federal stock savings bank
charter as prescribed by the OTS. The name of the Bank, as converted,
will be "Preferred Savings Bank." A copy of the proposed stock charter
is available upon request. By their approval of the Plan, the Members of
the Bank will thereby approve and adopt such charter.
B. The Bank will also take appropriate steps to amend its bylaws to read in
the form prescribed by the OTS for a federal stock savings bank. A copy
of the proposed federal stock bylaws is available upon request.
C. The effective date of the adoption of the Bank's federal stock charter
and bylaws shall be the date of the issuance and sale of the Holding
Company Conversion Stock as specified by the OTS.
VII. HOLDING COMPANY CERTIFICATE OF INCORPORATION
A copy of the proposed certificate of incorporation of the Holding Company
will be made available from the Bank upon request.
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VIII. DIRECTORS OF THE CONVERTED BANK
Each Person serving as a member of the Board of Directors of the Bank at
the time of the Conversion will thereupon become a director of the Converted
Bank.
IX. STOCK OPTION AND INCENTIVE PLAN AND MANAGEMENT RETENTION PLAN
In order to provide an incentive for directors, Officers and employees of
the Holding Company and its subsidiaries (including the Bank), the Board of
Directors of the Holding Company intends to adopt, subject to shareholder
approval, a stock option and incentive plan and a management retention plan as
soon as permitted by applicable regulation.
X. CONTRIBUTIONS TO TAX-QUALIFIED EMPLOYEE PLANS
The Converted Bank and the Holding Company may in their discretion make
scheduled contributions to any Tax-Qualified Employee Plans, provided that any
such contributions which are for the acquisition of Holding Company Conversion
Stock, or the repayment of debt incurred for such an acquisition, do not cause
the Converted Bank to fail to meet its regulatory capital requirements.
XI. SECURITIES REGISTRATION AND MARKET MAKING
Promptly following the Conversion, the Holding Company will register its
stock with the SEC pursuant to the Exchange Act. In connection with the
registration, the Holding Company will undertake not to deregister such stock,
without the approval of the OTS, for a period of three years thereafter.
The Holding Company shall use its best efforts to encourage and assist two
or more market makers to establish and maintain a market for its common stock
promptly following Conversion. The Holding Company will also use its best
efforts to cause its common stock to be quoted on the National Association of
Securities Dealers, Inc. Automated Quotations System or to be listed on a
national or regional securities exchange.
XII. STATUS OF SAVINGS ACCOUNTS AND LOANS SUBSEQUENT TO CONVERSION
Each Deposit Account holder shall retain, without payment, a withdrawable
Deposit Account or Accounts in the Converted Bank, equal in amount to the
withdrawable value of such account holder's Deposit Account or Accounts prior to
Conversion. All Deposit Accounts will continue to be insured by the SAIF up to
the applicable limits of insurance coverage, and shall be subject to the same
terms and conditions (except as to voting and liquidation rights) as such
Deposit Account in the Bank at the time of the Conversion. All loans shall
retain the same status after Conversion as these loans had prior to Conversion.
XIII. LIQUIDATION ACCOUNT
For purposes of granting to Eligible Account Holders and Supplemental
Eligible Account Holders who continue to maintain Deposit Accounts at the
Converted Bank a priority in the event of a complete liquidation of the
Converted Bank, the Converted Bank will, at the time of Conversion, establish a
liquidation account in an amount equal to the net worth of the Bank as shown on
its latest statement of financial condition contained in the final offering
circular used in connection with the Conversion. The creation and maintenance of
the liquidation account will not operate to restrict the use or application of
any of the regulatory capital accounts of the Converted Bank; provided, however,
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that such regulatory capital accounts will not be voluntarily reduced below
the required dollar amount of the liquidation account. Each Eligible Account
Holder and Supplemental Eligible Account Holder shall, with respect to the
Deposit Account held, have a related inchoate interest in a portion of the
liquidation account balance ("subaccount balance").
The initial subaccount balance of a Deposit Account held by an Eligible
Account Holder and/or Supplemental Eligible Account Holder shall be determined
by multiplying the opening balance in the liquidation account by a fraction of
which the numerator is the amount of the Qualifying Deposit in the Deposit
Account on the Eligibility Record Date and/or the Supplemental Eligibility
Record Date and the denominator is the total amount of the Qualifying Deposits
of all Eligible Account Holders and Supplemental Eligible Account Holders on
such record dates in the Bank. For Deposit 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 dates. Such initial subaccount balance
shall not be increased, and it shall be subject to downward adjustment as
provided below.
If the deposit balance in any Deposit Account of an Eligible Account Holder
or Supplemental Eligible Account Holder at the close of business on any annual
closing date subsequent to the record date is less than the lesser of (i) the
deposit balance in such Deposit Account at the close of business on any other
annual closing date subsequent to the Eligibility Record Date or the
Supplemental Eligibility Record Date or (ii) the amount of the Qualifying
Deposit in such Deposit Account on the Eligibility Record Date or Supplemental
Eligibility Record Date, the subaccount balance shall be reduced in an amount
proportionate to the reduction in such deposit balance. In the event of a
downward adjustment, the subaccount balance shall not be subsequently increased,
notwithstanding any increase in the deposit balance of the related Deposit
Account. If all funds in such Deposit Account are withdrawn, the related
subaccount balance shall be reduced to zero.
In the event of a complete liquidation of the Bank (and only in such
event), each Eligible Account Holder and Supplemental Eligible Account Holder
shall be entitled to receive a liquidation distribution from the liquidation
account in the amount of the then-current adjusted subaccount balances for
Deposit Accounts then held before any liquidation distribution may be made to
stockholders. No merger, consolidation, bulk purchase of assets with assumptions
of Deposit Accounts and other liabilities, or similar transactions with another
institution the accounts of which are insured by the SAIF, shall be considered
to be a complete liquidation. In such transactions, the liquidation account
shall be assumed by the surviving institution.
XIV. RESTRICTIONS ON ACQUISITION OF CONVERTED BANK
Regulations of the OTS limit acquisitions, and offers to acquire, direct or
indirect beneficial ownership of more than 10% of any class of an equity
security of the Converted Bank or the Holding Company. In addition, consistent
with the regulations of the OTS, the charter of the Converted Bank shall provide
that for a period of five years following completion of the Conversion: (i) no
Person (i.e., no individual, group acting in concert, corporation, partnership,
association, joint stock company, trust, or unincorporated organization or
similar company, syndicate, or any other group formed for the purpose of
acquiring, holding or disposing of securities of an insured institution) shall
directly or indirectly offer to acquire or acquire beneficial ownership of more
than 10% of any class of the Bank's equity securities. Shares beneficially owned
in violation of this charter provision shall not be counted as shares entitled
to vote and shall not be voted by any Person or counted as voting shares in
connection with any matter submitted to the shareholders for a vote. This
limitation shall not apply to any offer to acquire or acquisition of beneficial
ownership of more than 10% of the common stock of the Bank by a corporation
whose ownership is or will be substantially the same as the ownership of the
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Bank, provided that the offer or acquisition is made more than one year
following the date of completion of the Conversion; (ii) shareholders shall not
be permitted to cumulate their votes for elections of directors; and
(iii) special meetings of the shareholders relating to changes in control or
amendment of the charter may only be called by the Board of Directors.
XV. AMENDMENT OR TERMINATION OF PLAN
If necessary or desirable, the Plan may be amended at any time prior to
submission of the Plan and proxy materials to the Members by a two-thirds vote
of the respective Boards of Directors of the Holding Company and the Bank. After
submission of the Plan and proxy materials to the Members, the Plan may be
amended by a two-thirds vote of the respective Boards of Directors of the
Holding Company and the Bank only with the concurrence of the OTS. In the event
that the Bank determines that for tax purposes or otherwise it is in the best
interest of the Bank to convert from a federal mutual to a federal stock
institution without the concurrent formation of a holding company, the Plan may
be substantively amended, with OTS approval, in such respects as the Board of
Directors of the Bank deems appropriate to reflect such change from a holding
company conversion to a direct conversion. In the event the Plan is so amended,
common stock of the Bank will be substituted for Holding Company Conversion
Stock in the Subscription and Direct Community Offerings, and subscribers will
be resolicited as described in Section V hereof. Any amendments to the Plan
(including amendments to reflect the elimination of the concurrent holding
company formation) made after approval by the Members with the concurrence of
the OTS shall not necessitate further approval by the Members unless otherwise
required.
The Plan may be terminated by a two-thirds vote of the Bank's Board of
Directors at any time prior to the Special Meeting of Members, and at any time
following such Special Meeting with the concurrence of the OTS. In its
discretion, the Board of Directors of the Bank may modify or terminate the Plan
upon the order or with the approval of the OTS and without further approval by
Members. The Plan shall terminate if the sale of all shares of Conversion Stock
is not completed within 24 months of the date of the Special Meeting. A specific
resolution approved by a majority of the Board of Directors of the Bank is
required in order for the Bank to terminate the Plan prior to the end of such
24-month period.
XVI. EXPENSES OF THE CONVERSION
The Holding Company and the Bank shall use their best efforts to assure
that expenses incurred by them in connection with the Conversion shall be
reasonable.
XVII. TAX RULING
Consummation of the Conversion is expressly conditioned upon prior receipt
of either a ruling of the United States Internal Revenue Service or an opinion
of tax counsel with respect to federal taxation, and either a ruling of the
Illinois taxation authorities or an opinion of tax counsel or other tax advisor
with respect to Illinois taxation, to the effect that consummation of the
transactions contemplated herein will not be taxable to the Holding Company or
the Bank.
XVIII. EXTENSION OF CREDIT FOR PURCHASE OF STOCK
The Bank may not knowingly loan funds or otherwise extend credit to any
Person to purchase in the Conversion shares of Holding Company Conversion Stock.
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Exhibit 3.1
Certificate of Incorporation
of the Holding Company
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
PSB HOLDING COMPANY
PSB Holding Company (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware,
DOES HEREBY CERTIFY:
FIRST: that Article First of the Corporation's Certificate of
Incorporation be and it hereby is amended to change the name of the Corporation;
and that Article First shall be amended to read as follows:
FIRST: The name of the Corporation is PS Financial, Inc. (hereinafter
sometimes referred to as the "Corporation").
SECOND: That the amendment was duly adopted in accordance with the
applicable provisions of Section 241 of the General Corporation Law of the State
of Delaware.
IN WITNESS WHEREOF, PSB Holding Company has caused this certificate to
be signed by Kimberly P. Rooney, its President and Chief Executive Officer, and
attested by Lorraine G. Ptak, its Secretary, this 16th day of August, 1996.
PSB HOLDING COMPANY
By: /s/Kimberly A. Rooney
--------------------------------------------------
Kimberly A. Rooney, President and Chief Executive
Officer
ATTEST:
By: /s/Lorraine G. Ptak
---------------------------
Lorraine G. Ptak, Secretary
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CERTIFICATE OF INCORPORATION
OF
PSB HOLDING COMPANY
FIRST: The name of the Corporation is PSB Holding Company (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 Delaware.
FOURTH:
A. The total number of shares of all classes of stock which the
Corporation shall have the authority to issue is two million six hundred
thousand (2,600,000) consisting of:
1. One hundred thousand (100,000) shares of preferred stock, par value one cent
($.01) per share (the "Preferred Stock"); and
2. Two million five hundred thousand (2,500,000) shares of common stock, par
value one cent ($.01) per share (the "Common Stock").
B. The Board of Directors is hereby expressly 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 the 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 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 owning shares in excess of the Limit shall be
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a number equal to the total number of votes which a single record owner of all
Common Stock owned by such person would be entitled to cast, multiplied by a
fraction, the numerator of which is the number of shares of such class or series
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.
C.2. The following definitions shall apply to this Section C of this
Article FOURTH:
(a) An "affiliate" of a specified person shall mean a person that directly, or
indirectly through one or more intermediaries, controls, or is controlled
by, or is under common control with, the person specified.
(b) "Beneficial ownership" shall be determined pursuant to Rule 13d-3 of the
General Rules and Regulations under the Securities Exchange Act of 1934
(or any successor rule or statutory provision), or, if said Rule 13d-3
shall be rescinded and there shall be no successor rule or statutory
provision thereto, pursuant to said Rule 13d-3 as in effect on July 29,
1996; 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 the clauses of Section A of Article
EIGHTH) or upon the exercise of conversion rights, exchange rights,
warrants, or options or otherwise, or (ii) sole or shared voting or
investment power with respect thereto pursuant to any agreement,
arrangement, understanding, relationship or otherwise (but shall not
be deemed to be the beneficial owner of any voting shares solely by
reason of a revocable proxy granted for a particular meeting of
stockholders, pursuant to a public solicitation of proxies for such
meeting, with respect to shares of which neither such person nor any
such affiliate is otherwise deemed the beneficial owner); or
(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
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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) shall, solely by reason of such capacity of such
trustee, be deemed, for any purposes hereof, to beneficially own any Common
Stock held under any such plan. For purposes of computing the percentage
beneficial ownership of Common Stock of a person, the outstanding Common
Stock shall include shares deemed owned by such person through application
of this subSection but shall not include any other Common Stock which may
be issuable by this Corporation pursuant to any agreement, or upon exercise
of conversion rights, warrants or options, or otherwise. For all other
purposes, the outstanding Common Stock shall include only Common Stock then
outstanding and shall not include any Common Stock which may be issuable by
this Corporation pursuant to any agreement, or upon the exercise of
conversion rights, warrants or options, or otherwise.
(c) A "person" shall mean any individual, firm, corporation, or other entity.
(d) 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 (1) the number of shares of Common Stock
beneficially owned by any person, (2) whether a person is an affiliate
of another, (3) whether a person has an agreement, arrangement, or
understanding with another as to the matters referred to in the definition
of beneficial ownership, (4) the application of any other definition or
operative provision of this Section to the given facts, or (5) any other
matter relating to the applicability or effect of this Section.
C.3. 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) (a "Holder in Excess") supply the Corporation with complete
information as to (1) the record owner(s) of all shares beneficially owned by
such Holder in Excess, and (2) any other factual matter relating to the
applicability or effect of this section as may reasonably be requested of such
Holder in Excess. The Board of Directors shall further have the right to receive
from any Holder in Excess reimbursement for all expenses incurred by the Board
in connection with its investigation of any matters relating to the
applicability or effect of this section on such Holder in Excess, to the extent
such investigation is deemed appropriate by the Board of Directors as a result
of the Holder in Excess refusing to supply the Corporation with the information
described in the previous sentence.
C.4. 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
one-third of the votes (after giving effect, if required, to the provisions of
this Section) 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
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other proportion of the votes (or the holders thereof) then entitled to be cast
in respect of such capital stock.
C.5. 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.
C.6. 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 By-laws 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 By-laws so provide.
C. Subject to the rights of holders of any class or series of Preferred
Stock, 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. Subject to the rights of holders of any class or series of Preferred
Stock, 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 (the "Whole Board").
E. Stockholders shall not be permitted to cumulate their votes for the
election of directors.
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SIXTH:
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, other than those who may be elected by the holders
of any class or series of Preferred Stock, 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 conclusion of the first annual meeting of
stockholders, the term of office of the second class to expire at the conclusion
of the annual meeting of stockholders one year thereafter and the term of office
of the third class to expire at the conclusion of 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 the holders of any series of Preferred Stock
then outstanding, 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 elected expires, and until
such director's successor shall have been duly elected and qualified. 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
By-laws of the Corporation.
D. Subject to the rights of the holders of any series of Preferred Stock
then outstanding, any directors, 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% 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), voting together as a
single class.
SEVENTH: The Board of Directors is expressly empowered to adopt, amend or
repeal the By-laws of the Corporation. Any adoption, amendment or repeal of the
By-laws 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 By-laws of the Corporation. 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% 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 hereof),
voting together as a single class, shall be required to adopt, amend or repeal
any provisions of the By-laws of the Corporation.
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EIGHTH:
A. In addition to any affirmative vote required by law or this Certificate
of Incorporation, and except as otherwise expressly provided in this Section:
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 hereafter 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 equaling or exceeding 25% of the combined assets of the Corporation
and its Subsidiaries except 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 any 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 directly or
indirectly owned by any Interested Stockholder or any Affiliate of any
Interested Stockholder (a "Disproportionate Transaction"); provided,
however, that no such transaction shall be deemed a Disproportionate
Transaction if the increase in the proportionate ownership of the
Interested Stockholder or Affiliate as a result of such transaction is no
greater than the increase experienced by the other stockholders generally;
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"), 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 or in any agreement with any national securities
exchange or quotation system or otherwise.
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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, or such vote 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 and 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:
I. (if applicable) the Highest Per Share Price, 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 (X) within the
two-year period immediately prior to the first public
announcement of the proposal of the Business Combination (the
"Announcement Date"), or (Y) in the transaction in which it
became an Interested Stockholder, whichever is higher.
II. 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):
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I. (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 (X)
within the two-year period immediately prior to the Announcement
Date, or (Y) in the transaction in which it became an Interested
Stockholder, whichever is higher;
II. (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; and
III. 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 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; (i) except
as approved by a majority of the Disinterested Directors, 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; (ii) there shall have been (X) 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 (Y) 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 Common
Stock, unless the failure to so increase such annual rate is approved
by a majority of the Disinterested Directors; and (iii) neither such
Interested Stockholder nor 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.
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(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 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 and the rules and regulations thereunder (or any
subsequent provisions replacing such Act, rules or regulations) 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).
C. For the purposes of this Article EIGHTH:
1. A "Person" shall include an individual, 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.
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.
3. A Person shall be a "beneficial owner" of any Voting Stock:
(a) which such Person or any of its Affiliates or Associates (as
hereinafter defined) beneficially owns, directly or indirectly within
the meaning of Rule 13d-3 under the Securities Exchange Act of 1934,
as in effect on July 29, 1996; or
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(b) which such Person or any of its Affiliates or Associates 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 or upon the exercise of conversion
rights, exchange rights, warrants or options, or otherwise, or (ii)
the right to vote pursuant to any agreement, arrangement or
understanding (but neither such Person nor any such Affiliate or
Associate shall be deemed to be the beneficial owner of any shares of
Voting Stock solely by reason of a revocable proxy granted for a
particular meeting of stockholders, pursuant to a public solicitation
of proxies for such meeting, and with respect to which shares neither
such Person nor any such Affiliate or Associate is otherwise deemed
the beneficial owner); or
(c) which are beneficially owned, directly or indirectly within the
meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as in
effect on July 29, 1996, by any other Person with which such Person or
any of its Affiliates or Associates has any agreement, arrangement or
understanding for the purposes of acquiring, holding, voting (other
than solely by reason of a revocable proxy as described in
Subparagraph (b) of this Paragraph 3) or in disposing of any shares of
Voting Stock;
provided, however, that, in the case of any employee stock ownership or
similar plan of the Corporation or of any Subsidiary in which the
beneficiaries thereof possess the right to vote any shares of Voting Stock
held by such plan, no such plan nor any trustee with respect thereto (nor
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
shares of Voting Stock held under any such plan.
4. For the purpose of determining whether a Person is an Interested
Stockholder pursuant to Paragraph 2 of this Section C, the number of shares
of Voting Stock deemed to be outstanding shall include shares deemed owned
through application of Paragraph 3 of this Section C but shall not include
any other shares of Voting Stock which may be issuable pursuant to any
agreement, arrangement or understanding, or upon exercise of conversion
rights, warrants or options, or otherwise.
5. "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 July 29, 1996.
6. "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.
7. "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
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who is thereafter chosen to fill any vacancy on 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.
8. "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 of the Nasdaq 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, 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 in
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.
9. 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.
10. 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 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 assets 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
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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% of the voting power of all of the then-outstanding
shares of the Voting Stock, 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, 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 objectives as a financial institution
holding company and on the ability of its subsidiary financial institution to
fulfill the objectives of a federally insured financial institution under
applicable statutes and regulations.
TENTH:
A. Except as set forth in Section B of this Article TENTH, in addition to
any affirmative vote of stockholders required by law or this Certificate of
Incorporation, any direct or indirect purchase or other acquisition by the
Corporation of any Equity Security (as hereinafter defined) of any class from
any Interested Person (as hereinafter defined) shall require the affirmative
vote of the holders of at least 80% of the Voting Stock of the Corporation that
is not beneficially owned (for purposes of this Article TENTH beneficial
ownership shall be determined in accordance with Section C.2(b) of Article
FOURTH hereof) by such Interested Person, 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 or in any agreement with any national securities exchange or
quotation system, or otherwise. Certain defined terms used in this Article TENTH
are as set forth in Section C below.
B. The provisions of Section A of this Article TENTH shall not be
applicable with respect to:
1. any purchase or other acquisition of securities made as part of a tender or
exchange offer by the Corporation or a Subsidiary (which term, as used in
this Article TENTH, is as defined in the first clause of Section C.6 of
Article EIGHTH hereof) of the Corporation to purchase securities of the
same class made on the same terms to all holders of such securities and
complying with the applicable requirements of the Securities Exchange Act
of 1934 and the rules and regulations thereunder (or any subsequent
provision replacing such Act, rules or regulations);
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2. any purchase or acquisition made pursuant to an open market purchase
program approved by a majority of the Board of Directors, including a
majority of the Disinterested Directors (which term, as used in this
Article TENTH, is as defined in Article EIGHTH hereof); or
3. any purchase or acquisition which is approved by a majority of the Board of
Directors, including a majority of the Disinterested Directors, and which
is made at no more than the Market Price (as hereinafter defined), on the
date that the understanding between the Corporation and the Interested
Person is reached with respect to such purchase (whether or not such
purchase is made or a written agreement relating to such purchase is
executed on such date), of shares of the class of Equity Security to be
purchased.
C. For the purposes of this Article TENTH:
1. The term Interested Person shall mean any Person (other than the
Corporation, Subsidiaries of the Corporation, pension, profit sharing,
employee stock ownership or other employee benefit plans of the Corporation
and its Subsidiaries, entities organized or established by the Corporation
or any of its Subsidiaries pursuant to the terms of such plans and trustees
and fiduciaries with respect to any such plan acting in such capacity) that
is the direct or indirect beneficial owner of 5% or more of the Voting
Stock of the Corporation, and any Affiliate or Associate of any such
person.
2. The Market Price of shares of a class of Equity Security on any day shall
mean the highest sale price of shares of such class of Equity Security on
such day, or, if that day is not a trading day, on the trading day
immediately preceding such day, on the national securities exchange or the
Nasdaq System or any other system then in use on which such class of Equity
Security is traded.
3. The term Equity Security shall mean any security described in
Section 3(a)(11) of the Securities Exchange Act of 1934, as in effect on
July 29, 1996, which is traded on a national securities exchange or the
Nasdaq System or any other system then in use.
4. For purposes of this Article TENTH, all references to the term Interested
Stockholder in the definition of Disinterested Director shall be deemed to
refer to the term Interested Person.
ELEVENTH:
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
or officer of another corporation, including, without limitation, any Subsidiary
(as defined in Article EIGHTH herein), 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 or officer or in any other capacity
while serving as a director or officer, shall be indemnified and held harmless
by the Corporation to the fullest extent authorized by the Delaware General
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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
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, service 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 shall be contract rights
and such rights shall continue as to an indemnitee who has ceased to be a
director or officer 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 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 also be entitled to be paid the
expense 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
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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 or otherwise shall be on the Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article 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, By-laws, 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
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 a
majority vote of the disinterested 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 with respect to the
indemnification and advancement of expenses of directors and officers of the
Corporation.
TWELFTH: 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 hereafter amended
to further eliminate or limit 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.
THIRTEENTH: 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% of the voting power of all of
the then-outstanding shares of the capital stock of the Corporation entitled
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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 THIRTEENTH, clauses B or C of Article
FOURTH, clauses C or D of Article FIFTH, Article SIXTH, Article SEVENTH,
Article EIGHTH, Article TENTH or Article ELEVENTH.
FOURTEENTH: The name and mailing address of the sole incorporator are as
follows:
NAME MAILING ADDRESS
--------------------------------- --------------------------------------
Kimberly P. Rooney Preferred Savings Bank
4800 South Pulaski Road
Chicago, Illinois 60632-4195
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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, do certify that the facts herein stated are
true, and, accordingly, have hereto set my hand this 29th day of July, 1996.
/s/ Kimberly P. Rooney
---------------------------------
Kimberly P. Rooney, Incorporator
<PAGE>
Exhibit 3.2
Bylaws of the Holding Company
<PAGE>
PS FINANCIAL, INC.
BY-LAWS
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.
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 nor more than 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 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 at least one-third
of all of the shares of the stock entitled to vote at the meeting, present in
person or by proxy, shall 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, shall
constitute a quorum entitled to take action with respect to that vote on that
matter.
<PAGE>
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 constituting a quorum, then except as otherwise required by law,
those present 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 President 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 procedure at the meeting, including such regulation of
the manner of voting and the conduct of discussion as seem to him or her in
order.
(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 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 60 days
prior to the anniversary of the preceding year's annual meeting; provided,
however, that in the event that the date of the annual meeting is advanced by
more than twenty days, or delayed by more than 60 days from such anniversary
date, notice by the stockholder to be timely must be so delivered not later than
the close of business on the later of the 60th day prior to such annual meeting
or the tenth day following the day on which notice of the date of the annual
meeting was mailed or public announcement of the date of such meeting is first
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 who
proposed 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 By-laws 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
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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 By-laws 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 30 days prior to the date of the meeting; provided, however, that in
the event that less than 40 days' notice 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 tenth day following the day on which
such notice of the date of the meeting was mailed. 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
not made in accordance with such provisions and, if he or she should 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 (or as
otherwise permitted under applicable law) by the stockholder or his duly
authorized attorney-in-fact filed in accordance with the procedure established
for the meeting. Proxies solicited on behalf of the management shall be voted as
directed by the stockholder or in the absence of such direction, as determined
by a majority of the Board of Directors. No proxy shall be valid after eleven
months from the date of its execution except for a proxy coupled with an
interest.
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Each stockholder shall have one vote for every share of stock entitled
to vote which is registered in his or her name on the record date for the
meeting, except as otherwise provided herein or in the Certificate of
Incorporation of the Corporation or as required by law.
All voting, including on the election of directors but excepting where
otherwise required by law, may be by a voice vote; provided, however, that upon
demand therefore 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 procedure established for the meeting.
Every vote taken by ballot shall be counted by an inspector or inspectors
appointed by the chairman of the meeting.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law or as provided in the Certificate of
Incorporation, all other matters shall be determined by a majority of the votes
cast.
Section 8. Stock List.
The officer who has charge of the stock transfer books of the
Corporation shall prepare and make, in the time and manner required by
applicable law, a list of stockholders entitled to vote and shall make such list
available for such purposes, at such places, at such times and to such persons
as required by applicable law. The stock transfer books shall be the only
evidence as to the identity of the stockholders entitled to examine the stock
transfer books or to vote in person or by proxy at any meeting of stockholders.
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 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.
Section 10. Inspectors of Election
The Board of Directors shall, in advance of any meeting of
stockholders, appoint one or more persons as inspectors of election, to act at
the meeting or any adjournment thereof and make a written report thereof, in
accordance with applicable law.
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ARTICLE II
BOARD OF DIRECTORS
Section 1. General Powers, Number and Term of Office.
The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. The number of directors shall be
as provided for in the Certificate of Incorporation. The Board of Directors
shall annually elect a Chairman of the Board and a President from among its
members and shall designate, when present, either the Chairman of the Board or
the President to preside at its meetings.
The directors, other than those who may be elected by the holders of
any class or series of preferred stock, 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 conclusion of the first annual meeting of
stockholders, the term of office of the second class to expire at the conclusion
of the annual meeting of stockholders one year thereafter and the term of office
of the third class to expire at the conclusion of 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, commencing with the first annual meeting, 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.
Section 2. Vacancies and Newly Created Directorships.
Subject to the rights of the holders of any class or series of
preferred stock then outstanding, 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 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)
or by the President 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
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such special meeting shall be given to each director by whom it is not waived
by mailing written notice not less than five 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 authorized
number of directors then constituting the 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 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;
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(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; and
(8) To adopt from time to time regulations, not inconsistent with
these By-laws, for the management of the Corporation's business and affairs.
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
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 those 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 designated 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; one-third (1/3) of the members shall
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constitute a quorum unless the committee shall consist of one or two members,
in which event one member shall constitute a quorum; and all matters 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 may appoint a Nominating Committee of the Board,
consisting of not less than three members, one of which shall be the President
if, and only so long as, the President remains in office as a member of the
Board of Directors. The Nominating Committee shall have authority (i) 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 By-laws in
order to determine compliance with such By-law and (ii) 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.
(a) The Board of Directors as soon as may be practicable after the
annual meeting of stockholders shall choose a President, a Secretary and a
Treasurer and from time to time may choose such other officers as it may deem
proper. The President 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 each 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. President.
The President shall be the chief executive officer and, subject to the
control of the Board of Directors, shall have general power over the management
and oversight of the administration and operation of the Corporation's business
and general supervisory power and authority over its policies and affairs. The
President shall see that all orders and resolutions of the Board of Directors
and of any committee thereof are carried into effect.
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Each meeting of the stockholders and of the Board of Directors shall be
presided over by such officer as has been designated by the Board of Directors
or, in his absence, by such officer or other person as is chosen at the meeting.
The Secretary or, in the Secretary's absence, the General Counsel of the
Corporation or such officer as has been designated by the Board of Directors or,
in his absence, such officer or other person as is chosen by the person
presiding, shall act as secretary of each such meeting.
Section 3. Vice President.
The Vice President or Vice Presidents, if any, shall perform the duties
of the President in his absence or during his disability 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 from time to time by the Board of Directors, the
Chairman of the Board or the President.
Section 4. Secretary.
The Secretary or an 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 offices 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.
Section 5. Treasurer.
The Treasurer shall have charge of all monies and securities of the
Corporation, other than monies and securities of any division of the Corporation
which has a treasurer or financial officer appointed by the Board of Directors,
and shall keep regular books of account. The funds of the Corporation shall be
deposited in the name of the Corporation by the Treasurer with such banks or
trust companies or other entities as the Board of Directors from time to time
shall designate. The Treasurer shall sign or countersign such instruments as
require his signature, shall perform all such duties and have all such powers as
are usually incident to such office and/or such other duties and powers as are
properly assigned to him by the Board of Directors, the Chairman of the Board or
the President, and may be required to give bond, payable by the Corporation, for
the faithful performance of his duties in such sum and with such surety as may
be required by the Board of Directors.
Section 6. Assistant Secretaries and Other Officers.
The Board of Directors may appoint one or more assistant secretaries
and one or more assistant treasurers, or one appointee to both such positions,
which officers shall have such powers and shall perform such duties as are
provided in these By-laws or as may be assigned to them by the Board of
Directors, the Chairman of the Board or the President.
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Section 7. 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 President or a Vice President, and by the
Secretary or an Assistant Secretary, or the Treasurer or an 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.
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
By-laws, an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefore.
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
60 nor less than ten days before the date of any meeting of stockholders, nor
more than 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 day next 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 of 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.
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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.
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 mail,
postage paid, by sending such notice by prepaid telegram or mailgram or by
sending such notice by facsimile machine or other electronic transmission. 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 mail, by telegram or mailgram or by
facsimile machine or other electronic transmission, 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.
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ARTICLE VII
MISCELLANEOUS
Section 1. Facsimile Signatures.
In addition to the provisions for use of facsimile signatures elsewhere
specifically authorized in these By-laws, 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
Assistant 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.
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 By-laws 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 By-laws of the Corporation may be adopted, amended or repealed as
provided in Article SEVENTH of the Certificate of Incorporation of the
Corporation.
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Exhibit 3.3
Charter of Preferred Savings in stock form
<PAGE>
FEDERAL STOCK CHARTER
PREFERRED SAVINGS BANK
Section 1. Corporate Title. The full corporate title of the savings
bank is Preferred Savings Bank.
Section 2. Office. The home office shall be located at 4800 South
Pulaski Road, Chicago, in Cook County, State of Illinois.
Section 3. Duration. The duration of the savings bank is perpetual.
Section 4. Purpose and Powers. The purpose of the savings bank is to
pursue any or all of the lawful objectives of a Federal savings bank chartered
under Section 5 of the Home Owners' Loan Act and to exercise all of the express,
implied, and incidental powers conferred thereby and by all acts amendatory
thereof and supplemental thereto, subject to the Constitution and laws of the
United States as they are now in effect, or as they may hereafter be amended,
and subject to all lawful and applicable rules, regulations, and orders of the
Office of Thrift Supervision ("Office").
Section 5. Capital Stock. The total number of shares of all classes of
the capital stock which the savings bank has the authority to issue is
2,600,000, of which 2,500,000 shall be common stock of par value of $.01 per
share and of which 100,000 shall be serial preferred stock. The shares may be
issued from time to time as authorized by the board of directors without further
approval of stockholders, except as otherwise provided in this Section 5 or to
the extent that such approval is required by governing law, rule, or regulation.
The consideration for the issuance of the shares shall be paid in full before
their issuance and shall not be less than the par value. Neither promissory
notes nor future services shall constitute payment or part payment for the
issuance of shares of the savings bank. The consideration for the shares shall
be cash, tangible or intangible property (to the extent direct investment in
such property would be permitted), labor, or services actually performed for the
savings bank, or any combination of the foregoing. In the absence of actual
fraud in the transaction, the value of such property, labor, or services, as
determined by the board of directors of the savings bank, shall be conclusive.
Upon payment of such consideration, such shares shall be deemed to be fully paid
and nonassessable. In the case of a stock dividend, that part of the surplus of
the savings bank which is transferred to stated capital upon the issuance of
shares as a share dividend shall be deemed to be the consideration for their
issuance.
Except for shares issuable in connection with the conversion of the
savings bank from the mutual to the stock form of organization, 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 savings bank other than as part of a
general public offering or as qualifying shares to a director, unless their
issuance or the plan under which they would be issued has been approved by a
majority of the total votes eligible to be cast at a legal meeting.
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Nothing contained in this Section 5 (or in any supplementary sections
hereto) shall entitle the holders of any class of a 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 savings bank with another corporation or the sale, lease, or
conveyance (other than by mortgage or pledge) of properties or business
in exchange for securities of a corporation other than the savings bank
if the preferred stock is exchanged for securities of such other
corporation; Provided, That no provision may require such approval for
transactions undertaken with the assistance or pursuant to the direction
of the Office, 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
savings bank in a merger or consolidation for the savings bank, shall not
be considered to be such an adverse change.
A description of the different classes and series (if any) of the
savings bank's capital stock and a statement of the designations, and the
relative rights, preferences, and limitations of the shares of each class and
series (if any) of capital stock are as follows:
A. Common Stock. Except as provided in this Section 5 (or in any
supplementary sections thereto) the holders of 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, retirement fund, or other retirement payments,
if any, to which such holders are respectively entitled in preference to the
common stock, then dividends may be paid on the common stock and on any class or
series of stock entitled to participate therewith as to dividends out of any
assets legally available for the payment of dividends.
In the event of any liquidation, dissolution, or winding up of the
savings bank, the holders of the common stock (and the holders of any class or
series of stock entitled to
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participate with the common stock in the distribution of assets) shall be
entitled to receive, in cash or in kind, the assets of the savings bank
available for distribution remaining after: (i) payment or provision for payment
of the savings bank's debts and liabilities; (ii) distributions or provision for
distributions in settlement of its liquidation account; and (iii) distributions
or provisions for distributions to holders of any class or series of stock
having preference over the common stock in the liquidation, dissolution, or
winding up of the savings bank. Each share of common stock shall have the same
relative rights as and be identical in all respects with all the other shares of
common stock.
B. Preferred Stock. The savings bank may provide in supplementary
sections to its charter for one or more classes of preferred stock, which shall
be separately identified. The shares of any class may be divided into and issued
in series, with each series separately designated so as to distinguish the
shares thereof from the shares of all other series and classes. The terms of
each series shall be set forth in a supplementary section to the charter. All
shares of the same class shall be identical except as to the following relative
rights and preferences, as to which there may be variations between different
series:
(a) The distinctive serial designation and the number of shares constituting
such series;
(b) The dividend rate or the amount of dividends to be paid on the shares of
such series, whether dividends shall be cumulative and, if so, from which
date(s) the payment date(s) for dividends, and the participating or other
special rights, if any, with respect to dividends;
(c) The voting powers, full or limited, if any, of shares of such series;
(d) Whether the shares of such series shall be redeemable and, if so, the
price(s) at which, and the terms and conditions on which, such shares may
be redeemed;
(e) The amount(s) payable upon the shares of such series in the event of
voluntary or involuntary liquidation, dissolution, or winding up of the
savings bank;
(f) Whether the shares of such series shall be entitled to the benefit of a
sinking or retirement fund to be applied to the purchase or redemption of
such shares, and if so entitled, the amount of such fund and the manner
of its application, including the price(s) at which such shares may be
redeemed or purchased through the application of such fund;
(g) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes of stock of the
savings bank and, if so, the conversion price(s) or the rate(s) of
exchange, and the adjustments thereof, if any, at which such conversion
or exchange may be made, and any other terms and conditions of such
conversion or exchange;
(h) The price or other consideration for which the shares of such series
shall be issued; and
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(i) Whether the shares of such series which are redeemed or converted shall
have the status of authorized but unissued shares of serial preferred
stock and whether such shares may be reissued as shares of the same or
any other series of serial preferred stock.
Each share of each series of serial preferred stock shall have the same
relative rights as and be identical in all respects with all the other shares of
the same series.
The board of directors shall have authority to divide, by the adoption
of supplementary charter sections, any authorized class of preferred stock into
series, and, within the limitations set forth in this section and the remainder
of this charter, fix and determine the relative rights and preferences of the
shares of any series so established.
Prior to the issuance of any preferred shares of a series established
by a supplementary charter section adopted by the board of directors, the
savings bank shall file with the Secretary to the 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.
Section 6. Preemptive Rights. Holders of the capital stock of the
savings bank shall not be entitled to preemptive rights with respect to any
shares of the savings bank which may be issued.
Section 7. Liquidation Account. Pursuant to the requirements of the
Office's regulations (12 C.F.R. Subchapter D), the savings bank shall establish
and maintain a liquidation account for the benefit of its savings account
holders as of March 31, 1995, and its supplemental eligible account holders as
of September 30, 1996 ("eligible savers"). In the event of a complete
liquidation of the savings bank, it shall comply with such regulations with
respect to the amount and the priorities on liquidation of each of the savings
bank's eligible savers' inchoate interest in the liquidation account, to the
extent it is still in existence; Provided, That an eligible saver's inchoate
interest in the liquidation account shall not entitle such eligible saver to any
voting rights at meetings of the savings bank's stockholders.
Section 8. Certain Provisions Applicable for Five Years.
Notwithstanding anything contained in the savings bank's charter or bylaws to
the contrary, for a period of five years from the date of completion of the
conversion of the savings 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 an equity security of the savings bank. This limitation
shall not apply to a transaction in which the savings bank forms a holding
company without change in the respective beneficial ownership interests of its
stockholders 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's regulations.
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In the event shares are acquired in violation of this Section 8, all
shares beneficially owned by any person in excess of 10 percent 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 stockholders for a vote.
For purposes of this Section 8, the following definitions apply:
(1) 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 the equity securities of the savings bank.
(2) 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.
(3) The term "acquire" includes every type of acquisition, whether effected
by purchase, exchange, operation of law or otherwise.
(4) 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 arrangements, whether written or otherwise.
B. Cumulative Voting Limitation. Stockholders shall not be permitted to
cumulate their votes for election of directors.
C. Call for Special Meetings. Special meetings of stockholders relating
to changes in control of the savings bank or amendments to its charter shall be
called only upon direction of the board of directors.
Section 9. Directors. The savings bank shall be under the direction of
a board of directors. The authorized number of directors, as stated in the
savings bank's bylaws, shall not be fewer than five nor more than fifteen except
when a greater number is approved by the Director of the Office.
Section 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 savings
bank, then preliminarily approved by the Office, which preliminary approval may
be granted by the Office pursuant to regulations specifying preapproved charter
amendments, and thereafter approved by the stockholders by a majority of the
total votes eligible to be cast at a legal meeting. Any amendment, addition,
alteration, change, or repeal so acted upon shall be effective upon filing with
the Office in accordance with regulatory procedures or on such other date as the
Office may specify in its preliminary approval.
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By: _____________________________________________
Kimberly P. Rooney
President of Preferred Savings Bank
ATTEST: _____________________________________________
Lorraine G. Ptak
Secretary of Preferred Savings Bank
By: _____________________________________________
Director of the Office of Thrift Supervision
ATTEST: _____________________________________________
Secretary of the Office of Thrift Supervision
Declared effective this ________ day of ___________________, 1996.
6
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Exhibit 3.4
Bylaws of Preferred Savings in stock form
<PAGE>
BYLAWS OF
PREFERRED SAVINGS BANK
ARTICLE I
HOME OFFICE
The home office of the savings bank shall be at 4800 South Pulaski
Road, Chicago, in Cook County, State of Illinois.
ARTICLE II
SHAREHOLDERS
Section 1. Place of Meetings. All annual and special meetings of
shareholders shall be held at the home office of the savings bank or at such
other place in the State in which the principal place of business of the savings
bank is located as the board of directors may determine.
Section 2. Annual Meeting. A meeting of the shareholders of the savings
bank for the election of directors and for the transaction of any other business
of the savings bank shall be held annually within 120 days after the end of the
savings bank's fiscal year on the third Wednesday of each April, if not a legal
holiday, and if a legal holiday, then on the next day following which is not a
legal holiday, at 2:00 p.m., or at such other date and time within such 120-day
period as the board of directors may determine.
Section 3. Special Meetings. Special meetings of the shareholders for
any purpose or purposes, unless otherwise prescribed by the regulations of the
Office of Thrift Supervision ("Office"), may be called at any time by the
chairman of the board, the president, or a majority of the board of directors,
and shall be called by the chairman of the board, the president, or the
secretary upon the written request of the holders of not less than one-tenth of
all of the outstanding capital stock of the savings bank entitled to vote at the
meeting. Such written request shall state the purpose or purposes of the meeting
and shall be delivered to the home office of the savings bank addressed to the
chairman of the board, the president, or the secretary.
Section 4. Conduct of Meetings. Annual and special meetings shall be
conducted in accordance with the most current edition of Robert's Rules of Order
unless otherwise prescribed by regulations of the Office or these bylaws. The
board of directors shall designate, when present, either the chairman of the
board or the president to preside at such meetings.
Section 5. Notice of Meetings. Written notice stating the place, day,
and hour of the meeting and the purpose(s) for which the meeting is called shall
be delivered not fewer than 10 nor more than 50 days before the date of the
meeting, either personally or by mail, by or at the direction of the chairman of
the board, the president, or the secretary, or the directors calling the
meeting, to each shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the mail,
addressed to the shareholder
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at the address as it appears on the stock transfer books or records of the
savings bank as of the record date prescribed in Section 6 of this Article II
with postage prepaid. When any shareholders' meeting, either annual or special,
is adjourned for 30 days or more, notice of the adjourned meeting shall be given
as in the case of an original meeting. It shall not be necessary to give any
notice of the time and place of any meeting adjourned for less than 30 days or
of the business to be transacted at the meeting, other than an announcement at
the meeting at which such adjournment is taken.
Section 6. Fixing of Record Date. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment, or shareholders entitled to receive payment of any dividend, or
in order to make a determination of shareholders for any other proper purpose,
the board of directors shall fix in advance a date as the record date for any
such determination of shareholders. Such date in any case shall be not more than
60 days and, in case of a meeting of shareholders, not fewer than 10 days prior
to the date on which the particular action, requiring such determination of
shareholders, is to be taken. When a determination of shareholders entitled to
vote at any meeting of shareholders has been made as provided in this section,
such determination shall apply to any adjournment.
Section 7. Voting Lists. At least 20 days before each meeting of the
shareholders, the officer or agent having charge of the stock transfer books for
shares of the savings bank shall make a complete list of the shareholders
entitled to vote at such meeting, or any adjournment, arranged in alphabetical
order, with the address and the number of shares held by each. This list of
shareholders shall be kept on file at the home office of the savings bank and
shall be subject to inspection by any shareholder at any time during usual
business hours for a period of 20 days prior to such meeting. Such list shall
also be produced and kept open at the time and place of the meeting and shall be
subject to inspection by any shareholder during the entire time of the meeting.
The original stock transfer book shall constitute prima facie evidence of the
shareholders entitled to examine such list or transfer books or to vote at any
meeting of shareholders.
In lieu of making the shareholder list available for inspection by
shareholders as provided in the preceding paragraph, the board of directors may
elect to follow the procedures prescribed in section 552.6(d) of the Office's
regulations as now or hereafter in effect.
Section 8. Quorum. A majority of the outstanding shares of the savings
bank entitled to vote, represented in person or by proxy, shall constitute a
quorum at a meeting of shareholders. If less than a majority of the outstanding
shares is represented at a meeting, a majority of the shares so represented may
adjourn the meeting from time to time without further notice. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to constitute less than a quorum.
Section 9. Proxies. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or by his or her duly
authorized attorney in fact. Proxies
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solicited on behalf of the management shall be voted as directed by the
shareholder or, in the absence of such direction, as determined by a majority of
the board of directors. No proxy shall be valid more than eleven months from the
date of its execution except for a proxy coupled with an interest.
Section 10. Voting of Shares in the Name of Two or More Persons. When
ownership stands in the name of two or more persons, in the absence of written
directions to the savings bank to the contrary, at any meeting of the
shareholders of the savings bank any one or more of such shareholders may cast,
in person or by proxy, all votes to which such ownership is entitled. In the
event an attempt is made to cast conflicting votes, in person or by proxy, by
the several persons in whose names shares of stock stand, the vote or votes to
which those persons are entitled shall be cast as directed by a majority of
those holding such stock and present in person or by proxy at such meeting, but
no votes shall be cast for such stock if a majority cannot agree.
Section 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 or her,
either in person or by proxy, without a transfer of such shares into his or her
name. Shares standing in the name of a trustee may be voted by him or her,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him or her without a transfer of such shares into his or her 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 or her 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 savings bank nor
shares held by another corporation, if a majority of the shares entitled to vote
for the election of directors of such other corporation are held by the savings
bank, shall be voted at any meeting or counted in determining the total number
of outstanding shares at any given time for purposes of any meeting.
Section 12. Cumulative Voting. Unless otherwise provided in the charter
of the savings bank, 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.
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Section 13. Inspectors of Election. In advance of any meeting of
shareholders, the board of directors may appoint any persons other than nominees
for office as inspectors of election to act at such meeting or any adjournment.
The number of inspectors shall be either one or three. Any such appointment
shall not be altered at the meeting. If inspectors of election are not so
appointed, the chairman of the board or the president may, or on the request of
not fewer than 10 percent of the votes represented at the meeting shall, make
such appointment at the meeting. If appointed at the meeting, the majority of
the votes present shall determine whether one or three inspectors are to be
appointed. In case any person appointed as inspector fails to appear or fails or
refuses to act, the vacancy may be filled by appointment by the board of
directors in advance of the meeting or at the meeting by the chairman of the
board or the president.
Unless otherwise prescribed by regulations of the Office, the duties of
such inspectors shall include: determining the number of shares and the voting
power of each share, the shares represented at the meeting, the existence of a
quorum, and the authenticity, validity, and effect of proxies; receiving votes,
ballots, or consents; hearing and determining all challenges and questions in
any way arising in connection with the rights to vote; counting and tabulating
all votes or consents; determining the result; and such acts as may be proper to
conduct the election or vote with fairness to all shareholders.
Section 14. Nominating Committee. The board of directors shall act as a
nominating committee for selecting the management nominees for election as
directors. Except in the case of a nominee substituted as a result of the death
or other incapacity of a management nominee, the nominating committee shall
deliver written nominations to the secretary at least 20 days prior to the date
of the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the savings bank. No nominations for
directors except those made by the nominating committee shall be voted upon at
the annual meeting unless other nominations by shareholders are made in writing
and delivered to the secretary of the savings bank at least five days prior to
the date of the annual meeting. Upon delivery, such nominations shall be posted
in a conspicuous place in each office of the savings bank. Ballots bearing the
names of all persons nominated by the nominating committee and by shareholders
shall be provided for use at the annual meeting. However, if the nominating
committee shall fail or refuse to act at least 20 days prior to the annual
meeting, nominations for directors may be made at the annual meeting by any
shareholder entitled to vote and shall be voted upon.
Section 15. New Business. At an annual meeting of shareholders only
such new business shall be conducted, and only such proposals shall be acted
upon, as shall have been properly brought before the meeting. For any new
business proposed by management to be properly brought before the annual meeting
such new business shall be approved by the board of directors, either directly
or through its approval of proxy solicitation materials related thereto, and
shall be stated in writing and filed with the secretary of the savings bank at
least 20 days before the date of the annual meeting, and all business so stated,
proposed, and filed shall be considered 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 properly brought before the meeting such proposal
shall not be acted upon at the meeting. For a proposal to be properly brought
before an annual meeting by a shareholder, the shareholder must have given
timely
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notice thereof in writing to the secretary of the savings bank. To be timely, a
shareholder's notice must be delivered to or received at the principal executive
offices of the savings bank, not less than 20 days prior to the meeting;
provided, however, that in the event that less than 30 days' notice of the date
of the meeting is given to shareholders (which notice shall be accompanied by a
proxy or information statement which describes each matter proposed by the board
of directors to be acted upon at the meeting), notice by the shareholder 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 annual meeting was
mailed. A shareholder's notice to the secretary shall set forth as to each
matter the shareholder proposes to bring before the annual meeting: (a) a brief
description of the proposal desired to be brought before the annual meeting; (b)
the name and address of the shareholder proposing such business; and (c) the
class and number of shares of the savings bank which are owned of record by the
shareholder. Notwithstanding anything in the bylaws to the contrary, no business
shall be conducted at an annual meeting except in accordance with the procedures
set forth in this Section 15.
Section 16. Informal Action by Shareholders. Any action required to be
taken at a meeting of the shareholders, or any other action which may be taken
at a meeting of shareholders, may be taken without a meeting if consent in
writing, setting forth the action so taken, shall be given by all of the
shareholders entitled to vote with respect to the subject matter.
ARTICLE III
BOARD OF DIRECTORS
Section 1. General Powers. The business and affairs of the savings bank
shall be under the direction of its board of directors. The board of directors
shall annually elect a chairman of the board and a president from among its
members and shall designate, when present, either the chairman of the board or
the president to preside at its meetings.
Section 2. Number and Term. The board of directors shall consist of
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 savings
bank's normal lending territory, for the holding of additional regular meetings
without other notice than such resolution.
Section 4. Qualification. Each director shall at all times be the
beneficial owner of not less than 100 shares of capital stock of the savings
bank unless the savings bank is a wholly owned subsidiary of a holding company.
Section 5. Special Meetings. Special meetings of the board of directors
may be called by or at the request of the chairman of the board, the president,
or one-third of the directors.
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The persons authorized to call special meetings of the board of directors may
fix any place, within the savings bank's normal lending territory, as the place
for holding any special meeting of the board of directors called by such
persons.
Members of the board of directors may participate in special meetings
by means of conference telephone or similar communications equipment by which
all persons participating in the meeting can hear each other. Such
participations shall constitute presence in person but shall not constitute
attendance for the purpose of compensation pursuant to Section 12 of this
Article.
Section 6. Notice. Written notice of any special meeting shall be given
to each director at least two days prior thereto when delivered personally or by
telegram or at least five days prior thereto when delivered by mail at the
address at which the director is most likely to be reached. Such notice shall be
deemed to be delivered when deposited in the mail so addressed, with postage
prepaid if mailed or when delivered to the telegraph company if sent by
telegram. Any director may waive notice of any meeting by a writing filed with
the secretary. The attendance of a director at a meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any meeting of the board of directors need be
specified in the notice or waiver of notice of such meeting.
Section 7. Quorum. A majority of the number of directors fixed by
Section 2 of this Article III shall constitute a quorum for the transaction of
business at any meeting of the board of directors; but if less than such
majority is present at a meeting, a majority of the directors present may
adjourn the meeting from time to time. Notice of any adjourned meeting shall be
given in the same manner as prescribed by Section 6 of this Article III.
Section 8. Manner of Acting. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors, unless a greater number is prescribed by regulation of the Office
or by these bylaws.
Section 9. Action Without a Meeting. Any action required or permitted
to be taken by the board of directors at a meeting may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the directors.
Section 10. Resignation. Any director may resign at any time by sending
a written notice of such resignation to the home office of the savings bank
addressed to the chairman of the board or the president. Unless otherwise
specified, such resignation shall take effect upon receipt by the chairman of
the board or the president. More than three consecutive absences from regular
meetings of the board of directors, unless excused by resolution of the board of
directors, shall automatically constitute a resignation, effective when such
resignation is accepted by the board of directors.
Section 11. Vacancies. Any vacancy occurring on the board of directors
may be filled by the affirmative vote of a majority of the remaining directors
although less than a quorum of
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the board of directors. A director elected to fill a vacancy shall be elected to
serve until the next election of directors by the shareholders. Any directorship
to be filled by reason of an increase in the number of directors may be filled
by election by the board of directors for a term of office continuing only until
the next election of directors by the shareholders.
Section 12. Compensation. Directors, as such, may receive a stated
salary for their services. By resolution of the board of directors, a reasonable
fixed sum, and reasonable expenses of attendance, if any, may be allowed for
actual attendance at each regular or special meeting of the board of directors.
Members of either standing or special committees may be allowed such
compensation for actual attendance at committee meetings as the board of
directors may determine.
Section 13. Presumption of Assent. A director of the savings bank who
is present at a meeting of the board of directors at which action on any savings
bank matter is taken shall be presumed to have assented to the action taken
unless his or her dissent or abstention shall be entered in the minutes of the
meeting or unless he or she shall file a written dissent to such action with the
person acting as the secretary of the meeting before the adjournment thereof or
shall forward such dissent by registered mail to the secretary of the savings
bank within five days after the date a copy of the minutes of the meeting is
received. Such right to dissent shall not apply to a director who voted in favor
of such action.
Section 14. Removal of Directors. At a meeting of shareholders called
expressly for that purpose, any director may be removed for cause by a vote of
the holders of a majority of the shares then entitled to vote at an election of
directors. If less than the entire board is to be removed, no one of the
directors may be removed if the votes cast against the removal would be
sufficient to elect a director if then cumulatively voted at an election of the
class of directors of which such director is a part. Whenever the holders of the
shares of any class are entitled to elect one or more directors by the
provisions of the charter or supplemental sections thereto, the provisions of
this section shall apply, in respect to the removal of a director or directors
so elected, to the vote of the holders of the outstanding shares of that class
and not to the vote of the outstanding shares as a whole.
ARTICLE IV
EXECUTIVE AND OTHER COMMITTEES
Section 1. Appointment. The board of directors, by resolution adopted
by a majority of the full board, may designate the chief executive officer and
two or more of the other directors to constitute an executive committee. The
designation of any committee pursuant to this Article IV and the delegation of
authority shall not operate to relieve the board of directors, or any director,
of any responsibility imposed by law or regulation.
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
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of directors with reference to: the declaration of dividends; the amendment of
the charter or bylaws of the savings bank, or recommending to the shareholders a
plan of merger, consolidation, or conversion; the sale, lease, or other
disposition of all or substantially all of the property and assets of the
savings bank otherwise than in the usual and regular course of its business; a
voluntary dissolution of the savings bank; a revocation of any of the foregoing;
or the approval of a transaction in which any member of the executive committee,
directly or indirectly, has any material beneficial interest.
Section 3. Tenure. Subject to the provisions of Section 8 of this
Article IV, each member of the executive committee shall hold office until the
next regular annual meeting of the board of directors following his or her
designation and until a successor is designated as a member of the executive
committee.
Section 4. Meetings. Regular meetings of the executive committee may be
held without notice at such times and places as the executive committee may fix
from time to time by resolution. Special meetings of the executive committee may
be called by any member thereof upon not less than one day's notice stating the
place, date, and hour of the meeting, which notice may be written or oral. Any
member of the executive committee may waive notice of any meeting and no notice
of any meeting need be given to any member thereof who attends in person. The
notice of a meeting of the executive committee need not state the business
proposed to be transacted at the meeting.
Section 5. Quorum. A majority of the members of the executive committee
shall constitute a quorum for the transaction of business at any meeting
thereof, and action of the executive committee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.
Section 6. Action Without a Meeting. Any action required or permitted
to be taken by the executive committee at a meeting may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the members of the executive committee.
Section 7. Vacancies. Any vacancy in the executive committee may be
filled by a resolution adopted by a majority of the full board of directors.
Section 8. Resignations and Removal. Any member of the executive
committee may be removed at any time with or without cause by resolution adopted
by a majority of the full board of directors. Any member of the executive
committee may resign from the executive committee at any time by giving written
notice to the president or secretary of the savings bank. Unless otherwise
specified, such resignation shall take effect upon its receipt; the acceptance
of such resignation shall not be necessary to make it effective.
Section 9. Procedure. The executive committee shall elect a presiding
officer from its members and may fix its own rules of procedure which shall not
be inconsistent with these bylaws. It shall keep regular minutes of its
proceedings and report the same to the board of directors for its information at
the meeting held next after the proceedings shall have occurred.
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Section 10. Other Committees. The board of directors may by resolution
establish an audit, loan, or other committee composed of directors as it may
determine to be necessary or appropriate for the conduct of the business of the
savings bank and may prescribe the duties, constitution and procedures thereof.
ARTICLE V
OFFICERS
Section 1. Positions. The officers of the savings bank shall be a
president, one or more vice presidents, a secretary, and a treasurer, each of
whom shall be elected by the board of directors. The board of directors may also
designate the chairman of the board as an officer. The president shall be the
chief executive officer, unless the board of directors designates the chairman
of the board as chief executive officer. The president shall be a director of
the savings bank. The offices of the secretary and treasurer may be held by the
same person and a vice president may also be either the secretary or the
treasurer. The board of directors may designate one or more vice presidents as
executive vice president or senior vice president. The board of directors may
also elect or authorize the appointment of such other officers as the business
of the savings bank may require. The officers shall have such authority and
perform such duties as the board of directors may from time to time authorize or
determine. In the absence of action by the board of directors, the officers
shall have such powers and duties as generally pertain to their respective
offices.
Section 2. Election and Term of Office. The officers of the savings
bank shall be elected annually at the first meeting of the board of directors
held after each annual meeting of the 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 savings bank to enter into an employment contract with any officer
in accordance with regulations of the Office, but no such contract shall impair
the right of the board of directors to remove any officer at any time in
accordance with Section 3 of this Article V.
Section 3. Removal. Any officer may be removed by the board of
directors whenever in its judgment the best interests of the savings bank will
be served thereby, but such removal, other than for cause, shall be without
prejudice to 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.
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ARTICLE VI
CONTRACTS, LOANS, CHECKS, AND DEPOSITS
Section 1. Contracts. To the extent permitted by regulations of the
Office, and except as otherwise prescribed by these bylaws with respect to
certificates for shares, the board of directors may authorize any officer,
employee, or agent of the savings bank to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the savings bank.
Such authority may be general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the savings
bank and no evidence of indebtedness shall be issued in its name unless
authorized by the board of directors. Such authority may be general or confined
to specific instances.
Section 3. Checks, Drafts, etc. All checks, drafts, or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the savings bank shall be signed by one or more officers, employees or
agents of the savings bank in such manner as shall from time to time be
determined by the board of directors.
Section 4. Deposits. All funds of the savings bank not otherwise
employed shall be deposited from time to time to the credit of the savings bank
in any duly authorized depositories as the board of directors may select.
ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates for Shares. Certificates representing shares of
capital stock of the savings bank shall be in such form as shall be determined
by the board of directors and approved by the Office. Such certificates shall be
signed by the chief executive officer or by any other officer of the savings
bank authorized by the board of directors, attested by the secretary or an
assistant secretary, and sealed with the corporate seal or a facsimile thereof.
The signatures of such officers upon a certificate may be facsimiles if the
certificate is manually signed on behalf of a transfer agent or a registrar
other than the savings bank itself or one of its employees. Each certificate for
shares of capital stock shall be consecutively numbered or otherwise identified.
The name and address of the person to whom the shares are issued, with the
number of shares and date of issue, shall be entered on the stock transfer books
of the savings bank. All certificates surrendered to the savings bank for
transfer shall be 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 the case of a lost or destroyed certificate, a new
certificate may be issued upon such terms and indemnity to the savings bank as
the board of directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of capital stock of
the savings bank shall be made only on its stock transfer books. Authority for
such transfer shall be given only
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by the holder of record or by his or her legal representative, who shall furnish
proper evidence of such authority, or by his or her attorney authorized by a
duly executed power of attorney and filed with the savings bank. Such transfer
shall be made only on surrender for cancellation of the certificate for such
shares. The person in whose name shares of capital stock stand on the books of
the savings bank shall be deemed by the savings bank to be the owner for all
purposes.
ARTICLE VIII
FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the savings bank shall end on the last day of
December of each year. The savings bank shall be subject to an annual audit as
of the end of its fiscal year by independent public accountants appointed by and
responsible to the board of directors. The appointment of such accountants shall
be subject to annual ratification by the shareholders.
ARTICLE IX
DIVIDENDS
Subject to the terms of the savings bank's charter and the regulations
and orders of the Office, the board of directors may, from time to time,
declare, and the savings bank may pay, dividends on its outstanding shares of
capital stock.
ARTICLE X
CORPORATE SEAL
The board of directors shall provide a savings bank seal which shall be
two concentric circles between which shall be the name of the savings bank. The
year of incorporation or an emblem may appear in the center.
ARTICLE XI
AMENDMENTS
These bylaws may be amended in a manner consistent with regulations of
the Office at any time by a majority of the full board of directors or by a
majority of the votes cast by the shareholders of the savings bank at any legal
meeting.
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Exhibit 4
Form of Stock Certificate of the Holding Company
<PAGE>
NUMBER 001
---
COMMON STOCK
CUSIP No.______
PS FINANCIAL, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
This Certifies that Kimberly P. Rooney
is the owner of One
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE OF
PS FINANCIAL, INC. (the "Corporation"), a Delaware corporation. 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 is not valid until countersigned
and registered by the Corporation's transfer agent and registrar. This security
is not a deposit or account and is not federally insured or guaranteed.
IN WITNESS WHEREOF, the Corporation 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__________________________________
_______________________________________
Lorraine G. Ptak, Corporate Secretary
_________________________________________________
Kimberly P. Rooney, President and Chief Executive
Officer
[Seal]
Countersigned and Registered
______________________________________
Transfer Agent and Registrar
<PAGE>
PS FINANCIAL, INC.
The shares represented by this certificate are issued subject to all
the provisions of the certificate of incorporation and bylaws of the Corporation
as from time to time amended (copies of which are on file at the principal
executive offices of the Corporation).
The Corporation's certificate of incorporation provides that no
"person" (as defined in the certificate of incorporation) who "beneficially
owns" (as defined in the certificate of incorporation) in excess of 10% of the
outstanding shares of the Corporation shall be entitled to vote any shares held
in excess of such limit. This provision of the certificate of incorporation
shall not apply to an acquisition of securities of the Corporation by an
employee stock purchase plan or other employee benefit plan of the Corporation
or any of its subsidiaries.
The Corporation's certificate of incorporation also includes a
provision the general effect of which is to require the affirmative vote of the
holders of 80% of the outstanding voting shares of the Corporation to approve
certain "business combinations" (as defined in the certificate of incorporation)
between the Corporation and a stockholder owning in excess of 10% of the
outstanding shares of the Corporation. However, only the affirmative vote of a
majority of the outstanding shares or such vote as is otherwise required by law
(rather than the 80% voting requirement) is applicable to the particular
transaction if it is approved by a majority of the "disinterested directors" (as
defined in the certificate of incorporation) or, alternatively, the transaction
satisfies certain minimum price and procedural requirements. The Corporation's
certificate of incorporation also contains a provision which requires the
affirmative vote of holders of at least 80% of the outstanding voting shares of
the Corporation which are not beneficially owned by the "interested person" (as
defined in the certificate of incorporation) to approve the direct or indirect
purchase or other acquisition by the Corporation of any "equity security" (as
defined in the certificate of incorporation) from such interested person.
The Corporation will furnish to any stockholder upon request and
without charge a full statement of the powers, designations, preferences and
relative participating, optional or other special rights of each authorized
class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights, to the extent that the same have
been fixed, and of the authority of the board of directors to designate the same
with respect to other series. Such request may be made to the Corporation or to
its transfer agent and registrar.
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
TEN ENT - as tenants by the entirety
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common.
UNIF GIFT MIN ACT ______ Custodian ________
(Cust) (Minor)
Under Uniform Gift to Minors Act - _____________
(State)
UNIF TRANS MIN ACT______ Custodian ________
(Cust) (Minor)
Under Uniform Transfers to Minors Act - _________
(State)
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
IDENTIFYING NUMBER OF ASSIGNEE
- ------------------------------
- ------------------------------
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________Shares of Common Stock represented by the within
certificate, and do hereby irrevocably constitute and appoint ________________
_________________ Attorney to transfer the said shares on the books of the
within named Association 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.
<PAGE>
Exhibit 5
Opinion of Silver, Freedman & Taff, L.L.P. with Respect
to Legality of Stock
<PAGE>
August 29, 1996
The Board of Directors
PS Financial, Inc.
4800 South Pulaski Road
Chicago, Illinois 60632
Re: Registration Statement Under the Securities Act of 1933
-------------------------------------------------------
Gentlemen:
This opinion is rendered in connection with the Registration Statement
to be filed on Form S-1 with the Securities and Exchange Commissin under the
Securities Act of 1933 relating to the 2,182,125 shares of Common Stock of PS
Financial, Inc. (the "Company"), par value $.01 per share, to be issued. As
counsel, we have reviewed the Certificate of Incorporation of the Company and
such other documents as we have deemed appropriate for the purpose of this
opinion. We are rendering this opinion as of the time the Registration Statement
referred to above becomes effective.
Based on the foregoing, we are of the opinion that the shares of Common
Stock of the Company covered by the aforesaid Registration Statement will, when
sold, be validly issued, fully paid and non-assessable shares of Common Stock of
the Company.
Very truly yours,
/s/ SILVER FREEDMAN & TAFF, L.L.P.
------------------------------------
SILVER FREEDMAN & TAFF, L.L.P.
<PAGE>
Exhibit 8.1
LAW OFFICES
SILVER FREEDMAN & TAFF, L.L.P.
A LIMITED LIABILITY PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS
<TABLE>
<S> <C> <C>
SIDNEY J. SILVER, P.C. 1100 NEW YORK AVENUE, N.W. TELECOPIER NUMBER
ROBERT L. FREEDMAN, P.C. (202) 682-0354
BARRY P. TARF, P.C. WASHINGTON, D.C. 20005-3934
HOWARD J. ROSS, P.C
DAVID B. MYATT P.C (202) 414-6100 OF COUNSEL
JAMES S. FLEISCHER P.C. EARL L. METHENY, P.C.
JEFFREY M. WEISSMAN P.C. JOHN B. SELMAN*
KIP A. WEISSMAN P.C. JAMES W. LANCE*
MARTIN L.MEYROWITZ P.C. NANCY M. STILES
RICHARD S. GARABEDIAN P.C. SHEILA FOOTER
RICHARD E. BYER P.C. ROBERT I. LIPSHER
CHRISTOPHER R. KELLY, P.C. MARTIN J. O'RIORDAN*
DAVE M. MUCHNIKOFF, P.C.
JANE K. STORERO, P.C. WRITER'S DIRECT DIAL NUMBER
STEVEN M. ABRAMSON, P.C (202) 414-6103
BRIAN L. ALPERT, P.C.
GARY A. LAX, P,C.
BETH A. FREEDMAN*
ROBERT T. PLESNARSKI*
MICHAEL S. SADOW June 13, 1996
G. SCOTT LESMES*
BRIAN S. TAFF
MICHAEL R. CLAMPITT*
*NOT ADMITTED IN D.C.
</TABLE>
Board of Directors
Preferred Savings Bank
4800 S. Pulaski Rd.
Chicago, Illinois 60632
RE: Federal Income Tax Opinion Relating To The Conversion Of Preferred
Savings Bank From A State-Chartered Mutual Savings Bank To A
Federally-Chartered Stock Savings Bank Under Section 368(a)(1)(F) of
the Internal Revenue Code of 1986, As Amended
Gentlemen:
In accordance with your request set forth hereinbelow is the opinion of
this firm relating to the federal income tax consequences of the conversion of
Preferred Savings Bank, Chicago, Illinois ("Mutual") from an Illinois-chartered
mutual savings bank to a federally-chartered stock savings bank ("Stock Bank")
pursuant to the provisions of Section 368(a)(1)(F) of the Internal Revenue Code
of 1986, as amended (the "Code").
Capitalized terms used herein which are not expressly defined herein
shall have the meaning ascribed to them in the Plan of Conversion dated May 21,
1996 (the "Plan").
The following assumptions have been made in connection with our
opinions hereinbelow:
1. The Conversion is implemented in accordance with the tcrms of the
Plan and all conditions precedent contained in the Plan shall be performed or
waived prior to the consummation of the Conversion.
<PAGE>
Board of Directors
Preferred Savings Bank
June 13, 1996
Page 2
- ------------------------------------------------------------------------------
2. No amount of the savings accounts and deposits of Mutual, as of the
Eligibility Record Date or the Supplemental Eligibility Record Date, will be
excluded from participating in the liquidation account of Stock Bank, To the
best of the knowledge of the management of Mutual there is not now, nor will
there be at the time of the Conversion, any plan or intention, on the part of
the depositors in Mutual to withdraw their deposits following the Conversion.
Deposits withdrawn immediately prior to or immediately subsequent to the
Conversion (other than maturing deposits) are considered in making these
assumptions.
3. Holding Company and Stock Bank each have no plan or intention to
redeem or otherwise acquire any of the Holding Company Conversion Stock to be
issued in the proposed transaction.
4. Immediately following the consummation of the proposed transaction,
Stock Bank will possess the same assets and liabilities as Mutual held
immediately prior to the proposed transaction, plus substantially all of the net
proceeds from the sale of its stock to Holding Company except for assets used
to pay expenses of the Conversion. The liabilities transferred to Stock Bank
were incurred by Mutual in the ordinary course of business.
5. No cash or property will be given to deposit account holders in lieu
of Subscription Rights or an interest in the liquidation account of Stock Bank.
6. Following the Conversion, Stock Bank will continue to engage in its
business in substantially the same manner as Mutual engaged in business prior to
the Conversion, and it has no plan or intention to sell or otherwise dispose of
any of its assets, except in the ordinary course of business.
7. There is no plan or intention for Stock Bank to be liquidated or
merged with amother corporation following the consummation of the Conversion.
8. The fair market value of each savings account plus aii interest in
the liquidation account of Stock Bank will, in each instance, be approximately
equal to the fair market value of each savings account of Mutual plus the
interest in the residual equity of Mutual surrendered in exchange therefor.
9. Mutual utilizes a reserve for bad debts in accordance with Section
593 of the Code and following the Conversion, Stock Bank shall likewise continue
to utilize a reserve for bad debts in accordance with Section 593 of the Code.
<PAGE>
Board of Directors
Preferred Savings Bank
June 13, 1996
Page 3
- ------------------------------------------------------------------------------
10. Mutual, Stock Bank and Holding Company are each corporations within
the meaning of Section 7701 (a)(3) of the Code. Mutual and Stock Bank are
domestic building and loan associations within the meaning of Section
7701(a)(19)(C) of the Code.
11. Holding Company has no plan or intention to sell or otherwise
dispose of the stock of Stock Bank received by it in the proposed transaction.
12. Both Stock Bank and Holding Company have no plan or intention,
either currently or at the time of Conversion, to issuee additional shares of
common stock following the proposed transaction, other than shares that may be
issued to employees and/or directors pursuant to certain stock option and stock
incentive plans or that may be issued to employee benefit plans.
13. If all of the net proceeds from the sale of Holding Company
Conversion Stock had been contributed by Holding Company to Stock Bank in
exchange for common stock of Stock Bank in the transaction, as opposed to
Holding Company retaining a portion of such net proceeds (the "retained
proceeds"), and Stock Bank immediately thereafter made a distribution of the
retained proceeds to Holding Company, Stock Bank would have sufficient current
and accumulated earnings and profits for tax purposes such that the distribution
would not result in the recapture of any portion of the bad debt reserves of
Stock Bank under Section 593(e) of the Code.
14. Assets used to pay expenses of the Conversion and all distributions
(except for regular, normal interest payments and other payments in the normal
course of business made by Mutual immediately preceding the transaction) will in
the aggregate constitute less than 1% of the net assets of Mutual and any such
expenses and distributions will be paid by Stock Bank from the proceeds of the
sale of Holding Company Conversion Stock.
15. All distributions to deposit account holders in their capacity as
deposit account holders (except for regular, normal interest payments made by
Mutual), will, in the aggregate, constitute less than 1% of the fair market
value of the net assets of Mutual.
16. At the time of the proposed transaction, the fair market value of
the assets of Mutual on a going concern basis (including intangibles) will equal
or exceed the amount of its liabilities plus the amount of liabilities to which
such assets are subject. Mutual will have a positive regulatory net worth at the
time of the Conversion.
17. Mutual is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code. The
proposed transaction does not involve
<PAGE>
Board of Directors
Preferred Savings Bank
June 13, 1996
Page 4
- ------------------------------------------------------------------------------
a receivership, foreclosure, or similar proceeding before a federal or state
agency involving a financial institution to which Section 585 or 593 of the
Code applies.
18. Mutual's Eligible Account Holders and Supplemental Eligible Account
Holders will pay expenses of the Conversion solely attributable to them, if any.
19. The liabilities of Mutual assumed by Stock Bank plus the
liabilities, if any, to which the transferred assets are subject were incurred
by Mutual in the ordinary course of its business and are associated with the
assets being transferred.
20. There will be no purchase price advantage for Mutual's deposit
account holders who purchase Holding Company Conversion Stock.
21. Neither Mutual nor Stock Bank is an investment company as defined
in Sections 368(a)(2)(F)(iii) and (iv) of the Code.
22. None of the compensation to be received by any deposit account
holder-employees of Mutual or Holding Company will be separate consideration
for, or allocable to, any of their deposits in Mutual. No interest in the
liquidation account of Stock Bank will be received by any deposit account
holder-employees as separate consideration for, or will otherwise be allocable
to, any employment agreement, and the compensation paid to each deposit account
holder-employee, during the twelve-month period preceding or subsequent to the
Conversion, will be for services actually rendered and will be commensurate with
amounts paid to the third parties bargaining at arm's-length for similar
services. No shares of Holding Company Conversion Stock will be issued to or
purchased by any deposit account holder-employee of Mutual or Holding Company at
a discount or as compensation in the proposed transaction.
23. No creditors of Mutual or the depositors in their role as
creditors, have taken any steps to enforce their claims against Mutual by
instituting bankruptcy or other legal proceedings, in either a court or
appropriate regulatory agency, that would eliminate the proprietary interests of
the Members prior to the Conversion of Mutual including depositors as the equity
holders of Mutual.
24. The proposed transaction does not involve the payment to Stock Bank
or Mutual of financial assistance from federal agencies within the meaning of
Notice 89-102, 1989-40 C.B. 1.
<PAGE>
Board of Directors
Preferred Savings Bank
June 13, 1996
Page 5
- -------------------------------------------------------------------------------
25. On a per share basis, the purchase price of Holding Company
Conversion Stock will be equal to the fair market value of such stock at the
time of the completion of the proposed transaction.
26. Mutual has received or will receive an opinion from Keller and
Company ("Appraiser's Opinion"), which concludes that the Subscription Rights to
be received by Eligible Account Holders, Supplemental Eligible Account Holders
and other eligible subscribers do not have any ascertainable fair market value,
since they are acquired by the recipients without cost, are non-transferable
and of short duration, and afford the recipients a right only to purchase
Holding Company Conversion Stock at a price equal to its estimated fair market
value, which will be the same price as the Public Offering Price for
unsubscribed shares of Holding Company Conversion Stock.
27. Mutual will not have any net operating losses, capital loss
carryovers or built-in losses at the time of the Conversion.
OPINION
Based solely on the assumptions set forth hereinabove and our analysis
and examination of applicable federal income tax laws, rulings, regulations,
judicial precedents and the Appraiser's Opinion, we are of the opinion that if
the transaction is undertaken in accordance with the above assumptions:
(1) The Conversion will constitute a reorganization within the meaning
of Section 368(a)(1)(F) of the Code. Neither Mutual nor Stock Bank will
recognize any gain or loss as a result of the transaction (Rev. Rul. 80-105,
1980-1 C.B. 78). Mutual and Stock Bank will each be a party to a reorganization
within the meaning of Section 368(b) of the Code.
(2) Stock Bank wfll recognize no gain or loss upon the receipt of money
and other property, if any, in the Conversion, in exchange for its shares.
(Section 1032(a) of the Code.)
(3) No gain or loss will be recognized by Holding Company upon the
receipt of money for Holding Company Conversion Stock. (Section 1032(a) of the
Code.)
(4) The basis of Mutual's assets in the hands of Stock Bank wi11 be the
same as the basis of those assets in the hands of Mutual immediately prior to
the transaction. (Section 362(b) of the Code.)
<PAGE>
Board of Directors
Preferred Savings Bank
June 13, 1996
Page 6
- ------------------------------------------------------------------------------
(5) Stock Bank's holding period of the assets of Mutual will include
the period during which such assets were held by Mutual prior to the Conversion.
(Section 1223(2) of the Code).
(6) Stock Bank, for purposes of Section 381 of the Code, will be
treated as if there had been no reorganization. The tax attributes of Mutual
enumerated in Section 381 (a) of the Code will be taken into account by Stock
Bank as if there had been no reorganization. Accordingly, the tax, year of
Mutual will not end on the effective date of the Conversion. The part of the tax
year of Mutual before the Conversion will be includible in the tax year of Stock
Bank after the Conversion. Therefore, Mutual will not have to file a federal
income tax return for the portion of the tax year prior to the Conversion. (Rev.
Rul. 57-276, 1957-1 C.B. 126).
(7) Depositors will realize gain, if any, upon the constructive
issuance to them of withdrawable deposit accounts of Stock Bank, Subscription
Rights and/or interests in the liquidation account of Stock Bank. Any gain
resulting therefrom will be recognized, but only in an amount not in excess of
the fair market value of the liquidation accounts and/or Subscription Rights
received. The liquidation accounts will have nominal, if any, fair market value.
Based solely on the accuracy of the conclusion reached in the Appraiser's
Opinion, and our reliance on such opinion, that the Subscription Rights have no
value at the time of distribution or exercise, no gain or loss will be required
to be recognized by depositors upon receipt or distribution of Subscription
Rights, (Section 1001 of the Code); See Paulsen v. Commissioner, 469 U.S.
131,139 (1985). Likewise, based solely on the accuracy of the aforesaid
conclusion reached in the Appraiser's Opinion, and our reliance thereon, we give
the following opinions: (a) no taxable income will be recognized by the
borrowers, directors, officers and employees of Mutual upon the distribution to
them of Subscription Rights or upon the exercise or lapse of the Subscription
Rights to acquire Holding Company Conversion Stock at fair market value; (b) no
taxable income will be realized by the depositors of Mutual as a result of the
exercise or lapse of the Subscription Rights to purchase Holding Company
Conversion Stock at fair market value. Rev. Rut. 56-572, 1956-2 C.B. 182; and
(c) no taxable income will be realized by Mutual, Stock Bank or Holding Company
on the issuance or distribution of Subscription Rights to depositors of Mutual
to purchase shares of Holding Company Conversion Stock at fair market value.
(Section 311 of the Code.)
Notwithstanding the Appraiser's Opinion, 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 Stock Bank may be taxable
on the distribution of the Subscription Rights. (Section 311 of the Code). In
this regard, the Subscription Rights may be taxed partially or entirely at
ordinary income tax rates.
<PAGE>
Board of Directors
Preferred Savings Bank
June 13, 1996
Page 7
- ------------------------------------------------------------------------------
(8) The creation of the liquidation account on the records of Stock
Bank will have no effect on Mutual's or Stock Bank's taxable income, deductions,
or additions to the reserve for bad debts under Section 593 of the Code, or
distributions to shareholders under Section 593(e).
(9) Pursuant to the provisions of Section 381(c)(4) of the Code and
Section 1.381 (c)(4)-l (a)(1)(ii) of the Income Tax Regulations, Stock Bank will
succeed to and take into account, immediately after the reorganization, the
dollar amounts of those accounts of Mutual which represent bad debt reserves in
respect of which Mutual has taken a bad debt deduction for taxable years ending
on or before the date of the reorganization. The bad debt reserves will not be
required to be restored to the gross income of either Mutual or Stock Bank as a
result of the Conversion for the taxable year of the reorganization, and such
bad debt reserves will have the same character in the hands of Stock Bank as
they would have had in the hands of Mutual if no reorganization had occurred.
No opinion is being expressed as to whether the bad debt reserves will be
required to be restored to the gross income of either Mutual br Stock Bank for
the taxable year of the transfer if Mutual or Stock Bank fails to meet the
requirements of Section 593(a)(2) of the Code during such taxable year.
(10) A depositor's basis in the savings deposits of Stock Bank will be
the same as the basis of his savings deposits in Mutual. (Section 1012 of the
Code). Based upon the Appraiser's Opinion, the basis of the Subscription Rights
will be zero. The basis of the interest in the liquidation account of Stock Bank
received by Eligible Account Holders and Supplemental Eligible Account Holders
will be equal to the cost of such property, i.e., the fair market value of the
proprietary interest in Mutual, which in this transaction we assunie to be zero.
(11) The basis of Holding Compaiiy Conversion Stock to its shareholders
will be the purchase price thereof. (Section 1012 of the Code).
(12) A shareholder's holding period for Holding Company Conversion
Stock acquired through the exercise of the Subscription Rights shall begin on
the date on which the Subscription Rights are exercised. (Section 1223(6) of the
Code). The holding period for the Holding Company Conversion Stock purchase
pursuant to the direct community offering, public offering or under other
purchase arrangements will commence on the date following the date on which such
stock is purchased. (Rev. Rul.70-598, 1970-2 C.B. 168).
(13) Regardless of any book entries that are made for the eqtablishment
of a liquidation account, the reorganization will not diminish the accumulated
earnings and profits of Mutual available for the subsequent distribution of
dividends, within the meaning of Section 316 of the Code. Section 1.312-1l(b)
and (c) of the Regulations. Stock Bank will succeed to and take into
<PAGE>
Board of Directors
Preferred Savings Bank
June 13, 1996
Page 8
- --------------------------------------------------------------------------------
account the earnings and profits or deficit in earnings and profits, of Mutual
as of the date of Conversion.
The above opinions are effective to the extent that Mutual is solvent.
No opinion is expressed about the tax treatment of the transaction if Mutual is
insolvent. Whether or not Mutual is solvent will be determined at the end of the
taxable year in which the transaction is consummated.
No opinion is expressed as to the tax treatment of the transaction
under the provisions of any of the other sections of the Code and Income Tax
Regulations which may also be applicable thereto, or to the tax treatment of any
conditions existing at the time of, or effects resulting from, the transaction
which are not specifically covered by the opinions set forth above.
Respectfully submitted,
SILVER, FREEDMAN & TAFF, L.L.P.
/s/ B.P. Taff, P.C.
----------------------------------
<PAGE>
Exhibit 8.2
Opinion of Crowe, Chizek and Company LLP
with Respect to
Illinois Income Tax Consequences of the Conversion
<PAGE>
[LOGO]
CROWE CHIZEK
August 27, 1996
Board of Directors
Preferred Savings Bank
4800 S. Pulaski
Chicago, IL 60632
RE: Illinois Income Tax Opinion relating to the conversion of Preferred
Savings Bank from a Federally Chartered Mutual Savings Bank to a
Federally Chartered Stock Savings Bank under Section 368(a)(1)(F) of
the Internal Revenue Code of 1986, as amended.
Ladies and Gentlemen:
In accordance with your request, we render our opinion relating to the Illinois
income tax consequences of the proposed conversion of Preferred Savings Bank.
Statement of Facts
The facts and circumstances surrounding the proposed charter conversion are
quite detailed and are described at length in the Plan of Conversion and the
Federal Tax Opinion issued by Silver, Freedman, & Taff, L.L.P. However, a brief
summary of the proposed Plan of Conversion is as follows:
Preferred Savings Bank ("Mutual") is a federally chartered mutual savings bank.
As a mutual savings bank, Mutual has no authorized stock. For what are stated to
be valid business reasons, Mutual wishes to amend its charter to permit it to
continue operations in the form of a federally chartered stock savings bank
("Stock Bank"). The fair market value of Stock Bank deposit accounts received by
Mutual deposit account holders will be equal to the fair market value of Mutual
deposit accounts surrendered as a result of the conversion process.
Opinion
You have provided us with a copy of the federal income tax opinion of the
proposed transaction prepared by Silver, Freedman, & Taff, L.L.P., dated June
13, 1996, in which they have opined that the transaction will be a transaction
described in Section 368(a)(1)(F) of the Internal Revenue Code of 1986, as
amended.
<PAGE>
Our opinion regarding the Illinois tax consequences is based on the facts and
incorporates the capitalized terms contained in the Silver, Freedman, & Taff,
L.L.P. federal tax opinion. Our opinion on the Illinois tax consequences assumes
that the final federal income tax consequences of the proposed transaction will
be those outlined in the Silver, Freedman, & Taff, L.L.P. federal tax opinion.
Should it finally be determined that the facts and the federal income tax
consequences are not as outlined in the Silver, Freedman, & Taff, L.L.P. federal
opinion, the Illinois tax consequences and our Illinois tax opinion will differ
from what is contained herein. Our opinion is based on the current Illinois tax
law which is subject to change.
Our opinion adopts and relies upon the facts, assumptions, and conclusions as
set forth in the Silver, Freedman, & Taff, L.L.P. federal income tax opinion
letter. Based upon that information, we render the following opinion with
respect to the Illinois income tax consequences of the proposed transaction.
(1) No gain or loss shall be recognized by Mutual or Stock Bank as a result
of the conversion. ITA Sec. 403(a)(35 ILCS 5/403(a))
(2) Stock Bank will recognize no gain or loss upon the receipt of money and
other property, if any, in the conversion, in exchange for Bank
Conversion Stock. ITA Sec. 403(a)(35 ILCS 5/403(a))
(3) No gain or loss will be recognized by the Holding Company upon the
receipt of money for Holding Company Conversion Stock. ITA Sec.
403(a)(35 ILCS 5/403(a)).
(4) The basis of Mutual's assets in the hands of Stock Bank will be the
same as the basis of those assets in the hands of Mutual immediately
prior to the transaction. ITA Sec. 403(a)(35 ILCS 5/403(a))
(5) Stock Bank's holding period of the assets of Mutual will include the
period during which such assets were held by Mutual prior to the
conversion. ITA Sec. 403(a)(35 ILCS 5/403(a))
(6) The tax attributes of Mutual will be taken into account by Stock Bank
as if there had been no reorganization. Accordingly, the tax year of
Mutual will not end on the effective date of the conversion. The part
of the tax year of Mutual before the conversion will be includable in
the tax year of Stock Bank after the conversion. Therefore, Mutual will
not have to file a federal income tax return for the portion of the tax
year prior to the conversion. ITA Sec. 401(a)(35 ILCS 5/401(a))
<PAGE>
(7) Depositors will realize gain, if any, upon the constructive issuance to
them of withdrawable deposit accounts of Stock Bank, Subscription
Rights and/or interests in the liquidation account of Stock Bank. Any
gain resulting therefrom will be recognized, but only in an amount not
in excess of the fair market value of the liquidation accounts and/or
Subscription Rights received. The liquidation accounts will have
nominal, if any, fair market value. Based solely on the accuracy of the
conclusion reached in the Appraiser's Opinion, and our reliance on such
opinion, that the Subscription Rights have no value at the time of
distribution or exercise, no gain or loss will be required to be
recognized by depositors upon receipt or distribution of Subscription
Rights. Likewise, based solely on the accuracy of the aforesaid
conclusion reached in the Appraiser's Opinion, and our reliance
thereon, we give the following opinions: (a) no taxable income will be
recognized by the borrowers, directors, officers, and employees of
Mutual upon the distribution to them of Subscription Rights or upon the
exercise or lapse of the Subscription Rights to acquire Bank Conversion
Stock at fair market value; (b) no taxable income will be realized by
the depositors of Mutual as a result of the exercise or lapse of the
Subscription Rights to purchase Bank Conversion Stock at fair market
value; and (c) no taxable income will be realized by Mutual or Stock
Bank on the issuance or distribution of Subscription Rights to
depositors of Mutual to purchase shares of Bank Conversion Stock at
fair market value. ITA Sec. 203(a)(1)(35 ILCS 5/203(a)(1))
Notwithstanding the Appraiser's Opinion, 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 Stock Bank may be
taxable on the distribution of the Subscription Rights.
(8) The creation of the liquidation account on the records of Stock Bank
will have no effect on Mutual's or Stock Bank's taxable income,
deductions, or additions to the reserve for bad debts or distributions
to shareholders. ITA Sec. 403(a)(35 ILCS 5/403(a))
(9) Stock Bank will succeed to and take into account, immediately after the
reorganization, the dollar amounts of those accounts of Mutual which
represent bad debt reserves in respect of which Mutual has taken a bad
debt deduction of taxable years ending on or before the date of the
reorganization. The bad debt reserves will not be required to be
restored to the gross income of either Mutual or Stock Bank as a
consequence of the conversion for the taxable year of the
reorganization, and such bad debt reserves will have the same character
in the hands of Stock Bank as they would have had in the hands of
Mutual if no reorganization had occurred. ITA Sec. 402(a)(35 ILCS
5/402(a))
<PAGE>
(10) A depositor's basis in the savings deposits of Stock Bank will be the
same as the basis of his savings deposits in Mutual. Based upon the
Appraiser's Opinion, the basis of the Subscription Rights will be zero.
The basis of the interest in the liquidation account of Stock Bank
received by Eligible Account Holders and Supplemental Eligible Account
Holders will be equal to the cost of such property; i.e., the fair
market value of the propriety interest in Mutual, which in this
transaction we assume to be zero. ITA Sec. 203(a)(1)(35 ILCS
5/203(a)(1))
(11) The basis of Bank Conversion Stock to its shareholders will be the
purchase price thereof. ITA Sec. 203(a)(1)(35 ILCS 5/203(a)(1))
(12) A shareholder's holding period for Bank Conversion Stock acquired
through the exercise of the Subscription Rights shall begin on the date
on which the Subscription Rights are exercised. The holding period for
the Bank Conversion Stock purchased pursuant to the Direct Community
Offering, public offering, or under other purchase arrangements will
commence on the date following the date on which such stock is
purchased. . ITA Sec. 203(a)(1)(35 ILCS 5/203(a)(1))
(13) Regardless of any book entries that are made for the establishment of a
liquidation account, the reorganization will not diminish the
accumulated earnings and profits of Mutual available for the subsequent
distribution of dividends. Stock Bank will succeed to and take into
account the earnings and profits, or deficit in earnings and profits,
of Mutual as of the date of conversion. ITA Sec. 403(a)(35 ILCS
5/403(a))
The above opinions are effective to the extent that Mutual is solvent. No
opinion is expressed about the tax treatment of the transaction if Mutual is
insolvent. Whether or not Mutual is solvent will be determined at the end of the
taxable year in which the transaction is consummated.
Our opinion is based upon legal authorities currently in effect, which
authorities are subject to modification or challenge at any time and perhaps
with retroactive effect. Further, no opinion is expressed under the provisions
of any of the other sections of the Illinois Code and Income Tax Regulations
which may also be applicable thereto, or to the tax treatments of any conditions
existing at the time of, or effects resulting from, the transaction which are
not specifically covered by the opinions set forth above.
If any fact contained in this opinion letter or the Silver, Freedman, & Taff,
L.L.P. federal income tax opinion letter changes to alter the federal tax
treatment, it is imperative we be notified to determine the affect on the
Illinois income tax consequences, if any.
Very truly yours,
/s/ Crowe, Chizek and Company LLP
- -------------------------------------------
Crowe, Chizek and Company LLP
<PAGE>
Exhibit 8.3
Opinion of Keller & Company, Inc. with Respect
to Subscription Rights
<PAGE>
August 29, 1996
Board of Directors
Preferred Savings Bank
4800 S. Pulaski Road
Chicago, IL 60632
Re: Subscription Rights -- Conversion of Preferred Savings Bank
Chicago, Illinois
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 PS Financial, Inc.
("PS Financial" or the "Corporation"), Chicago, Illinois, in regard to the
conversion of Preferred Savings Bank ("Preferred") from a federally-chartered
mutual savings bank to a federally-chartered stock savings bank.
Because the Subscription Rights to purchase shares of Common Stock in
Preferred, which are to be issued to the depositors of Preferred and the other
members of Preferred 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.
Michael R. Keller
President
<PAGE>
Exhibit 10.1
Form of Proposed Stock Option and Incentive Plan
<PAGE>
PS Financial, Inc.
1996 STOCK OPTION AND INCENTIVE PLAN
1. Plan Purpose. The purpose of the Plan is to promote the long-term
interests of the Corporation and its stockholders by providing a means for
attracting and retaining directors, advisory directors, directors emeriti,
officers and employees of the Corporation and its Affiliates. It is intended
that designated Options granted pursuant to the provisions of this Plan to
persons employed by the Corporation or its Affiliates will qualify as Incentive
Stock Options. Options granted to persons who are not employees will be
Non-Qualified Stock Options.
2. Definitions. The following definitions are applicable to the Plan:
"Affiliate" - means any "parent corporation" or "subsidiary corporation"
of the Corporation, as such terms are defined in Section 424(e) and (f),
respectively, of the Code.
"Bank" - means Preferred Savings Bank and any successor entity.
"Award" - means the grant of an Incentive Stock Option, a Non-Qualified
Stock Option, a Stock Appreciation Right, a Limited Stock Appreciation Right or
any combination thereof, as provided in the Plan.
"Code" - means the Internal Revenue Code of 1986, as amended.
"Committee" - means the Committee referred to in Section 3 hereof.
"Continuous Service" - means the absence of any interruption or
termination of service as a director, advisory director, director emeritus,
officer or employee of the Corporation or an Affiliate, except that when used
with respect to any Options or Rights which at the time of exercise are
intended to be Incentive Stock Options, continuous service means the absence of
any interruption or termination of service as an employee of the Corporation or
an Affiliate. Service shall not be considered interrupted in the case of sick
leave, military leave or any other leave of absence approved by the Corporation
or in the case of transfers between payroll locations of the Corporation or
between the Corporation, its parent, its subsidiaries or its successor. With
respect to any advisory director or director emeritus, continuous service shall
mean availability to perform such functions as may be required of such persons.
"Corporation" - means PS Financial, Inc., a Delaware corporation.
"Disinterested Person" - means any member of the Board of Directors of the
Corporation who (A) is an outside director as defined under Section 162 (m) of
the Code and the regulations thereunder and (B) a person who within the prior
year has not been, and is not being, granted any awards related to the Shares
under this Plan or any other plan of the Corporation or any of its Affiliates
except for awards which (i) are calculated in accordance with a formula as
contemplated in paragraph (c)(2)(ii) of Rule 16b-3 ("Rule 16b-3") under the
Securities Exchange Act of 1934; (ii) result from participation in an ongoing
securities acquisition plan meeting the conditions of paragraph (d)(2) of Rule
16b-3; or (iii) arise from an election by a director to receive all or part of
his board fees in securities. No recipient of a stock award granted pursuant to
Section 19 hereof shall be deemed not to be a Disinterested Person solely by
reason of such grant.
"Employee" - means any person, including an officer or director, who is
employed by the Corporation or any Affiliate.
"ERISA" - means the Employee Retirement Income Security Act of 1974, as
amended.
"Exercise Price" - means (i) in the case of an Option, the price per Share
at which the Shares subject to such Option may be purchased upon exercise of
such Option and (ii) in the case of a Right, the price per Share (other than the
Market Value per Share on the date of exercise and the Offer Price per Share as
defined in Section 10
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hereof) which, upon grant, the Committee determines shall be utilized in
calculating the aggregate value which a Participant shall be entitled to receive
pursuant to Sections 9, 10 or 12 hereof upon exercise of such Right.
"Incentive Stock Option" - means an option to purchase Shares granted by
the Committee pursuant to Section 6 hereof which is subject to the limitations
and restrictions of Section 8 hereof and is intended to qualify under Section
422(b) of the Code.
"Limited Stock Appreciation Right" - means a stock appreciation right with
respect to Shares granted by the Committee pursuant to Sections 6 and 10 hereof.
"Market Value" - means the average of the high and low quoted sales price
on the date in question (or, if there is no reported sale on such date, on the
last preceding date on which any reported sale occurred) of a Share on the
Composite Tape for the New York Stock Exchange-Listed Stocks, or, if on such
date the Shares are not quoted on the Composite Tape, on the New York Stock
Exchange, or, if the Shares are not listed or admitted to trading on such
Exchange, on the principal United States securities exchange registered under
the Securities Exchange Act of 1934 on which the Shares are listed or admitted
to trading, or, if the Shares are not listed or admitted to trading on any such
exchange, the mean between the closing high bid and low asked quotations with
respect to a Share on such date on the NASDAQ System, or any similar system then
in use, or, if no such quotations are available, the fair market value on such
date of a Share as the Committee shall determine.
"Non-Qualified Stock Option" - means an option to purchase Shares granted
by the Committee pursuant to Section 6 hereof which is not intended to qualify
under Section 422(b) of the Code.
"Option" - means an Incentive Stock Option or a Non-Qualified Stock
Option.
"Participant" - means any director, advisory director, director emeritus,
officer or employee of the Corporation or any Affiliate who is selected by the
Committee to receive an Award or who is granted an Award pursuant to Section 19
hereof.
"Plan" - means the 1996 Stock Option and Incentive Plan of the
Corporation.
"Related" - means (i) in the case of a Right, a Right which is granted in
connection with, and to the extent exercisable, in whole or in part, in lieu of,
an Option or another Right and (ii) in the case of an Option, an Option with
respect to which and to the extent a Right is exercisable, in whole or in part,
in lieu thereof has been granted.
"Right" - means a Limited Stock Appreciation Right or a Stock
Appreciation Right.
"Shares" - means the shares of common stock of the Corporation.
"Senior Officer" - means the Corporation's president, principal financial
officer, principal accounting officer (or if there is no such accounting
officer, the controller), any vice president of the Corporation in charge of a
principal business unit, division or function (such as sales, administration or
finance), any other officer who performs a policy-making function, or any other
person who performs similar policy-making functions for the Corporation.
Officers of the Corporation's Affiliates shall be deemed Senior Officers of the
Corporation if they perform such policy-making functions for the Corporation.
"Stock Appreciation Right" - means a stock appreciation right with respect
to Shares granted by the Committee pursuant to Sections 6 and 9 hereof.
"Ten Percent Beneficial Owner" - means the beneficial owner of more than
ten percent of any class of the Corporation's equity securities registered
pursuant to Section 12 of the Securities Exchange Act of 1934.
3. Administration. The Plan shall be administered by a Committee
consisting of two or more members, each of whom shall be a Disinterested Person.
The members of the Committee shall be appointed by the Board of Directors of
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the Corporation. Except as limited by the express provisions of the Plan, the
Committee shall have sole and complete authority and discretion, subject to
Office of Thrift Supervision Regulations, to (i) select Participants and grant
Awards; (ii) determine the number of Shares to be subject to types of Awards
generally, as well as to individual Awards granted under the Plan; (iii)
determine the terms and conditions upon which Awards shall be granted under the
Plan; (iv) prescribe the form and terms of instruments evidencing such grants;
and (v) establish from time to time regulations for the administration of the
Plan, interpret the Plan, and make all determinations deemed necessary or
advisable for the administration of the Plan.
A majority of the Committee shall constitute a quorum, and the acts of a
majority of the members present at any meeting at which a quorum is present, or
acts approved in writing by a majority of the Committee without a meeting, shall
be acts of the Committee.
4. Participation in Committee Awards. The Committee may select from time
to time Participants in the Plan from those directors (including advisory
directors and directors emeriti), officers and employees (other than
Disinterested Persons), of the Corporation or its Affiliates who, in the opinion
of the Committee, have the capacity for contributing to the successful
performance of the Corporation or its Affiliates.
5. Shares Subject to Plan. Subject to adjustment by the operation of
Section 11 hereof, the maximum number of Shares with respect to which Awards may
be made under the Plan is 10% of the total Shares issued in the Bank's
conversion to the capital stock form. The Shares with respect to which Awards
may be made under the Plan may be either authorized and unissued shares or
issued shares heretofore or hereafter reacquired and held as treasury shares.
Shares which are subject to Related Rights and Related Options shall be counted
only once in determining whether the maximum number of Shares with respect to
which Awards may be granted under the Plan has been exceeded. An Award shall not
be considered to have been made under the Plan with respect to any Option or
Right which terminates and new Awards may be granted under the Plan with respect
to the number of Shares as to which such termination has occurred. Any Award
made pursuant to this Plan, which Award is subject to the requirements of Office
of Thrift Supervision Regulations, shall vest in five equal annual installments
with the first installment vesting on the one-year anniversary of the date of
grant, except in the event of death or disability.
As required by Office of Thrift Supervision Regulations, each non-employee
director of the Corporation may not be granted Awards with respect to more than
5% of the total shares subject to the Plan and all non-employee directors of the
Corporation, in the aggregate, may not be granted Awards with respect to more
than 30% of the total shares subject to the Plan.
In the event Office of Thrift Supervision Regulations are amended (the
"Amended Regulations") to permit shorter vesting periods, any Award made
pursuant to this Plan, which Award is subject to the requirements of such
Amended Regulations, may vest, at the sole discretion of the Committee, in
accordance with such Amended Regulations.
6. General Terms and Conditions of Options and Rights. The Committee shall
have full and complete authority and discretion, subject to Office of Thrift
Supervision Regulations and except as expressly limited by the Plan, to grant
Options and/or Rights and to provide the terms and conditions (which need not be
identical among Participants) thereof. In particular, the Committee shall
prescribe the following terms and conditions: (i) the Exercise Price of any
Option or Right, which shall not be less than the Market Value per Share at the
date of grant of such Option or Right, (ii) the number of Shares subject to, and
the expiration date of, any Option or Right, which expiration date shall not
exceed ten years from the date of grant, (iii) the manner, time and rate
(cumulative or otherwise) of exercise of such Option or Right, and (iv) the
restrictions, if any, to be placed upon such Option or Right or upon Shares
which may be issued upon exercise of such Option or Right. The Committee may, as
a condition of granting any Option or Right, require that a Participant agree
not to thereafter exercise one or more Options or Rights previously granted to
such Participant. Notwithstanding the foregoing and subject to compliance with
applicable Office of Thrift Supervision Regulations, no individual shall be
granted Awards in any calendar year with respect to more than 25% of the total
shares subject to the Plan in any calendar year or during the entire term of the
Plan.
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Furthermore, at the time of any Award, the Participant shall enter into an
agreement with the Corporation in a form specified by the Committee, agreeing to
the terms and conditions of the Award and such other matters as the Committee,
in its sole discretion, shall determine (the "Option Agreement").
7. Exercise of Options or Rights.
(a) Except as provided herein, an Option or Right granted under the Plan shall
be exercisable during the lifetime of the Participant to whom such Option
or Right was granted only by such Participant and, except as provided in
paragraphs (c) and (d) of this Section 7, no such Option or Right may be
exercised unless at the time such Participant exercises such Option or
Right, such Participant has maintained Continuous Service since the date
of grant of such Option or Right. Cash settlements of Rights may be made
only in accordance with any applicable restrictions pursuant to Rule
16b-3(e) under the Securities Exchange Act of 1934 or any similar or
successor provision.
(b) To exercise an Option or Right under the Plan, the Participant to whom
such Option or Right was granted shall give written notice to the
Corporation in form satisfactory to the Committee (and, if partial
exercises have been permitted by the Committee, by specifying the number
of Shares with respect to which such Participant elects to exercise such
Option or Right) together with full payment of the Exercise Price, if any
and to the extent required. The date of exercise shall be the date on
which such notice is received by the Corporation. Payment, if any is
required, shall be made either (i) in cash (including check, bank draft or
money order) or (ii) if permitted by the Committee, by delivering (A)
Shares already owned by the Participant and having a fair market value
equal to the applicable exercise price, such fair market value to be
determined in such appropriate manner as may be provided by the Committee
or as may be required in order to comply with or to conform to
requirements of any applicable laws or regulations, or (B) a combination
of cash and such Shares.
(c) If a Participant to whom an Option or Right was granted shall cease to
maintain Continuous Service for any reason (excluding death, disability
and termination of employment by the Corporation or any Affiliate for
cause), such Participant may, but only within the period of three months
immediately succeeding such cessation of Continuous Service and in no
event after the expiration date of such Option or Right, exercise such
Option or Right to the extent that such Participant was entitled to
exercise such Option or Right at the date of such cessation, provided,
however, that such right of exercise after cessation of Continuous Service
shall not be available to a Participant if the Committee otherwise
determines and so provides in the applicable instrument or instruments
evidencing the grant of such Option or Right. If a Participant to whom an
Option or Right was granted shall cease to maintain Continuous Service by
reason of death or disability then, unless the Committee shall have
otherwise provided in the instrument evidencing the grant of an Option or
Right, all Options and Rights granted and not fully exercisable shall
become exercisable in full upon the happening of such event and shall
remain so exercisable (i) in the event of death for the period described
in paragraph (d) of this Section 7 and (ii) in the event of disability for
a period of three months following such date. If the Continuous Service of
a Participant to whom an Option or Right was granted by the Corporation is
terminated for cause, all rights under any Option or Right of such
Participant shall expire immediately upon the effective date of such
termination.
(d) In the event of the death of a Participant while in the Continuous Service
of the Corporation or an Affiliate or within the three-month period
referred to in paragraph (c) of this Section 7, the person to whom any
Option or Right held by the Participant at the time of his death is
transferred by will or the laws of descent and distribution, or in the
case of an Award other than an Incentive Stock Option, pursuant to a
qualified domestic relations order, as defined in the Code or Title 1 of
ERISA or the rules thereunder may, but only to the extent such Participant
was entitled to exercise such Option or Right upon his death as provided
in paragraph (c) above, exercise such Option or Right at any time within a
period of one year succeeding the date of death of such Participant, but
in no event later than ten years from the date of grant of such Option or
Right. Following the death of any Participant to whom an Option was
granted under the Plan, irrespective of whether any Related Right shall
have theretofore been granted to the Participant or whether the person
entitled to exercise such Related Right desires to do so, the Committee
may, as an alternative means of settlement of such Option, elect to pay to
the person to whom such Option is transferred by will or by the laws of
descent and
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distribution, or in the case of an Option other than an Incentive Stock
Option, pursuant to a qualified domestic relations order, as defined in
the Code or Title I of ERISA or the rules thereunder, the amount by which
the Market Value per Share on the date of exercise of such Option shall
exceed the Exercise Price of such Option, multiplied by the number of
Shares with respect to which such Option is properly exercised. Any such
settlement of an Option shall be considered an exercise of such Option for
all purposes of the Plan.
(e) Notwithstanding the provisions of subparagraphs (c) and (d) above, the
Committee may, in its sole discretion, establish different terms and
conditions pertaining to the effect of termination to the extent permitted
by applicable federal and state law.
8. Incentive Stock Options. Incentive Stock Options may be granted only to
Participants who are Employees. Any provision of the Plan to the contrary
notwithstanding, (i) no Incentive Stock Option shall be granted more than ten
years from the date the Plan is adopted by the Board of Directors of the
Corporation and no Incentive Stock Option shall be exercisable more than ten
years from the date such Incentive Stock Option is granted, (ii) the Exercise
Price of any Incentive Stock Option shall not be less than the Market Value per
Share on the date such Incentive Stock Option is granted, (iii) any Incentive
Stock Option shall not be transferable by the Participant to whom such Incentive
Stock Option is granted other than by will or the laws of descent and
distribution, and shall be exercisable during such Participant's lifetime only
by such Participant, (iv) no Incentive Stock Option shall be granted to any
individual who, at the time such Incentive Stock Option is granted, owns stock
possessing more than ten percent of the total combined voting power of all
classes of stock of the Corporation or any Affiliate unless the Exercise Price
of such Incentive Stock Option is at least 110 percent of the Market Value per
Share at the date of grant and such Incentive Stock Option is not exercisable
after the expiration of five years from the date such Incentive Stock Option is
granted, and (v) the aggregate Market Value (determined as of the time any
Incentive Stock Option is granted) of the Shares with respect to which Incentive
Stock Options are exercisable for the first time by a Participant in any
calendar year shall not exceed $100,000.
9. Stock Appreciation Rights. A Stock Appreciation Right shall, upon its
exercise, entitle the Participant to whom such Stock Appreciation Right was
granted to receive a number of Shares or cash or combination thereof, as the
Committee in its discretion shall determine, the aggregate value of which (i.e.,
the sum of the amount of cash and/or Market Value of such Shares on date of
exercise) shall equal (as nearly as possible, it being understood that the
Corporation shall not issue any fractional shares) the amount by which the
Market Value per Share on the date of such exercise shall exceed the Exercise
Price of such Stock Appreciation Right, multiplied by the number of Shares with
respect of which such Stock Appreciation Right shall have been exercised. A
Stock Appreciation Right may be Related to an Option or may be granted
independently of any Option as the Committee shall from time to time in each
case determine. At the time of grant of an Option the Committee shall determine
whether and to what extent a Related Stock Appreciation Right shall be granted
with respect thereto, provided, however, and notwithstanding any other provision
of the Plan, that if the Related Option is an Incentive Stock Option, the
Related Stock Appreciation Right shall satisfy all the restrictions and
limitations of Section 8 hereof as if such Related Stock Appreciation Right were
an Incentive Stock Option and as if other rights which are Related to Incentive
Stock Options were Incentive Stock Options. In the case of a Related Option,
such Related Option shall cease to be exercisable to the extent of the Shares
with respect to which the Related Stock Appreciation Right was exercised. Upon
the exercise or termination of a Related Option, any Related Stock Appreciation
Right shall terminate to the extent of the Shares with respect to which the
Related Option was exercised or terminated.
10. Limited Stock Appreciation Rights. At the time of grant of an Option
or Stock Appreciation Right to any Participant, the Committee shall have full
and complete authority and discretion to also grant to such Participant a
Limited Stock Appreciation Right which is Related to such Option or Stock
Appreciation Right, provided, however and notwithstanding any other provision of
the Plan, that if the Related Option is an Incentive Stock Option, the Related
Limited Stock Appreciation Right shall satisfy all the restrictions and
limitations of Section 8 hereof as if such Related Limited Stock Appreciation
Right were an Incentive Stock Option and as if all other Rights which are
Related to Incentive Stock Options were Incentive Stock Options. Subject to
vesting requirements contained in 12 C.F.R. ss. 563b.3(g)(4) or any successor
regulation, a Limited Stock Appreciation Right shall be exercisable only during
the period beginning on the first day following the date of expiration of any
"offer" (as such term is hereinafter defined) and ending on the forty-fifth day
following such date.
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A Limited Stock Appreciation Right shall, upon its exercise, entitle the
Participant to whom such Limited Stock Appreciation Right was granted to receive
an amount of cash equal to the amount by which the "Offer Price per Share" (as
such term is hereinafter defined) or the Market Value on the date of such
exercise, as shall have been provided by the Committee in its discretion at the
time of grant, shall exceed the Exercise Price of such Limited Stock
Appreciation Right, multiplied by the number of Shares with respect to which
such Limited Stock Appreciation Right shall have been exercised. Upon the
exercise of a Limited Stock Appreciation Right, any Related Option and/or
Related Stock Appreciation Right shall cease to be exercisable to the extent of
the Shares with respect to which such Limited Stock Appreciation Right was
exercised. Upon the exercise or termination of a Related Option or Related
Stock Appreciation Right, any Related Limited Stock Appreciation Right shall
terminate to the extent of the Shares with respect to which such Related Option
or Related Stock Appreciation Right was exercised or terminated.
For the purposes of this Section 10, the term "Offer" shall mean any
tender offer or exchange offer for Shares other than one made by the
Corporation, provided that the corporation, person or other entity making the
offer acquires pursuant to such offer either (i) 25% of the Shares outstanding
immediately prior to the commencement of such offer or (ii) a number of Shares
which, together with all other Shares acquired in any tender offer or exchange
offer (other than one made by the Corporation) which expired within sixty days
of the expiration date of the offer in question, equals 25% of the Shares
outstanding immediately prior to the commencement of the offer in question. The
term "Offer Price per Share" as used in this Section 10 shall mean the highest
price per Share paid in any Offer which Offer is in effect any time during the
period beginning on the sixtieth day prior to the date on which a Limited Stock
Appreciation Right is exercised and ending on the date on which such Limited
Stock Appreciation Right is exercised. Any securities or property which are part
or all of the consideration paid for Shares in the Offer shall be valued in
determining the Offer Price per Share at the higher of (A) the valuation placed
on such securities or property by the corporation, person or other entity making
such Offer or (B) the valuation placed on such securities or property by the
Committee.
11. Adjustments Upon Changes in Capitalization. In the event of any change
in the outstanding Shares subsequent to the effective date of the Plan by reason
of any reorganization, recapitalization, stock split, stock dividend,
combination or exchange of shares, merger, consolidation or any change in the
corporate structure or Shares of the Corporation, the maximum aggregate number
and class of shares as to which Awards may be granted under the Plan and the
number, class and exercise price of shares with respect to which Awards
theretofore have been granted under the Plan shall be appropriately adjusted by
the Committee, whose determination shall be conclusive.
12. Effect of Merger. In the event of any merger, consolidation or
combination of the Corporation (other than a merger, consolidation or
combination in which the Corporation is the continuing entity and which does not
result in the outstanding Shares being converted into or exchanged for different
securities, cash or other property, or any combination thereof) pursuant to a
plan or agreement the terms of which are binding upon all stockholders of the
Corporation (except to the extent that dissenting stockholders may be entitled,
under statutory provisions or provisions contained in the certificate or
articles of incorporation, to receive the appraised or fair value of their
holdings), any Participant to whom an Option or Right has been granted at least
six months prior to such event shall have the right (subject to the provisions
of the Plan and any limitation or vesting period applicable to such Option or
Right), thereafter and during the term of each such Option or Right, to receive
upon exercise of any such Option or Right an amount equal to the excess of the
fair market value on the date of such exercise of the securities, cash or other
property, or combination thereof, receivable upon such merger, consolidation or
combination in respect of a Share over the Exercise Price of such Right or
Option, multiplied by the number of Shares with respect to which such Option or
Right shall have been exercised. Such amount may be payable fully in cash, fully
in one or more of the kind or kinds of property payable in such merger,
consolidation or combination, or partly in cash and partly in one or more of
such kind or kinds of property, all in the discretion of the Committee.
13. Assignments and Transfers. No Award nor any right or interest of a
Participant under the Plan in any instrument evidencing any Award under the Plan
may be assigned, encumbered or transferred except, in the event of the death of
a Participant, by will or the laws of descent and distribution or in the case of
Awards other than
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Incentive Stock Options pursuant to a qualified domestic relations order, as
defined in the Code or Title I of ERISA or the rules thereunder.
14. Employee Rights Under the Plan. No director, officer or employee shall
have a right to be selected as a Participant nor, having been so selected, to be
selected again as a Participant and no director, officer, employee or other
person shall have any claim or right to be granted an Award under the Plan or
under any other incentive or similar plan of the Corporation or any Affiliate.
Neither the Plan nor any action taken thereunder shall be construed as giving
any employee any right to be retained in the employ of the Corporation or any
Affiliate.
15. Delivery and Registration of Stock. The Corporation's obligation to
deliver Shares with respect to an Award shall, if the Committee so requests, be
conditioned upon the receipt of a representation as to the investment intention
of the Participant to whom such Shares are to be delivered, in such form as the
Committee shall determine to be necessary or advisable to comply with the
provisions of the Securities Act of 1933 or any other Federal, state or local
securities legislation or regulation. It may be provided that any representation
requirement shall become inoperative upon a registration of the Shares or other
action eliminating the necessity of such representation under such Securities
Act or other securities legislation. The Corporation shall not be required to
deliver any Shares under the Plan prior to (i) the admission of such shares to
listing on any stock exchange or other system on which Shares may then be
listed, and (ii) the completion of such registration or other qualification of
such Shares under any state or Federal law, rule or regulation, as the Committee
shall determine to be necessary or advisable.
This Plan is intended to comply with Rule 16b-3 under the Securities
Exchange Act of 1934. Any provision of the Plan which is inconsistent with said
Rule shall, to the extent of such inconsistency, be inoperative and shall not
affect the validity of the remaining provisions of the Plan.
16. Withholding Tax. The Corporation shall have the right to deduct from
all amounts paid in cash with respect to the exercise of a Right under the Plan
any taxes required by law to be withheld with respect to such cash payments.
Where a Participant or other person is entitled to receive Shares pursuant to
the exercise of an Option or Right pursuant to the Plan, the Corporation shall
have the right to require the Participant or such other person to pay the
Corporation the amount of any taxes which the Corporation is required to
withhold with respect to such Shares, and may, in its sole discretion, withhold
sufficient Shares to cover the amount of taxes which the Corporation is required
to withhold.
17. Amendment or Termination. The Board of Directors of the Corporation
may amend, suspend or terminate the Plan or any portion thereof at any time,
subject to Office of Thrift Supervision Regulations, but (except as provided in
Section 11 hereof) no amendment shall be made without approval of the
stockholders of the Corporation which shall (i) increase the aggregate number of
Shares with respect to which Awards may be made under the Plan, (ii) materially
increase the benefits accruing to Participants, (iii) materially change the
requirements as to eligibility for participation in the Plan or (iv) change the
class of persons eligible to participate in the Plan; provided, however, that no
such amendment, suspension or termination shall impair the rights of any
Participant, without his consent, in any Award theretofore made pursuant to the
Plan.
18. Effective Date and Term of Plan. The Plan shall become effective upon
its ratification by stockholders of the Corporation. It shall continue in effect
for a term of ten years unless sooner terminated under Section 17 hereof.
19. Initial Grant. By, and simultaneously with, the ratification of this
Plan by the stockholders of the Corporation, each member of the Board of
Directors of the Corporation at the time of stockholder ratification of this
Plan who is not a full-time Employee, is hereby granted a ten-year,
Non-Qualified Stock Option to purchase ___% of the shares sold in the Conversion
at an Exercise Price per share equal to the Market Value per share of the Shares
on the date of grant. In addition, subject to availability, each director of the
Corporation elected subsequent to the date of stockholder ratification of the
Plan who is not a full-time employee is hereby granted as of the date he or she
is elected and qualified a ten-year, Non-Qualified Stock Option to purchase ___%
of the shares sold in the Conversion at an Exercise Price equal to the Market
Value per share of the Shares on the date of grant. Each such Option shall be
evidenced by a Non-Qualified Stock Option Agreement in a form approved by the
Board
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of Directors and shall be subject in all respects to the terms and conditions of
this Plan, which are controlling. All Options granted pursuant to this section
shall vest in five equal annual installments with the first installment vesting
on the first anniversary of the date of grant, subject to the Director
maintaining Continuous Service with the Corporation or its Affiliates since the
date of grant. All Options granted pursuant to this Section 19 shall be rounded
down to the nearest whole share to the extent necessary to ensure that no
Options to purchase stock representing fractional shares are granted.
20. Notwithstanding anything else in this Plan to the contrary, to the
extent that the Plan provides for formula awards, as defined in Rule
16b-3(c)(2)(ii) under the Securities Exchange Act of 1934, such provisions may
not be amended more than once every six months, other than to comport with
changes in the Code, ERISA or the rules thereunder.
8
<PAGE>
Exhibit 10.2
Form of Proposed Recognition and Retention Plan
<PAGE>
PS FINANCIAL, INC.
1996 RECOGNITION AND RETENTION PLAN
1. Plan Purpose. The purpose of the Plan is to promote the long-term
interests of the Corporation and its stockholders by providing a means for
attracting and retaining directors, executive officers and employees of the
Corporation and its Affiliates.
2. Definitions. The following definitions are applicable to the Plan:
"Award" - means the grant of Restricted Stock pursuant to the terms of
Section 12 of the Plan or by the Committee, as provided in the Plan.
"Affiliate" - means any "parent corporation" or "subsidiary corporation"
of the Corporation, as such terms are defined in Section 424(e) and (f),
respectively, of the Code.
"Bank" - means Preferred Savings Bank, a savings institution and its
successors.
"Beneficiary" - means the person or persons designated by a Participant to
receive any benefits payable under the Plan in the event of such Participant's
death. Such person or persons shall be designated in writing on forms provided
for this purpose by the Committee and may be changed from time to time by
similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Participant's surviving spouse, if
any, or if none, his estate.
"Code" - means the Internal Revenue Code of 1986, as amended.
"Committee" - means the Committee of the Board of Directors of the
Corporation referred to in Section 6 hereof.
"Continuous Service" - means the absence of any interruption or
termination of service as a director, director emeritus, advisory director,
executive officer or employee of the Corporation or any Affiliate. Service shall
not be considered interrupted in the case of sick leave, military leave or any
other leave of absence approved by the Corporation or any Affiliate or in the
case of transfers between payroll locations of the Corporation or its Affiliates
or between the Corporation, its Affiliates or its successor. With respect to any
director emeritus or advisory director, continuous service shall mean
availability to perform such functions as may be required of such individuals.
"Conversion" - means the conversion of the Bank from the mutual to the
stock form of organization.
"Corporation" - means PS Financial, Inc., a Delaware corporation.
"Disability" - means any physical or mental impairment which qualifies an
employee, director, director emeritus or advisor director for disability
benefits under any applicable long-term disability plan maintained by the Bank
or an Affiliate, or, if no such plan applies to such individual, which renders
such employee or director, in the judgment of the Committee, unable to perform
his customary duties and responsibilities.
"Disinterested Person" - means any member of the Board of Directors of the
Corporation who is not being and within the prior year has not been granted any
awards related to the shares under this Plan or any other plan of the
Corporation or any of its Affiliates except for awards which (i) are calculated
in accordance with a formula as contemplated in paragraph (c)(ii) of Rule 16b-3
("Rule 16b-3") under the Securities Exchange Act of 1934, as amended; (ii)
result from participation in an ongoing securities acquisition plan meeting the
conditions of paragraph (d)(2) of Rule 16b-3; or (iii) arise from an election by
a director to
1
<PAGE>
receive all or part of his board fees in securities. No Participant of an Award
granted pursuant to Section 12 shall fail to meet the definition of
Disinterested Person solely by reason of such Award.
"ERISA" - means the Employee Retirement Income Security Act of 1974, as
amended.
"Participant" - means any director, director emeritus, advisory director,
executive officer or employee of the Corporation or any Affiliate who is
selected by the Committee to receive an Award or a director who is granted an
award pursuant to Section 12.
"Plan" - means the 1996 Recognition and Retention Plan of the Corporation.
"Restricted Period" - means the period of time selected by the Committee
for the purpose of determining when restrictions are in effect under Section 3
hereof with respect to Restricted Stock awarded under the Plan.
"Restricted Stock" - means Shares which have been contingently awarded to
a Participant by the Committee subject to the restrictions referred to in
Section 3 hereof, so long as such restrictions are in effect.
"Shares" - means the common stock, par value $0.01 per share, of the
Corporation.
3. Terms and Conditions of Restricted Stock. The Committee shall have full
and complete authority, subject to the limitations of the Plan, to grant Awards
and, in addition to the terms and conditions contained in paragraphs (a) through
(f) of this Section 3, to provide such other terms and conditions (which need
not be identical among Participants) in respect of such Awards, and the vesting
thereof, as the Committee shall determine, subject to Office of Thrift
Supervision Regulations.
(a) At the time of an award of Restricted Stock, the Committee shall establish
for each Participant a Restricted Period, during which or at the
expiration of which, as the Committee shall determine and provide in the
agreement referred to in paragraph (d) of this Section 3, the Shares
awarded as Restricted Stock shall vest, and subject to any such other
terms and conditions as the Committee shall provide, shares of Restricted
Stock may not be sold, assigned, transferred, pledged, voted or otherwise
encumbered by the Participant, except as hereinafter provided, during the
Restricted Period. Except for such restrictions, and subject to paragraphs
(c) and (e) of this Section 3 and Section 4 hereof, the Participant as
owner of such shares shall have all the rights of a stockholder.
No director who is not an employee of the Corporation shall be granted
Awards with respect to more than 5% of the total shares subject to the
Plan. All non-employee directors of the Corporation, in the aggregate, may
not be granted Awards with respect to more than 30% of the total shares
subject to the Plan and no individual shall be granted Awards with respect
to more than 25% of the total shares subject to the Plan. No Awards shall
begin vesting earlier than one year from the date the Plan is approved by
stockholders of the Corporation and no Award shall vest at a rate in
excess of 20% per year, except in the event of death or disability. In the
event Office of Thrift Supervision Regulations are amended (the "Amended
Regulations") to permit shorter vesting periods, any Award made pursuant
to this Plan, which Award is subject to the requirements of such Amended
Regulations, may vest, at the sole discretion of the Committee, in
accordance with such Amended Regulations.
Subject to compliance with Office of Thrift Supervision Regulations, the
Committee shall have the authority, in its discretion, to accelerate the
time at which any or all of the restrictions shall lapse with respect to
an Award, or to remove any or all of such restrictions, whenever it may
determine that such action is appropriate by reason of changes in
applicable tax or other laws or other changes in circumstances occurring
after the commencement of such Restricted Period.
2
<PAGE>
(b) Except as provided in Section 5 hereof, if a Participant ceases to
maintain Continuous Service for any reason (other than death or
disability), unless the Committee shall otherwise determine, all Shares of
Restricted Stock theretofore awarded to such Participant and which at the
time of such termination of Continuous Service are subject to the
restrictions imposed by paragraph (a) of this Section 3 shall upon such
termination of Continuous Service be forfeited and returned to the
Corporation. If a Participant ceases to maintain Continuous Service by
reason of death or disability, Restricted Stock then still subject to
restrictions imposed by paragraph (a) of this Section 3 will be free of
those restrictions.
(c) Each certificate in respect of Shares of Restricted Stock awarded under
the Plan shall be registered in the name of the Participant and deposited
by the Participant, together with a stock power endorsed in blank, with
the Corporation and shall bear the following (or a similar) legend:
The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) contained in the 1996 Recognition and Retention Plan of
PS Financial, Inc. Copies of such Plan are on file in the offices of
the Secretary of PS Financial, Inc., 4800 South Pulaski Road,
Chicago, Illinois 60632.
(d) At the time of any Award, the Participant shall enter into an Agreement
with the Corporation in a form specified by the Committee, agreeing to the
terms and conditions of the Award and such other matters as the Committee,
in its sole discretion, shall determine (the "Restricted Stock
Agreement").
(e) The payment to the Participant of dividends or other distributions
declared or paid on such shares by the Corporation shall be deferred until
the lapsing of the restrictions imposed under paragraph (a) of this
Section 3, and such dividends or other distributions shall be held by the
Corporation for the account of the Participant until such time. There
shall be credited at the end of each year (or portion thereof) interest on
the amount of the deferred dividends or other distributions at a rate per
annum as the Committee, in its discretion, may determine. Payment of
deferred dividends or other distributions, together with interest accrued
thereon, shall be made upon the earlier to occur of the lapsing of the
restrictions imposed under paragraph (a) of this Section 3 or upon death
or disability of the Participant.
(f) At the lapsing of the restrictions imposed by paragraph (a) of this
Section 3, the Corporation shall deliver to the Participant (or where the
relevant provision of paragraph (b) of this Section 3 applies in the case
of a deceased Participant, to his legal representative, beneficiary or
heir) the certificate(s) and stock power deposited with it pursuant to
paragraph (c) of this Section 3 and the Shares represented by such
certificate(s) shall be free of the restrictions referred to in paragraph
(a) of this Section 3.
4. Adjustments Upon Changes in Capitalization. In the event of any change
in the outstanding Shares subsequent to the effective date of the Plan by reason
of any reorganization, recapitalization, stock split, stock dividend,
combination or exchange of shares, merger, consolidation or any change in the
corporate structure or Shares of the Corporation, the maximum aggregate number
and class of shares as to which Awards may be granted under the Plan and the
number and class of shares with respect to which Awards theretofore have been
granted under the Plan shall be appropriately adjusted by the Committee, whose
determination shall be conclusive. Any shares of stock or other securities
received as a result of any of the foregoing by a Participant with respect to
Restricted Stock shall be subject to the same restrictions and the
certificate(s) or other instruments representing or evidencing such shares or
securities shall be legended and deposited with the Corporation in the manner
provided in Section 3 hereof.
5. Assignments and Transfers. During the Restricted Period, no Award nor
any right or interest of a Participant under the Plan in any instrument
evidencing any Award under the Plan may be assigned, encumbered or transferred
except (i) in the event of the death of a Participant, by will or the laws of
descent and distribution, or (ii) pursuant to a qualified domestic relations
order as defined in the Code or Title I of ERISA or the rules thereunder.
3
<PAGE>
6. Administration. The Plan shall be administered by a Committee
consisting of two or more members, each of whom shall be a Disinterested Person.
The members of the Committee shall be appointed by the Board of Directors of the
Corporation. Except as limited by the express provisions of the Plan, the
Committee shall have sole and complete authority and discretion, subject to
Office of Thrift Supervision Regulations, to (i) select Participants and grant
Awards; (ii) determine the number of Shares to be subject to types of Awards
generally, as well as individual Awards granted under the Plan; (iii) determine
the terms and conditions upon which Awards shall be granted under the Plan; (iv)
prescribe the form and terms of instruments evidencing such grants; and (v)
establish from time to time regulations for the administration of the Plan,
interpret the Plan, and make all determinations deemed necessary or advisable
for the administration of the Plan. The Committee may maintain, and update from
time to time as appropriate, a list designating selected directors as
Disinterested Persons. The purpose of such list shall be to evidence the status
of such individuals as Disinterested Persons, and the Board of Directors may
appoint to the Committee any individual actually qualifying as a Disinterested
Person, regardless of whether identified as such on said list.
A majority of the Committee shall constitute a quorum, and the acts of a
majority of the members present at any meeting at which a quorum is present, or
acts approved in writing by a majority of the Committee without a meeting, shall
be acts of the Committee.
7. Shares Subject to Plan. Subject to adjustment by the operation of
Section 4 hereof, the maximum number of Shares with respect to which Awards may
be made under the Plan is 4% of the total Shares issued in the Association's
Conversion. The Shares with respect to which Awards may be made under the Plan
may be either authorized and unissued Shares or issued Shares heretofore or
hereafter reacquired and held as treasury Shares. An Award shall not be
considered to have been made under the Plan with respect to Restricted Stock
which is forfeited and new Awards may be granted under the Plan with respect to
the number of Shares as to which such forfeiture has occurred.
The Corporation's obligation to deliver Shares with respect to an Award
shall, if the Committee so requests, be conditioned upon the receipt of a
representation as to the investment intention of the Participant to whom such
Shares are to be delivered, in such form as the Committee shall determine to be
necessary or advisable to comply with the provisions of the Securities Act of
1933 or any other Federal, state or local securities legislation or regulation.
It may be provided that any representation requirement shall become inoperative
upon a registration of the Shares or other action eliminating the necessity of
such representation under such Securities Act or other securities legislation.
The Corporation shall not be required to deliver any Shares under the Plan prior
to (i) the admission of such shares to listing on any stock exchange on which
Shares may then be listed, and (ii) the completion of such registration or other
qualification of such Shares under any state or Federal law, rule or regulation,
as the Committee shall determine to be necessary or advisable.
8. Employee Rights Under the Plan. No director, director emeritus,
advisory director, officer or employee shall have a right to be selected as a
Participant nor, having been so selected, to be selected again as a Participant
and no director, officer, employee or other person shall have any claim or right
to be granted an Award under the Plan or under any other incentive or similar
plan of the Corporation or any Affiliate. Neither the Plan nor any action taken
thereunder shall be construed as giving any officer or employee any right to be
retained in the employ of the Corporation, the Bank or any Affiliate.
9. Withholding Tax. Upon the termination of the Restricted Period with
respect to any shares of Restricted Stock (or at such earlier time, if any, that
an election is made by the Participant under Section 83(b) of the Code, or any
successor provision thereto, to include the value of such shares in taxable
income), the Corporation may, in its sole discretion, withhold from any payment
or distribution made under this Plan sufficient Shares or withhold sufficient
cash to cover any applicable withholding and employment taxes. The Corporation
shall have the right to deduct from all dividends paid with respect to shares of
Restricted Stock the amount of any taxes which the Corporation is required to
withhold with respect to such dividend payments.
4
<PAGE>
No discretion or choice shall be conferred upon any Participant with respect to
the form, timing or method of any such tax withholding.
10. Amendment or Termination. The Board of Directors of the Corporation
may amend, suspend or terminate the Plan or any portion thereof at any time,
subject to Office of Thrift Supervision Regulations, but (except as provided in
Section 4 hereof) no amendment shall be made without approval of the
stockholders of the Corporation which shall (i) increase the aggregate number of
Shares with respect to which Awards may be made under the Plan, (ii) materially
increase the benefits accruing to Participants, (iii) materially change the
requirements as to eligibility for participation in the Plan or (iv) change the
class of persons eligible to participate in the Plan; provided, however, that no
such amendment, suspension or termination shall impair the rights of any
Participant, without his consent, in any Award theretofore made pursuant to the
Plan.
Notwithstanding anything in this Plan to the contrary, to the extent that
the Plan provides for formula awards, as defined in Rule 16b-3(c)(2)(ii) under
the Securities Exchange Act of 1934, as amended, such provisions may not be
amended more than once every six months, other than to comport with changes in
the Code, ERISA or the rules thereunder.
11. Term of Plan. The Plan shall become effective upon its ratification by
the stockholders of the Corporation. It shall continue in effect for a term of
ten years unless sooner terminated under Section 11 hereof.
12. Director Awards. By, and simultaneously with, the ratification of this
Plan by the stockholders of the Corporation, the member of the Board of
Directors of the Corporation, who is not a full-time employee of the
Corporation, is hereby granted an Award equal to ____% of the shares sold in the
Conversion. In addition, each director of the Corporation who is not a full-time
employee of the Corporation elected subsequent to the Conversion shall be
issued, as of the date he is elected and qualified, an Award equal to a like
amount of shares of Common Stock, subject to availability. Each such Award shall
be evidenced by a Restricted Stock Agreement in a form approved by the
Corporation and shall be subject in all respects to the terms and conditions of
this Plan, which are controlling. All Awards granted pursuant to this Section 12
shall be rounded down to the nearest whole share to the extent necessary to
ensure that no shares of Restricted Stock representing fractional shares are
issued. Each of the Awards granted in this Section 12 shall be earned in five
equal annual installments, with the first installment vesting on the first
anniversary of the date of grant, as long as the director maintains Continuous
Service with the Corporation or its affiliates, provided, however, no Award
shall be earned in any fiscal year in which the Bank fails to meet all of its
fully phased-in capital requirements.
5
<PAGE>
Exhibit 10.3
Employee Stock Ownership Plan
<PAGE>
PSB HOLDING COMPANY
EMPLOYEE STOCK OWNERSHIP PLAN
Effective as of January 1, 1996
<PAGE>
PSB HOLDING COMPANY
EMPLOYEE STOCK OWNERSHIP PLAN
TABLE OF CONTENTS
Page
PREAMBLE 1
ARTICLE I DEFINITION OF TERMS AND CONSTRUCTION
1.1 Definitions
(a) "Act" 2
(b) "Administrator" 2
(c) "Annual Additions" 2
(d) "Authorized Leave of Absence" 2
(e) "Beneficiary" 2
(f) "Board of Directors" 3
(g) "Break" 3
(h) "Code" 3
(i) "Compensation" 3
(j) "Date of Hire" 3
(k) "Disability" 4
(l) "Disability Retirement Date" 4
(m) "Early Retirement Date" 4
(n) "Effective Date" 4
(o) "Eligibility Period" 4
(p) "Employee" 4
(q) "Employer" 4
(r) "Employer Securities" 4
(s) "Entry Date" 5
(t) "Exempt Loan" 5
(u) "Former Participant" 5
(v) "Fund" 5
(w) "Hour of Service" 5
(x) "Investment Adjustments" 6
(y) "Limitation Year" 6
(z) "Normal Retirement Date" 6
(aa) "Participant" 6
(bb) "Plan" 6
(cc) "Plan Year" 6
(dd) "Qualified Domestic Relations Order" 6
(ee) "Retirement" 7
(ff) "Service" 7
(gg) "Sponsor" 7
(hh) "Trust Agreement" 7
(ii) "Trustee" 7
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Page
(jj) "Valuation Date" 7
(kk) "Year of Service" 7
1.2 Plurals and Gender 8
1.3 Incorporation of Trust Agreement 8
1.4 Headings 8
1.5 Severability 8
1.6 References to Governmental Regulations 8
ARTICLE II PARTICIPATION
2.1 Commencement of Participation 9
2.2 Termination of Participation 9
2.3 Resumption of Participation 9
2.4 Determination of Eligibility 10
ARTICLE III CREDITED SERVICE
3.1 Service Counted for Eligibility Purposes 11
3.2 Service Counted for Vesting Purposes 11
3.3 Credit for Pre-Break Service 11
3.4 Service Credit During Authorized Leaves 11
3.5 Service Credit During Maternity or
Paternity Leave 12
3.6 Ineligible Employees 12
ARTICLE IV CONTRIBUTIONS
4.1 Employee Stock Ownership Contributions 13
4.2 Time and Manner of Employee Stock Ownership
Contributions 13
4.3 Records of Contributions 14
4.4 Erroneous Contributions 14
ARTICLE V ACCOUNTS, ALLOCATIONS AND INVESTMENTS
5.1 Establishment of Separate Participant
Accounts 16
5.2 Establishment of Suspense Account 16
5.3 Allocation of Earnings, Losses and Expenses 17
5.4 Allocation of Forfeitures 17
5.5 Allocation of Annual Employee Stock
Ownership Contributions 17
5.6 Limitation on Annual Additions 18
5.7 Erroneous Allocations 21
5.8 Value of Participant's Interest in Fund 22
5.9 Investment of Account Balances 22
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<PAGE>
Page
ARTICLE VI RETIREMENT, DEATH AND DESIGNATION
OF BENEFICIARY
6.1 Normal Retirement 23
6.2 Early Retirement 23
6.3 Disability Retirement 23
6.4 Death Benefits 23
6.5 Designation of Death Beneficiary and
Manner of Payment 24
ARTICLE VII VESTING AND FORFEITURES
7.1 Vesting on Death, Disability, Normal Retirement 25
7.2 Vesting on Termination of Participation 25
7.3 Disposition of Forfeitures 25
ARTICLE VIII EMPLOYEE STOCK OWNERSHIP RULES
8.1 Right to Demand Employer Securities 27
8.2 Voting Rights 27
8.3 Nondiscrimination in Employee Stock Owner-
ship Contributions 27
8.4 Dividends 28
8.5 Exempt Loans 28
8.6 Exempt Loan Payments 30
8.7 Put Option 31
8.8 Diversification Requirements 32
8.9 Independent Appraiser 32
ARTICLE IX PAYMENTS AND DISTRIBUTIONS
9.1 Payments on Termination of Service
- In General 33
9.2 Commencement of Payments 33
9.3 Mandatory Commencement of Benefits 34
9.4 Required Beginning Dates 36
9.5 Form of Payment 37
9.6 Payments Upon Termination of Plan 37
9.7 Distribution Pursuant to Qualified
Domestic Relations Orders 38
9.8 Cash-Out Distributions 38
9.9 ESOP Distribution Rules 39
9.10 Withholding 39
9.11 Waiver of 30-day Notice 40
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<PAGE>
Page
ARTICLE X PROVISIONS RELATING TO TOP-HEAVY PLANS
10.1 Top-Heavy Rules to Control 41
10.2 Top-Heavy Plan Definitions 41
10.3 Calculation of Accrued Benefits 43
10.4 Determination of Top-Heavy Status 44
10.5 Determination of Super Top-Heavy Status 45
10.6 Minimum Contribution 45
10.7 Vesting 46
10.8 Maximum Benefit Limitation 47
ARTICLE XI ADMINISTRATION
11.1 Appointment of Administrator 48
11.2 Resignation or Removal of Administrator 48
11.3 Appointment of Successors: Terms of
Office, Etc. 48
11.4 Powers and Duties of Administrator 48
11.5 Action by Administrator 50
11.6 Participation by Administrators 50
11.7 Agents 50
11.8 Allocation of Duties 50
11.9 Delegation of Duties 50
11.10 Administrator's Action Conclusive 51
11.11 Compensation and Expenses of
Administrator 51
11.12 Records and Reports 51
11.13 Reports of Fund Open to Participants 51
11.14 Named Fiduciary 51
11.15 Information from Employer 52
11.16 Reservation of Rights by Employer 52
11.17 Liability and Indemnification 52
11.18 Service as Trustee and Administrator 53
ARTICLE XII CLAIMS PROCEDURE
12.1 Notice of Denial 54
12.2 Right to Reconsideration 54
12.3 Review of Documents 54
12.4 Decision by Administrator 54
12.5 Notice by Administrator 54
ARTICLE XIII AMENDMENTS, TERMINATION AND MERGER
13.1 Amendments 55
13.2 Consolidation, Merger or Other
Transactions of Employer 56
13.3 Consolidation or Merger of Trust 56
-iv-
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Page
13.4 Bankruptcy or Insolvency of Employer 56
13.5 Voluntary Termination 57
13.6 Partial Termination of Plan or Permanent
Discontinuance of Contributions 57
ARTICLE XIV MISCELLANEOUS
14.1 No Diversion of Funds 58
14.2 Liability Limited 58
14.3 Incapacity 58
14.4 Spendthrift Clause 58
14.5 Benefits Limited to Fund 59
14.6 Cooperation of Parties 59
14.7 Payments Due Missing Persons 59
14.8 Governing Law 60
14.9 Nonguarantee of Employment 60
14.10 Counsel 60
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<PAGE>
PSB HOLDING COMPANY
EMPLOYEE STOCK OWNERSHIP PLAN
PREAMBLE
Effective as of January 1, 1996, PSB Holding Company, a Delaware
corporation, (the "Sponsor"), has adopted the PSB Holding Company Employee Stock
Ownership Plan in order to enable Participants to share in the growth and
prosperity of the Sponsor and its wholly owned subsidiary, Preferred Savings
Bank, and to provide Participants with an opportunity to accumulate capital for
their future economic security by accumulating funds to provide retirement,
death and disability benefits. The Plan is a stock bonus plan designed to meet
the requirements of an employee stock ownership plan as described at Section
4975(e)(7) of the Code and Section 407(d)(6) of ERISA. The primary purpose of
the employee stock ownership plan is to invest in employer securities. The
Sponsor intends that the Plan will qualify under Sections 401(a) and 501(a) of
the Code and will comply with the provisions of ERISA. The Plan has been drafted
to comply with the Tax Reform Act of 1986, the Omnibus Budget Reconciliation Act
of 1986, the Omnibus Budget Reconciliation Act of 1987, the Technical and
Miscellaneous Revenue Act of 1988, the Revenue Reconciliation Act of 1989, and
the Omnibus Budget Reconciliation Act of 1993.
The terms of this Plan shall apply only with respect to Employees of
the Employer on and after January 1, 1996.
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<PAGE>
ARTICLE I
DEFINITION OF TERMS AND CONSTRUCTION
1.1 Definitions.
Unless a different meaning is plainly implied by the context, the
following terms as used in this Plan shall have the following meanings:
(a) "Act" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, or any successor statute.
(b) "Administrator" shall mean the administrative committee
provided for in Article XI.
(c) "Annual Additions" shall mean, with respect to each Participant,
the sum of those amounts allocated to the Participant's accounts under this Plan
and under any other qualified defined contribution plan to which the Employer
contributes for any Limitation Year, consisting of the following:
(1) Employer contributions;
(2) Forfeitures; and
(3) Voluntary contributions (if any).
(d) "Authorized Leave of Absence" shall mean an absence from Service
with respect to which the Employee may or may not be entitled to Compensation
and which meets any one of the following requirements:
(1) Service in any of the armed forces of the United States
for up to 36 months, provided that the Employee resumes Service within 90 days
after discharge, or such longer period of time during which such Employee's
employment rights are protected by law; or
(2) Any other absence or leave expressly approved and granted
by the Employer which does not exceed 24 months, provided that the Employee
resumes Service at or before the end of such approved leave period. In approving
such leaves of absence, the Employer shall treat all Employees on a uniform and
nondiscriminatory basis.
(e) "Beneficiary" shall mean such persons as may be designated by the
Participant to receive benefits after the death of the Participant, or such
persons designated by the Administrator to receive benefits after the death of
the Participant, all as provided in Section 6.5.
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<PAGE>
(f) "Board of Directors" shall mean the Board of Directors of
the Sponsor.
(g) "Break" shall mean a Plan Year during which an Employee fails to
complete more than 500 Hours of Service.
(h) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, or any successor statute.
(i) "Compensation" shall mean the amount of remuneration paid to an
Employee by the Employer, after the date on which the Employee becomes a
Participant, for services rendered to the Employer during a Plan Year, including
base salary, bonuses, overtime and commissions, and any amount of compensation
contributed pursuant to a salary reduction election under Code Section 401(k)
and any amount of compensation contributed to a cafeteria plan described at
Section 125 of the Code, but excluding amounts paid by the Employer or accrued
with respect to this Plan or any other qualified or non-qualified unfunded plan
of deferred compensation or other employee welfare plan to which the Employer
contributes, payments for group insurance, medical benefits, reimbursement for
expenses, and other forms of extraordinary pay, and excluding amounts accrued
for a prior year.
Notwithstanding the foregoing, for purposes of complying with Code Section 415,
a Participant's contributions to the 401(k) Plan and cafeteria plan shall not be
included in the Participant's compensation. Notwithstanding anything herein to
the contrary, the annual Compensation of each Participant taken into account
under the Plan for any Plan Year shall not exceed $150,000, as adjusted from
time to time in accordance with Section 415(d) of the Code. In determining the
compensation of a Participant for purposes of this limitation, the rules of
section 414(q)(6) of the Code shall apply, except in applying such rules, the
term "family" shall include only the spouse of the Participant and any lineal
descendants of the Participant who have not attained age 19 before the close of
the year. If, as a result of such rules, the adjusted $150,000 limitation is
exceeded, then (except for purposes of determining the portion of compensation
up to the integration level), the limitation shall be prorated among the
affected individuals in proportion to each such individual's compensation as
determined under this section prior to the application of this limitation.
(j) "Date of Hire" shall mean the date on which a person shall perform
his first Hour of Service. Notwithstanding the foregoing, in the event a person
incurs one or more consecutive Breaks after his initial Date of Hire which
results in the forfeiture of his preBreak Service pursuant to Section 3.3, his
"Date of Hire" shall thereafter be the date on which he completes his first Hour
of Service after such Break or Breaks.
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(k) "Disability" shall mean a physical or mental impairment which
prohibits a Participant from engaging in any occupation for wages or profit and
which has caused the Social Security Administration to classify the individual
as "disabled" for purposes of Social Security.
(l) "Disability Retirement Date" shall mean the first day of
the month after which a Participant incurs a Disability.
(m) "Early Retirement Date" shall mean the first day of the month
coincident with or next following the date on which a Participant attains age 55
and completes 5 Years of Service.
(n) "Effective Date" shall mean January 1, 1996.
(o) "Eligibility Period" shall mean the period of 12 consecutive months
commencing on an Employee's Date of Hire. Succeeding eligibility computation
periods after the initial eligibility computation period shall be based on Plan
Years which include the first anniversary of an Employee's Date of Hire.
(p) "Employee" shall mean any person employed by the Employer,
including officers but excluding directors in their capacity as such; provided,
however, that the term "Employee" shall not include leased employees, employees
regularly employed outside the employer's own offices in connection with the
operation and maintenance of buildings or other properties acquired through
foreclosure or deed, and any employee included in a unit of employees covered by
a collective-bargaining agreement with the Employer that does not expressly
provide for participation of such employees in this Plan, where there has been
good-faith bargaining between the Employer and employees' representatives on the
subject of retirement benefits.
(q) "Employer" shall mean PSB Holding Company, a Delaware corporation,
and its wholly owned subsidiary, Preferred Savings Bank, or any successors to
the aforesaid corporations by merger, consolidation or otherwise, which may
agree to continue this Plan, or any affiliated or subsidiary corporation or
business organization of any Employer which, with the consent of the Sponsor,
shall agree to become a party to this Plan.
(r) "Employer Securities" shall mean the common stock issued
by PSB Holding Company, a Delaware corporation.
(s) "Entry Date" shall mean each January 1 and July 1, so long as this
Plan shall remain in effect.
(t) "Exempt Loan" shall mean a loan described at Section 4975(d)(1) of
the Code to the Trustee to purchase Employer Securities for the Plan, made or
guaranteed by a disqualified person, as
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defined at Section 4975(e)(2) of the Code, including, but not limited to, a
direct loan of cash, a purchase money transaction, an assumption of an
obligation of the Trustee, an unsecured guarantee or the use of assets of such
disqualified person as collateral for such a loan.
(u) "Former Participant" shall mean any previous Participant
whose participation has terminated but who has a vested interest in
the Plan which has not been distributed in full.
(v) "Fund" shall mean the Fund maintained by the Trustee pursuant to
the Trust Agreement in order to provide for the payment of the benefits
specified in the Plan.
(w) "Hour of Service" shall mean each hour for which an Employee is
directly or indirectly paid or entitled to payment by an Employer for the
performance of duties or for reasons other than the performance of duties (such
as vacation time, holidays, sickness, disability, paid lay-offs, jury duty and
similar periods of paid nonworking time). To the extent not otherwise included,
Hours of Service shall also include each hour for which back pay, irrespective
of mitigation of damages, is either awarded or agreed to by the Employer. Hours
of working time shall be credited on the basis of actual hours worked, even
though compensated at a premium rate for overtime or other reasons. In computing
and crediting Hours of Service for an Employee under this Plan, the rules set
forth in Sections 2530.200b-2(b) and (c) of the Department of Labor Regulations
shall apply, said Sections being herein incorporated by reference. Hours of
Service shall be credited to the Plan Year or other relevant period during which
the services were performed or the nonworking time occurred, regardless of the
time when Compensation therefor may be paid. Any Employee for whom no hourly
employment records are kept by the Employer shall be credited with 45 Hours of
Service for each calendar week in which he would have been credited with a least
one Hour or Service under the foregoing provisions, if hourly records were
available. Effective January 1, 1985, for absences commencing on or after that
date, solely for purposes of determining whether a Break for participation and
vesting purposes has occurred in an Eligibility Period or Plan Year, an
individual who is absent from work for maternity or paternity reasons shall
receive credit for the Hours of Service which would otherwise have been credited
to such individual but for such absence, or in any case in which such hours
cannot be determined, 8 Hours of Service per day of such absence. For purposes
of this Section 1.1(w), an absence from work for maternity or paternity reasons
means an absence (1) by reason of the pregnancy of the individual, (2) by reason
of a birth of a child of the individual, (3) by reason of the placement of a
child with the individual in connection with the adoption of such child by such
individual, or (4) for purposes of caring for such child for a period beginning
immediately following such birth or placement. The Hours of Service credited
under
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this provision shall be credited (1) in the computation period in which the
absence begins if the crediting is necessary to prevent a Break in that period,
or (2) in all other cases, in the following computation period.
(x) "Investment Adjustments" shall mean the increases and/or decreases
in the value of a Participant's accounts attributable to earnings, gains, losses
and expenses of the Fund, as set forth in Section 5.3.
(y) "Limitation Year" shall mean the Plan Year.
(z) "Normal Retirement Date" shall mean the first day of the month
coincident with or during which a Participant attains age 65 and completes the
fifth anniversary of his participation in the Plan.
(aa) "Participant" shall mean an Employee who has met all of the
eligibility requirements of the Plan and who is currently included in the Plan
as provided in Article II hereof.
(bb) "Plan" shall mean the PSB Holding Company Employee Stock Ownership
Plan, as described herein or as hereafter amended from time to time.
(cc) "Plan Year" shall mean any 12 consecutive month period commencing
on January 1 and ending on December 31.
(dd) "Qualified Domestic Relations Order" shall mean any judgment,
decree or order (including approval of a property settlement agreement) that
relates to the provision of child support, alimony, marital property rights to a
spouse, former spouse, child or other dependent of the Participant (all such
persons hereinafter termed "alternate payee") and is made pursuant to a State
domestic relations law (including community property law) and, further, that
creates or recognizes the existence of an alternate payee's right to, or assigns
to an alternate payee the right to receive all or a portion of the benefits
payable with respect to a Participant and that clearly specifies the following:
(1) the name and last known mailing address (if available) of
the Participant and the name and mailing address of each alternate
payee to which the order relates;
(2) the amount or percentage of the Participant's benefits
to be paid to an alternate payee or the manner in which the
amount is to be determined; and
(3) the number of payments or period for which payments
are required.
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A domestic relations order is not a Qualified Domestic Relations Order
if it:
(1) requires the Plan to provide any type or form of
benefit or any option not otherwise provided under the Plan;
or,
(2) requires the Plan to provide increased benefits, or
(3) requires payment of benefits to an alternate payee that is
required to be paid to another alternate payee under a previously
existing Qualified Domestic Relations Order.
(ee) "Retirement" shall mean termination of employment which qualifies
as early, normal or Disability retirement as described in Article VI.
(ff) "Service" shall mean employment with the Employer.
(gg) "Sponsor" shall mean PSB Holding Company, a Delaware
corporation.
(hh) "Trust Agreement" shall mean the agreement, dated August
__, 1996 by and between PSB Holding Company, a Delaware corporation,
and First Bankers Trust Co., N.A. of Quincy, Illinois.
(ii) "Trustee" shall mean the Trustee or Trustees by whom the assets of
the Plan are held, as provided in the Trust Agreement, or his or their
successors.
(jj) "Valuation Date" shall mean the last day of each Plan Year. The
Trustee may make additional valuations, at the instruction of the Administrator,
but in no event may the Administrator request additional valuations by the
Trustee more frequently than quarterly. Whenever such date falls on a Saturday,
Sunday or holiday, the preceding business day shall be the Valuation Date.
(kk) "Year of Service" shall mean any Plan Year during which an
Employee has completed at least 1,000 Hours of Service, except as otherwise
specified in Article III, in the determination of Years of Service for
eligibility and vesting purposes under this Plan, the term "Year of Service"
shall also mean any Plan Year during which an Employee has completed at least
1,000 Hours of Service with an entity that is:
(1) a member of a controlled group including the Employer,
while it is a member of such controlled group (within the meaning of
Section 414(b) of the Code);
(2) in a group of trades or businesses under common control
with the Employer, while it is under common control (within the meaning
of Section 414(c) of the Code);
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(3) a member of an affiliated service group including the
Employer, while it is a member of such affiliated service group (within
the meaning of Section 414(m) of the Code); or
(4) a leasing organization, under the circumstances
described in Section 414(n) of the Code.
1.2 Plurals and Gender.
Where appearing in the Plan and the Trust Agreement, the masculine
gender shall include the feminine and neuter genders, and the singular shall
include the plural, and vice versa, unless the context clearly indicates a
different meaning.
1.3 Incorporation of Trust Agreement.
The Trust Agreement, as the same may be amended from time to time, is
intended to be and hereby is incorporated by reference into this Plan and for
all purposes shall be deemed a part of the Plan.
1.4 Headings.
The headings and sub-headings in this Plan are inserted for the
convenience of reference only and are to be ignored in any construction of the
provisions hereof.
1.5 Severability.
In case any provision of this Plan shall be held illegal or void, such
illegality or invalidity shall not affect the remaining provisions of this Plan,
but shall be fully severable, and the Plan shall be construed and enforced as if
said illegal or invalid provisions had never been inserted herein.
1.6 References to Governmental Regulations.
References in this Plan to regulations issued by the Internal Revenue
Service, the Department of Labor, or other governmental agencies shall include
all regulations, rulings, procedures, releases and other position statements
issued by any such agency.
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ARTICLE II
PARTICIPATION
2.1 Commencement of Participation.
(a) Any Employee who completes at least 1,000 Hours of Service during
his Eligibility Period or during any Plan Year beginning after his Date of Hire
shall initially become a Participant on the Entry Date coincident with or next
following the later of the following dates, provided he is employed by the
Employer on that Entry Date:
(1) The date which is 12 months after his Date of Hire;
and
(2) The date on which he attains age 21.
(b) Any Employee who had satisfied the requirements set forth in
Section 2.1(a) during the 12-month period prior to the Effective Date shall
become a Participant on the Effective Date, provided he is still employed by the
Employer on the Effective Date.
2.2 Termination of Participation.
After commencement or resumption of his participation, an Employee
shall remain a Participant during each consecutive Plan Year thereafter until
the earliest of the following dates:
(a) His actual Retirement date;
(b) His date of death; or
(c) The last day of a Plan Year during which he incurs a Break.
2.3 Resumption of Participation.
(a) Any Participant whose employment terminates and who resumes Service
before he incurs a Break shall resume participation immediately on the date he
is reemployed.
(b) Except as otherwise provided in Section 2.3(c), any Participant who
incurs one or more Breaks and resumes Service shall resume participation
retroactively as of the first day of the first Plan Year in which he completes a
Year of Service after such Break(s).
(c) Any Participant who incurs one or more Breaks and resumes Service,
but whose pre-Break Service is not reinstated to his credit pursuant to Section
3.3, shall be treated as a new Employee and
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shall again be required to satisfy the eligibility requirements contained in
Section 2.1 before resuming participation on the appropriate Entry Date, as
specified in Section 2.1.
2.4 Determination of Eligibility.
The Administrator shall determine the eligibility of Employees in
accordance with the provisions of this Article. For each Plan Year, the Employer
shall furnish the Administrator a list of all Employees, indicating the original
date of their reemployment with the Employer and any Breaks they may have
incurred.
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ARTICLE III
CREDITED SERVICE
3.1 Service Counted for Eligibility Purposes.
Except as provided in Section 3.3, all Years of Service completed by an
Employee shall be counted in determining his eligibility to become a Participant
on and after the Effective Date, whether such Service was completed before or
after the Effective Date.
3.2 Service Counted for Vesting Purposes.
All Years of Service completed by an Employee (including Years of
Service completed prior to the Effective Date) shall be counted in determining
his vested interest in this Plan, except the following:
(a) Service which is disregarded under the provisions of
Section 3.3;
(b) Service prior to the Effective Date of this Plan if such Service
would have been disregarded under the "break in service" rules (within the
meaning of Section 1.411(a)-5(b)(6) of the Treasury Regulations).
3.3 Credit for Pre-Break Service.
Upon his resumption of participation following one or a series of
consecutive Breaks, an Employee's pre-Break Service shall be reinstated to his
credit for all purposes of this Plan only if either:
(a) He was vested in any portion of his accrued benefit at the
time the Break(s) began; or
(b) The number of his consecutive Breaks does not equal or exceed the
greater of 5 or the number of his Years of Service credited to him before the
Breaks began.
Except as provided in the foregoing, none of an Employee's Service
prior to one or a series of consecutive Breaks shall be counted for any purpose
in connection with his participation in this Plan thereafter.
3.4 Service Credit During Authorized Leaves.
An Employee shall receive no Service credit under Section 3.1 or 3.2
during any Authorized Leave of Absence. However, solely for the purpose of
determining whether he has incurred a Break during
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any Plan Year in which he is absent from Service for one or more Authorized
Leaves of Absence, he shall be credited with 45 Hours of Service for each week
during any such leave period. Notwithstanding the foregoing, if an Employee
fails to return to Service on or before the end of a leave period, he shall be
deemed to have terminated Service as of the first day of such leave period and
his credit for Hours of Service, determined under this Section 3.4, shall be
revoked. Notwithstanding anything contained herein to the contrary, an Employee
who is absent by reason of military service as set forth in Section 1.1(d)(1)
shall be given Service credit under this Plan for such military leave period to
the extent, and for all purposes, required by law.
3.5 Service Credit During Maternity or Paternity Leave.
Effective for absences beginning on or after January 1, 1985, for
purposes of determining whether a Break has occurred for participation and
vesting purposes, an individual who is on maternity or paternity leave as
described in Section 1.1(w), shall be deemed to have completed Hours of Service
during such period of absence, all in accordance with Section 1.1(w).
Notwithstanding the foregoing, no credit shall be given for such Hours of
Service unless the individual furnishes to the Administrator such timely
information as the Administrator may reasonably require to determine:
(a) that the absence from Service was attributable to one of
the maternity or paternity reasons enumerated in Section 1.1(w); and
(b) the number of days for which such absence lasted.
In no event, however, shall any credit be given for such leave other than for
determining whether a Break has occurred.
3.6 Ineligible Employees.
Notwithstanding any provisions of this Plan to the contrary, any person
who is employed by the Employer, but who is ineligible to participate in this
Plan, either because of his failure
(a) To meet the eligibility requirements contained in Article II; or
(b) To be an Employee, as defined in Section 1.1(p), shall,
nevertheless, earn Years of Service for eligibility and vesting purposes
pursuant to the rules contained in this Article III. However, such a person
shall not be entitled to receive any contributions hereunder unless and until he
becomes a Participant in this Plan, and then, only during his period of
participation.
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ARTICLE IV
CONTRIBUTIONS
4.1 Employee Stock Ownership Contributions.
(a) Subject to all of the provisions of this Article IV, for each Plan
Year commencing on or after the Effective Date, the Employer shall make an
Employee Stock Ownership contribution to the Fund, in such amount as may be
determined by the Board of Directors in its discretion. Such contribution shall
be in the form of cash or Employer Securities. In determining the value of
Employer Securities transferred to the Fund as an Employee Stock Ownership
contribution, the Administrator may determine the average of closing prices of
such securities for a period of up to 90 consecutive days immediately preceding
the date on which the securities are contributed to the Fund. In the event that
the Employer Securities are not readily tradable on an established securities
market, the value of the Employer Securities transferred to the Fund shall be
determined by an independent appraiser in accordance with Section 8.9.
(b) In no event shall such contribution by the Employer exceed for any
Plan Year the maximum amount that may be deducted by the Employer under Section
404 of the Code, nor shall such contribution cause the Employer to violate its
regulatory capital requirements. Each Employee Stock Ownership contribution by
the Employer shall be deemed to be made on the express condition that the Plan,
as then in effect, shall be qualified under Sections 401 and 501 of the Code and
that the amount of such contribution shall be deductible from the Employer's
income under Section 404 of the Code.
4.2 Time and Manner of Employee Stock Ownership Contributions.
(a) The Employee Stock Ownership contribution (if any) for each Plan
Year shall be paid to the Trustee in one lump sum or installments at any time on
or before the expiration of the time prescribed by law (including any
extensions) for filing of the Employer's federal income tax return for its
fiscal year ending concurrent with or during such Plan Year. Any portion of the
Employee Stock Ownership contribution for each Plan Year that may be made prior
to the last day of the Plan Year shall be maintained by the Trustee in the
Employee Stock Ownership suspense account described in Section 5.2 until the
last day of such Plan Year.
(b) If an Employee Stock Ownership contribution for a Plan Year is paid
after the close of the Employer's fiscal year which ends concurrent with or
during such Plan Year but on or prior to the due date (including any extensions)
for filing of the Employer's federal income tax return for such fiscal year, it
shall be
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considered, for allocation purposes, as an Employee Stock Ownership contribution
to the Fund for the Plan Year for which it was computed and accrued, unless such
contribution is accompanied by a statement to the Trustee, signed by a
representative of the Employer, which specifies that the Employee Stock
Ownership contribution is made with respect to the Plan Year in which it is
received by the Trustee. Any Employee Stock Ownership contribution paid by the
Employer during any Plan Year but after the due date (including any extensions)
for filing of its federal income tax return for the fiscal year of the Employer
ending on or before the last day of the preceding Plan Year shall be treated,
for allocation purposes, as an Employee Stock Ownership contribution to the Fund
for the Plan Year in which the contribution is paid to the Trustee.
(c) Notwithstanding anything contained herein to the contrary, no
Employee Stock Ownership contribution shall be made for any year during which a
"limitations account" created pursuant to Section 5.6(c)(2) is in existence
until the balance of such limitations account has been reallocated in accordance
with Section 5.6(c)(2).
4.3 Records of Contributions.
The Employer shall deliver at least annually to the Trustee, with
respect to the contributions contemplated in Section 4.1, a certificate of the
Administrator, in such form as the Trustee shall approve, setting forth:
(a) The aggregate amount of contributions, if any, to the Fund
for such Plan Year;
(b) The names, Internal Revenue Service identifying
numbers and current residential addresses of all Participants in the
Plan;
(c) The amount and category of contributions to be allocated
to each such Participant; and
(d) Any other information reasonably required for the proper
operation of the Plan.
4.4 Erroneous Contributions.
(a) Notwithstanding anything herein to the contrary, upon the
Employer's request, a contribution which was made by a mistake of fact, or
conditioned upon the initial qualification of the Plan, under Code Section 401,
or upon the deductibility of the contribution under Section 404 of the Code,
shall be returned to the Employer by the Trustee within one year after the
payment of the contribution, the denial of the qualification or the disallowance
of the deduction (to the extent disallowed), whichever is applicable; provided,
however, that in the case of denial of the initial
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qualification of the Plan, a contribution shall not be returned unless an
Application for Determination has been timely filed with the Internal Revenue
Service. Any portion of a contribution returned pursuant to this Section 4.4
shall be adjusted to reflect its proportionate share of the losses of the fund,
but shall not be adjusted to reflect any earnings or gains. Notwithstanding any
provisions of this Plan to the contrary, the right or claim of any Participant
or Beneficiary to any asset of the Fund or any benefit under this Plan shall be
subject to and limited by this Section 4.4.
(b) In no event shall voluntary Employee contributions be accepted. Any
such voluntary Employee contributions (and any earnings attributable thereto)
mistakenly received by the Trustee shall promptly be returned to the
Participant.
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ARTICLE V
ACCOUNTS, ALLOCATIONS AND INVESTMENTS
5.1 Establishment of Separate Participant Accounts.
The Administrator shall establish and maintain separate individual
accounts for Participants in the Plan and for each Former Participant in
accordance with the provisions of this Article V. Such separate accounts shall
be for accounting purposes only and shall not require a segregation of the Fund,
and no Participant, Former Participant or Beneficiary shall acquire any right to
or interest in any specific assets of the Fund as a result of the allocations
provided for under this Plan, except where segregation is expressly provided for
in this Plan.
(a) Employee Stock Ownership Accounts.
The Administrator shall establish a separate Employee Stock
Ownership Account in the Fund for each Participant. The account shall be
credited as of the last day of each Plan Year with the amounts allocated to the
Participant under Sections 5.4 and 5.5. The Administrator may establish
subaccounts hereunder, an Employer Stock Account reflecting a Participant's
interest in Employer Securities held by the Trust and an Other Investments
Account reflecting the Participant's interest in his Employee Stock Ownership
Account other than Employer Securities.
(b) Distribution Accounts.
In any case where distribution of a terminated Participant's
vested interest in the Plan is to be deferred, the Administrator shall establish
a separate, nonforfeitable account in the Fund to which the balance in his
Employee Stock Ownership Account in the Plan shall be transferred after such
Participant incurs a Break. Unless the Former Participant's distribution
accounts are segregated for investment purposes pursuant to section 9.4, they
shall share in Investment Adjustments.
(c) Other Accounts.
The Administrator shall establish such other separate accounts
for each Participant as may be necessary or desirable for the convenient
administration of the Fund.
5.2 Establishment of Suspense Accounts.
The Administrator shall establish separate accounts to be known as
"suspense accounts." There shall be credited to such appropriate suspense
accounts any Employee Stock Ownership contributions that may be made prior to
the last day of the Plan Year, as provided in
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Section 4.2. The suspense accounts shall share proportionately as to time and
amount in any Investment Adjustments. As of the last day of each Plan Year, the
balance of the Employee Stock Ownership suspense account shall be added to the
Employee Stock Ownership contribution and allocated to the Employee Stock
Ownership Accounts of Participants as provided in Section 5.5, except as
provided herein. In the event that the Plan takes an Exempt Loan, the Employer
Securities purchased thereby shall be allocated to a separate Exempt Loan
Suspense Account, from which allocations shall be made in accordance with
Section 8.5.
5.3 Allocation of Earnings, Losses and Expenses.
As of each Valuation Date, any increase or decrease in the net worth of
the aggregate Employee Stock Ownership Accounts held in the Fund attributable to
earnings, losses, expenses and unrealized appreciation or depreciation in each
such aggregate Account, as determined by the Trustee pursuant to the Trust
Agreement, shall be credited to or deducted from the appropriate suspense
accounts and all Participants' Employee Stock Ownership Accounts (except
segregated distribution accounts described in Section 5.1(b) and the
"limitations account" described in Section 5.6(c)(4)) in the proportion that the
value of each such Account (determined immediately prior to such allocation and
before crediting any Employee Stock Ownership contributions and forfeitures for
the current Plan Year but after adjustment for any transfer to or from such
Accounts and for the time such funds were in such Accounts) bears to the value
of all Employee Stock Ownership Accounts.
5.4 Allocation of Forfeitures.
As of the last day of each Plan Year, all forfeitures attributable to
the Employee Stock Ownership Accounts which are then available for reallocation
shall be, as appropriate, added to the Employee Stock Ownership contribution (if
any) for such year and allocated among the Participants' Employee Stock
Ownership Accounts, as appropriate, in the manner provided in Sections 5.5 and
5.6.
5.5 Allocation of Annual Employee Stock Ownership Contributions.
As of the last day of each Plan Year for which the Employer shall make
an Employee Stock Ownership contribution, the Administrator shall allocate the
Employee Stock Ownership contribution (including reallocable forfeitures) for
such Plan Year to the Employee Stock Ownership account of each Participant who
completed at least 1,000 Hours of Service during that Plan Year, provided that
he is still employed by the Employer on the last day of the Plan Year. Such
allocation shall be made in the same proportion that each such Participant's
Compensation for such Plan Year bears to the total Compensation of all such
Participants for such Plan Year, subject to Section 5.6. Notwithstanding the
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foregoing, if a Participant attains his Normal Retirement Date and terminates
Service prior to the last day of the Plan Year but after completing 1,000 Hours
of Service, he shall be entitled to an allocation based on his Compensation
earned prior to his termination and during the Plan Year. Furthermore, if a
Participant completes 1,000 Hours of Service and is on a Leave of Absence on the
last day of the Plan Year because of pregnancy or other medical reason, such a
Participant shall be entitled to an allocation based on his Compensation earned
during such Plan Year.
5.6 Limitation on Annual Additions.
(a) Notwithstanding any provisions of this Plan to the contrary, the
total Annual Additions credited to a Participant's accounts under this Plan (and
under any other defined contribution plan to which the Employer contributes) for
any Limitation Year shall not exceed the lesser of:
(1) 25% of the Participant's compensation for such
Limitation Year; or
(2) $30,000 (or, if greater, one-fourth of the defined benefit
dollar limitation set forth in Section 415(b)(1)(A) of the Code).
Whenever otherwise allowed by law, the maximum amount of $30,000 shall
be automatically adjusted annually for cost-of-living increases in
accordance with Section 415(d) of the Code and the highest such
increase effective at any time during the Limitation Year shall be
effective for the entire Limitation Year, without any amendment to this
Plan.
(b) Solely for the purpose of this Section 5.6, the term "compensation"
is defined as wages, salaries, and fees for professional services and other
amounts received (without regard to whether or not an amount is paid in cash)
for personal services actually rendered in the course of employment with the
Employer maintaining the Plan to the extent that the amounts are includable in
gross income (including, but not limited to, commissions paid to salesmen,
compensation for services on the basis of a percentage of profits, commissions
on insurance premiums, tips, bonuses, fringe benefits, and reimbursements or
other expense allowances under a nonaccountable plan (as described in Treas.
Regs. ss. 1.62-2(c)), and excluding the following:
(1) Employer contributions to a plan of deferred compensation
which are not includible in the Employee's gross income for the taxable year in
which contributed, or Employer contributions under a simplified employee pension
plan to the extent such contributions are deductible by the Employee, or any
distributions from a plan of deferred compensation;
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(2) Amounts realized from the exercise of a non-qualified
stock option, or when restricted stock (or property) held by the employee either
becomes freely transferable or is no longer subject to a substantial risk of
forfeiture;
(3) Amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock option; and
(4) Other amounts which received special tax benefits, or
contributions made by the employer (whether or not under a salary reduction
agreement) towards the purchase of an annuity contract described in section
403(b) of the Code (whether or not the contributions are actually excludable
from the gross income of the Employee).
(c) In the event that the limitations on Annual Additions described in
this Section 5.6(a) above are exceeded with respect to any Participant in any
Limitation Year, then the contributions allocable to the Participant for such
year shall be reduced to the minimum extent required by such limitations in the
following order of priority:
(1) If any further reductions in Annual Additions are
necessary, then the Employee Stock Ownership contributions and
forfeitures allocated during such Limitation Year to the Participant's
Employee Stock Ownership Account shall be reduced. The amount of any
such reductions in the Employee Stock Ownership contributions and
forfeitures shall be reallocated to all other Participants in the same
manner as set forth under Sections 5.4 and 5.5.
(2) Any amounts which cannot be reallocated to other
Participants in a current Limitation Year in accordance with Section
5.6(c)(1) above because of the limitations contained in Sections 5.6(a)
and (d) shall be credited to an account designated as the "limitations
account" and carried forward to the next and subsequent Limitation
Years until it can be reallocated to all Participants as set forth in
Sections 5.4, and 5.5, as appropriate. No Investment Adjustments shall
be allocated to this limitations account. In the next and subsequent
Limitation Years, all amounts in the limitations account must be
allocated in the manner described in Sections 5.4 and 5.5, as
appropriate, before any Employee Stock Ownership contributions may be
made to this Plan for that Limitation Year.
(3) The Administrator shall determine to what extent the
Annual Additions to any Participant's Employee Stock Ownership Account
must be reduced in each Limitation Year. The Administrator shall reduce
the Annual Additions to all other
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qualified, tax-exempt retirement plans maintained by the Employer in
accordance with the terms contained therein for required reductions or
reallocations mandated by Section 415 of the Code before reducing any
Annual Additions in this Plan.
(4) In the event this Plan is voluntarily terminated by the
Employer under Section 13.5, any amounts credited to the limitations
account described in Section 5.6(c)(2) above which have not be
reallocated as set forth herein shall be distributed to the
Participants who are still employed by the Employer on the date of
termination, in the proportion that each Participant's Compensation
bears to the Compensation of all Participants.
(d) The Annual Additions credited to a Participant's accounts for each
Limitation Year are further limited so that in the case of an Employee who is a
Participant in both this Plan and any qualified defined benefit plan
(hereinafter referred to as a "pension plan") of the Employer, the sum of (1)
and (2) below will not exceed 1.0:
(1) (A) The projected annual normal retirement benefit
of a Participant under the pension plan, divided by
(B) The lesser of:
(i) The product of 1.25 multiplied by the dollar
limitation in effect under Section 415(b)(1)(A) of the Code
for such Limitation Year, or
(ii) The product of 1.4 multiplied by the amount of
compensation which may be taken into account under Section
415(b)(1)(B) of the Code for the Participant for such
Limitation Year; plus
(2) (A) The sum of Annual Additions credited to the
Participant under this Plan for all Limitation Years, divided by:
(B) The sum of the lesser of the following amounts
determined for such Limitation Year and for each prior year of service
with the Employer:
(i) The product of 1.25 multiplied by the dollar
limitation in effect under Section 415(b)(1)(A) of the Code
for such Limitation Year, or
(ii) The product of 1.4 multiplied by the amount of
compensation which may be taken into account under Section
415(b)(1)(B) of the Code for the Participant for such
Limitation Year.
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The Administrator may, in calculating the defined contribution plan
fraction described in Section 5.6(d)(2), elect to use the transitional rule
pursuant to Section 415(e)(6) of the Code, if applicable. If the sum of the
fractions produced above will exceed 1.0, even after the use of the "fresh
start" rule contained in Section 235 of the Tax Equity and Fiscal Responsibility
Act of 1982 ("TEFRA"), if applicable, then the same provisions as stated in
Section 5.6(c) above shall apply. If, even after the reductions provided for in
Section 5.6(c), the sum of the fractions still exceed 1.0, then the benefits of
the Participant provided under the pension plan shall be reduced to the extent
necessary, in accordance with Treasury Regulations issued under the Code. Solely
for the purposes of this Section 5.6(d), the term "years of service" shall mean
all years of service defined by Treasury Regulations issued under Section 415 of
the Code.
(e) In the event that the Employer is a member of (1) a controlled
group of corporations or a group of trades or businesses under common control
(as described in Section 414(b) or (c) of the Code, as modified by Section
415(h) thereof), or (2) an affiliated service group (as described in Section
414(m) of the Code), the Annual Additions credited to any Participant's accounts
in any such Limitation Year shall be further limited by reason of the existence
of all other qualified retirement plans maintained by such affiliated
corporations, other entities under common control or other members of the
affiliated service group, to the extent such reduction is required by Section
415 of the Code and the regulations promulgated thereunder. The Administrator
shall determine if any such reduction in the Annual Additions to a Participant's
accounts is required for this reason, and if so, the same provisions as stated
in 5.6(c) and (d) above shall apply.
(f) Annual Additions shall not include any Employer contributions which
are used by the Trust to pay interest on an Exempt Loan nor any forfeitures of
Employer Securities purchased with the proceeds of an Exempt Loan, provided that
not more than one-third of the Employer contributions are allocated to
Participants who are among the group of employees deemed "highly compensated
employees" within the meaning of Code Section 414(q).
5.7 Erroneous Allocations.
No Participant shall be entitled to any Annual Additions or other
allocations to his accounts in excess of those permitted under Sections 5.3,
5.4, 5.5, and 5.6. If it is determined at anytime that the Administrator and/or
Trustees have erred in accepting and allocating any contributions or forfeitures
under this Plan, or in allocating Investment Adjustments, or in excluding or
including any person as a Participant, then the Administrator, in a uniform and
nondiscriminatory manner, shall determine the manner in which such error shall
be corrected and shall promptly advise the Trustee in
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writing of such error and of the method for correcting such error. The accounts
of any or all Participants may be revised, if necessary, in order to correct
such error.
5.8 Value of Participant's Interest in Fund.
At any time, the value of a Participant's interest in the Fund shall
consist of the aggregate value of his Employee Stock Ownership Account and his
distribution account, if any, determined as of the next-preceding Valuation
Date. The Administrator shall maintain adequate records of the cost basis of
Employer Securities allocated to each Participant's Employer Stock Ownership
Account.
5.9 Investment of Account Balances.
The Employee Stock Ownership Accounts shall be invested primarily in
Employer Securities. Employer Securities shall constitute at least 51% of the
assets of all Employee Stock Ownership Accounts. All sales of Employer
Securities by the Trustee attributable to the Employee Stock Ownership Accounts
of all Participants shall be charged pro rata to the Employee Stock Ownership
Accounts of all Participants.
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ARTICLE VI
RETIREMENT, DEATH AND DESIGNATION OF BENEFICIARY
6.1 Normal Retirement.
A Participant who reaches his Normal Retirement Date and who shall
retire at that time shall thereupon be entitled to retirement benefits based on
the value of his interest in the Fund, payable pursuant to the provisions of
Section 9.1. A Participant who remains in Service after his Normal Retirement
Date shall not be entitled to any retirement benefits until his actual
termination of Service thereafter (except as provided in Section 9.3(g)) and he
shall meanwhile continue to participate in this Plan.
6.2 Early Retirement.
A Participant who reaches his Early Retirement Date may retire at such
time (or, at his election, as of the first day of any month thereafter prior to
his Normal Retirement Date) and shall thereupon be entitled to retirement
benefits based on the value of his interest in the Fund, payable pursuant to the
provisions of Section 9.1.
6.3 Disability Retirement.
In the event a Participant incurs a Disability, he may retire on his
Disability Retirement Date and shall thereupon be entitled to retirement
benefits based on the value of his interest in the Fund, payable pursuant to the
provisions of Section 9.1.
6.4 Death Benefits.
(a) Upon the death of a Participant before his Retirement or other
termination of Service, the value of his interest in the Fund shall be payable
pursuant to the provisions of Section 9.1. The Administrator shall direct the
Trustee to distribute his interest in the Fund to any surviving Beneficiary
designated by the Participant or, if none, to such persons designated by the
Administrator pursuant to Section 6.5.
(b) Upon the death of a Former Participant, the Administrator shall
direct the Trustee to distribute any undistributed balance of his interest in
the Fund to any surviving Beneficiary designated by him or, if none, to such
persons designated by the Administrator pursuant to Section 6.5.
(c) The Administrator may require such proper proof of death
and such evidence of the right of any person to receive the
interest in the Fund of a deceased Participant or Former Partici-
pant as the Administrator may deem desirable. The Administrator's
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determination of death and of the right of any person to receive
payment shall be conclusive.
6.5 Designation of Death Beneficiary and Manner of Payment.
(a) Each Participant shall have the right to designate a Beneficiary or
Beneficiaries to receive the sum or sums to which he may be entitled upon his
death. The Participant may also designate the manner in which any death benefits
under this Plan shall be payable to his Beneficiary, provided that such
designation is in accordance with Section 9.4. Such designation of Beneficiary
and manner of payment shall be in writing and delivered to the Administrator,
and shall be effective when received by the Administrator. The Participant shall
have the right to change such designation by notice in writing to the
Administrator. Such change of Beneficiary or the manner of payment shall become
effective upon its receipt by the Administrator. Any such change shall be deemed
to revoke all prior designations.
(b) If a Participant shall fail to designate validly a Beneficiary or
if no designated Beneficiary survives the Participant, his interest in the Fund
shall be paid to the person or persons in the first of the following classes of
successive preference Beneficiaries surviving at the death of the Participant:
the Participant's (1) widow or widower, (2) children, (3) parents, and (4)
estate. The Administrator shall decide what Beneficiaries, if any, shall have
been validly designated, and its decision shall be binding and conclusive on all
persons.
(c) Notwithstanding the foregoing, if a Participant has been married
throughout the 12 month period preceding the date of his death, the sum or sums
to which he may be entitled under this Plan upon his death shall be paid to his
spouse, unless the Participant's spouse shall have consented to the election of
another Beneficiary. Such a spousal consent shall be in writing and shall be
witnessed either by a representative of the Plan or a notary public. If it is
established to the satisfaction of the Administrator that such spousal consent
cannot be obtained because there is no spouse, because the spouse cannot be
located, or other reasons prescribed by governmental regulations, the consent of
the spouse may be waived, and the Participant may designate a Beneficiary or
Beneficiaries other than his spouse.
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ARTICLE VII
VESTING AND FORFEITURES
7.1 Vesting on Death, Disability and Normal Retirement.
Unless his participation in this Plan shall have terminated prior
thereto, upon a Participant's death, Disability or upon his attainment of Normal
Retirement Date (whether or not he actually retires at that time) while he is
still employed by the Employer, the Participant's entire interest in the Fund
shall be fully vested and nonforfeitable.
7.2 Vesting on Termination of Participation.
Upon termination of his participation in this Plan for any reason other
than death, Disability, or Normal Retirement, a Participant shall be vested in a
percentage of his Employee Stock Ownership Account, such vested percentages to
be determined under the following table, based on the Years of Service
(including Years of Service prior to the Effective Date) credited to him for
vesting purposes at the time of his termination of participation:
Years of Service Completed Percentage Vested
-------------------------- -----------------
Less than 5 0%
5 or more 100%
Any portion of the Participant's Employee Stock Ownership Account which
is not vested at the time he incurs a Break shall thereupon be forfeited and
disposed of pursuant to Section 7.3. Distribution of the vested portion of a
terminated Participant's interest in the Plan may be authorized by the
Administrator in any manner permitted under Section 9.1.
7.3 Disposition of Forfeitures.
(a) In the event a Participant incurs a Break and subsequently resumes
both his Service and his participation in the Plan prior to incurring at least 5
Breaks, the forfeitable portion of his Employee Stock Ownership Account shall be
reinstated to the credit of the Participant as of the date he resumes
participation.
(b) In the event a Participant terminates Service and subsequently
incurs a Break and receives a distribution, or in the event a Participant does
not terminate Service, but incurs at least 5 Breaks, or in the event that a
Participant terminates Service and incurs at least 5 Breaks but has not received
a distribution, then the forfeitable portion of his Employer Account, including
Investment Adjustments, shall be reallocated to
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other Participants, pursuant to Section 5.4 as of the date the Participant
incurs such Break or Breaks, as the case may be.
(c) In the event a former Participant who had received a distribution
from the Plan is rehired, he shall repay the amount of his distribution before
the earlier of 5 years after the date of his rehire by the Employer, or the
close of the first period of 5 consecutive Breaks commencing after the
withdrawal in order for any forfeited amounts to be restored to him.
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ARTICLE VIII
EMPLOYEE STOCK OWNERSHIP PROVISIONS
8.1 Right to Demand Employer Securities.
A Participant entitled to a distribution from his Employee Stock
Ownership Account shall be entitled to demand that his interest in the Account
be distributed to him in the form of Employer Securities, all subject to Section
9.9. In the event that the Employer Securities are not readily tradable on an
established market, the Participant shall be entitled to require that the
Employer repurchase the Employer Securities under a fair valuation formula, as
provided by governmental regulations. The Participant or Beneficiary shall be
entitled to exercise the put option described in the preceding sentence for a
period of not more than 60 days following the date of distribution of Employer
Securities to him. If the put option is not exercised within such 60-day period,
the Participant or Beneficiary may exercise the put option during an additional
period of not more than 60 days after the beginning of the first day of the
first Plan Year following the Plan Year in which the first put option period
occurred, all as provided in regulations promulgated by the Secretary of the
Treasury.
8.2 Voting Rights.
Each Participant with an Employee Stock Ownership Account shall be
entitled to direct the Trustee as to the manner in which the Employer Securities
in such Account are to be voted. Employer Securities held in the Employee Stock
Ownership Suspense Account or the Exempt Loan Suspense Account shall be voted by
the Trustee on each issue with respect to which shareholders are entitled to
vote in the manner directed by the majority of the Participants who directed the
Trustee as to the manner of voting their shares in the Employee Stock Ownership
Accounts with respect to such issue. Prior to the initial allocation of shares,
the Trustee shall be entitled to vote the shares in the Suspense Account without
prior direction from the Participants or the Administrator. In the event that a
Participant fails to give timely voting instructions to the Trustee with respect
to the voting of his allocated Employer Securities, the Trustee shall be
entitled to vote such shares in its discretion.
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8.3 Nondiscrimination in Employee Stock Ownership Contributions.
In the event that the amount of the Employee Stock Ownership
contributions that would be required in any Plan Year to make the scheduled
payments on an Exempt Loan would exceed the amount that would otherwise be
deductible by the Employer for such Plan Year under Code Section 404, then no
more than one-third of the Employee Stock Ownership contributions for the Plan
Year, which is also the Employer's taxable year, shall be allocated to the group
of Employees who, during the Plan Year or the preceding Plan Year:
(a) Was at any time a 5 percent owner of the Employer;
(b) Received compensation from the Employer in excess of
$75,000, as adjusted under Code Section 414(q);
(c) Received compensation from the Employer in excess of $50,000, as
adjusted under Code Section 414(q), and was in the "top-paid group" of employees
(as defined below) for such year; or
(d) Was at any time an officer and received compensation greater than
50 percent of the amount in effect under Code Section 415(b)(1)(A), as adjusted
for cost-of-living increases permitted under Code Section 415(d)(1), but without
regard to any adjustment under Code Section 415(c)(6)(A).
An Employee shall be deemed a member of the "top-paid group" of employees for a
given Plan Year if such Employee is in the group of the top 20% of the employees
of the Employer when ranked on the basis of compensation.
8.4 Dividends.
Dividends paid with respect to Employer Securities credited to a
Participant's Employee Stock Ownership account as of the record date for the
dividend payment may be paid in cash to the Participants, pursuant to the
directions of the Board of Directors of the Sponsor. If the Board of Directors
shall direct that the aforesaid dividends shall be paid directly to
Participants, the quarterly dividends paid with respect to such Employer
Securities shall be paid to the Plan, from which dividend distributions in cash
shall be made to the Participants with respect to the Employer Securities in
their Employee Stock Ownership Accounts within 90 days of the close of the Plan
Year in which the dividends were paid. Dividends on Employer Securities obtained
pursuant to an Exempt Loan and still held in the Suspense Account may be used to
make payments on an Exempt Loan, as described in Section 8.5.
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8.5 Exempt Loans.
(a) The Sponsor may direct the Trustee to obtain Exempt Loans. The
Exempt Loan may take the form of (i) a loan from a bank or other commercial
lender to purchase Employer Securities (ii) a loan from the Employer to the
Plan; or (iii) an installment sale of Employer Securities to the Plan. The
proceeds of any such Exempt Loan shall be used, within a reasonable time after
the Exempt Loan is obtained, only to purchase Employer Securities, repay the
Exempt Loan, or repay any prior Exempt Loan. Any such Exempt Loan shall provide
for no more than a reasonable rate of interest and shall be without recourse
against the Plan. The number of years to maturity under the Exempt Loan must be
definitely ascertainable at all times. The only assets of the Plan that may be
given as collateral for an Exempt Loan are Employer Securities acquired with the
proceeds of the Exempt Loan and Employer Securities that were used as collateral
for a prior Exempt Loan repaid with the proceeds of the current Exempt Loan.
Such Employer Securities so pledged shall be placed in an Exempt Loan Suspense
Account. No person or institution entitled to payment under an Exempt Loan shall
have recourse against Trust assets other than the aforesaid collateral, Employer
Stock Ownership contributions (other than contributions of Employer Securities)
that are available under the Plan to meet obligations under the Exempt Loan and
earnings attributable to such collateral and the investment of such
contributions. All Employee Stock Ownership contributions paid during the Plan
Year in which an Exempt Loan is made (whether before or after the date the
proceeds of the Exempt Loan are received), all Employee Stock Ownership
contributions paid thereafter until the Exempt Loan has been repaid in full, and
all earnings from investment of such Employee Stock Ownership contributions,
without regard to whether any such Employee Stock Ownership contributions and
earnings have been allocated to Participants' Employee Stock Ownership Accounts,
shall be available to meet obligations under the Exempt Loan as such obligations
accrue, or prior to the time such obligations accrue, unless otherwise provided
by the Employer at the time any such contribution is made. Any pledge of
Employer Securities shall provide for the release of shares so pledged upon the
payment of any portion of the Exempt Loan.
(b) For each Plan Year during the duration of the Exempt Loan, the
number of shares of Employer Securities released from such pledge shall equal
the number of encumbered shares held immediately before release for the current
Plan Year multiplied by a fraction. The numerator of the fraction is the sum of
principal and interest paid in such Plan Year. The denominator of the fraction
is the sum of the numerator plus the principal and interest to be paid for all
future years. Such years will be determined without taking into account any
possible extension or renewal periods. If interest on any Exempt Loan is
variable, the
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interest to be paid in future years under the Exempt Loan shall be computed by
using the interest rate applicable as of the end of the Plan Year.
(c) Notwithstanding the foregoing, the Trustee may obtain an Exempt
Loan pursuant to the terms of which the number of Employer Securities to be
released from encumbrance shall be determined solely with reference to principal
payments. In the event that such an Exempt Loan is obtained, annual payments of
principal and interest shall be at a cumulative rate that is not less rapid at
any time than level payments of such amounts for not more than 10 years. The
amount of interest in any such annual loan repayment shall be disregarded only
to the extent that it would be determined to be interest under standard loan
amortization tables. The requirement set forth in the preceding sentence shall
not be applicable from the time that, by reason of a renewal, extension, or
refinancing, the sum of the expired duration of the Exempt Loan, the renewal
period, the extension period, and the duration of a new Exempt Loan exceeds 10
years.
8.6 Exempt Loan Payments.
(a) Payments of principal and interest on any Exempt Loan
during a Plan Year shall be made by the Trustee (as directed by the
Administrator) only from (1) Employee Stock Ownership contributions to the Trust
made to meet the Plan's obligation under an Exempt Loan (other than
contributions of Employer Securities) and from any earnings attributable to
Employer Securities held as collateral for an Exempt Loan and investments of
such contributions (both received during or prior to the Plan Year); (2) the
proceeds of a subsequent Exempt Loan made to repay a prior Exempt Loan; and (3)
the proceeds of the sale of any Employer Securities held as collateral for an
Exempt Loan. Such contribution and earnings shall be accounted for separately by
the Plan until the Exempt Loan is repaid.
(b) Employer Securities released by reason of the payment of
principal or interest on an Exempt Loan from amounts allocated to Participants'
Employee Stock Ownership Accounts shall immediately upon payment be allocated as
set forth in Section 5.5.
(c) The Employer shall contribute to the Trust sufficient
amounts to enable the Trust to pay principal and interest on any such Exempt
Loans as they are due, provided however that no such contribution shall exceed
the limitations in Section 5.6. In the event that such contributions by reason
of the limitations in Section 5.6 are insufficient to enable the Trust to pay
principal and interest on such Exempt Loan as it is due, then upon the Trustee's
request the Employer shall:
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(1) Make an Exempt Loan to the Trust in sufficient amounts to
meet such principal and interest payments. Such new Exempt Loan shall
be subordinated to the prior Exempt Loan. Securities released from the
pledge of the prior Exempt Loan shall be pledged as collateral to
secure the new Exempt Loan. Such Employer Securities will be released
from this new pledge and allocated to the Employee Stock Ownership
Accounts of the Participants in accordance with applicable provisions
of the Plan;
(2) Purchase any Employer Securities pledged as collateral in
an amount necessary to provide the Trustee with sufficient funds to
meet the principal and interest repayments. Any such sale by the Plan
shall meet the requirements of Section 408(e) of ERISA; or
(3) Any combination of the foregoing. However, the Employer
shall not, pursuant to the provisions of this subsection, do, fail to
do or cause to be done any act or thing which would result in a
disqualification of the Plan as an Employee Stock Ownership Plan under
the Code.
(d) Except as provided in Section 8.1 above and notwithstanding any
amendment to or termination of the Plan which causes it to cease to qualify as
an Employee Stock Ownership plan within the meaning of Section 4975(e)(7) of the
Code, or any repayment of an Exempt Loan, no shares of Employer Securities
acquired with the proceeds of an Exempt Loan obtained by the Trust to purchase
Employer Securities may be subject to a put, call or other option, or buy-sell
or similar arrangement while such shares are held by the Plan or when such
Shares are distributed from the Plan.
8.7 Put Option.
If a Participant exercises a put option (as set forth in Section 8.1)
with respect to Employer Securities that were distributed as part of a total
distribution pursuant to which a Participant's Employee Stock Ownership Account
is distributed to him in a single taxable year, the Employer or the Plan may
elect to pay the purchase price of the Employer Securities over a period not to
exceed 5 years. Such payments shall be made in substantially equal installments
not less frequently than annually over a period beginning not later than 30 days
after the exercise of the put option. Reasonable interest shall be paid to the
Participant with respect to the unpaid balance of the purchase price and
adequate security shall be provided with respect thereto. In the event that a
Participant exercises a put option with respect to Employer Securities that are
distributed as part of an installment distribution, the amount to be paid for
such securities shall be paid not later than 30 days after the exercise of the
put option.
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8.8 Diversification Requirements
Each Participant who has completed at least 10 years of participation
in the Plan and has attained age 55 may elect within 90 days after the close of
each Plan Year during his "qualified election period" to direct the Plan as to
the investment of at least 25 percent of his Employee Stock Ownership Account
(to the extent such percentage exceeds the amount to which a prior election
under this Section 8.8 had been made). For purposes of this Section 8.8, the
term "qualified election period" shall mean the 5-Plan-Year period beginning
with the Plan Year after the Plan Year in which the Participant attains age 55
(or, if later, beginning with the Plan Year after the first Plan Year in which
the Employee first completes at least 10 years of participation in the Plan). In
the case of the Employee who has attained age 60 and completed 10 years of
participation in the prior Plan Year and in the case of the election year in
which any other Participant who has met the minimum age and service requirements
for diversification can make his last election hereunder, he shall be entitled
to direct the Plan as to the investment of at least 50 percent of his Employee
Stock Ownership Account (to the extent such percentage exceeds the amount to
which a prior election under this Section 8.8 had been made). The Plan shall
make available at least 3 investment options (not inconsistent with regulations
prescribed by the Department of Treasury) to each Participant making an election
hereunder. The Plan shall be deemed to have met the requirements of this Section
if the portion of the Participant's Employee Stock Ownership Account covered by
the election hereunder is distributed to the Participant or his designated
Beneficiary within 90 days after the period during which the election may be
made. In the absence of such a distribution, the Trustee shall implement the
Participant's election within 90 days following the expiration of the qualified
election period.
8.9 Independent Appraiser.
An independent appraiser meeting the requirements of Code 170(a)(1)
shall value the Employer Securities in those Plan Years when such securities are
not readily tradable on an established securities market.
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ARTICLE IX
PAYMENTS AND DISTRIBUTIONS
9.1 Payments on Termination of Service - In General.
All benefits provided under this Plan shall be funded by the value of a
Participant's vested interest in the Fund. As soon as practicable after a
Participant's Retirement, death or termination of Service, the Administrator
shall ascertain the value of his vested interest in the Fund, as provided in
Article V, and the Administrator shall hold or dispose of the same in accordance
with the following provisions of this Article IX.
9.2 Commencement of Payments.
(a) Distributions upon Retirement or Death. Upon a Participant's
Retirement or Death, payment of benefits under this Plan shall, unless the
Participant otherwise elects (in accordance with Section 9.3), commence no later
than 6 months after the close of the Plan Year in which occurs the date of the
Participant's Retirement or death.
(b) Distribution following Termination of Service. Unless a Participant
elects otherwise, if a Participant terminates Service prior to Retirement or
death, he shall be accorded an opportunity to commence receipt of distributions
from his Accounts within six (6) months after the Valuation Date next following
the date of his termination of service. A Participant who terminates Service
with a deferred vested benefit shall be entitled to receive from the
Administrator a statement of his benefits. In the event that a Participant
elects not to commence receipt of distributions from his Accounts in accordance
with this Section 9.2(b), after the Participant incurs a Break, the
Administrator shall transfer his deferred vested interest to a distribution
account. If a Participant's vested Employer Account does not exceed (or at the
time of any prior distribution did not exceed) $3,500, the Plan Administrator
may distribute the vested portion of his Employer Account as soon as
administratively feasible without the consent of the Participant or his spouse.
(c) Distribution of Accounts Greater Than $3,500. If the value of a
Participant's vested Account balance exceeds (or at the time of any prior
distribution exceeded) $3,500, and the Account balance is immediately
distributable, the Participant must consent to any distribution of such Account
balance. The Plan Administrator shall notify the Participant of the right to
defer any distribution until the Participant's Account balance is no longer
immediately distributable. The consent of the Participant shall not be required
to the extent that a distribution is required to satisfy Code ss.401(a)(9) or
Code ss.415.
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9.3 Mandatory Commencement of Benefits.
(a) Unless a Participant elects otherwise, in writing, distribution of
benefits will begin no later than the 60th day after the latest of the close of
the Plan Year in which (i) the Participant attains age 65, (ii) occurs the tenth
anniversary of the year in which the Participant commenced participation in the
Plan Year, or (iii) the Participant terminates Service with the Employer.
(b) In the event that the Plan shall be subsequently amended to provide
for a form of distribution other than a lump sum, as of the first distribution
calendar year, distributions, if not made in a lump sum, may be made only over
one of the following periods (or a combination thereof):
(i) the life of the Participant,
(ii) the life of the Participant and the designated
beneficiary,
(iii) a period certain not extending beyond the life
expectancy of the Participant, or
(iv) a period certain not extending beyond the joint and
last survivor expectancy of the Participant and a
designated beneficiary.
(c) In the event that the Plan shall be subsequently amended to provide
for a form of distribution other than a lump sum, if the participant's interest
is to be distributed in other than a lump sum, the following minimum
distribution rules shall apply on or after the required beginning date:
(i) If a Participant's benefit is to be distributed over (1) a
period not extending beyond the life expectancy of the Participant or the joint
life and last survivor expectancy of the Participant and the Participant's
designated beneficiary or (2) a period not extending beyond the life expectancy
of the designated beneficiary, the amount required to be distributed for each
calendar year, beginning with distributions for the first distribution calendar
year, must at least equal the quotient obtained by dividing the Participant's
benefit by the applicable life expectancy.
(ii) For calendar years beginning after December 31, 1988, the
amount to be distributed each year, beginning with distributions for the first
distribution calendar year shall not be less than the quotient obtained by
dividing the Participant's benefit by the lesser of (1) the applicable life
expectancy or (2) if the Participant's spouse is not the designated beneficiary,
the
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applicable divisor determined from the table set forth in Q&A-4 of section
1.401(a)(9)-2 of the Proposed Regulations. Distributions after the death of the
participant shall be distributed using the applicable life expectancy in
sub-section (iii) above as the relevant divisor without regard to Proposed
Regulations
1.401(a)(9)-2.
(iii) The minimum distribution required for the Participant's
first distribution calendar year must be made on or before the Participant's
required beginning date. The minimum distribution for other calendar years,
including the minimum distribution for the distribution calendar year in which
the employee's required beginning date occurs, must be made on or before
December 31 of the distribution calendar year.
(d) If a Participant dies after a distribution has commenced in
accordance with Section 8.3(b) but before his entire interest has been
distributed to him, the remaining portion of such interest shall be distributed
to his Beneficiary at least as rapidly as under the method of distribution in
effect as of the date of his death.
(e) If a Participant shall die before the distribution of his interest
in the Plan has begun, the entire interest of the Participant shall be
distributed by December 31 of the calendar year containing the fifth anniversary
of the death of the Participant, except in the following events:
(i) If any portion of the Participant's interest is payable to
(or for the benefit of) a designated beneficiary over a period not extending
beyond the life expectancy of such beneficiary and such distributions begin not
later than December 31 of the calendar year immediately following the calendar
year in which the Participant died.
(ii) If any portion of the Participant's interest is payable
to (or for the benefit of) the Participant's spouse over a period not extending
beyond the life expectancy of such spouse and such distributions begin no later
than December 31 of the calendar year in which the Participant would have
attained age 70-1/2.
If the Participant has not made a distribution election by the time of
his death, the Participant's designated beneficiary shall elect the method of
distribution no later than the earlier of (1) December 31 of the calendar year
in which distributions would be required to begin under this Article or (2)
December 31 of the calendar year which contains the fifth anniversary of the
date of death of the Participant. If the Participant has no designated
beneficiary, or if the designated beneficiary does not elect a method of
distribution, distribution of the Participant's
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entire interest shall be completed by December 31 of the calendar year
containing the fifth anniversary of the Participant's death.
(f) For purposes of this Article, the life expectancy of a Participant
and his spouse may be redetermined but not more frequently than annually. The
life expectancy (or joint and last survivor expectancy) shall be calculated
using the attained age of the Participant (or designated beneficiary) as of the
Participant's (or designated beneficiary's) birthday in the applicable calendar
year reduced by one for each calendar year which has elapsed since the date life
expectancy was first calculated. If life expectancy is being recalculated, the
applicable life expectancy shall be the life expectancy as so recalculated. The
applicable calendar year shall be the first distribution calendar year, and if
life expectancy is being recalculated, such succeeding calendar year. Unless
otherwise elected by the Participant (or his spouse, if applicable) by the time
distributions are required to begin, life expectancies shall be recalculated
annually. Any such election not to recalculate shall be irrevocable and shall
apply to all subsequent years. The life expectancy of a nonspouse beneficiary
may not be recalculated.
(g) For purposes of Section 9.3(b) and 9.3(e), any amount paid to a
child shall be treated as if it had been paid to a surviving spouse if such
amount will become payable to the surviving spouse upon such child reaching
majority (or other designated event permitted under regulations).
(h) For distributions beginning before the Participant's death, the
first distribution calendar year is the calendar year immediately preceding the
calendar year which contains the Participant's required beginning date. For
distributions beginning after the Participant's death, the first distribution
calendar year is the calendar year in which distributions are required to begin
pursuant to this Article.
9.4 Required Beginning Dates.
(a) General Rule. The required beginning date of a
Participant is the first day of April of the calendar year
following the calendar year in which the participant attains age
70-1/2.
(b) Transitional rules. The required beginning date of a Participant
who attains age 70-1/2 before January 1, 1988, shall be determined in accordance
with (1) or (2) below:
(1) Non-5-percent owners. The required beginning date
of a Participant who is not a 5-percent owner is the first day of
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April of the calendar year following the calendar year in which the later of
retirement or attainment or age 70-1/2 occurs.
(2) 5-percent owners. The required beginning date of a
Participant who is a 5-percent owner during any year beginning after December
31, 1989, is the first day of April following the later of:
(i) the calendar year in which the Participant attains
age 70-1/2, or
(ii) the earlier of the calendar year with or within which
ends the Plan Year in which the Participant becomes a 5-percent owner, or the
calendar year in which the Participant retires.
The required beginning date of a Participant who is not a 5-percent
owner who attains age 70-1/2 during 1988 and who has not retired as of January
1, 1989, is April 1, 1990.
(c) 5-percent owner. A Participant is treated as a 5-percent owner for
purposes of this section if such Participant is a 5-percent owner as defined in
section 416(i) of the Code (determined in accordance with section 416 but
without regard to whether the plan is top-heavy) at any time during the Plan
Year ending with or within the calendar year in which such owner attains age
66-1/2 or any subsequent Plan Year. Once distributions have begun to a 5-percent
owner under this section, they must continue to be distributed, even if the
Participant ceases to be a 5-percent owner in a subsequent year.
9.5 Form of Payment.
Each Participant's vested interest shall be distributed in a lump sum
payment. Notwithstanding the preceding sentence, but subject to Section 9.3, the
Administrator may not distribute a lump sum when the present value of a
Participant's total Account balances is in excess of $3,500 without the
Participant's consent. This form of payment shall be the normal form of
distribution. Furthermore, however, in the event that the Administrator must
commence distributions with respect to an Employee who has attained age 70-1/2
and is still employed by the Employer, if the Employee does not elect a lump sum
distribution, payments shall be made in installments in such amounts as shall
satisfy the minimum distribution rules of Section 9.3.
9.6 Payments Upon Termination of Plan.
Upon termination of this Plan pursuant to Sections 13.2, 13.4, 13.5 or
13.6, the Administrator shall continue to perform its duties and the Trustee
shall make all payments upon the fol-
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lowing terms, conditions and provisions: All interests of Participants shall
immediately become fully vested; the value of the interests of all Participants
shall be determined within 60 days after such termination, and the Administrator
shall have the same powers to direct the Trustee in making payments as contained
in Sections 9.1 and 13.5.
9.7 Distributions Pursuant to Qualified Domestic Relations Orders.
Upon receipt of a domestic relations order, the Administrator shall
notify promptly the Participant and any alternate payee of receipt of the order
and the Plan's procedure for determining whether the order is a Qualified
Domestic Relations Order. While the issue of whether a domestic relations order
is a Qualified Domestic Relations Order is being determined, if the benefits
would otherwise be paid, the Administrator shall segregate in a separate account
in the Plan the amounts that would be payable to the alternate payee during such
period if the order were a Qualified Domestic Relations Order. If within 18
months the order is determined to be a Qualified Domestic Relations Order, the
amounts so segregated, along with the interest or investment earnings
attributable thereto shall be paid to the alternate payee. Alternatively, if
within 18 months, it is determined that the order is not a Qualified Domestic
Relations Order or if the issue is still unresolved, the amounts segregated
under this Section 9.6, with the earnings attributable thereto, shall be paid to
the Participant or Beneficiary who would have been entitled to such amounts if
there had been no order. The determination as to whether the order is qualified
shall be applied prospectively. Thus, if the Administrator determines that the
order is a Qualified Domestic Relations Order after the 18-month period, the
Plan shall not be liable for payments to the alternative payee for the period
before the order is determined to be a Qualified Domestic Relations Order.
9.8 Cash-Out Distributions
If a Participant receives a distribution of the entire present value of
his vested Account balances under this Plan because of the termination of his
participation in the Plan, the Plan shall disregard a Participant's Service with
respect to which such cash-out distribution shall have been made, in computing
his accrued benefit under the Plan in the event that a Former Participant shall
again become an Employee and become eligible to participate in the Plan. Such a
distribution shall be deemed to be made on termination of participation in the
Plan if it is made not later than the close of the second Plan Year following
the Plan Year in which such termination occurs. The forfeitable portion of a
Participant's accrued benefit shall be restored upon repayment to the Plan by
such former Participant of the full amount of the
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cash-out distribution, provided that the former Participant again becomes an
Employee. Such repayment must be made by the Employee not later than the end of
the 5-year period beginning with the date of the distribution. Forfeitures
required to be restored by virtue of such repayment shall be restored from the
following sources in the following order of preference: (i) current forfeitures;
(ii) additional employee stock ownership contributions, as appropriate and as
subject to Section 5.6; and (iii) investment earnings of the Fund. In the event
that a Participant's interest in the Plan is totally forfeitable, a Participant
shall be deemed to have received a distribution of zero upon his termination of
Service. In the event of a return to Service within 5 years of the date of his
deemed distribution, the Participant shall be deemed to have repaid his
distribution in accordance with the rules of this Section 9.8.
9.9 ESOP Distribution Rules.
Notwithstanding any provision of this Article IX to the contrary, the
distribution of a Participant's Employee Stock Ownership Account (unless the
Participant elects otherwise in writing), shall commence as soon as
administratively feasible as of the first Valuation Date coincident with or next
following his death, disability or termination of Service, but not later than 1
year after the close of the Plan Year in which the Participant separates from
Service by reason of the attainment of his Normal Retirement Date, disability,
death or separation from Service. In addition, all distributions hereunder
shall, to the extent that the Participant's Account is invested in Employer
Securities, be made in the form of Employer Securities. Fractional shares,
however, may be distributed in the form of cash.
9.10 Withholding.
(a) Notwithstanding any provision of the Plan to the contrary that
would otherwise limit a distributee's election under this Article IX, a
distributee may elect, at the time and in the manner prescribed by the Plan
Administrator, to have any portion of an "eligible rollover distribution" paid
directly to an "eligible retirement plan" specified by the distributee in a
"direct rollover."
(b) For purposes of this Section 9.10, an "eligible rollover
distribution" is any distribution of all or any portion of the balance to the
credit of the distributee, except that an "eligible rollover distribution" does
not include: any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives (or joint life expectancies)
of the distributee and the distributee's designated beneficiary, or for a
specified period of ten years or more; any distribution
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to the extent such distribution is required under section 401(a)(9) of the Code;
and the portion of any distribution that is not includible in gross income
(determined without regard to the exclusion for net unrealized appreciation with
respect to Employer Securities).
(c) For purposes of this Section 9.10, an "eligible retirement plan" is
an individual retirement account described in section 408(a) of the Code, an
individual retirement annuity described in section 408(b) of the Code, an
annuity plan described in section 403(a) of the Code, or a qualified trust
described in section 401(a) of the Code, that accepts the distributee's eligible
rollover distribution. However, in the case of an "eligible rollover
distribution" to the surviving spouse, an "eligible retirement plan" is an
individual retirement account or individual retirement annuity.
(d) For purposes of this Section 9.10, a distributee includes a
Participant or former Participant. In addition, the Participant's or former
Participant's surviving spouse and the Participant's or former Participant's
spouse or former spouse who is the alternate payee under a qualified domestic
relations order, as defined in section 414(p) of the Code, are "distributees"
with regard to the interest of the spouse or former spouse.
(e) For purposes of this Section 9.10, a "direct rollover" is a payment
by the Plan to the "eligible retirement plan" specified by the distributee.
9.11 Waiver of 30-day Notice.
If a distribution is one to which sections 401(a)(11) and 417 of the
Code do not apply, such distribution may commence less than 30 days after the
notice required under section 1.411(a)-11(c) of the Income Tax Regulations is
given, provided that: (1) the Plan Administrator clearly informs the Participant
that the Participant has a right to a 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 (2) the Participant,
after receiving the notice, affirmatively elects a distribution.
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ARTICLE X
PROVISIONS RELATING TO TOP-HEAVY PLANS
10.1 Top-Heavy Rules to Control.
Anything contained in this Plan to the contrary notwithstanding, if for
any Plan Year the Plan is a top-heavy plan, as determined pursuant to Section
416 of the Code, then the Plan must meet the requirements of this Article X for
such Plan Year.
10.2 Top-Heavy Plan Definitions.
Unless a different meaning is plainly implied by the context, the
following terms as used in this Article X shall have the following meanings:
(a) "Accrued Benefit" shall mean the account balances or accrued
benefits of an Employee, calculated pursuant to Section 10.3.
(b) "Determination Date" shall mean, with respect to any particular
Plan Year of this Plan, the last day of the preceding Plan Year (or, in the case
of the first Plan Year of the Plan, the last day of the first Plan Year). In
addition, the term "Determination Date" shall mean, with respect to any
particular plan year of any plan (other than this Plan) in a Required
Aggregation Group or a Permissive Aggregation Group, the last day of the plan
year of such plan which falls within the same calendar year as the Determination
Date for this Plan.
(c) "Employer" shall mean the Employer (as defined in Section 1.1(q))
and any entity which is (1) a member of a controlled group including such
Employer, while it is a member of such controlled group (within the meaning of
Section 414(b) of the Code), (2) in a group of trades or businesses under common
control with such Employer, while it is under common control (within the meaning
of Section 414(c) of the Code), and (3) a member of an affiliated service group
including such Employer, while it is a member of such affiliated service group
(within the meaning of Section 414(m) of the Code).
(d) "Key Employee" shall mean any Employee or former Employee (or any
Beneficiary of such Employee or former Employee, as the case may be) who, at any
time during the Plan Year or during the 4 immediately preceding Plan Years is
one of the following:
(1) An officer of the Employer who has compensation greater
than 50% of the amount in effect under Code 415(b)(1)(A) for the Plan
Year; provided, however, that no
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more than 50 Employees (or, if lesser, the greater of 3 or
10% of the Employees) shall be deemed officers;
(2) One of the 10 Employees having annual compensation (as
defined in Section 415 of the Code) in excess of the limitation in
effect under Section 415(c)(1)(A) of the Code, and owning (or
considered as owning, within the meaning of Section 318 of the Code)
the largest interests in the Employer;
(3) Any Employee owning (or considered as owning, within the
meaning of Section 318 of the Code) more than 5% of the outstanding
stock of the Employer or stock possessing more than 5% of the total
combined voting power of all stock of the Employer; or
(4) Any Employee having annual compensation (as defined in
Section 415 of the Code) of more than $150,000 and who would be
described in Section 10.2(d)(3) if "1%" were substituted for "5%"
wherever the latter percentage appears.
For purposes of applying Section 318 of the Code to the provisions of
this Section 10.2(d), Section 318(a)(2)(C) of the Code shall be applied by
substituting "5%" for "50%" wherever the latter percentage appears. In addition,
for purposes of this Section 10.2(d), the provisions of Section 414(b), (c) and
(m) shall not apply in determining ownership interests in the Employer. However,
for purposes of determining whether an individual has compensation in excess of
$150,000, or whether an individual is a Key Employee under Section 10.2(d)(1)
and (2), compensation from each entity required to be aggregated under Sections
414(b), (c) and (m) of the Code shall be taken into account. Notwithstanding
anything contained herein to the contrary, all determinations as to whether a
person is or is not a Key Employee shall be resolved by reference to Section 416
of the Code and any rules and regulations promulgated thereunder.
(e) "Non-Key Employee" shall mean any Employee or former Employee (or
any Beneficiary of such Employee or former Employee, as the case may be) who is
not considered to be a Key Employee with respect to this Plan.
(f) "Permissive Aggregation Group" shall mean all plans in the Required
Aggregation Group and any other plans maintained by the Employer which satisfy
Sections 401(a)(4) and 410 of the Code when considered together with the
Required Aggregation Group.
(g) "Required Aggregation Group" shall mean each plan (including any
terminated plan) of the Employer in which a Key Employee is (or in the case of a
terminated plan, had been) a Participant in the Plan Year containing the
Determination Date or
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any of the 4 preceding Plan Years, and each other plan of the Employer which
enables any plan of the Employer in which a Key Employee is a Participant to
meet the requirement of Sections 401(a)(4) and 410 of the Code.
10.3 Calculation of Accrued Benefits.
(a) An Employee's Accrued Benefit shall be equal to:
(1) With respect to this Plan or any other defined
contribution plan (other than a defined contribution pension plan) in a
Required Aggregation Group or a Permissive Aggregation Group, the
Employee's account balances under the respective plan, determined as of
the most recent plan valuation date within a 12-month period ending on
the Determination Date, including contributions actually made after the
valuation date but before the Determination Date (and, in the first
plan year of a plan, also including any contributions made after the
Determination Date which are allocated as of a date in the first plan
year).
(2) With respect to any defined contribution pension plan in a
Required Aggregation Group or a Permissive Aggregation Group, the
Employee's account balances under the plan, determined as of the most
recent plan valuation date within a 12-month period ending on the
Determination Date, including contributions which have not actually
been made, but which are due to be made as of the Determination Date.
(3) With respect to any defined benefit plan in a Required
Aggregation Group or a Permissive Aggregation Group, the present value
of the Employee's accrued benefits under the plan, determined as of the
most recent plan valuation date within a 12-month period ending on the
Determination Date, pursuant to the actuarial assumptions used by such
plan, and calculated as if the Employee terminated Service under such
plan as of the valuation date (except that, in the first plan year of a
plan, a current Participant's estimated Accrued Benefit Plan as of the
Determination Date shall be taken into account).
(4) If any individual has not performed services for the
Employer maintaining the Plan at any time during the 5-year period
ending on the Determination Date, any Accrued Benefit for such
individual shall not be taken into account.
(b) The Accrued Benefit of any Employee shall be further
adjusted as follows:
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(1) The Accrued Benefit shall be calculated to include all
amounts attributable to both Employer and Employee contributions, but
shall exclude amounts attributable to voluntary deductible Employee
contributions, if any.
(2) The Accrued Benefit shall be increased by the aggregate
distributions made with respect to an Employee under the plan or plans,
as the case may be, during the 5-year period ending on the
Determination Date.
(3) Rollover and direct plan-to-plan transfers shall be taken
into account as follows:
(A) If the transfer is initiated by the Employee and made
from a plan maintained by one employer to a plan maintained by
another unrelated employer, the transferring plan shall
continue to count the amount transferred; the receiving plan
shall not count the amount transferred.
(B) If the transfer is not initiated by the Employee or
is made between plans maintained by related employers, the
transferring plan shall no longer count the amount
transferred; the receiving plan shall count the amount
transferred.
(c) If any individual has not performed services for the Employer at
any time during the 5-year period ending on the Determination Date, any accrued
benefit for such individual (and the account of such individual) shall not be
taken into account.
10.4 Determination of Top-Heavy Status.
This Plan shall be considered to be a top-heavy plan for any Plan Year
if, as of the Determination Date, the value of the Accrued Benefits of Key
Employees exceeds 60% of the value of the Accrued Benefits of all eligible
Employees under the Plan. Notwithstanding the foregoing, if the Employer
maintains any other qualified plan, the determination of whether this Plan is
top-heavy shall be made after aggregating all other plans of the Employer in the
Required Aggregation Group and, if desired by the Employer as a means of
avoiding top-heavy status, after aggregating any other plan of the Employer in
the Permissive Aggregation Group. If the required Aggregation Group is
top-heavy, then each plan contained in such group shall be deemed to be
top-heavy, notwithstanding that any particular plan in such group would not
otherwise be deemed to be top-heavy. Conversely, if the Permissive Aggregation
Group is not top-heavy, then no plan contained in such group shall be deemed to
be top-heavy, notwithstanding that any particular plan in such group would
otherwise be deemed to be top-heavy. In no event shall a plan included in a
top-heavy
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Permissive Aggregation Group be deemed a top-heavy plan unless such plan is also
included in a top-heavy Required Aggregation Group.
10.5 Determination of Super Top-Heavy Status.
The Plan shall be considered to be a super top-heavy plan if, as of the
Determination Date, the Plan would meet the test specified in Section 10.4 above
for classification as a top-heavy plan, except that "90%" shall be substituted
for "60%" whenever the latter percentage appears.
10.6 Minimum Contribution.
(a) For any year in which the Plan is top-heavy, each Non- Key Employee
who has met the age and service requirements, if any, contained in the Plan,
shall be entitled to a minimum contribution (which may include forfeitures
otherwise allocable) equal to a percentage of such Non-Key Employee's
compensation (as defined in Section 415 of the Code) as follows:
(1) If the Non-Key Employee is not covered by a defined
benefit plan maintained by the Employer, then the minimum contribution
under this Plan shall be 3% of such Non-Key Employee's compensation.
(2) If the Non-Key Employee is covered by a defined benefit
plan maintained by the Employer, then the minimum contribution under
this Plan shall be 5% of such Non-Key Employee's compensation.
(b) Notwithstanding the foregoing, the minimum contribution otherwise
allocable to a Non-Key Employee under this Plan shall be reduced in the
following circumstances:
(1) The percentage minimum contribution required under this
Plan shall in no event exceed the percentage contribution made for the
Key Employee for whom such percentage is the highest for the Plan Year
after taking into account contributions under other defined
contribution plans in this Plan's Required Aggregation Group; provided,
however, that this Section 10.7(b)(1) shall not apply if this Plan is
included in a Required Aggregation Group and this Plan enables a
defined benefit plan in such Required Aggregation Group to meet the
requirements of Section 401(a)(4) or 410 of the Code.
(2) No minimum contribution shall be required (or the minimum
contribution shall be reduced, as the case may be) for a Non-Key
Employee under this Plan for any Plan Year if the Employer maintains
another qualified plan under which a
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minimum benefit or contribution is being accrued or made on account of
such Plan Year, in whole or in part, on behalf of the Non-Key Employee,
in accordance with Section 416(c) of the Code.
(c) For purposes of this Section 10.6, there shall be disregarded (1)
any Employer contributions attributable to a salary reduction or similar
arrangement, or (2) any Employer contributions to or any benefits under Chapter
21 of the Code (relating to the Federal Insurance Contributions Act), Title II
of the Social Security Act, or any other federal or state law.
(d) For purposes of this Section 10.6, minimum contributions shall be
required to be made on behalf of only those Non-Key Employees, as described in
Section 10.7(a), who have not terminated Service as of the last day of the Plan
Year. If a Non-Key Employee is otherwise entitled to receive a minimum
contribution pursuant to this Section 10.6(d), the fact that such Non-Key
Employee failed to complete 1,000 Hours of Service or failed to make any
mandatory or elective contributions under this Plan, if any are so required,
shall not preclude him from receiving such minimum contribution.
10.7 Vesting.
(a) For any Plan Year in which the Plan is a top-heavy plan, a
Participant's Employer account shall continue to vest according to the following
schedule:
Years of Service Completed Percentage Vested
-------------------------- -----------------
Less than 1 0%
1 but less than 2 20%
2 but less than 3 40%
3 but less than 4 60%
4 but less than 5 80%
5 or more 100%
(b) For purposes of Section 10.7(a), the term "year of service" shall
have the same meaning as set forth in Section 1.1(kk), as modified by Section
3.2
(c) If for any Plan Year the Plan becomes top-heavy and the vesting
schedule set forth in Section 10.7(a) becomes effective, then, even if the Plan
ceases to be top-heavy in any subsequent Plan Year, the vesting schedule set
forth in Section 10.7(a) shall remain applicable with respect to any Participant
who has completed 3 Years of Service.
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10.8 Maximum Benefit Limitation.
For any Plan Year in which the Plan is a top-heavy plan, Section
5.6(d)(1)(B)(i) and Section 5.6(d)(2)(B)(i)shall be read by substituting "1.0"
for "1.25" wherever the latter figure appears; provided, however, that such
substitution shall not have the effect of reducing any benefit accrued under a
defined benefit plan prior to the first day of the plan year in which this
Section 10.8 becomes applicable.
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ARTICLE XI
ADMINISTRATION
11.1 Appointment of Administrator.
This Plan shall be administered by a committee consisting of up to 5
persons, whether or not Employees or Participants, who shall be appointed from
time to time by the Board of Directors to serve at its pleasure. The Sponsor may
require that each person appointed as an Administrator shall signify his
acceptance by filing an acceptance with the Sponsor. The term "Administrator" as
used in this Plan shall refer to the members of the committee, either
individually or collectively, as appropriate. In the event that the Sponsor
shall elect not to appoint any individuals to constitute a committee to
administer the Plan, the Sponsor shall serve as the Administrator hereunder.
11.2 Resignation or Removal of Administrator.
An Administrator shall have the right to resign at any time by giving
notice in writing, mailed or delivered to the Employer and to the Trustee. Any
Administrator who was an employee of the Employer at the time of his appointment
shall be deemed to have resigned as an Administrator upon his termination of
Service. The Board of Directors may, in its discretion, remove any Administrator
with or without cause, by giving notice in writing, mailed or delivered to the
Administrator and to the Trustee.
11.3 Appointment of Successors: Terms of Office, Etc.
Upon the death, resignation or removal of an Administrator, the
Employer may appoint, by Board of Directors' resolution, a successor or
successors. Notice of termination of an Administrator and notice of appointment
of a successor shall be made by the Employer in writing, with copies mailed or
delivered to the Trustee, and the successor shall have all the rights and
privileges and all of the duties and obligations of the predecessor.
11.4 Powers and Duties of Administrator.
The Administrator shall have the following duties and responsibilities
in connection with the administration of this Plan:
(a) To promulgate and enforce such rules, regulations and procedures as
shall be proper for the efficient administration of the Plan, such rules,
regulations and procedures to apply uniformly to all Employees, Participants and
Beneficiaries;
(b) To determine all questions arising in the administra-
tion, interpretation and application of the Plan, including ques-
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tions of eligibility and of the status and rights of Participants,
Beneficiaries and any other persons hereunder;
(c) To decide any dispute arising hereunder strictly in accordance with
the terms of the Plan; provided, however, that no Administrator shall
participate in any matter involving any questions relating solely to his own
participation or benefits under this Plan;
(d) To advise the Employer and the Trustee regarding the known future
needs for funds to be available for distribution in order that the Trustee may
establish investments accordingly;
(e) To correct defects, supply omissions and reconcile
inconsistencies to the extent necessary to effectuate the Plan;
(f) To advise the Employer of the maximum deductible con-
tribution to the Plan for each fiscal year;
(g) To direct the Trustee concerning all payments which
shall be made out of the Fund pursuant to the provisions of this
Plan;
(h) To advise the Trustee on all terminations of Service by
Participants, unless the Employer has so notified the Trustee;
(i) To confer with the Trustee on the settling of any claims
against the Fund;
(j) To make recommendations to the Board of Directors with
respect to proposed amendments to the Plan and the Trust
Agreement;
(k) To file all reports with government agencies, Employees and other
parties as may be required by law, whether such reports are initially the
obligation of the Employer, the Plan or the Trustee; and
(l) To have all such other powers as may be necessary to
discharge its duties hereunder.
Reasonable discretion is granted to the Administrator to affect the
benefits, rights and privileges of Participants, Beneficiaries or other persons
affected by this Plan. The Administrator shall exercise reasonable discretion
under the terms of this Plan and shall administer the Plan strictly in
accordance with its terms, such administration to be exercised uniformly so that
all persons similarly situated shall be similarly treated.
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11.5 Action by Administrator.
The Administrator may elect a Chairman and Secretary from among its
members and may adopt rules for the conduct of its business. A majority of the
members then serving shall constitute a quorum for the transaction of business.
All resolutions or other action taken by the Administrator shall be by vote of a
majority of those present at such meeting and entitled to vote. Resolutions may
be adopted or other action taken without a meeting upon written consent signed
by at least a majority of the members. All documents, instruments, orders,
requests, directions, instructions and other papers shall be executed on behalf
of the Administrator by either the Chairman or the Secretary of the
Administrator, if any, or by any member or agent of the Administrator duly
authorized to act on the Administrator's behalf.
11.6 Participation by Administrators.
No Administrator shall be precluded from becoming a Participant in the
Plan if he would be otherwise eligible, but he shall not be entitled to vote or
act upon matters or to sign any documents relating specifically to his own
participation under the Plan, except when such matters or documents relate to
benefits generally. If this disqualification results in the lack of a quorum,
then the Board of Directors shall appoint a sufficient number of temporary
Administrators who shall serve for the sole purpose of determining such a
question.
11.7 Agents.
The Administrator may employ agents and provide for such clerical,
legal, actuarial, accounting, medical, advisory or other services as it deems
necessary to perform its duties under this Plan. The cost of such services and
all other expenses incurred by the Administrator in connection with the
administration of the Plan shall be paid from the Fund, unless paid by the
Employer.
11.8 Allocation of Duties.
The duties, powers and responsibilities reserved to the Administrator
may be allocated among its members so long as such allocation is pursuant to
written procedures adopted by the Administrator, in which case, except as may be
required by the Act, no Administrator shall have any liability, with respect to
any duties, powers or responsibilities not allocated to him, for the acts of
omissions of any other Administrator.
11.9 Delegation of Duties.
The Administrator may delegate any of its duties to other
employees of the Employer, to the Trustee with its consent, or to
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any other person or firm, provided that the Administrator shall prudently choose
such agents and rely in good faith on their actions.
11.10 Administrator's Action Conclusive.
Any action on matters within the authority of the Administrator shall
be final and conclusive except as provided in Article XII.
11.11 Compensation and Expenses of Administrator.
No Administrator who is receiving compensation from the Employer as a
full-time employee, as a director or agent, shall be entitled to receive any
compensation or fee for his services hereunder. Any other Administrator shall be
entitled to receive such reasonable compensation for his services as an
Administrator hereunder as may be mutually agreed upon between the Employer and
such Administrator. Any such compensation shall be paid from the Fund, unless
paid by the Employer. Each Administrator shall be entitled to reimbursement by
the Employer for any reasonable and necessary expenditures incurred in the
discharge of his duties.
11.12 Records and Reports.
The Administrator shall maintain adequate records of its actions and
proceedings in administering this Plan and shall file all reports and take all
other actions as it deems appropriate in order to comply with the Act, the Code
and governmental regulations issued thereunder.
11.13 Reports of Fund Open to Participants.
The Administrator shall keep on file, in such form as it shall deem
convenient and proper, all annual reports of the Fund received by the
Administrator from the Trustee, and a statement of each Participant's interest
in the Fund as from time to time determined. The annual reports of the Fund and
the statement of his own interest in the Fund, as well as a complete copy of the
Plan and the Trust Agreement and copies of annual reports to the Internal
Revenue Service, shall be made available by the Administrator to the Employer
for examination by each Participant during reasonable hours at the office of the
Employer, provided, however, that the statement of a Participant's interest
shall not be made available for examination by any other Participant.
11.14 Named Fiduciary.
The Administrator is the named fiduciary for purposes of the Act and
shall be the designated agent for receipt of service of process on behalf of the
Plan. It shall use ordinary care and
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diligence in the performance of its duties under this Plan. Nothing in this Plan
shall preclude the Employer from indemnifying the Administrator for all actions
under this Plan, or from purchasing liability insurance to protect it with
respect to its duties under this Plan.
11.15 Information from Employer.
The Employer shall promptly furnish all necessary information to the
Administrator to permit it to perform its duties under this Plan. The
Administrator shall be entitled to rely upon the accuracy and completeness of
all information furnished to it by the Employer, unless it knows or should have
known that such information is erroneous.
11.16 Reservation of Rights by Employer.
Where rights are reserved in this Plan to the Employer, such rights
shall be exercised only by action of the Board of Directors, except where the
Board of Directors, by written resolution, delegates any such rights to one or
more officers of the Employer or to the Administrator. Subject to the rights
reserved to the Board of Directors acting on behalf of the Employer as set forth
in this Plan, no member of the Board of Directors shall have any duties or
responsibilities under this Plan, except to the extent he shall be acting in the
capacity of an Administrator or Trustee.
11.17 Liability and Indemnification.
(a) The Administrator shall perform all duties required of it under
this Plan in a prudent manner. To the extent not prohibited by the Act, the
Administrator shall not be responsible in any way for any action or omission of
the Employer, the Trustee or any other fiduciaries in the performance of their
duties and obligations set forth in this Plan and in the Trust Agreement. To the
extent not prohibited by the Act, the Administrator shall also not be
responsible for any act or omission of any of its agents, or with respect to
reliance upon advice of its counsel (whether or not such counsel is also counsel
to the Employer or the Trustee), provided that such agents or counsel were
prudently chosen by the Administrator and that the Administrator relied in good
faith upon the action of such agent or the advice of such counsel.
(b) The Administrator shall not be relieved from responsibility or
liability for any responsibility, obligation or duty imposed upon it under this
Plan or under the Act. Except for its own gross negligence, willful misconduct
or willful breach of the terms of this Plan, the Administrator shall be
indemnified and held harmless by the Employer against liability or losses
occurring by reason of any act or omission of the Administrator to the
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extent that such indemnification does not violate the Act or any other federal
or state laws.
11.18 Service as Trustee and Administrator.
Nothing in this Plan shall prevent one or more Trustees from serving as
Administrator under this Plan.
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ARTICLE XII
CLAIMS PROCEDURE
12.1 Notice of Denial.
If a Participant or his Beneficiary is denied any benefits under this
Plan, either in whole or in part, the Administrator shall advise the claimant in
writing of the amount of his benefit, if any, and the specific reasons for the
denial. The Administrator shall also furnish the claimant at that time with a
written notice containing:
(a) A specific reference to pertinent Plan provisions;
(b) A description of any additional material or information
necessary for the claimant to perfect his claim, if possible, and
an explanation of why such material or information is needed; and
(c) An explanation of the Plan's claim review procedure.
12.2 Right to Reconsideration.
Within 60 days of receipt of the information described in 12.1 above,
the claimant shall, if he desires further review, file a written request for
reconsideration with the Administrator.
12.3 Review of Documents.
So long as the claimant's request for review is pending (including the
60-day period described in Section 12.2 above), the claimant or his duly
authorized representative may review pertinent Plan documents and the Trust
Agreement (and any pertinent related documents) and may submit issues and
comments in writing to the Administrator.
12.4 Decision by Administrator.
A final and binding decision shall be made by the Administrator within
60 days of the filing by the claimant of his request for reconsideration;
provided, however, that if the Administrator feels that a hearing with the
claimant or his representative present is necessary or desirable, this period
shall be extended an additional 60 days.
12.5 Notice by Administrator.
The Administrator's decision shall be conveyed to the claimant in
writing and shall include specific reasons for the decision, written in a manner
calculated to be understood by the claimant, with specific references to the
pertinent Plan provisions on which the decision is based.
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ARTICLE XIII
AMENDMENTS, TERMINATION AND MERGER
13.1 Amendments.
The Employer reserves the right at any time and from time to time, and
retroactively if deemed necessary or appropriate by it, to the extent
permissible under law, to conform with governmental regulations or other
policies, to amend in whole or in part any or all of the provisions of this
Plan, provided that:
(a) No amendment shall make it possible for any part of the Fund to be
used for, or diverted to, purposes other than for the exclusive benefit of
Participants or their Beneficiaries under the Trust Agreement, except to the
extent provided in Section 4.4;
(b) No amendment may, directly or indirectly, reduce the vested portion
of any Participant's interest as of the effective date of the amendment or
change the vesting schedule with respect to the future accrual of Employer
contributions for any Participants unless each Participant with 3 or more Years
of Service with the Employer is permitted to elect to have the vesting schedule
in effect before the amendment used to determine his vested benefit; and
(c) No amendment may eliminate an optional form of benefit.
(d) No amendment may increase the duties of the Trustee
without its consent.
(e) No amendment that shall change any of the following types of
provisions shall be made more than once every 6 months, other than to comport
with changes in the Code, the Act or the regulations thereunder: (i) any
provision stating the amount and price of Employer Securities to be awarded to
designated officers and directors or categories of officers and directors; (ii)
any provisions specifying the timing of awards or allocations to officers and
directors; (iii) any provision setting forth a formula that determines the
amount, price and timing of allocations or awards, using objective criteria such
as earnings of the issuer, value of the Employer Securities, Years of Service,
job classification and Compensation levels.
Amendments may be made in the form of Board of Directors' resolutions
or separate written document. Copies of all amendments shall be delivered to the
Trustee.
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13.2 Consolidation, Merger or Other Transactions of Employer.
Nothing in this Plan shall prevent the consolidation, merger,
reorganization or liquidation of the Employer, or prevent the sale by Employer
of any or all of its property. Any successor corporation or other entity formed
and resulting from any such transaction shall have the right to become a party
to this Plan by adopting the same by resolution and by appointing a new Trustee
as though the Trustee had resigned in accordance with the Trust Agreement, and
by executing a proper supplemental agreement with the Trustee. If, within 180
days from the effective date of such transaction, such new entity does not
become a party to this Plan as above provided, this Plan shall automatically be
terminated and the Trustee shall make payments to the persons entitled thereto
in accordance with Section 9.5.
13.3 Consolidation or Merger of Trust.
In the event of any merger or consolidation of the Fund with, or
transfer in whole or in part of the assets and liabilities of the Fund to,
another trust fund held under any other plan of deferred compensation maintained
or to be established for the benefit of all or some of the Participants of this
Plan, the assets of the Fund applicable to such Participants shall be
transferred to the other trust fund only if:
(a) Each Participant would receive a benefit under such successor trust
fund immediately after the merger, consolidation or transfer which is equal to
or greater than the benefit he would have been entitled to receive immediately
before the merger, consolidation or transfer (determined as if this Plan and
such transferee trust fund had then terminated);
(b) Resolutions of the Board of Directors under this Plan, or of any
new or successor employer of the affected Participants, shall authorize such
transfer of assets, and, in the case of the new or successor employer of the
affected Participants, its resolutions shall include an assumption of
liabilities with respect to such Participants' inclusion in the new employer's
plan; and
(c) Such other plan and trust are qualified under Sections
401(a) and 501(a) of the Code.
13.4 Bankruptcy or Insolvency of Employer.
In the event of (a) the Employer's legal dissolution or liquidation by
any procedure other than a consolidation or merger, (b) the Employer's
receivership, insolvency, or cessation of its business as a going concern, or
(c) the commencement of any proceeding by or against the Employer under the
federal bankruptcy
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laws, and similar federal or state statute, or any federal or state statute or
rule providing for the relief of debtors, compensation of creditors,
arrangement, receivership, liquidation or any similar event which is not
dismissed within 30 days, this Plan shall terminate automatically on such date
(provided, however, that if a proceeding is brought against the Employer for
reorganization under Chapter 11 of the United States Bankruptcy Code or any
similar federal or state statute, then this Plan shall terminate automatically
if and when said proceeding results in a liquidation of the Employer, or the
approval of any Plan providing therefor, or the proceeding is converted to a
case under Chapter 7 of the Bankruptcy Code or any similar conversion to a
liquidation proceeding under federal or state law including, but not limited to,
a receivership proceeding). In the event of any such termination as provided in
the foregoing sentence, the Trustee shall make payments to the persons entitled
thereto in accordance with Section 9.5 hereof.
13.5 Voluntary Termination.
The Board of Directors reserves the right to terminate this Plan at any
time by giving to the Trustee and the Administrator notice in writing of such
desire to terminate. The Plan shall terminate upon the date of receipt of such
notice, the interests of all Participants shall become fully vested, and the
Trustee shall make payments to each Participant or Beneficiary in accordance
with Section 9.5. Alternatively, the Employer, in its discretion, may determine
to continue the Trust Agreement and to continue the maintenance of the Fund, in
which event distributions shall be made upon the contingencies and in all the
circumstances which would have been entitled such distributions on a fully
vested basis, had there been no termination of the Plan.
13.6 Partial Termination of Plan or Permanent Discontinuance of
Contributions.
In the event that a partial termination of the Plan shall be deemed to
have occurred, or if the Employer shall discontinue completely its contributions
hereunder, the right of each affected Participant to his interest in the Fund
shall be fully vested. The Employer, in its discretion, shall decide whether to
direct the Trustee to make immediate distribution of such portion of the Fund
assets to the persons entitled thereto or to make distribution in the
circumstances and contingencies which would have controlled such distributions
if there had been no partial termination or discontinuance of contributions.
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ARTICLE XIV
MISCELLANEOUS
14.1 No Diversion of Funds.
It is the intention of the Employer that it shall be impossible for any
part of the corpus or income of the Fund to be used for, or diverted to,
purposes other than for the exclusive benefit of the Participants or their
Beneficiaries, except to extent that a return of the Employer's contribution is
permitted under Section 4.4.
14.2 Liability Limited.
Neither the Employer nor the Administrator, nor any agents, employees,
officers, directors or shareholders of any of them, nor the Trustee, nor any
other person shall have any liability or responsibility with respect to this
Plan, except as expressly provided herein.
14.3 Incapacity.
If the Administrator shall receive evidence satisfactory to it that a
Participant or Beneficiary entitled to receive any benefit under the Plan is, at
the time when such benefit becomes payable, a minor, or is physically or
mentally incompetent to receive such benefit and to give a valid release
therefor, and that another person or an institution is then maintaining or has
custody of such Participant or Beneficiary, and that no guardian, committee or
other representative of the estate of such Participant or Beneficiary shall have
been duly appointed, the Administrator may direct the Trustee to make payment of
such benefit otherwise payable to such Participant or Beneficiary, to such other
person or institution, including a custodian under a Uniform Gifts to Minor Act,
or corresponding legislation (who shall be an adult, a guardian of the minor or
a trust company), and the release of such other person or institution shall be a
valid and complete discharge for the payment of such benefit.
14.4 Spendthrift Clause.
Except as permitted by the Act or the Code, no benefits or other
amounts payable under the Plan shall be subject in any manner to anticipation,
sale, transfer, assignment, pledge, encumbrance, charge or alienation. If the
Administrator determines that any person entitled to any payments under the Plan
has become insolvent or bankrupt or has attempted to anticipate, sell, transfer,
assign, pledge, encumber, charge or otherwise in any manner alienate any benefit
or other amount payable to him under the Plan or that there is any danger of any
levy or attachment or
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other court process or encumbrance on the part of any creditor of such person
entitled to payments under the Plan against any benefit or other accounts
payable to such person, the Administrator may, at any time, in its discretion,
direct the Trustee to withhold any or all payments to such person under the Plan
and apply the same for the benefit of such person, in such manner and in such
proportion as the Administrator may deem proper.
14.5 Benefits Limited to Fund.
All contributions by the Employer to the Fund shall be voluntary, and
the Employer shall be under no legal liability to make any such contributions.
The benefits of this Plan shall be only as can be provided by the assets of the
Fund, and no liability for the payment of benefits under the Plan or for any
loss of assets due to any action or inaction of the Trustee shall be imposed
upon the Employer.
14.6 Cooperation of Parties.
All parties to this Plan and any party claiming interest hereunder
agree to perform any and all acts and execute any and all documents and papers
which are necessary and desirable for carrying out this Plan or any of its
provisions.
14.7 Payments Due Missing Persons.
The Administrator shall direct the Trustee to make a reasonable effort
to locate all persons entitled to benefits under the Plan; however,
notwithstanding any provision in the Plan to the contrary, if, after a period of
5 years from the date such benefit shall be due, any such persons entitled to
benefits have not been located, their rights under the Plan shall stand
suspended. Before this provision becomes operative, the Trustee shall send a
certified letter to all such persons at their last known address advising them
that their interest in benefits under the Plan shall be suspended. Any such
suspended amounts shall be held by the Trustee for a period of 3 additional
years (or a total of 8 years from the time the benefits first became payable),
and thereafter such amounts shall be reallocated among current Participants in
the same manner that a current contribution would be allocated. However, if a
person subsequently makes a valid claim with respect to such reallocated amounts
and any earnings thereon, the Plan earnings or the Employer's contribution to be
allocated for the year in which the claim shall be paid shall be reduced by the
amount of such payment. Any such suspended amounts shall be handled in a manner
not inconsistent with regulations issued by the Internal Revenue Service and
Department of Labor.
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14.8 Governing Law.
This Plan has been executed in the State of Illinois and all questions
pertaining to its validity, construction and administration shall be determined
in accordance with the laws of that State, except to the extent superseded by
the Act.
14.9 Nonguarantee of Employment.
Nothing contained in this Plan shall be construed as a contract of
employment between the Employer and any Employee, or as a right of any Employee
to be continued in the employment of the Employer, or as a limitation of the
right of the Employer to discharge any of its Employees, with or without cause.
14.10 Counsel.
The Trustee and the Administrator may consult with legal counsel, who
may be counsel for the Employer and for the Administrator or the Trustee (as the
case may be), with respect to the meaning or construction of this Plan and the
Trust Agreement, their respective obligations or duties hereunder or with
respect to any action or proceeding or any question of law, and they shall be
fully protected with respect to any action taken or omitted by them in good
faith pursuant to the advice of legal counsel.
IN WITNESS WHEREOF, the Sponsor has caused these presents to be
executed by its duly authorized officers and its corporate seal to be affixed on
this _____ day of August, 1996.
PSB HOLDING COMPANY
ATTEST:
____________________________ By_____________________________
Lorraine G. Ptak, Kimberly P. Rooney,
Secretary President
[Corporate Seal]
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TRUST AGREEMENT
FOR THE
PSB HOLDING COMPANY
EMPLOYEE STOCK OWNERSHIP PLAN
Effective as of January 1, 1996
<PAGE>
TRUST AGREEMENT
FOR THE
PSB HOLDING COMPANY
EMPLOYEE STOCK OWNERSHIP PLAN
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS AND CONSTRUCTION 2
1.1 Definitions 2
1.2 Plurals and Gender 2
1.3 Headings and Subheadings 2
ARTICLE II CONTRIBUTIONS 3
2.1 Contributions by Employer 3
2.2 Discontinuance of Contributions 3
ARTICLE III DUTIES OF THE EMPLOYER AND THE 4
ADMINISTRATOR
3.1 Information and Data to be 4
Furnished the Trustee
3.2 Limitation of Duties 4
3.3 Limitation of Liability 4
ARTICLE IV ESTABLISHMENT OF TRUST FUND AND 5
ACCOUNTS
4.1 Establishment of Trust Fund 5
4.2 Establishment of Accounts 5
4.3 Receipt of Contributions 5
4.4 Disbursements from Trust Fund 5
4.5 Charges Against Accounts 6
4.6 Disputes as to Payments 6
4.7 Valuation of Trust Fund 6
ARTICLE V DUTIES AND POWERS OF THE TRUSTEE 8
5.1 Accounting, Records and Certificates 8
5.2 Agents 9
5.3 Sponsor's Power to Appoint 9
Investment Manager
5.4 General Powers of the Trustee 9
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Page
5.5 Investment of Account Assets 10
5.6 Additional Powers of the Trustee 10
5.7 Power to Invest in Employer
Securities and Real Property 12
5.8 Liability of the Trustee 12
5.9 Fees and Expenses 13
5.10 Freedom From Liability as to
Validity of Agreement 13
ARTICLE VI RESIGNATION OR REMOVAL OF TRUSTEE 14
6.1 Resignation or Removal of Trustee 14
ARTICLE VII CONTINUANCE AND TERMINATION OF 16
THIS AGREEMENT
7.1 Term of this Agreement 16
7.2 Effect of Termination 16
7.3 Irrevocability of Contributions 16
ARTICLE VII AMENDMENTS 17
8.1 Amendments Suggested by the
Treasury Department 17
8.2 Other Amendments 17
ARTICLE IX MISCELLANEOUS 18
9.1 Reliance 18
9.2 Persons Dealing with the Trustee 18
9.3 Advice of Administrator, Counsel,
Etc. 18
9.4 Notices 19
9.5 Judicial Accounting 19
9.6 No Bond or Security Required 20
9.7 Governing Law 20
9.8 Invalidity 20
9.9 Copies 20
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TRUST AGREEMENT
FOR THE
PSB HOLDING COMPANY
EMPLOYEE STOCK OWNERSHIP PLAN
THIS AGREEMENT, made this ___ day of August, 1996, by and between PSB
HOLDING COMPANY, a Delaware corporation, (hereinafter referred to as the
"Sponsor"), and FIRST BANKERS TRUST CO., N.A. of Quincy, Illinois (hereinafter
referred to as the "Trustee"):
W I T N E S S E T H:
WHEREAS, the Sponsor has adopted the PSB HOLDING COMPANY EMPLOYEE STOCK
OWNERSHIP PLAN (the "Plan"), effective as of January 1, 1996, in order to
provide a retirement fund with employee stock ownership features for the
employees of the Sponsor and its wholly owned subsidiary, Preferred Savings
Bank, to be known after the conversion from mutual to stock form (hereinafter
sometimes collectively and individually, as the case may be, referred to as the
"Employer"), which fund will help in the future security of their employees who
are eligible to participate in the Plan; and
WHEREAS, the Sponsor and the Trustee desire to adopt this Trust
Agreement for the Plan and to provide for the accumulation of assets under the
Plan; and
WHEREAS, the Sponsor intends that the Plan and this Trust shall qualify
under Section 401(a) and 501(a) of the Internal Revenue Code of 1986, as well as
the provisions of the Employee Retirement Income Security Act of 1974, as
amended (the "Act");
NOW, THEREFORE, in consideration of the mutual promises, the mutual
covenants and agreements herein contained, and other good and valuable
consideration, the receipt of which is hereby acknowledged, the Sponsor and the
Trustee agree, effective as of the date of execution of this Trust Agreement, as
follows:
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ARTICLE I
DEFINITIONS AND CONSTRUCTION
1.1 Definitions.
Unless the context of this Agreement clearly indicates otherwise, the
terms defined in Article I of the Plan shall, when used herein, have the same
meaning as in said Plan.
1.2 Plurals and Gender.
Where appearing in this Agreement, the masculine gender shall include
the feminine and neuter genders, and the singular shall include the plural, and
vice versa, unless the context clearly indicates a different meaning.
1.3 Headings and Subheadings.
The headings and subheadings in this Agreement are inserted for the
convenience of reference only and are to be ignored in any construction of the
provisions thereof.
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ARTICLE II
CONTRIBUTIONS
2.1 Contributions by Employer.
The Employer shall contribute and pay over to the Trustee, annually or
more often, as the Employer shall decide, such amounts as shall be determined
under the Plan. Contributions may be made by the Employer to the Trustee in the
form of cash, securities or any other property permissible under the Code and
acceptable to the Trustee.
2.2 Discontinuance of Contributions.
As set forth in the Plan, the Employer assumes no contractual
obligation to continue contributions to the Plan but has specifically reserved
therein the right at any time and for any reason to discontinue the Plan and the
contributions provided to be made thereunder. Failure by the Employer to
continue the Plan or make contributions provided to be made thereunder shall not
give rise to any liability on its part whatsoever other than for contributions
provided to be made prior to the effective date of the termination.
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ARTICLE III
DUTIES OF THE EMPLOYER AND THE ADMINISTRATOR
3.1 Information and Data to be Furnished the Trustee.
In addition to making the contributions called for in Article II
hereof, the Employer agrees to furnish the Trustee, through the Administrator,
with such information and data relative to the Plan as is necessary for the
proper administration of the Fund established hereunder. The Employer shall
promptly notify the Trustee in the event that the Internal Revenue Service
proposes to disallow the qualified status of the Plan or Trust.
3.2 Limitation of Duties.
Neither the Employer nor any of its shareholders or directors, nor the
Administrator shall have any duties or obligations with respect to this
Agreement, except those expressly set forth in Articles II and III hereof and in
the Plan.
3.3 Limitation of Liability.
Except as otherwise provided by law, neither the Employer, nor any of
its officers, directors, employees, or partners (as the case may be) nor the
Administrator shall in any way be liable or responsible to any participant,
beneficiary, Trustee or any other person, firm or corporation whatsoever for any
acts of omission or commission in connection with his or its duties, as
specified in Articles II and III hereof, unless such act of omission or
commission is due to his or its own individual, willful and intentional
nonfeasance, malfeasance or misfeasance.
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ARTICLE IV
ESTABLISHMENT OF TRUST FUND AND ACCOUNTS
4.1 Establishment of Trust Fund.
The Trustee shall establish and maintain a trust fund into which shall
be paid the contributions made by the Employer under the terms of the Plan,
which contributions, together with any income, gains or profits, less
distributions, expenses and losses, shall comprise the Fund held by the Trustee.
The Trustee shall hold, invest, reinvest, manage, administer and distribute the
assets of the Fund, as hereinafter set forth, for the exclusive benefit of the
employees participating in the Plan and their beneficiaries.
4.2 Establishment of Accounts.
As a part of the Fund, the Administrator shall establish and maintain
any individual participant's accounts required under the provisions of the Plan
for such individuals who become participants from time to time, including any
separate accounts as may be provided for in the Plan and as directed by the
Sponsor or the Administrator from time to time to aid in the administration of
the Plan. In addition, the Trustee shall also establish and maintain suspense
accounts as a part of the Fund for the purposes specified in the Plan. The
establishment of separate accounts hereunder shall not require a segregation of
any part of the assets of the Fund, and no participant shall acquire any right
to or interest in any specific asset of the fund as a result of the allocations
to such accounts provided for under the Plan, except where segregation is
specifically provided.
4.3 Receipt of Contributions.
The Trustee shall accept and hold in the Fund contributions made by the
Employer under the Plan. If the amount of the contribution is less than any
minimum established for any investment medium, then the contribution may be held
by the Trustee in cash, without interest, until such time as the required amount
has been contributed so that an investment may be properly made. The Trustee
shall not be responsible in any way for the administration of the Plan and shall
be under no duty to determine whether the amount of any contributions is in
accordance with the Plan or to collect or enforce payment of any contribution.
4.4 Disbursements from Trust Fund.
The Trustee shall make payment from the Fund to such persons (who may
include the Administrator) in such manner, at such times, and in such amounts as
the Administrator may from time to time
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direct. Each such direction shall be in the form of a certificate setting forth
the names and addresses of, and the amount payable to, the persons named therein
and verifying that such persons are entitled to receive benefits under the Plan
in the amounts and at the times stated in such certificate. All such payments
shall be made by the Trustee in kind or, if in cash, by checks mailed postage
prepaid to the persons or companies named in such certificate at their addresses
therein set forth.
4.5 Charges Against Accounts.
Upon receipt of written instructions from the Sponsor or the
Administrator, the Administrator shall charge the appropriate account of the
participant for any withdrawals or distributions made under the Plan.
4.6 Disputes as to Payments.
In the event that any dispute shall arise as to the persons to whom
payments and the delivery of any fund or property shall be made by the Trustee,
or the amounts thereof, the Trustee may retain such payments and/or postpone
such delivery until actual adjudication of such dispute shall have been made in
a court of competent jurisdiction as provided herein, or it shall be indemnified
against loss to its satisfaction.
4.7 Valuation of the Trust Fund.
(a) As of each Valuation Date, the Trustee shall determine the net
worth of the assets of the fund and report such value to the Employer and the
Administrator in writing. In determining such net worth, the Trustee shall
evaluate the assets of the Fund at their fair market value as of such valuation
date and shall deduct all expenses chargeable to the Fund. Any increase or
decrease in the net worth of the assets of the Fund shall be allocated as of
each valuation date among the accounts established as a part of the fund in the
manner specified in the Plan.
(b) In determining and valuing the assets and liabilities of the Fund
for any purpose, securities held in the Fund shall be valued at their last
published sale price on the valuation date, or if the valuation date is not a
business day, then on the business day immediately prior thereto upon the New
York Stock Exchange or upon any other recognized exchange or exchanges, or if no
sale shall have been reported, and in the case of over-the-counter quotations,
the last bid price at the close of business on said business day, all as
reported by any report in common use or authorized as official by the New York
Stock Exchange or any such other exchange as the case may be. Where any security
is listed on two or more exchanges, the Trustee shall determine from time to
time the
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particular exchange which shall be used for the purpose of this
Section.
(c) However, with respect to securities, in the event the Trustee
considers the method hereinbefore in this Section provided to be impracticable
because of the fact that any of the securities included in the Fund are not
quoted or listed, or for any other reason, then the Trustee may employ, at the
expense of the Fund, an independent appraiser to appraise such securities for
the purpose of obtaining the value of the Fund and for any other purpose in the
administration of the Trust. It is recognized and agreed that, in connection
with the conversion of Preferred Savings Bank to stock form, an independent
appraisal has been performed by Keller & Company, Inc. in the course of such
conversion and that the Trustee had relied thereon for the initial purchase of
Employer Securities.
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ARTICLE V
DUTIES AND POWERS OF THE TRUSTEE
5.1 Accounting, Records and Certificates.
(a) The Trustee shall keep accurate and detailed accounts of all
investments, receipts and disbursements and other transactions hereunder, which
shall show the complete record of the operation of the Fund, and all such
accounts and the books and records relating thereto shall be open to inspection
at all reasonable times by any person designated in writing by the
Administrator.
(b) The Trustee shall also furnish to the Employer and the
Administrator, upon request, balance sheets and statements of receipts and
disbursements during the continuance of this Agreement as of any date requested,
but the Trustee shall not be required to furnish such statements more than once
in any three-month period.
(c) Within sixty (60) days following the close of each plan year, and
within sixty (60) days following the resignation or removal of the Trustee as
provided for in Section 6.1 hereof, and within sixty (60) days following the
completion of the application or distribution of the Fund upon termination of
the Plan as provided for in Article VII hereof, the Trustee shall file with the
Employer and with the Administrator a written account setting forth all
investments, receipts, disbursements and other transactions effected by it
during such year or during the period from the closing date of the last
preceding written account to the date of such resignation or removal or to the
date of such completion of application or distribution of funds. Each such
account shall set forth in summary form the receipts and disbursements of the
Trustee for the period accounted for and shall include a description of all
securities and other assets purchased and sold during the period accounted for,
and the cost or proceeds of sale thereof, and shall show all cash, securities
and other property held at the end of such period, and the cost and the market
value of each item thereof. Except as otherwise prescribed by the Act, the
Trustee shall be forever released and discharged from any liability or
accountability to anyone about the propriety of its acts or transactions shown
in such account, except with respect to any such acts or transactions as to
which the Employer or Administrator shall, within the one year period after such
account shall have been filed with the Employer and with the Administrator, file
with the Trustee a written statement setting forth its or their exceptions or
objections. If such statement is filed with the Trustee and the matters thereby
brought into controversy cannot be adjusted by agreement between the Employer
and/or Administrator and the Trustee, then the Trustee shall file such account
in any court of competent jurisdiction for audit and adjudication, as provided
in Section 9.5 hereof. The
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written approval by the Employer and by the Administrator of any account filed
by the Trustee with the Employer and the Administrator shall forever release and
discharge the Trustee from any liability or accountability to anyone about the
propriety of their acts or transactions shown in such account.
5.2 Agents.
(a) The Trustee may employ such counsel, accountants, brokers,
actuaries and other agents and provide for such clerical, accounting, actuarial
and other services as the Trustee may deem advisable to perform their duties
under this Trust Agreement, or as may be directed by the Administrator.
(b) The Trustee may enter into contracts in such form as they shall
determine with one or more persons, firms, corporations or associations to
provide administrative services in handling investments, including custodial
arrangements with qualified parties.
5.3 Sponsor's Power to Appoint Investment Manager.
The Sponsor reserves the right to retain the services of one or more
persons or firms for the management of (including the power to acquire and
dispose of) all or any part of the Fund, or to direct the Trustee on investments
for all or any part of the Fund, provided that each such persons or firms is
registered as an investment advisor under the Investment Advisers Act of 1940,
is a bank (as defined in that Act), or is an insurance company qualified to
manage, acquire or dispose of trust assets under the laws of more than one
state, and provided that each of such persons or firms has acknowledged in
writing that he or it is a fiduciary with respect to the Plan; in such event,
the investment manager or managers shall have the same investment powers and
duties as the Trustee, to the extent that such advisors are so retained, and the
Trustee shall not be liable for the acts or omissions of such investment manager
or managers, or for any transaction entered into upon the instructions of such
investment manager or managers, nor shall it be under any obligation to invest
or otherwise manage any Fund assets which are subject to the management of such
investment manager or managers.
5.4 General Powers of the Trustee.
The Trustee shall have all of the powers necessary or desirable to
perform properly the duties herein set forth.
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5.5 Investment of Account Assets.
The Trustee shall invest and reinvest contributions. Contributions
shall be invested primarily in Employer Securities. Monies, at any time forming
a part of the Fund, shall be limited to investment in overnight Fed Funds, or
deposits with well-capitalized financial institutions, or investments in United
States government obligations. If any distribution of an investment may be
received at the election of the shareholder in additional shares or in cash, the
Trustee may elect to receive it in additional shares. The Trustee is also
authorized to sell or redeem shares as required to implement the instructions of
the Administrator or to pay the Trustee's fees and expenses.
5.6 Additional Powers of the Trustee.
In extension and not in limitation of the powers given them by law or
by other provisions of this Agreement, and subject to the provisions of Section
5.3 and 5.5 hereof, the Trustee shall have the following powers with respect to
the Funds, to be exercised in its discretion or pursuant to direction given by
the Investment Manager, if applicable.
(a) To invest and reinvest any monies at any time forming a part of the
Fund in any capital or common stock (whether voting or non-voting and whether or
not currently paying a dividend), preferred or preference stock (whether voting
or non-voting and whether or not currently paying a dividend), convertible
securities, corporate and governmental obligations, notes and other evidences of
indebtedness or ownership (secured or unsecured), contracts, partnership or
joint venture interests, choses in actions, and warrants and other instruments
entitling the owner thereof to subscribe to or purchase any of the aforesaid.
Substitute Trustee need not request approval from any governmental agency as to
the propriety of any investment in the Fund at the time they assume their
duties.
(b) To borrow or raise money for the purposes of the Fund to the extent
that the Trustees shall deem desirable, including the borrowing of money for the
purpose of acquiring Employer Securities to the extent permitted by the Act, the
Code and the applicable regulations, upon such terms and conditions as the
Trustee in its absolute discretion may deem desirable and proper. For any sum so
borrowed, the Trustee may issue a promissory note as Trustee, and secure the
repayment thereof by pledging, mortgaging or otherwise assigning all or any part
of the Fund.
(c) Subject to Section 5.5 hereof, to vote in person or by proxy any
stocks, bonds or other securities held by the Trustee; to exercise any options
appurtenant to any stock, bonds or other securities, or to exercise any right to
subscribe for additional
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stocks, bonds, or other securities and to make any and all necessary payments
therefor; to join in, or to dissent from and to oppose the reorganization,
recapitalization, consolidation, liquidation, sale or merger of corporations or
properties in which it may be interested as Trustee, upon such terms and
conditions as they may deem wise. Notwithstanding the foregoing, each
Participant with an Employee Stock Ownership Account shall be entitled to direct
the Trustee as to the manner in which the Employer Securities in such Account
are to be voted. Employer Securities held in the Employee Stock Ownership
Suspense Account or the Exempt Loan Suspense Account shall be voted by the
Trustee on each issue with respect to which shareholders are entitled to vote in
the manner directed by the majority of the Participants who directed the Trustee
as to the manner of voting their shares in the Employee Stock Ownership Accounts
with respect to such issue.
(d) To cause any investments from time to time held by it to be
registered in, or transferred into, its name as Trustee, or the name of a
nominee, or to retain them unregistered or in form permitting transferability by
delivery, but the books and records of the Trustee shall at all times show that
all such investments are part of the Fund. The Trustee is authorized to utilize
the services of a securities clearing corporation such as The Depository Trust
Co. .0
to the extent permitted by applicable law.
(e) To employ and enter into agreements with such counsel, accountants,
brokers, investment advisors, and other agents as the Trustee shall deem
advisable, or as may be directed by the Administrator, and to pay their
reasonable expenses and compensation.
(f) To retain any cash and keep unproductive of income any portion of
the Fund as the Trustee, in its absolute discretion, may deem advisable, without
liability to pay interest on such cash balance or on cash in its hands pending
investment or distribution.
(g) To hold and administer the Fund without distinction between
principal and income, and as a single trust fund without physical separation of
any separate funds or accounts provided for in the Plan, except where the Plan
clearly requires the segregation of Fund assets.
Each and all of the foregoing powers may be exercised without court
order or other legal formality. No one dealing with the Trustee need inquire
concerning the validity or propriety of anything that is done or need see to the
application of any money paid or property transferred to or upon the order of
the Trustee.
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<PAGE>
5.7 Power to Invest in Employer Securities and Real Property.
(a) The Trustee may acquire or hold, at its own discretion, or at the
direction of the Investment Manager, any security issued by the Employer or an
affiliate of the Employer which is a "qualifying employer security" or any real
property (and related personal property) which is leased to the Employer or an
affiliate of the Employer which is a "qualifying employer real property," as
such terms are defined in the Act and Code, provided that the Trustees may not
acquire any additional qualifying employer real property if immediately after
such acquisition the aggregate fair market value of employer securities and
employer real property held in the Fund exceeds the amount permitted under the
Department of Labor regulations, as amended from time to time.
(b) The Trustee may sell qualifying employer securities and qualifying
employer real property to any party (subject to any restrictions applicable to
such employer securities) including the Employer, provided that:
(i) such sale is for adequate consideration; and
(ii) no commission is charged with respect thereto, if such stock
is purchased or sold to, from, or through a party in interest, as defined in the
Act.
(c) Any qualifying employer securities held in the Fund shall be valued
at fair market value for all purposes of the Plan. The determination of fair
market value shall be made in good faith by the Trustee in accordance with
Section 4.7 hereof.
(d) Bearing in mind that this Trust is the trust for an employee stock
ownership plan, the Trustee shall predominantly invest the assets of the Trust
in Employer Securities.
5.8 Liability of the Trustee
(a) The Trustee shall discharge its duties with the care, skill,
prudence and diligence under the circumstances then prevailing that a prudent
man acting in a like capacity and familiar with such matters would use in the
conduct of an enterprise of a like character and with like aims. Except in the
case where the Plan Administrator, or an Investment Manager, may direct the
Trustee as to investments hereunder (in which case the Trustee shall have no
liability as a result of following such direction) the Trustee shall diversify
the investments of the Fund so as to minimize the risk of large losses, unless
under the circumstances it is clearly prudent not to do so or unless the
investment is in Employer Securities, as it is contemplated that the Trust shall
invest primarily in Employer Securities. The Trustee shall perform its duties in
accordance with
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<PAGE>
the Plan insofar as such Plan is consistent with the provisions of the Act. The
Trustee shall be under no duty to defend or engage in any suit with respect to
the Fund unless the Trustee shall have been fully indemnified to its
satisfaction. To the extent not prohibited by the Act, the Trustee shall not be
responsible in any way for any action or omission of the Employer or the
Administrator with respect to its duties and obligations as set forth in the
Plan and this Agreement. To the extent not prohibited by the Act, the Trustee
shall also not be responsible for any action or omission of any of its agents or
with respect to reliance upon the advice of its counsel (whether or not such
counsel is also counsel to the Employer or the Administrator), provided that
such agents or counsel were prudently chosen by the Trustee and that the Trustee
relied in good faith upon the action of such agent or the advice of such
counsel. The Trustee shall not be relieved from responsibility or liability for
any responsibility, obligation or duty imposed upon it under the Plan or under
the Act. Nothing herein shall preclude the indemnification of the Trustee by the
Employer nor prevent the Employer or the Trustee from purchasing liability
insurance to protect the Trustee against liability or losses occurring by reason
of any act of omission of the Trustee, to the extent that such insurance is
permissible under the Act.
(b) The Trustee is a party to this Agreement solely for the purposes
set forth in this Agreement and the Plan and to perform the acts set forth
herein, and no obligation or duty shall be expected or required of them except
as expressly stated in the Plan or this Agreement.
5.9 Fees and Expenses.
The Trustee may receive such reasonable fee for his or its services as
shall be agreed upon, prior to the rendering of such services, between the
Sponsor and the Trustee. Any expenses incurred by the Trustee in the
administration of the Trust shall be paid from the Trust unless paid by the
Employer directly. If paid by the Trust, such expenses (including the fees of a
corporate trustee) shall be charged proportionately (or in such other reasonable
manner as the Trustee shall determine) to the accounts of participants, unless
such expenses are allocable to specific interests of participants.
5.10 Freedom from Liability as to Validity of Agreement.
Anything herein contained to the contrary notwithstanding, the Trustee
shall not have any responsibility for the validity of the Plan or this Trust
Agreement.
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<PAGE>
ARTICLE VI
RESIGNATION OR REMOVAL OF TRUSTEE
6.1 Resignation or Removal of Trustee.
The Trustee may resign from this Agreement at any time by giving the
Sponsor and the Administrator written notice of resignation. The Trustee may be
removed by the Sponsor by written notice of removal either mailed or delivered
by hand to the Trustee. Such resignation or removal shall take effect on the
date specified in the notice of resignation or removal, but the date thus
specified shall not be less than thirty (30) days nor more than ninety (90) days
following the date of mailing or delivery of such notice. In the event that the
Trustee is unable or unwilling to comply with instructions from the Sponsor, the
Investment Manager (if any), or the Administrator, or the voting determination
made pursuant to Section 8.2 of the Plan, the Trustee shall be entitled to
resign immediately upon delivery of written notice to the Sponsor.
Notwithstanding the preceding sentence, the Trustee shall not be entitled to
resign immediately in the event of a dispute between the Trustee and the Sponsor
or Administrator about the prudence of continuing to make payments under a
previously negotiated Exempt Loan to purchase Employer Securities. In the event
of such a dispute, the Trustee may resign, but such resignation shall not take
effect less than thirty (30) days from the date of the mailing of such written
resignation. In no event shall the resignation or removal of the Trustee
terminate this Agreement, but upon such resignation or removal of the Trustee,
the Sponsor shall have the duty forthwith of appointing a successor trustee to
carry out the terms of this Agreement. Notice in writing of such appointment of
a successor trustee shall be given to the Trustee resigning or being removed by
the Sponsor. In the event of such resignation or removal of such Trustee and
upon the appointment of a successor trustee and acceptance of such trustee, the
Trustee shall turn over to his successor trustee the Fund and all records or
books of account pertaining to this Agreement in his possession, provided that
the Trustee shall be given a reasonable time, not to exceed sixty (60) days, to
complete his accounting before making such turnover. Upon such resignation or
removal of a corporate Trustee, it shall be entitled to be paid its fee, if any,
earned to the date of such resignation or removal. A successor trustee shall
have the same powers and duties as those herein conferred upon the Trustee. A
successor trustee may be removed or may resign in the same manner, and, in the
event of such removal or resignation of a successor trustee, the same steps
shall follow as on removal of the Trustee. When the Fund assets shall have been
transferred and delivered to the successor trustee and the accounts of the
Trustee shall have been settled in accordance with Section 5.1(c) hereof, the
Trustee shall be forever released and discharged from all further
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accountability, responsibility and liability to anyone for the Fund assets and
shall not be responsible in any way for the further disposition of the Fund.
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ARTICLE VII
CONTINUANCE AND TERMINATION OF THIS AGREEMENT
7.1 Term of this Agreement.
This Agreement shall continue as long as the Plan is in full force and
effect. If the Plan ceases to be in full force and effect, this Agreement shall
thereupon terminate unless expressly extended by the Sponsor.
7.2 Effect of Termination.
Upon the termination of the Plan, the Fund shall be allocated and
distributed or held by the Trustee as provided in Article XII of the Plan.
7.3 Irrevocability of Contributions.
Except as otherwise expressly provided in the Plan, neither the
termination of this Agreement nor any other action or non-action shall cause the
Employer to have any right whatsoever with respect to any contribution, any
asset of the fund, or any other matter or thing whatsoever in connection with
the Fund, it being expressly agreed and understood that all contributions made
are irrevocable and that none of said contributions may, under any circumstances
whatsoever (except as specifically set forth in the Plan), be returned or used
for the benefit of the Employer.
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<PAGE>
ARTICLE VIII
AMENDMENTS
8.1 Amendments Suggested by the Treasury Department.
Any and all amendments to this Agreement which may be required or
suggested by any employee or agent of the Internal Revenue Service for the
purpose of the approval of the Plan and Trust under Sections 401 and 501 of the
Code, or any other governmental agency, may be made retroactively to the extent
permitted by law and shall be accomplished by the Employer and effected by
written notice to the Trustee.
8.2 Other Amendments.
This Agreement may otherwise be amended by the Sponsor, in which event
written notice of amendment shall be given by the Sponsor to the Trustee, but no
amendment to this Agreement may be made which is prohibited under the Plan or
which increases the duties or liabilities of the Trustee without its consent.
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<PAGE>
ARTICLE IX
MISCELLANEOUS
9.1 Reliance.
The parties hereto shall be protected in acting upon any notice,
resolution, request, consent, order, certificate, report, opinion, statement or
other document which they reasonably believed to be genuine and to have been
signed by the proper party or parties or by a person or persons authorized to
act on its behalf.
9.2 Persons Dealing with the Trustee.
No person dealing with the Trustee shall be under any obligation to
inquire into the validity, expediency or propriety of any action by the Trustee
or of any exercise by him or it of any of the powers conferred upon him or it by
this Agreement. The execution by the Trustee of any instrument, document or
paper in connection with the exercise of any of the powers enumerated herein
shall, of itself, be conclusive evidence to all persons of the authority of the
Trustee to execute the same and to exercise the powers incident thereto.
9.3 Advice of Administrator, Counsel, Etc.
(a) If at any time or times the Trustee is in doubt as to the course
which it should follow in any matter relating to the administration of this
Agreement, it may request the Administrator to advise it with respect thereto,
and it shall be protected in relying upon the advice or direction which may be
given it by the Administrator, in writing, in response to such request.
(b) In the event the Trustee shall have any reasonable doubt at any
time as to its rights or obligations hereunder, or in the event of any dispute
arising under the terms of this Agreement or the Plan, in which dispute the
Sponsor, the Administrator, any participant, any beneficiary or any person
claiming an interest in the Fund is involved, the Trustee shall have the right
to consult with legal counsel (including counsel for the Employer or the
Administrator) and to obtain other professional assistance such as, for example,
accountants or actuaries, to assist it in resolving such doubts, or to advise it
with respect to the meaning or construction of this Agreement, or its
obligations, powers or duties hereunder, or to advise it or represent it with
respect to any action or proceeding or any question, and it shall be fully
protected with respect to any action taken by it or omitted by them in good
faith pursuant to the advice of such counsel or other such professional
advisors. The fees and expenses of such counsel or
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<PAGE>
such professional advisors shall be paid from the Fund, unless paid by the
Employer.
9.4 Notices.
(a) Any action by the Employer pursuant to any of the provisions of the
Plan or this Agreement shall be evidenced by a resolution of its Board of
Directors certified to the Trustee over the signature of the Employer's
authorized officer, and the Trustee shall be fully protected in acting in
accordance with such resolution so certified to it. All orders, requests,
directions and instructions of the Administrator to the Trustee shall be in
writing, signed by the Administrator or by any agent of the Administrator duly
authorized to act on its behalf. Unless it knows that the direction constitutes
a breach of the Administrator's duties or responsibilities under the Plan, the
Trustee shall act and shall be fully protected in acting in accordance with such
order, requests, directions and instructions. In the absence of knowledge that
the direction constitutes such a breach, the Trustee shall be entitled to rely
conclusively on such direction, and shall have no further duty to make any
investigation or inquiry before acting upon any such direction of the
Administrator. The Trustee shall not be liable to anyone for the inaction,
action, mistaken action or other errors of the Administrator in directing or
failing to direct the Trustee to make any payments to any participant or
beneficiary.
(b) Promptly after the execution of this Agreement, the Sponsor shall
furnish the Trustee with a list of the names of the Administrators, and
thereafter it shall, upon the removal of any Administrator or upon the
resignation of any Administrator, notify the Trustee of the name of the
Administrator so removed or so resigning, and at such time or times a successor
Administrator is appointed it shall notify the Trustee of the name of said
successor. The Trustee may assume at all times that the Administrators are the
same persons named in said list, unless it has received written notice from the
Sponsor to the contrary.
9.5 Judicial Accounting.
Nothing contained in this Agreement or in the Plan shall be construed
as depriving the Trustee of the right to have a judicial settlement of its
accounts. Upon any proceeding by the Trustee for a judicial settlement of its
accounts or for instructions, the only necessary party thereto in addition to
the Trustee shall be the Employer. If the Trustee's statement or account proves
accurate, the costs of such proceedings, including any reasonable counsel fee
incurred by the Trustee, shall be paid from the Fund.
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<PAGE>
9.6 No Bond or Security Required.
The Trustee shall not be required to give any bond or other security
for the faithful performance of its duties hereunder, unless otherwise required
by law.
9.7 Governing Law.
This Agreement shall be construed in accordance with the laws of the
State of Illinois, except to the extent superseded by the Act.
9.8 Invalidity.
In the event any provision of this Agreement shall be held illegal or
invalid for any reason, said illegality or invalidity shall not affect the
remaining provisions hereof, and this Agreement shall thereafter be construed
and enforced as if said illegal or invalid provisions had never been included
herein.
9.9 Copies.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized and their
corporate seals to be hereunto affixed and attested as of the day and year first
above written.
"Sponsor"
ATTEST: PSB HOLDING COMPANY,
A Delaware Corporation
___________________________ By:_________________________
Lorraine G. Ptak, Kimberly P. Rooney,
Secretary President
[Corporate Seal]
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<PAGE>
STATE OF ILLINOIS )
) to wit:
COUNTY OF COOK )
I HEREBY CERTIFY that on this ____ day of Ausgust, 1996, before me, the
subscriber, a Notary Public of the State of Illinois, in and for Cook County,
aforesaid, personally appeared Kimberly P. Rooney, President of PSB Holding
Company, a Delaware corporation, and duly acknowledged the foregoing Trust
Agreement to be the act and deed of said corporation.
-------------------
Notary Public
My Commission Expires:
- ---------------------
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<PAGE>
"Trustee"
FIRST BANKERS TRUST CO., N.A.
ATTEST:
__________________________ By:________________________
Carmen Walch,
Trust Officer
STATE OF ILLINOIS )
) to wit:
COUNTY OF ADAMS )
I HEREBY CERTIFY that on this ____ day of August, 1996, before me, the
subscriber, a Notary Public of the State of Illinois, in and for Adams County,
aforesaid, personally appeared Carmen Walch, Trust Officer of First Bankers
Trust Co., N.A. of Quincy, Illinois, and duly acknowledged the foregoing Trust
Agreement to be the act and deed of said banking institution.
----------------
Notary Public
My Commission Expires:
- ---------------------
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Exhibit 10.4
Form of Employment Agreement with Kimberly P. Rooney
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
this ________ day of ______________________, 1996, by and between Preferred
Savings Bank (hereinafter referred to as the "Association" whether in mutual or
stock form), and Kimberly P. Rooney (the "Employee").
WHEREAS, the Employee is currently serving as the President and Chief
Executive Officer of the Association; and
WHEREAS, the Association has adopted a plan of conversion whereby the
Association will convert to capital stock form as the subsidiary of PS
Financial, Inc. (the "Holding Company"), subject to the approval of the
Association's members and the Office of Thrift Supervision (the "Conversion");
and
WHEREAS, the board of directors of the Association ("Board of
Directors") recognizes that, as is the case with publicly held corporations
generally, the possibility of a change in control of the Holding Company and/or
the Association may exist and that such possibility, and the uncertainty and
questions which it may raise among management, may result in the departure or
distraction of key management personnel to the detriment of the Association, the
Holding Company and their respective stockholders; and
WHEREAS, the Board of Directors believes it is in the best interests of
the Association to enter into this Agreement with the Employee in order to
assure continuity of management of the Association and to reinforce and
encourage the continued attention and dedication of the Employee to his assigned
duties without distraction in the face of potentially disruptive circumstances
arising from the possibility of a change in control of the Holding Company or
the Association, although no such change is now contemplated; and
WHEREAS, the Board of Directors has approved and authorized the
execution of this Agreement with the Employee to take effect as stated in
Section 2 hereof;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:
1. Definitions.
(a) The term "Change in Control" means (1) an event of a nature that
(i) results in a change in control of the Association or the Holding Company
within the meaning of the Home Owners' Loan Act of 1933 and 12 C.F.R. Part 574
as in effect on the date hereof; or (ii) 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"); (2) 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
Association or the Holding Company representing 20% or more of the Association's
or the Holding Company's outstanding securities; (3) individuals who are members
of the board of directors of the Association or the Holding Company on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person
1
<PAGE>
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 nominating committee serving under an Incumbent Board, shall
be considered a member of the Incumbent Board; or (4) a plan of reorganization,
merger consolidation, sale of all or substantially all of the assets of the
Association or the Holding Company or a similar transaction in which the
Association or the Holding Company is not the resulting entity. The term "change
in control" shall not include an acquisition of securities by an employee
benefit plan of the Association or the Holding Company or the acquisition of
securities of the Association by the Holding Company in connection with the
Conversion. In the application of 12 C.F.R. Part 574 to a determination of a
Change in Control, determinations to be made by the OTS or its Director under
such regulations shall be made by the Board of Directors.
(b) The term "Commencement Date" means the date of completion of the
Conversion.
(c) The term "Date of Termination" means the earlier of (1) the date
upon which the Association gives notice to the Employee of the termination of
his employment with the Association or (2) the date upon which the Employee
ceases to serve as an Employee of the Association.
(d) The term "Involuntarily Termination" means termination of the
employment of Employee without his express written consent, and shall include a
material diminution of or interference with the Employee's duties,
responsibilities and benefits as President of the Association, including
(without limitation) any of the following actions unless consented to in writing
by the Employee: (1) a change in the principal workplace of the Employee to a
location outside of a 30 mile radius from the Association's headquarters office
as of the date hereof; (2) a material reduction in the number or seniority of
other Association personnel reporting to the Employee or a material reduction in
the frequency with which, or in the nature of the matters with respect to which
such personnel are to report to the Employee, other than as part of a
Association- or Holding Company-wide reduction in staff; (3) a material adverse
change in the Employee's salary, perquisites, benefits, contingent benefits or
vacation, other than as part of an overall program applied uniformly and with
equitable effect to all members of the senior management of the Association or
the Holding Company; (4) a material permanent increase in the required hours of
work or the workload of the Employee; and (5) a material demotion of the
Employee. The term "Involuntary Termination" does not include Termination for
Cause or termination of employment due to retirement, death, disability or
suspension or temporary or permanent prohibition from participation in the
conduct of the Association's affairs under Section 8 of the Federal Deposit
Insurance Act ("FDIA").
(e) The terms "Termination for Cause" and "Terminated for Cause" mean
termination of the employment of the Employee because of the Employee's personal
dishonesty, incompetence, willful misconduct, breach of a 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. The Employee shall not be deemed to have been
Terminated for Cause unless and until there shall have been delivered to the
Employee a copy of a resolution, duly adopted by the affirmative vote of not
less than a majority of the entire membership of the Board of Directors of the
Association at a meeting of the Board called and held for such purpose (after
reasonable notice to the Employee and an opportunity for the Employee, together
with the Employee's counsel, to be heard before the
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Board), stating that in the good faith opinion of the Board the Employee has
engaged in the conduct described in the preceding sentence and specifying the
particulars thereof in detail.
2. Term. The term of this Agreement shall be a period of three years
commencing on the Commencement Date, subject to earlier termination as provided
herein. Beginning on the first annual anniversary date following the
Commencement Date, and on each annual anniversary date thereafter, the term of
this Agreement shall be extended for a period of one year in addition to the
then-remaining term, provided that (1) the Association has not given notice to
the Employee in writing at least 90 days prior to such renewal date that the
term of this Agreement shall not be extended further; and (2) prior to such
renewal date, the Board of Directors of the Association has explicitly reviewed
and approved the extension. Reference herein to the term of this Agreement shall
refer to both such initial term and such extended terms.
3. Employment. The Employee is employed as the President and Chief
Executive Officer of the Association. As President and Chief Executive Officer,
Employee shall render such administrative and management services as are
customarily performed by persons situated in similar executive capacities, and
shall have such other powers and duties of an officer of the Association as the
Board of Directors may prescribe from time to time.
4. Compensation.
(a) Salary. The Association agrees to pay the Employee during the term
of this Agreement the salary established by the Board of Directors, which shall
be at least the Employee's salary in effect as of the Commencement Date. The
amount of the Employee's salary shall be reviewed by the Board of Directors,
beginning not later than the first anniversary of the Commencement Date.
Adjustments in salary or other compensation shall not limit or reduce any other
obligation of the Association under this Agreement. The Employee's salary in
effect from time to time during the term of this Agreement shall not thereafter
be reduced.
(b) Discretionary Bonuses. The Employee shall be entitled to
participate in an equitable manner with all other executive officers of the
Association in discretionary bonuses as authorized and declared by the Board of
Directors to its executive employees. No other compensation provided for in this
Agreement shall be deemed a substitute for the Employee's right to participate
in such bonuses when and as declared by the Board of Directors.
(c) Expenses. The Employee shall be entitled to receive prompt
reimbursement for all reasonable expenses incurred by the Employee in performing
services under this Agreement in accordance with the policies and procedures
applicable to the executive officers of the Association, provided that the
Employee accounts for such expenses as required under such policies and
procedures.
5. Benefits.
(a) Participation in Retirement and Employee Benefit Plans. The
Employee shall be entitled to participate in all plans relating to pension,
thrift, profit-sharing, group life insurance, medical and dental coverage,
education, cash bonuses, and other retirement or employee benefits or
combinations thereof, in which the Association's executive officers participate.
In addition, the Employee shall
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be entitled to be considered for benefits under all of the stock and stock
option related plans adopted for the benefit of the Association's executive or
other employees.
(b) Fringe Benefits. The Employee shall be eligible to participate in,
and receive benefits under, any other fringe benefit plans which are or may
become applicable to the Association's executive officers.
6. Vacations; Leave. The Employee shall be entitled to annual paid
vacation in accordance with the policies established by the Association's Board
of Directors for executive employees and to voluntary leave of absence, with or
without pay, from time to time at such times and upon such conditions as the
Board of Directors of the Association may determine in its discretion.
7. Termination of Employment.
(a) Involuntary Termination. The Board of Directors may terminate the
Employee's employment at any time, but, except in the case of Termination for
Cause, termination of employment shall not prejudice the Employee's right to
compensation or other benefits under this Agreement. In the event of Involuntary
Termination other than in connection with or within twelve (12) months after a
Change in Control, (1) the Association shall pay to the Employee during the
remaining term of this Agreement, his salary at the rate in effect immediately
prior to the Date of Termination, payable in such manner and at such times as
such salary would have been payable to the Employee under Section 2 if the
Employee had continued to be employed by the Association, and (2) the
Association shall provide to the Employee during the remaining term of this
Agreement health benefits as maintained by the Association for the benefit of
its executive officers from time to time during the remaining term of the
Agreement.
(b) Termination for Cause. In the event of termination for cause, the
Association shall pay the Employee his salary through the date of termination,
and the Association shall have no further obligation to the Employee under this
Agreement.
(c) Voluntary Termination. The Employee's employment may be voluntarily
terminated by the Employee at any time upon 90 days written notice to the
Association or upon such shorter period as may be agreed upon between the
Employee and the Board of Directors of the Association. In the event of such
voluntary termination, the Association shall be obligated to continue to pay the
Employee his salary and benefits only through the date of termination, at the
time such payments are due, and the Association shall have no further obligation
to the Employee under this Agreement.
(d) Change in Control. In the event of Involuntary Termination in
connection with or within 12 months after a change in control which occurs at
any time while the Employee is employed under this Agreement, the Association
shall, subject to Section 8 of this Agreement, (1) pay to the Employee in a lump
sum in cash within 25 business days after the Date of Termination an amount
equal to 299% of the Employee's "base amount" as defined in Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"); and (2) provide to the
Employee during the remaining term of this Agreement such health benefits as are
maintained for executive officers of the Association from time to time during
the remaining term of this Agreement.
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(e) Death; Disability. In the event of the death of the Employee while
employed under this Agreement and prior to any termination of employment, the
Employee's estate, or such person as the Employee may have previously designated
in writing, shall be entitled to receive from the Association the salary of the
Employee through the last day of the calendar month in which the Employee died.
If the Employee becomes disabled as defined in the Association's then current
disability plan or if the Employee is otherwise unable to serve in his present
capacity, the Employee shall be entitled to receive group and other disability
income benefits of the type then provided by the Association for executive
officers. In the event of such disability, this Agreement shall not be
suspended. However, the Association shall be obligated to pay the Employee
compensation pursuant to Sections 4(a) and (b) hereof only to the extent the
Employee's salary, in the absence of such disability, would exceed (on an after
tax basis) the disability income benefits received pursuant to this paragraph.
In addition, the Association shall have the right, upon resolution of its Board,
to discontinue paying cash compensation pursuant to Sections 4(a) and (b)
beginning six months following a determination that Employee qualifies for the
foregoing disability income benefits.
(f) Temporary Suspension or Prohibition. If the Employee is suspended
and/or temporarily prohibited from participating in the conduct of the
Association's affairs by a notice served under Section 8(e)(3) or (g)(1) of the
FDIA, 12 U.S.C. ss. 1818(e)(3) and (g)(1), the Association's obligations under
this Agreement shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the
Association may in its discretion (1) pay the Employee all or part of the
compensation withheld while its obligations under this Agreement were suspended
and (ii) reinstate in whole or in part any of its obligations which were
suspended.
(g) Permanent Suspension or Prohibition. If the Employee is removed
and/or permanently prohibited from participating in the conduct of the
Association's affairs by an order issued under Section 8(e)(4) or (g)(1) of the
FDIA, 12 U.S.C. ss. 1818(e)(4) and (g)(1), all obligations of the Association
under this Agreement shall terminate as of the effective date of the order, but
vested rights of the contracting parties shall not be affected.
(h) Default of the Association. If the Association is in default (as
defined in Section 3(x)(1) of the FDIA), all obligations under this Agreement
shall terminate as of the date of default, but this provision shall not affect
any vested rights of the contracting parties.
(i) Termination by Regulators. All obligations under this Agreement
shall be terminated, except to the extent determined that continuation of this
Agreement is necessary for the continued operation of the Association: (1) by
the Director of the Office of Thrift Supervision (the "Director") or his or her
designee, at the time the Federal Deposit Insurance Corporation or the
Resolution Trust Corporation enters into an agreement to provide assistance to
or on behalf of the Association under the authority contained in Section 13(c)
of the FDIA; or (2) by the Director or his or her designee, at the time the
Director or his or her designee approves a supervisory merger to resolve
problems related to operation of the Association or when the Association 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 any
such action.
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(j) Section 563.39(b). So long as 12 C.F.R. ss. 563.39(b)(1995) remains
in effect and applicable to the Association, in the event that any of the
termination provisions of this Agreement conflict with 12 C.F.R. ss.
563.39(b)(1995), the latter shall prevail.
8. Certain Reduction of Payments by the Association.
(a) Notwithstanding any other provisions of this Agreement, if payments
under this Agreement, together with any other payments received or to be
received by the Employee in connection with a Change in Control would cause any
amount to be nondeductible by the Association or the Holding Company for federal
income tax purposes pursuant to Section 280G of the Code, then benefits under
this Agreement shall be reduced (not less than zero) to the extent necessary so
as to maximize payments to the Employee without causing any amount to become
nondeductible by the Association or the Holding Company. The Employee shall
determine the allocation of such reduction among payments to the Employee.
(b) Any payments made to the Employee pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12 U.S.C.
1828(k) and any regulations promulgated thereunder.
(c) Notwithstanding any other provisions of this Agreement, payments
under Section 7 of this Agreement shall not exceed three times the Employee's
average annual compensation based on the most recent five taxable years.
9. No Mitigation. The Employee shall not be required to mitigate the
amount of any salary or other payment or benefit provided for in this Agreement
by seeking other employment or otherwise, nor shall the amount of any payment or
benefit provided for in this Agreement be reduced by any compensation earned by
the Employee as the result of employment by another employer, by retirement
benefits after the date of termination or otherwise.
10. Attorneys Fees. In the event the Association exercises its right of
Termination for Cause, but it is determined by a court of competent jurisdiction
or by an arbitrator pursuant to Section 18 that cause did not exist for such
termination, or if in any event it is determined by any such court or arbitrator
that the Association has failed to make timely payment of any amounts owed to
the Employee under this Agreement, the Employee shall be entitled to
reimbursement for all reasonable costs, including attorneys' fees, incurred in
challenging such termination or collecting such amounts. Such reimbursement
shall be in addition to all rights to which the Employee is otherwise entitled
under this Agreement.
11. No Assignments.
(a) his Agreement is personal to each of the parties hereto, and
neither party may assign or delegate any of its rights or obligations hereunder
without first obtaining the written consent of the other party; provided,
however, that the Association shall require any successor or assign (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Association, by an
assumption agreement in form and substance satisfactory to the Employee, to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Association would be required to perform it if no such
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succession or assignment had taken place. Failure of the Association to obtain
such an assumption agreement prior to the effectiveness of any such succession
or assignment shall be a breach of this Agreement and shall entitle the Employee
to compensation from the Association in the same amount and on the same terms as
the compensation pursuant to Section 7(d) hereof. For purposes of implementing
the provisions of this Section 12(a), the date on which any such succession
becomes effective shall be deemed the Date of Termination.
(b) This Agreement and all rights of the Employee hereunder shall inure
to the benefit of and be enforceable by the Employee's personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Employee should die while any amounts would still
be payable to the Employee hereunder if the Employee had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the Employee's devisee, legatee or other designee
or if there is no such designee, to the Employee's estate.
12. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, to the Association at its home
office the attention of the Board of Directors with a copy to the Secretary of
the Association, or, if the Employee, to such home or other address as the
Employee has most recently provided in writing to the Association.
13. Amendments. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein otherwise
provided.
14. Paragraph Headings. The paragraph headings used in this Agreement
are included solely for convenience and shall not affect, or be used in
connection with, the interpretation of this Agreement.
15. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
16. Governing Law. This Agreement shall be governed by the laws of the
United States to the extent applicable and otherwise by the laws of the State of
Illinois.
17. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration 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.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
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THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
ATTEST: PREFERRED SAVINGS BANK
By:
- ----------------------------- -----------------------------
Lorraine G. Ptak, Secretary Sylvester J. Ptak
Its: Chairman
EMPLOYEE
----------------------------
Kimberly P. Rooney
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Exhibit 10.5
Form of Employment Agreement with Sylvester J. Ptak
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
this ________ day of ______________________, 1996, by and between Preferred
Savings Bank (hereinafter referred to as the "Association" whether in mutual or
stock form), and S.J. Ptak (the "Employee").
WHEREAS, the Employee is currently serving as the Chairman of the
Board of the Association; and
WHEREAS, the Association has adopted a plan of conversion whereby the
Association will convert to capital stock form as the subsidiary of PS
Financial, Inc. (the "Holding Company"), subject to the approval of the
Association's members and the Office of Thrift Supervision (the "Conversion");
and
WHEREAS, the board of directors of the Association ("Board of
Directors") recognizes that, as is the case with publicly held corporations
generally, the possibility of a change in control of the Holding Company and/or
the Association may exist and that such possibility, and the uncertainty and
questions which it may raise among management, may result in the departure or
distraction of key management personnel to the detriment of the Association, the
Holding Company and their respective stockholders; and
WHEREAS, the Board of Directors believes it is in the best interests of
the Association to enter into this Agreement with the Employee in order to
assure continuity of management of the Association and to reinforce and
encourage the continued attention and dedication of the Employee to his assigned
duties without distraction in the face of potentially disruptive circumstances
arising from the possibility of a change in control of the Holding Company or
the Association, although no such change is now contemplated; and
WHEREAS, the Board of Directors has approved and authorized the
execution of this Agreement with the Employee to take effect as stated in
Section 2 hereof;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:
1. Definitions.
(a) The term "Change in Control" means (1) an event of a nature that
(i) results in a change in control of the Association or the Holding Company
within the meaning of the Home Owners' Loan Act of 1933 and 12 C.F.R. Part 574
as in effect on the date hereof; or (ii) 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"); (2) 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
Association or the Holding Company representing 20% or more of the Association's
or the Holding Company's outstanding securities; (3) individuals who are members
of the board of directors of the Association or the Holding Company on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person
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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 nominating committee serving under an Incumbent Board, shall
be considered a member of the Incumbent Board; or (4) a plan of reorganization,
merger consolidation, sale of all or substantially all of the assets of the
Association or the Holding Company or a similar transaction in which the
Association or the Holding Company is not the resulting entity. The term "change
in control" shall not include an acquisition of securities by an employee
benefit plan of the Association or the Holding Company or the acquisition of
securities of the Association by the Holding Company in connection with the
Conversion. In the application of 12 C.F.R. Part 574 to a determination of a
Change in Control, determinations to be made by the OTS or its Director under
such regulations shall be made by the Board of Directors.
(b) The term "Commencement Date" means the date of completion of the
Conversion.
(c) The term "Date of Termination" means the earlier of (1) the date
upon which the Association gives notice to the Employee of the termination of
his employment with the Association or (2) the date upon which the Employee
ceases to serve as an Employee of the Association.
(d) The term "Involuntarily Termination" means termination of the
employment of Employee without his express written consent, and shall include a
material diminution of or interference with the Employee's duties,
responsibilities and benefits as Chairman of the Board of the Association,
including (without limitation) any of the following actions unless consented to
in writing by the Employee: (1) a change in the principal workplace of the
Employee to a location outside of a 30 mile radius from the Association's
headquarters office as of the date hereof; (2) a material reduction in the
number or seniority of other Association personnel reporting to the Employee or
a material reduction in the frequency with which, or in the nature of the
matters with respect to which such personnel are to report to the Employee,
other than as part of a Association- or Holding Company-wide reduction in staff;
(3) a material adverse change in the Employee's salary, perquisites, benefits,
contingent benefits or vacation, other than as part of an overall program
applied uniformly and with equitable effect to all members of the senior
management of the Association or the Holding Company; (4) a material permanent
increase in the required hours of work or the workload of the Employee; and (5)
a material demotion of the Employee. The term "Involuntary Termination" does not
include Termination for Cause or termination of employment due to retirement,
death, disability or suspension or temporary or permanent prohibition from
participation in the conduct of the Association's affairs under Section 8 of the
Federal Deposit Insurance Act ("FDIA").
(e) The terms "Termination for Cause" and "Terminated for Cause" mean
termination of the employment of the Employee because of the Employee's personal
dishonesty, incompetence, willful misconduct, breach of a 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. The Employee shall not be deemed to have been
Terminated for Cause unless and until there shall have been delivered to the
Employee a copy of a resolution, duly adopted by the affirmative vote of not
less than a majority of the entire membership of the Board of Directors of the
Association at a meeting of the Board called and held for such purpose (after
reasonable notice to the Employee and an opportunity for the Employee, together
with the Employee's counsel, to be heard before the
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Board), stating that in the good faith opinion of the Board the Employee has
engaged in the conduct described in the preceding sentence and specifying the
particulars thereof in detail.
2. Term. The term of this Agreement shall be a period of three years
commencing on the Commencement Date, subject to earlier termination as provided
herein. Beginning on the first annual anniversary date following the
Commencement Date, and on each annual anniversary date thereafter, the term of
this Agreement shall be extended for a period of one year in addition to the
then-remaining term, provided that (1) the Association has not given notice to
the Employee in writing at least 90 days prior to such renewal date that the
term of this Agreement shall not be extended further; and (2) prior to such
renewal date, the Board of Directors of the Association has explicitly reviewed
and approved the extension. Reference herein to the term of this Agreement shall
refer to both such initial term and such extended terms.
3. Employment. The Employee is employed as the Chairman of the Board of
the Association. As Chairman of the Board, Employee shall render such
administrative and management services as are customarily performed by persons
situated in similar executive capacities, and shall have such other powers and
duties of an officer of the Association as the Board of Directors may prescribe
from time to time.
4. Compensation.
(a) Salary. The Association agrees to pay the Employee during the term
of this Agreement the salary established by the Board of Directors, which shall
be at least the Employee's salary in effect as of the Commencement Date. The
amount of the Employee's salary shall be reviewed by the Board of Directors,
beginning not later than the first anniversary of the Commencement Date.
Adjustments in salary or other compensation shall not limit or reduce any other
obligation of the Association under this Agreement. The Employee's salary in
effect from time to time during the term of this Agreement shall not thereafter
be reduced.
(b) Discretionary Bonuses. The Employee shall be entitled to
participate in an equitable manner with all other executive officers of the
Association in discretionary bonuses as authorized and declared by the Board of
Directors to its executive employees. No other compensation provided for in this
Agreement shall be deemed a substitute for the Employee's right to participate
in such bonuses when and as declared by the Board of Directors.
(c) Expenses. The Employee shall be entitled to receive prompt
reimbursement for all reasonable expenses incurred by the Employee in performing
services under this Agreement in accordance with the policies and procedures
applicable to the executive officers of the Association, provided that the
Employee accounts for such expenses as required under such policies and
procedures.
5. Benefits.
(a) Participation in Retirement and Employee Benefit Plans. The
Employee shall be entitled to participate in all plans relating to pension,
thrift, profit-sharing, group life insurance, medical and dental coverage,
education, cash bonuses, and other retirement or employee benefits or
combinations thereof, in which the Association's executive officers participate.
In addition, the Employee shall
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be entitled to be considered for benefits under all of the stock and stock
option related plans adopted for the benefit of the Association's executive or
other employees.
(b) Fringe Benefits. The Employee shall be eligible to participate in,
and receive benefits under, any other fringe benefit plans which are or may
become applicable to the Association's executive officers.
6. Vacations; Leave. The Employee shall be entitled to annual paid
vacation in accordance with the policies established by the Association's Board
of Directors for executive employees and to voluntary leave of absence, with or
without pay, from time to time at such times and upon such conditions as the
Board of Directors of the Association may determine in its discretion.
7. Termination of Employment.
(a) Involuntary Termination. The Board of Directors may terminate the
Employee's employment at any time, but, except in the case of Termination for
Cause, termination of employment shall not prejudice the Employee's right to
compensation or other benefits under this Agreement. In the event of Involuntary
Termination other than in connection with or within twelve (12) months after a
Change in Control, (1) the Association shall pay to the Employee during the
remaining term of this Agreement, his salary at the rate in effect immediately
prior to the Date of Termination, payable in such manner and at such times as
such salary would have been payable to the Employee under Section 2 if the
Employee had continued to be employed by the Association, and (2) the
Association shall provide to the Employee during the remaining term of this
Agreement health benefits as maintained by the Association for the benefit of
its executive officers from time to time during the remaining term of the
Agreement.
(b) Termination for Cause. In the event of termination for cause, the
Association shall pay the Employee his salary through the date of termination,
and the Association shall have no further obligation to the Employee under this
Agreement.
(c) Voluntary Termination. The Employee's employment may be voluntarily
terminated by the Employee at any time upon 90 days written notice to the
Association or upon such shorter period as may be agreed upon between the
Employee and the Board of Directors of the Association. In the event of such
voluntary termination, the Association shall be obligated to continue to pay the
Employee his salary and benefits only through the date of termination, at the
time such payments are due, and the Association shall have no further obligation
to the Employee under this Agreement.
(d) Change in Control. In the event of Involuntary Termination in
connection with or within 12 months after a change in control which occurs at
any time while the Employee is employed under this Agreement, the Association
shall, subject to Section 8 of this Agreement, (1) pay to the Employee in a lump
sum in cash within 25 business days after the Date of Termination an amount
equal to 299% of the Employee's "base amount" as defined in Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"); and (2) provide to the
Employee during the remaining term of this Agreement such health benefits as are
maintained for executive officers of the Association from time to time during
the remaining term of this Agreement.
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(e) Death; Disability. In the event of the death of the Employee while
employed under this Agreement and prior to any termination of employment, the
Employee's estate, or such person as the Employee may have previously designated
in writing, shall be entitled to receive from the Association the salary of the
Employee through the last day of the calendar month in which the Employee died.
If the Employee becomes disabled as defined in the Association's then current
disability plan or if the Employee is otherwise unable to serve in his present
capacity, the Employee shall be entitled to receive group and other disability
income benefits of the type then provided by the Association for executive
officers. In the event of such disability, this Agreement shall not be
suspended. However, the Association shall be obligated to pay the Employee
compensation pursuant to Sections 4(a) and (b) hereof only to the extent the
Employee's salary, in the absence of such disability, would exceed (on an after
tax basis) the disability income benefits received pursuant to this paragraph.
In addition, the Association shall have the right, upon resolution of its Board,
to discontinue paying cash compensation pursuant to Sections 4(a) and (b)
beginning six months following a determination that Employee qualifies for the
foregoing disability income benefits.
(f) Temporary Suspension or Prohibition. If the Employee is suspended
and/or temporarily prohibited from participating in the conduct of the
Association's affairs by a notice served under Section 8(e)(3) or (g)(1) of the
FDIA, 12 U.S.C. ss. 1818(e)(3) and (g)(1), the Association's obligations under
this Agreement shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the
Association may in its discretion (1) pay the Employee all or part of the
compensation withheld while its obligations under this Agreement were suspended
and (ii) reinstate in whole or in part any of its obligations which were
suspended.
(g) Permanent Suspension or Prohibition. If the Employee is removed
and/or permanently prohibited from participating in the conduct of the
Association's affairs by an order issued under Section 8(e)(4) or (g)(1) of the
FDIA, 12 U.S.C. ss. 1818(e)(4) and (g)(1), all obligations of the Association
under this Agreement shall terminate as of the effective date of the order, but
vested rights of the contracting parties shall not be affected.
(h) Default of the Association. If the Association is in default (as
defined in Section 3(x)(1) of the FDIA), all obligations under this Agreement
shall terminate as of the date of default, but this provision shall not affect
any vested rights of the contracting parties.
(i) Termination by Regulators. All obligations under this Agreement
shall be terminated, except to the extent determined that continuation of this
Agreement is necessary for the continued operation of the Association: (1) by
the Director of the Office of Thrift Supervision (the "Director") or his or her
designee, at the time the Federal Deposit Insurance Corporation or the
Resolution Trust Corporation enters into an agreement to provide assistance to
or on behalf of the Association under the authority contained in Section 13(c)
of the FDIA; or (2) by the Director or his or her designee, at the time the
Director or his or her designee approves a supervisory merger to resolve
problems related to operation of the Association or when the Association 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 any
such action.
5
<PAGE>
(j) Section 563.39(b). So long as 12 C.F.R. ss. 563.39(b)(1995)
remains in effect and applicable to the Association, in the event that any of
the termination provisions of this Agreement conflict with 12 C.F.R. ss.
563.39(b)(1995), the latter shall prevail.
8. Certain Reduction of Payments by the Association.
(a) Notwithstanding any other provisions of this Agreement, if payments
under this Agreement, together with any other payments received or to be
received by the Employee in connection with a Change in Control would cause any
amount to be nondeductible by the Association or the Holding Company for federal
income tax purposes pursuant to Section 280G of the Code, then benefits under
this Agreement shall be reduced (not less than zero) to the extent necessary so
as to maximize payments to the Employee without causing any amount to become
nondeductible by the Association or the Holding Company. The Employee shall
determine the allocation of such reduction among payments to the Employee.
(b) Any payments made to the Employee pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12 U.S.C.
1828(k) and any regulations promulgated thereunder.
(c) Notwithstanding any other provisions of this Agreement, payments
under Section 7 of this Agreement shall not exceed three times the Employee's
average annual compensation based on the most recent five taxable years.
9. No Mitigation. The Employee shall not be required to mitigate the
amount of any salary or other payment or benefit provided for in this Agreement
by seeking other employment or otherwise, nor shall the amount of any payment or
benefit provided for in this Agreement be reduced by any compensation earned by
the Employee as the result of employment by another employer, by retirement
benefits after the date of termination or otherwise.
10. Attorneys Fees. In the event the Association exercises its right of
Termination for Cause, but it is determined by a court of competent jurisdiction
or by an arbitrator pursuant to Section 18 that cause did not exist for such
termination, or if in any event it is determined by any such court or arbitrator
that the Association has failed to make timely payment of any amounts owed to
the Employee under this Agreement, the Employee shall be entitled to
reimbursement for all reasonable costs, including attorneys' fees, incurred in
challenging such termination or collecting such amounts. Such reimbursement
shall be in addition to all rights to which the Employee is otherwise entitled
under this Agreement.
11. No Assignments.
(a) his Agreement is personal to each of the parties hereto, and
neither party may assign or delegate any of its rights or obligations hereunder
without first obtaining the written consent of the other party; provided,
however, that the Association shall require any successor or assign (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Association, by an
assumption agreement in form and substance satisfactory to the Employee, to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Association would be required to perform it if no such
6
<PAGE>
succession or assignment had taken place. Failure of the Association to obtain
such an assumption agreement prior to the effectiveness of any such succession
or assignment shall be a breach of this Agreement and shall entitle the Employee
to compensation from the Association in the same amount and on the same terms as
the compensation pursuant to Section 7(d) hereof. For purposes of implementing
the provisions of this Section 12(a), the date on which any such succession
becomes effective shall be deemed the Date of Termination.
(b) This Agreement and all rights of the Employee hereunder shall inure
to the benefit of and be enforceable by the Employee's personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Employee should die while any amounts would still
be payable to the Employee hereunder if the Employee had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the Employee's devisee, legatee or other designee
or if there is no such designee, to the Employee's estate.
12. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, to the Association at its home
office the attention of the Board of Directors with a copy to the Secretary of
the Association, or, if the Employee, to such home or other address as the
Employee has most recently provided in writing to the Association.
13. Amendments. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein otherwise
provided.
14. Paragraph Headings. The paragraph headings used in this Agreement
are included solely for convenience and shall not affect, or be used in
connection with, the interpretation of this Agreement.
15. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
16. Governing Law. This Agreement shall be governed by the laws of the
United States to the extent applicable and otherwise by the laws of the State of
Illinois.
17. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration 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.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
7
<PAGE>
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
ATTEST: PREFERRED SAVINGS BANK
________________________________ By: __________________________________
Lorraine G. Ptak, Secretary Kimberly Rooney
Its: President
EMPLOYEE
__________________________________
S.J. Ptak
8
<PAGE>
Exhibit 10.6
Form of Change in Control Severance Agreement
<PAGE>
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT ("Agreement") is made and
entered into as of this _________ day of ____________________, 1996, by and
between PREFERRED SAVINGS BANK, a federally chartered savings institution
(which, together with any successor thereto which executes and delivers the
assumption agreement provided for in Section 11(a) hereof or which otherwise
becomes bound by the terms and provisions of this Agreement by operation of
law, is hereinafter referred to as the "Association"), and __________________
(the "Employee") whose residence address is _____________________.
WHEREAS, the Employee is currently serving as the ____________________
of the Association; and
WHEREAS, the Association has adopted a plan of conversion whereby the
Association will convert (the "Conversion") to capital stock form and become
the wholly owned subsidiary of PSB Holding Company (the "Holding Company");
and
WHEREAS, the Board of Directors of the Association recognizes that,
as is the case with publicly held corporations generally, the possibility of a
change in control of the Holding Company may exist and that such possibility,
and the uncertainty and questions which it may raise among management, may
result in the departure or distraction of key management personnel to the
detriment of the Association and its stockholder; and
WHEREAS, the Board of Directors of the Association believes it is in
the best interests of the Association to enter into this Agreement with the
Employee in order to assure continuity of management of the Association and to
reinforce and encourage the continued attention and dedication of the Employee
to his assigned duties without distraction in the face of potentially
disruptive circumstances arising from the possibility of a change in control
of the Holding Company, although no such change is now contemplated; and
1
<PAGE>
WHEREAS, the Board of Directors of the Association has approved and
authorized the execution of this Agreement with the Employee to take effect as
stated in Section 1 hereof;
NOW, THEREFORE, in consideration of the foregoing and of the
respective covenants and agreements of the parties herein contained, it is
AGREED as follows:
1. TERM OF AGREEMENT.
The term of this Agreement shall be deemed to have commenced as of
the date of the completion of the Association's conversion to stock form and
shall continue for a period of eighteen full calendar months thereafter.
Commencing on the first annual anniversary date of this Agreement and
continuing at each annual anniversary date thereafter, this Agreement shall be
extended for a period of one year in addition to the then-remaining term of
employment under this Agreement, unless either the Association or the Employee
gives contrary written notice to the other not less than 90 days in advance of
the date on which the term of employment under this Agreement would otherwise
be extended.
Notwithstanding any other statement or provision in this Agreement to
the contrary, beginning on the first annual anniversary date of the
conversion, this Agreement will not be automatically extended unless, prior
thereto, the Board of Directors of the Association reviews a formal
performance evaluation of the Employee performed by the disinterested members
of the Board of Directors of the Association and reflected in the minutes of
the Board of Directors.
2. PAYMENTS TO THE EMPLOYEE UPON CHANGE IN CONTROL.
(a) Upon the occurrence of a change in control (as herein defined) of
the Association or the Holding Company followed at any time during the term of
this Agreement by the involuntary termination of the Employee's employment,
other than for cause, as defined in Section 2(d) hereof, the provisions of
Section 3 shall apply.
2
<PAGE>
(b) A "change in control" of the Association or the Holding Company
is defined solely as any acquisition of control (other than by a trustee or
other fiduciary holding securities under an employee benefit plan of the
Holding Company or a subsidiary of the Holding Company), as defined in 12
C.F.R. ss. 574.4, or any successor regulation, of the Association or Holding
Company which would require the filing of an application for acquisition of
control or notice of change in control in a manner as set forth in 12 C.F.R.
ss. 574.3, or any successor regulation.
(c) The Employee's employment under this Agreement may be terminated
at any time by the Board of Directors of the Association. The terms
"involuntary termination" or "involuntarily terminated" in this Agreement
shall refer to the termination of the employment of Employee without his
express written consent. In addition, a material diminution of the Employee's
benefits or a material adverse change in the quality of the work environment
which would hamper the Employee's ability to perform his job effectively shall
be deemed and shall constitute an involuntary termination of employment to the
same extent as express notice of such involuntary termination. By way of
example and not by way of limitation, any of the following actions, if
unreasonable or materially adverse to the Employee, shall constitute such
diminution or interference unless consented to in writing by the Employee: (1)
change in the principal workplace of the Employee to a location outside of a
30 mile radius from the Association's headquarters office as of the date
hereof; (2) a material reduction or adverse change in the scope or nature of
the secretarial or other administrative support of the Employee which would
hamper his ability to perform his job effectively; (3) a reduction or adverse
change in the salary, perquisites, benefits, contingent benefits or vacation
time which had theretofore been provided to the Employee, other than as part
of an overall program applied uniformly and with equitable
3
<PAGE>
effect to all members of the senior management of the Association or the
Holding Company; and (4) a material increase in the required hours of work or
the workload of the Employee.
(d) The Employee shall not have the right to receive termination
benefits pursuant to Section 3 hereof upon termination for cause. For purposes
of this Agreement, termination for "cause" shall include termination for
personal dishonesty, incompetence, willful misconduct, breach of a fiduciary
duty involving personal profit, intentional failure to perform stated duties,
willful violation of any material law, rule, or regulation (other than a law,
rule or regulation relating to a traffic violation or similar offense) or
final cease-and-desist order, or material breach of any provision of this
Agreement. Notwithstanding the foregoing, the Employee shall not be deemed to
have been terminated for cause unless and until there shall have been
delivered to the Employee a copy of a resolution, duly adopted by the
affirmative vote of not less than a majority of the entire membership of the
Board of Directors of the Association at a meeting of the Board called and
held for such purpose (after reasonable notice to the Employee and an
opportunity for the Employee, together with the Employee's counsel, to be
heard before the Board), stating that in the good faith opinion of the Board
the Employee was guilty of conduct constituting "cause" as set forth above and
specifying the particulars thereof in detail.
3. TERMINATION BENEFITS.
(a) Upon the occurrence of a change in control, followed by the
involuntary termination of the Employee's employment, other than for cause,
the Association shall pay to the Employee in a lump sum in cash within 25
business days after the date of severance of employment an amount $40,000
of compensation. At the election
4
<PAGE>
of the Employee, such payment may be made, on a pro rata basis, semi-monthly
during the twelve (12) months following the Employee's termination.
(b) Upon the occurrence of a change in control of the Association or
the Holding Company followed by the involuntary termination of the Employee's
employment, other than for cause, the Association shall cause life and health
insurance coverage (substantially similar to the coverage maintained by the
Association for the Employee prior to his severance) to be maintained for a
period of 12 months or for the remaining term of the agreement, whichever is
greater.
4. CERTAIN REDUCTION OF PAYMENTS BY THE ASSOCIATION.
(a) Notwithstanding any other provisions of this Agreement, if
payments and benefits under this Agreement, together with any other payments
and benefits received or to be received by the Employee in connection with a
change in control, would cause any amount to be nondeductible by the
Association or the Holding Company for federal income tax purposes pursuant to
Section 280G of the Code, then payments and benefits under this Agreement
shall be reduced (not less than zero) to the extent necessary so as to
maximize payments and benefits to the Employee without causing any amount to
become nondeductible by the Association or the Holding Company by reason of
Section 280G of the Code. The Employee shall determine the allocation of such
reduction among payments and benefits to the Employee.
(b) Notwithstanding any other provisions of this Agreement, payments
under Section 3 of this Agreement shall not exceed three times the Employee's
average annual compensation based on the most recent five taxable years.
5
<PAGE>
(c) Any payments made to the Employee pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12 U.S.C.
1828(k) and any regulations promulgated thereunder.
(d) So long as 12 C.F.R. ss. 563.39(b) (1995) remains in effect and
applicable to the Association, in the event that any of the termination
provisions of this Agreement conflict with 12 C.F.R. ss. 563.39(b) (1995), the
latter shall prevail.
5. REQUIRED REGULATORY PROVISIONS.
(a) The Association may terminate the Employee's employment at any
time, but any termination by the Association, other than a termination for
cause, shall not prejudice the Employee's right to compensation or other
benefits under this Agreement. The Employee shall not have the right to
receive compensation or other benefits for any period after a termination for
cause as defined in Section 2(d) hereinabove.
(b) If the Employee is suspended from office and/or temporarily
prohibited from participating in the conduct of the Association's affairs by a
notice served under Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance
Act ("FDIA"), 12 U.S.C. ss. 1818(e)(3) and (g)(1), the Association's
obligations under this Agreement shall be suspended as of the date of service,
unless stayed by appropriate proceedings. If the charges in the notice are
dismissed, the Association may in its discretion (i) pay the Employee all or
part of the compensation withheld while its obligations under this Agreement
were suspended and (ii) reinstate in whole or in part any of the obligations
which were suspended.
(c) If the Employee is removed from office and/or permanently
prohibited from participating in the conduct of the Association's affairs by
an order issued under Section 8(e)(4) or (g)(1) of the FDIA, 12 U.S.C. ss.
1818(e)(4) or (g)(1), all obligations of the Association under
6
<PAGE>
this Agreement shall terminate, as of the effective date of the order, but
vested rights of the parties shall not be affected.
(d) If the Association becomes in default (as defined in Section
3(x)(1) of the FDIA), all obligations under this Agreement shall terminate as
of the date of default, but this provision shall not affect any vested rights
of the parties.
(e) All obligations under this Agreement may be terminated, except to
the extent determined that continuation of this Agreement is necessary for the
continued operation of the Association: (i) by the Director or his or her
designee, at the time the Federal Deposit Insurance Corporation ("FDIC") or
the Resolution Trust Corporation ("RTC") at the time the FDIC or the RTC
enters into an agreement to provide assistance to or on behalf of the
Association under the authority contained in Section 13(c) of the FDIA, or
(ii) by the Director of the Office of Thrift Supervision ("OTS") or his or her
designee at the time the Director or his or her designee approves a
supervisory merger to resolve problems related to operation of the Association
or when the Association 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 any such action.
6. REINSTATEMENT OF BENEFITS UNDER Section 5(b).
In the event the Employee is suspended and/or temporarily prohibited
from participating in the conduct of the Association's affairs by a notice
described in Section 5(b) hereof (the "Notice") during the term of this
Agreement and a change in control occurs, the Association will assume its
obligation to pay and the Employee will be entitled to receive all of the
termination benefits provided for under Section 3 of this Agreement upon the
Association's receipt of a dismissal of charges in the Notice.
7
<PAGE>
7. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior agreement between the Association and the
Employee, except that this Agreement shall not affect or operate to reduce any
benefit or compensation inuring to the Employee of a kind elsewhere provided.
No provision of this Agreement shall be interpreted to mean that the Employee
is subject to receiving fewer benefits than those available to him without
reference to this Agreement.
8. 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, the Employee, the Association and their respective successors and assigns.
9. 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
8
<PAGE>
waiver of such term or condition for the future or as to any act other than
that specifically waived.
10. NO MITIGATION.
The amount of any payment or benefit provided for in this Agreement
shall not be reduced by any compensation earned by the Employee as the result
of employment by another employer, by retirement benefits after the date of
termination or otherwise.
11. NO ASSIGNMENTS.
(a) This Agreement is personal to each of the parties hereto, and
neither party may assign or delegate any of its rights or obligations
hereunder without first obtaining the written consent of the other party;
provided, however, that the Association will require any successor or assign
(whether direct or indirect, by purchase, merger, consolidation or otherwise)
to all or substantially all of the business and/or assets of the Association,
by an assumption agreement in form and substance satisfactory to the Employee,
to expressly assume and agree to perform this Agreement in the same manner and
to the same extent that the Association would be required to perform it if no
such succession or assignment had taken place. Failure of the Association to
obtain such an assumption agreement prior to the effectiveness of any such suc-
cession or assignment shall be a breach of this Agreement and shall entitle
the Employee to compensation from the Association in the same amount and on
the same terms as the compensation pursuant to Section 3 hereof. For purposes
of implementing the provisions of this Section 11(a), the date on which any
such succession becomes effective shall be deemed the Date of Termination.
(b) This Agreement and all rights of the Employee hereunder shall
inure to the benefit of and be enforceable by the Employee's personal and
9
<PAGE>
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Employee should die while any
amounts would still be payable to the Employee hereunder if the Employee had
continued to live, all such amounts, unless otherwise provided herein, shall
be paid in accordance with the terms of this Agreement to the Employee's
devisee, legatee or other designee or if there is no such designee, to the
Employee's estate.
12. NOTICE.
For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, addressed to the respective
addresses set forth on the first page of this Agreement (provided that all
notices to the Association shall be directed to the attention of the Board of
Directors of the Association with a copy to the Secretary of the Association),
or to such other address as either party may have furnished to the other in
writing in accordance herewith.
13. AMENDMENTS.
No amendments or additions to this Agreement shall be binding unless
in writing and signed by both parties, except as herein otherwise provided.
14. PARAGRAPH HEADINGS.
The paragraph headings used in this Agreement are included solely for
convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
15. SEVERABILITY.
The provisions of this Agreement shall be deemed severable and the
invalidity or unenforceability of any provision shall not affect the validity
or enforceability of the other provisions hereof.
10
<PAGE>
16. GOVERNING LAW.
This Agreement shall be governed by the laws of the United States to
the extent applicable and otherwise by the laws of the State of Illinois.
17. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration 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.
18. REIMBURSEMENT.
In the event the Association purports to terminate the Employee for
cause, but it is determined by a court of competent jurisdiction or by an
arbitrator pursuant to Section 17 that cause did not exist for such
termination, or if in any event it is determined by any such court or
arbitrator that the Association has failed to make timely payment of any
amounts owed to the Employee under this Agreement, the Employee shall be
entitled to reimbursement for all reasonable costs, including attorneys'
fees, incurred in challenging such termination or collecting such amounts.
Such reimbursement shall be in addition to all rights to which the Employee is
otherwise entitled under this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the day and year first above written.
11
<PAGE>
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH
MAY BE ENFORCED BY THE PARTIES.
ATTEST: PREFERRED SAVINGS BANK
______________________________ By:__________________________________________
Lorraine G. Ptak, Secretary Kimberly P. Rooney, President and Chief
Executive Officer
WITNESS: EMPLOYEE
______________________________ By:__________________________________________
12
<PAGE>
Exhibit 22
Subsidiaries
<PAGE>
EXHIBIT 22
SUBSIDIARIES OF THE REGISTRANT
(Upon the completion of Transaction)
<TABLE>
<CAPTION>
Percentage of State of Incorporation
Parent Subsidiary Ownership or Organization
- --------------------- ---------------------- ------------- ----------------------
<S> <C> <C> <C>
PS Financial, Inc. Preferred Savings Bank 100% Federal
Preferred Savings Bank Preferred Service Corp. 100% Illinois
</TABLE>
It is contemplated that the financial statements of the Registrant will be
consolidated with its subsidiaries.
<PAGE>
Exhibit 24.1
Consent of Silver, Freedman & Taff, L.L.P.
<PAGE>
CONSENT OF COUNSEL
We consent to the use of our opinions, to the incorporation by
reference of such opinions as an exhibits to the Form S-1 and to the reference
to our firm under the headings "The Conversion - Income Tax Consequences" and
"Legal and Tax Matters" in the Prospectus included in this Form S-1. In giving
this consent, we do not admit that we are within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
thereunder.
/s/ SILVER, FREEDMAN & TAFF, L.L.P.
-----------------------------------
SILVER, FREEDMAN & TAFF, L.L.P.
Washington, D.C.
August 29, 1996
<PAGE>
Exhibit 24.2
Consent of Crowe, Chizek and Company LLP
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Preferred Savings Bank
Chicago, Illinois
We consent to the use in this Registration Statement on Form S-1 filled with the
Securities and Exchange Commission and Form AC filed with the Office of Thrift
Supervision on PS Financial, Inc., 1996 of our report dated March 1, 1996 on the
financial statements of Preferred Savings Bank for the year ended December 31,
1995. We also consent to the reference to us under the headings "The Conversion
- - Tax Effects", "The Conversion - Income Tax Consequences", "Experts", and
"Legal and Tax Matters" in this Registration Statement on Forms S-1 and AC.
Crowe, Chizek and Company LLP
Oak Brook, Illinois
August 27, 1996
<PAGE>
Exhibit 24.3
Consent of Keller & Company, Inc.
<PAGE>
August 27, 1996
Re: Valuation Appraisal of PS Financial, Inc./
Preferred Savings Bank
Chicago, Illinois
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 Conversion on
Form AC to be filed with the Office of Thrift Supervision and the Registration
Statement on Form S-1 to be filed with the Securities and Exchange Commission
and any amendments thereto, and to the statements with respect to us and the
reference to our Valuation Appraisal Report in the Prospectus, in the said
Form AC and in the said Form S-1 and any amendments thereto.
Very truly yours,
KELLER & COMPANY, INC
by: /s/ Michael R. Keller
-----------------------
Michael R. Keller
President
<PAGE>
Exhibit 99.2
Proxy Statement and Form of Proxy to
be Furnished to Preferred Savings
Account Holders
<PAGE>
PREFERRED SAVINGS BANK
4800 South Pulaski Road
Chicago, Illinois 60632-4195
(312) 376-3800
------------------------------------
NOTICE OF SPECIAL MEETING OF MEMBERS
------------------------------------
Notice is hereby given that a Special Meeting of Members (the
"Special Meeting") of Preferred Savings Bank, ("Preferred Savings" or the
"Bank"), will be held at the main office of the Bank located at 4800 South
Pulaski Road, Chicago, Illinois, on ________________, 1996 at __:__ _.m.,
Chicago, Illinois Time. The purpose of this Special Meeting is to consider and
vote upon:
A plan to convert the Bank from a federally chartered mutual savings
bank to a federally chartered stock savings bank, including the
adoption of a federal stock savings bank charter and bylaws, with the
concurrent sale of all the Bank's common stock to PS Financial, Inc.,
a Delaware corporation (the "Holding Company"), and sale by the
Holding Company of shares of its common stock; and
such other business as may properly come before the Special Meeting or any
adjournment thereof. Management is not aware of any such other business.
The members who shall be entitled to notice of and to vote at the
Special Meeting and any adjournment thereof are depositors of the Bank at the
close of business on _________________, 1996 who continue to be depositors as
of the date of the Special Meeting. In the event there are not sufficient
votes for approval of the Plan of Conversion at the time of the Special
Meeting, the Special Meeting may be adjourned from time to time in order to
permit further solicitation of proxies.
BY ORDER OF THE BOARD OF DIRECTORS
Lorraine G. Ptak
Secretary
Chicago, Illinois
________________, 1996
- -------------------------------------------------------------------------------
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE
FOR APPROVAL OF THE PLAN OF CONVERSION BY COMPLETING THE
ENCLOSED PROXY CARD AND RETURNING IT IN THE
ENCLOSED POSTAGE-PAID ENVELOPE AS SOON AS
POSSIBLE.
YOUR VOTE IS VERY IMPORTANT.
- -------------------------------------------------------------------------------
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SUMMARY OF PROPOSED CONVERSION
This summary does not purport to be complete and is qualified in its
entirety by the more detailed information contained in the remainder of this
Proxy Statement and the accompanying Prospectus.
Under its present "mutual" form of organization, Preferred Savings
has no stockholders. Its deposit account holders are members of the Bank and
have voting rights in that capacity. In the unlikely event of liquidation, the
Bank's deposit account holders would have the sole right to receive any assets
of the Bank remaining after payment of its liabilities (including the claims
of all deposit account holders to the withdrawal value of their deposits).
Under the Plan of Conversion (the "Plan of Conversion") to be voted on at the
Special Meeting, the Bank would be converted into a federally chartered
savings bank organized in stock form, and all of the Bank's common stock would
be sold concurrently to the Holding Company (the "Conversion"). The Holding
Company will offer and sell its common stock (the "Common Stock") in an
offering (1) to account holders with an account balance of $50 or more on
March 31, 1995 ("Eligible Account Holders"), (2) tax-qualified employee plans
of the Bank or the Holding Company ("Tax-Qualified Employee Plans"), (3)
account holders of the Bank with an account balance of $50 or more as of
September 30, 1996 ("Supplemental Eligible Account Holders"), (4) certain
other members of the Bank as of _________________, 1996 who are not Eligible
or Supplemental Eligible Account Holders ("Other Members") and (5) directors,
officers and employees of the Bank on a priority basis (the "Subscription
Offering"). Notwithstanding the foregoing, to the extent orders for shares
exceed the maximum of the appraisal range, Tax-Qualified Employee Plans shall
be afforded a first priority to purchase shares sold above the maximum of the
appraisal range. It is anticipated that Tax-Qualified Employee Plans will
purchase 8% of the Common Stock sold in the Conversion.
To the extent the Common Stock is not all sold to the persons in the
foregoing categories, the Holding Company may offer and sell the remainder of
the Common Stock in a public offering (the "Public Offering") through Charles
Webb & Company, ("Charles Webb") to selected persons to whom a prospectus (the
"Prospectus") is delivered. The Subscription Offering and the Public Offering
are referred to collectively as the "Offering." Voting and liquidation rights
with respect to the Bank would thereafter be held by the Holding Company,
except to the limited extent of the liquidation account (the "Liquidation
Account") that will be established for the benefit of Eligible and
Supplemental Eligible Account Holders of the Bank and voting and liquidation
rights in the Holding Company would be held only by those persons who become
stockholders of the Holding Company through purchase of shares of its Common
Stock. See "Description of the Plan of Conversion - Principal Effects of
Conversion Liquidation Rights of Depositor Members."
THE CONVERSION WILL NOT AFFECT THE BALANCE, INTEREST RATE OR FEDERAL
INSURANCE PROTECTION OF ANY SAVINGS DEPOSIT, AND NO PERSON WILL BE OBLIGATED
TO PURCHASE ANY STOCK IN THE CONVERSION.
Business Purposes for Conversion
Net Conversion proceeds are expected to increase the capital of Preferred
Savings, which will support the expansion of its financial services to the
public. The conversion to stock form and the use of a holding company
structure are also expected to enhance its ability to expand through possible
mergers and acquisitions (although no such transactions are contemplated at
this time) and will facilitate its future access to the capital markets. The
Bank will continue to be subject to comprehensive regulation and examination
by the Office of Thrift Supervision, Department of Treasury ("OTS") and the
Federal Deposit Insurance Corporation ("FDIC").
Subscription Offering
As part of the Conversion, Common Stock is being offered for sale in the
Subscription Offering, in the priorities summarized below, to the Bank's (1)
Eligible Account Holders, (2) Tax-Qualified Employee Plans, (3) Supplemental
Eligible Account Holders (4) Other Members, and (5) employees, officers and
directors. If necessary, all shares of Common Stock not purchased in the
Subscription Offering, if any, may be offered in
i
<PAGE>
connection with the Public Offering for sale to selected persons through
Charles Webb.
Subscription Rights of Eligible Account Holders
Each Eligible Account Holder has been given non-transferable rights to
subscribe for an amount equal to the greater of $150,000 of Common Stock,
one-tenth of one percent of the total number of shares offered in the
Subscription Offering or 15 times the product (rounded down to the whole next
number) obtained by multiplying the total number of shares to be issued by a
fraction of which the numerator is the amount of qualifying deposits of such
subscriber and the denominator is the total qualifying deposits of all account
holders in this category on the qualifying date.
Subscription Rights of Tax-Qualified Employee Plans
The Bank's Tax-Qualified Employee Plans have been given non-transferable
rights to subscribe, individually and in the aggregate, for up to 10% of the
total number of shares sold in the Conversion after satisfaction of
subscriptions of Eligible Account Holders. Notwithstanding the foregoing, to
the extent orders for shares exceed the maximum of the appraisal range,
Tax-Qualified Employee Plans shall be afforded a first priority to purchase
shares sold above the maximum of the appraisal range. It is anticipated that
Tax-Qualified Employee Plans will purchase 8% of the Common Stock sold in the
Conversion.
Subscription Rights of Supplemental Eligible Account Holders
After satisfaction of subscriptions of Eligible Account Holders and
Tax-Qualified Employee Plans, each Supplemental Eligible Account Holder (other
than directors and officers of the Bank) has been given non-transferable
rights to subscribe for an amount equal to the greater of $150,000 of Common
Stock, one-tenth of one percent of the total number of shares offered in the
Conversion or 15 times the product (rounded down to the whole next number)
obtained by multiplying the total number of shares to be issued by a fraction
of which the numerator is the amount of qualifying deposits of such subscriber
and the denominator is the total qualifying deposits of all account holders in
this category on the qualifying date. The subscription rights of each
Supplemental Eligible Account Holder shall be reduced to the extent of such
person's subscription rights as an Eligible Account Holder.
Subscription Rights of Other Members
Each Other Member has been given non-transferable
rights to subscribe for an amount equal to the greater of $150,000 of Common
Stock or one-tenth of one percent of the total number of shares offered in the
Conversion after satisfaction of the subscriptions of the Bank's Eligible
Account Holders, Tax-Qualified Employee Plans and Supplemental Eligible
Account Holders.
Subscription Rights of Bank Personnel
Each individual employee, officer and director of the Bank has been given the
right to subscribe for an amount equal to the greater of $150,000 of Common
Stock after satisfaction of the subscriptions of Eligible Account Holders,
Tax-Qualified Employee Plans, Supplemental Eligible Account Holders and Other
Members. Total shares subscribed for by the employees, officers and directors
in this category may not exceed 25% of the total shares offered in the
Conversion.
Public Offering
Subject to prior rights of holders of subscription rights, the Holding Company
may also offer the Common Stock for sale to selected persons through Charles
Webb in a Public Offering.
ii
<PAGE>
Purchase Limitations
No person may purchase more than $150,000 of Common Stock in the Subscription
Offering. No person, together with associates, and persons acting in concert,
may purchase more than $900,000 of Common Stock in the Conversion. No person,
together with associates of and persons acting in concert with such person,
may purchase more than $150,000 of Common Stock in the Public Offering. The
aggregate purchases of directors and executive officers and their associates
may not exceed 35% of the total number of shares offered in the Conversion.
These purchase limitations do not apply to the Bank's Tax-Qualified Employee
Plans.
Expiration Date of the Subscription Offering
All subscriptions for Common Stock in connection with the Subscription
Offering must be received by noon, Chicago, Illinois Time on ________________,
1996.
How to Subscribe for Shares
For information on how to subscribe for Common Stock being offered in the
Subscription Offering, please read the Prospectus and the order form and
instructions accompanying this Proxy Statement. Subscriptions will not become
effective until the Plan of Conversion has been approved by the Bank's members
and all of the Common Stock offered in the Conversion has been subscribed for
or sold in the Offering or through such other means as may be approved by the
OTS.
Price of Common Stock
All sales of Common Stock in the Offering will be made at the same price per
share which is currently expected to be $10.00 per share on the basis of an
independent appraisal of the pro forma market value of the Bank and the
Holding Company upon Conversion. On the basis of a preliminary appraisal by
Keller & Company, Inc. ("Keller"), which has been reviewed by the OTS, a
minimum of 1,402,500 and a maximum of 1,897,500 shares will be offered in the
Conversion. See "The Conversion - Stock Pricing and Number of Shares to be
Issued" in the Prospectus.
Tax Consequences
The Bank has received an opinion from its special counsel, Silver, Freedman &
Taff, L.L.P., stating that the Conversion is a nontaxable reorganization under
Section 368(a)(1)(F) of the Internal Revenue Code. The Bank has also received
an opinion from Crowe Chizek and Company LLP ("Crowe Chizek") stating that the
Conversion will not be a taxable transaction for Illinois income tax purposes.
Required Vote
Approval of the Plan of Conversion will require the affirmative vote of a
majority of all votes eligible to be cast at the Special Meeting.
YOUR BOARD OF DIRECTORS URGES YOU TO VOTE FOR
THE PLAN OF CONVERSION
iii
<PAGE>
PREFERRED SAVINGS BANK
PROXY STATEMENT
SPECIAL MEETING OF MEMBERS TO BE HELD ON ________________, 1996
PURPOSE OF MEETING
This Proxy Statement is being furnished to you in connection with the
solicitation on behalf of the Board of Directors of Preferred Savings Bank
("Preferred Savings" or the "Bank") of the proxies to be voted at the Special
Meeting of Members (the "Special Meeting") of the Bank to be held at the
Bank's main office located at 4800 South Pulaski Road, Chicago, Illinois
60632-4195, on ________________, 1996 at __:__ _.m., Chicago, Illinois Time,
and at any adjournments thereof. The Special Meeting is being held for the
purpose of considering and voting upon a Plan of Conversion under which the
Bank would be converted (the "Conversion") from a federally chartered mutual
savings bank into a federally chartered stock savings bank, the concurrent
sale of all the common stock of the stock savings bank to PS Financial, Inc.
(the "Holding Company"), a Delaware corporation, and the sale by the Holding
Company of shares of its common stock (the "Common Stock") and such other
business as may properly come before the meeting and any adjournment thereof.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF THE BANK UNANIMOUSLY RECOMMENDS THAT YOU
VOTE TO APPROVE THE PLAN OF CONVERSION.
The Bank is currently organized in "mutual" rather than "stock" form,
meaning that it has no stockholders and no authority under its federal mutual
charter to issue capital stock. The Bank's Board of Directors has adopted the
Plan of Conversion providing for the Conversion. The sale of Common Stock of
the Holding Company, which was recently formed to become the holding company
of the Bank, will substantially increase the Bank's net worth. The Holding
Company will exchange 50% of the net proceeds from the sale of the Common
Stock for the common stock of the Bank to be issued upon Conversion. The
Holding Company expects to retain the balance of the net proceeds as its
initial capitalization, a portion of which the Holding Company intends to lend
to the ESOP to fund its purchase of Common Stock. This increased capital will
support the expansion of the Bank's financial services to the public. Subject
to market conditions, the Bank intends to emphasize the origination of
commercial real estate loans in its market area and to increase the variety of
consumer loans currently offered. The Board of Directors of the Bank also
believes that the conversion to stock form and the use of a holding company
structure will enhance the Bank's ability to expand through possible mergers
and acquisitions (although no such transactions are contemplated at this time)
and will facilitate its future access to the capital markets.
The Board of Directors of the Bank believes that the Conversion will
further benefit the Bank by enabling it to attract and retain key personnel
through prudent use of stock-related incentive compensation and benefit plans.
The Board of Directors of the Holding Company intends to adopt a stock option
and incentive plan and a recognition and retention plan, subject to approval
of Holding Company stockholders following completion of the Conversion.
See "Management - Benefit Plans" in the accompanying Prospectus.
Voting in favor of the Plan of Conversion will not obligate any
person to purchase any Common Stock.
THE OFFICE OF THRIFT SUPERVISION ("OTS") HAS APPROVED THE PLAN OF
CONVERSION SUBJECT TO THE APPROVAL OF THE BANK'S MEMBERS AND THE SATISFACTION
OF CERTAIN OTHER CONDITIONS. HOWEVER, SUCH APPROVAL DOES NOT CONSTITUTE A
RECOMMENDATION OR ENDORSEMENT OF THE PLAN OF CONVERSION BY THE OTS.
INFORMATION RELATING TO VOTING AT THE SPECIAL MEETING
The Board of Directors of the Bank has fixed ________________, 1996
as the voting record date ("Voting Record Date") for the determination of
members entitled to notice of the Special Meeting. All Bank depositors are
members of the Bank under its current charter. All Bank members of record as
of the close of business on the
<PAGE>
Voting Record Date who continue to be members as of the date of the Special
Meeting will be entitled to vote at the Special Meeting or any adjournment
thereof.
Each depositor member (including IRA and Keogh account beneficiaries)
will be entitled at the Special Meeting to cast one vote for each $100, or
fraction thereof, of the aggregate withdrawal value of all of such depositor's
accounts in the Bank as of the Voting Record Date, up to a maximum of 1,000
votes. In general, accounts held in different ownership capacities will be
treated as separate memberships for purposes of applying the 1,000 vote
limitation. For example, if two persons hold a $100,000 account in their joint
names and each of the persons also holds a separate account for $100,000 in
his own name, each person would be entitled to 1,000 votes for each separate
account and they would together be entitled to cast 1,000 votes on the basis
of the joint account. Where no proxies are received from IRA and Keogh account
beneficiaries, after due notification, the Bank, as trustee of these accounts,
is entitled to vote these accounts in favor of the Plan of Conversion.
Approval of the Plan of Conversion requires the affirmative vote of a
majority of the total outstanding votes of the Bank's members eligible to be
cast at the Special Meeting. As of ________________, 1996, the Bank had
approximately _____ members who were entitled to cast a total of approximately
_______ votes at the Special Meeting.
Bank members may vote at the Special Meeting or any adjournment
thereof in person or by proxy. Any member giving a proxy will have the right
to revoke the proxy at any time before it is voted by giving written notice to
the Secretary of the Bank, provided that such written notice is received by
the Secretary prior to the Special Meeting or any adjournment thereof, or upon
request if the member is present and chooses to vote in person.
All properly executed proxies received by the Board of Directors of
the Bank will be voted in accordance with the instructions indicated thereon
by the members giving such proxies. If no instructions are given, such proxies
will be voted in favor of the Plan of Conversion. If any other matters are
properly presented at the Special Meeting and may properly be voted on, the
proxies solicited hereby will be voted on such matters in accordance with the
best judgment of the proxy holders named thereon. Management is not aware of
any other business to be presented at the Special Meeting.
If a proxy is not executed and is returned or the member does not
vote in person, the Bank is prohibited by OTS regulations from using a
previously executed proxy to vote for the Conversion. As a result, failure to
vote may have the same effect as a vote against the Plan of Conversion.
To the extent necessary to permit approval of the Plan of Conversion,
proxies may be solicited by officers, directors or regular employees of the
Bank, in person, by telephone or through other forms of communication and, if
necessary, the Special Meeting may be adjourned to a later date. In addition,
Charles Webb will assist the Bank in the solicitation of proxies. Such persons
will be reimbursed by the Bank for their expenses incurred in connection with
such solicitation. The Bank will bear all costs of this solicitation. The
proxies solicited hereby will be used only at the Special Meeting and at any
adjournment thereof.
DESCRIPTION OF THE PLAN OF CONVERSION
The Plan of Conversion to be presented for approval at the Special
Meeting provides for the Conversion to be accomplished through adoption of
amended charter and bylaws for the Bank to authorize the issuance of capital
stock along with the concurrent formation of a holding company. As part of the
Conversion, the Plan of Conversion provides for the subscription offering (the
"Subscription Offering") of the Common Stock to the Bank's (i) Eligible
Account Holders (deposit account holders with an account balance of $50 or
more as of March 31, 1995); (ii) Tax-Qualified Employee Plans, (iii)
Supplemental Eligible Account Holders (deposit account holders with an account
balance of $50 or more as of September 30, 1996); (iv) Other Members (deposit
account holders eligible to vote at the Special Meeting who are not as
Eligible Account Holders or Supplemental Eligible Account Holders); and (v)
the Bank's employees, officers and directors. Notwithstanding the foregoing,
to the extent orders for shares exceed the maximum of the appraisal range,
Tax-Qualified Employee Plans shall be afforded a first priority to purchase
shares sold above the maximum of the appraisal range. It is anticipated that
Tax-Qualified Employee Plans will purchase 8% of the Common Stock sold in the
Conversion. If necessary, all shares of Common Stock not purchased in the
Subscription Offering, if any, may be offered to selected persons in
connection with the Public Offering through Charles Webb.
2
<PAGE>
THE SUBSCRIPTION OFFERING HAS COMMENCED AS OF THE DATE OF MAILING OF
THIS PROXY STATEMENT. A PROSPECTUS EXPLAINING THE TERMS OF THE SUBSCRIPTION
OFFERING, INCLUDING HOW TO ORDER AND PAY FOR SHARES AND DESCRIBING THE
BUSINESS OF THE BANK AND THE HOLDING COMPANY; ACCOMPANIES THIS PROXY STATEMENT
AND SHOULD BE READ BY ALL PERSONS WHO WISH TO CONSIDER SUBSCRIBING FOR COMMON
STOCK. THE SUBSCRIPTION OFFERING EXPIRES AT NOON, CHICAGO, ILLINOIS TIME ON
________________, 1996 UNLESS EXTENDED BY THE BANK AND THE HOLDING COMPANY.
The federal conversion regulations require that all stock offered in
a conversion must be sold in order for the conversion to become effective. The
conversion regulations require that the offering be completed within 45 days
after completion of the Subscription Offering period unless extended by the
Bank and the Holding Company with the approval of the OTS. This 45-day period
expires _________________, 1996 unless the Subscription Offering is extended.
If this is not possible, an occurrence that is currently not anticipated, the
Board of Directors of the Bank and the Holding Company will consult with the
OTS to determine an appropriate alternative method of selling all unsubscribed
shares offered in the Conversion. The Plan of Conversion provides that the
Conversion must be completed within 24 months after the date of the Special
Meeting.
The Public Offering or any other sale of the unsubscribed shares will
be made as soon as practicable after the completion of the Subscription
Offering. No sales of shares may be completed, either in the Subscription
Offering or otherwise, unless the Plan of Conversion is approved by the
members of the Bank.
The commencement and completion of the Offering, however, is subject
to market conditions and other factors beyond the Bank's control. Due to
adverse conditions in the stock market in the past, a number of converting
thrift institutions encountered significant delays in completing their stock
offerings or were not able to complete them at all. No assurance can be given
as to the length of time after approval of the Plan of Conversion at the
Special Meeting that will be required to complete the Public Offering or other
sale of the Common Stock to be offered in the Conversion. If delays are
experienced, significant changes may occur in the estimated pro forma market
value of the Holding Company's Common Stock, together with corresponding
changes in the offering price and the net proceeds realized by the Bank and
the Holding Company from the sale of the Common Stock. The Bank and the
Holding Company may also incur substantial additional printing, legal,
accounting and other expenses in completing the Conversion.
The following is a brief summary of the Conversion and is qualified
in its entirety by reference to the Plan of Conversion, a complete copy of
which is attached hereto. The Bank's federal stock charter and bylaws that
will become effective upon completion of the Conversion are available from the
Bank upon request. A copy of the Holding Company's articles of incorporation
and bylaws are also available from the Bank upon request.
Principal Effects of Conversion
Depositors. The Conversion will not change the amount, interest rate,
withdrawal rights or federal insurance protection of deposit accounts, or
affect deposit accounts in any way other than with respect to voting and
liquidation rights as discussed below.
Borrowers. The rights and obligations of borrowers under their loan
agreements with the Bank will remain unchanged by the Conversion. The
principal amount, interest rate and maturity date of loans will remain as they
were contractually fixed prior to the Conversion.
Voting Rights of Members. Under the Bank's current federal mutual
charter, depositors and certain borrowers have voting rights as members of the
Bank with respect to the election of directors and certain other affairs of
the Bank. After the Conversion, exclusive voting rights with respect to all
such matters will be vested in the Holding Company as the sole stockholder of
the Bank. Depositors and certain borrowers will no longer have any voting
rights, except to the extent that they become stockholders of the Holding
Company through the purchase of its Common Stock. Voting rights in the Holding
Company will be held exclusively by its stockholders.
Liquidation Rights of Depositor Members. Currently, in the unlikely
event of liquidation of the Bank, any assets remaining after satisfaction of
all creditors' claims in full (including the claims of all depositors to the
withdrawal value of their accounts) would be distributed pro rata among the
depositors of the Bank, with the pro
3
<PAGE>
rata share of each being the same proportion of all such remaining assets as
the withdrawal value of each depositor's account is of the total withdrawal
value of all accounts in the Bank at the time of liquidation. After the
Conversion, the assets of the Bank would first be applied, in the event of
liquidation, against the claims of all creditors (including the claims of all
depositors to the withdrawal value of their accounts). Any remaining assets
would then be distributed to the persons who qualified as Eligible Account
Holders or Supplemental Eligible Account Holders under the Plan of Conversion
to the extent of their interests in a "Liquidation Account" that will be
established at the time of the completion of the Conversion and then to the
Holding Company as the sole stockholder of the Bank's outstanding common
stock. The Bank's depositors who did not qualify as Eligible Account Holders
or Supplemental Eligible Account Holders would have no right to share in any
residual net worth of the Bank in the event of liquidation after the
Conversion, but would continue to have the right as creditors of the Bank to
receive the full withdrawal value of their deposits prior to any distribution
to the Holding Company as the Bank's sole stockholder. In addition, the Bank's
deposit accounts will continue to be insured by the Federal Deposit Insurance
Corporation ("FDIC") to the maximum extent permitted by law, currently up to
$100,000 per insured account. The Liquidation Account will initially be
established in an amount equal to the net worth of the Bank as of the date of
the Bank's latest statement of financial condition contained in the final
prospectus used in connection with the Conversion. Each Eligible Account
Holder and/or Supplemental Eligible Account Holder will receive an initial
interest in the Liquidation Account in the same proportion as the balance in
all of his qualifying deposit accounts was of the aggregate balance in all
qualifying deposit accounts of all Eligible Account Holders and Supplemental
Eligible Account Holders on March 31, 1995 or September 30, 1996,
respectively. For accounts in existence on both dates, separate subaccounts
shall be determined on the basis of the qualifying deposits in such accounts
on the record dates. However, if the amount in the qualifying deposit account
on any annual closing date of the Bank is less than the lowest amount in such
deposit account on the Eligibility Record Date and/or Supplemental Eligibility
Record Date, and any subsequent annual closing date, this interest in the
Liquidation Account will be reduced by an amount proportionate to such
reduction in the related deposit account and will not thereafter be increased
despite any subsequent increase in the related deposit account.
The Bank. Under federal law, the stock savings bank resulting from
the Conversion will be deemed to be a continuation of the mutual savings bank
rather than a new entity and will continue to have all of the rights,
privileges, properties, assets and liabilities of the Bank prior to the
Conversion. The Conversion will enable the Bank to issue capital stock, but
will not change the general objectives, purposes or types of business
currently conducted by the Bank, and no assets of the Bank will be distributed
in order to effect the Conversion, other than to pay the expenses incident
thereto. After the Conversion, the Bank will remain subject to examination and
regulation by the OTS and will continue to be a member of the Federal Home
Loan Bank System. The Conversion will not cause any change in the executive
officers or directors of the Bank.
Tax Consequences. Consummation of the Conversion is expressly
conditioned upon prior receipt of either a ruling of the United States
Internal Revenue Service ("IRS") or an opinion letter of the Bank's counsel
with respect to federal taxation, and either a ruling of the Illinois taxation
authorities or an opinion letter with respect to Illinois taxation, to the
effect that the Conversion will not be a taxable transaction to the Holding
Company, the Bank or the Bank's deposit account holders receiving subscription
rights.
The Bank has received an opinion of its special counsel, Silver,
Freedman & Taff, L.L.P., to the effect that (i) the Conversion will qualify as
a reorganization under Section 368(a)(1)(F) of the Internal Revenue Code of
1986, as amended, and no gain or loss will be recognized to the Bank in either
its mutual form or its stock form by reason of the proposed Conversion, (ii)
no gain or loss will be recognized to the Bank upon the receipt of money from
the Holding Company for stock of the Bank; and no gain or loss will be
recognized to the Holding Company upon the receipt of money for Common Stock
of the Holding Company; (iii) the assets of the Bank in either its mutual or
its stock form will have the same basis before and after the Conversion; (iv)
the holding period of the assets of the Bank will include the period during
which the assets were held by the Bank in its mutual form prior to conversion;
(v) gain, if any, will be realized by the Eligible Account Holders and
Supplemental Eligible Account Holders of the Bank, upon the constructive
issuance to them of withdrawable deposit accounts of the Bank immediately
after the proposed Conversion, interests in the Liquidation Account, and on
the receipt or distribution to them of the nontransferable Subscription Rights
to purchase Holding Company Common Stock (any such gain will be recognized by
such account holder, but only to the extent, if any, of an amount not in
excess of the fair market value of the Subscription Rights and Liquidation
Account interests received); (vi) the basis of the account holder's savings
accounts in the Bank after the Conversion will be the same as the basis of his
or her savings accounts in the Bank prior to the Conversion; (vii) the basis
of each account holder's interest in the Liquidation
4
<PAGE>
Account will be zero; (viii) the basis of the Holding Company Common Stock to
its shareholders will be the Purchase Price thereof and a shareholder's
holding period for Holding Company Common Stock acquired through the exercise
of Subscription Rights shall begin on the date on which the Subscription
Rights are exercised; (ix) the converted Bank, immediately after Conversion,
will succeed to the bad debt reserve accounts of the Bank, in mutual form, and
the bad debt reserves will have the same character in the hands of the Bank
after Conversion as if no distribution or transfer had occurred; and (x) the
creation of the liquidation account will have no effect on the Bank's taxable
income, deductions or addition to reserve for bad debts either in its mutual
or stock form.
The opinion from Silver, Freedman & Taff, L.L.P. is based, among
other things, on certain assumptions, including the assumptions that the
exercise price of the Subscription Rights to purchase Holding Company Common
Stock will be approximately equal to the fair market value of that stock at
the time of the completion of the proposed Conversion. With respect to the
Subscription Rights, the Bank has received the letter of Keller (the
"Appraiser Letter") which, based on certain assumptions, concludes that the
Subscription Rights to be received by Eligible Account Holders, Supplemental
Eligible Account Holders and other eligible subscribers do not have any
economic value at the time of distribution or at the time the Subscription
Rights are exercised, whether or not a public offering takes place.
The Bank has also received an opinion of Silver, Freedman & Taff,
L.L.P. to the effect that, based in part on the Appraiser Letter, no taxable
income will be realized by a stock subscriber as a result of the exercise of
non-transferable Subscription Rights to purchase shares of Holding Company
Common Stock or upon the lapse of such rights.
If it is subsequently established that the subscription rights
received by such persons have an ascertainable fair market value, or in the
case of employees, directors and officers are compensatory in nature, then, in
such event, the subscription rights will be taxable to the recipient in the
amount of their fair market value. In this regard, the subscription rights may
be taxed partially or entirely at ordinary income tax rates.
With respect to Illinois taxation, the Bank has received an opinion
from Crowe Chizek, to the effect that, assuming the Conversion does not result
in any federal taxable income, gain or loss to the Bank in its mutual or stock
form, the Holding Company, the account holders, borrowers, officers, directors
and employees and Tax-Qualified Employee Plans of the Bank, the Conversion
should not result in any Illinois income tax liability to such entities or
persons.
Unlike a private letter ruling, the opinions of Silver, Freedman &
Taff, L.L.P. and Crowe Chizek, as well as the Appraiser Letter, have no
binding effect or official status, and no assurance can be given that the
conclusions reached in any of those opinions would be sustained by a court if
contested by the IRS or the Illinois tax authorities.
Approval, Interpretation, Amendment and Termination
Under the Plan of Conversion, the letter from the OTS giving approval
thereto, and applicable regulations, consummation of the Conversion is subject
to the satisfaction of the following conditions: (a) approval of the Plan of
Conversion by members of the Bank casting at least a majority of the votes
eligible to be cast at the Special Meeting; (b) sale of all of the Common
Stock to be offered in the Conversion; and (c) receipt of favorable rulings or
opinions of counsel as to the federal and Illinois tax consequences of the
Conversion.
The Plan of Conversion may be substantively amended by the Boards of
Directors of the Bank and the Holding Company with the concurrence of the OTS.
If the Plan of Conversion is amended, proxies which have been received prior
to such amendment will not be resolicited unless otherwise required by the
OTS. Also, as required by the federal regulations, the Plan of Conversion
provides that the transactions contemplated thereby may be terminated by the
Board of Directors of the Bank alone at any time prior to the Special Meeting
and may be terminated by the Board of Directors of the Bank at any time
thereafter with the concurrence of the OTS, notwithstanding approval of the
Plan of Conversion by the members of the Bank at the Special Meeting. All
interpretations by the Bank and the Holding Company of the Plan of Conversion
and of the order forms and related materials for the Subscription Offering
will be final, except as regards or affects the OTS.
5
<PAGE>
Judicial Review
Section 5(i)(2)(B) of the Home Owners' Loan Act, as amended, 12
U.S.C. ss.1464(i)(2)(B) and Section 563b.8(u) of the Rules and Regulations
promulgated thereunder (12 C.F.R. Section 563b.8(u)) provide: (i) that persons
aggrieved by a final action of the OTS which approves, with or without
conditions, or disapproves a plan of conversion, may obtain review of such
final action only by filing a written petition in the United States Court of
Appeals for the circuit in which the principal office or residence of such
person is located, or in the United States Court of Appeals for the District
of Columbia, requesting that the final action of the OTS be modified,
terminated or set aside, and (ii) that such petition must be filed within 30
days after publication of notice of such final action in the Federal Register,
or 30 days after the date of mailing of the notice and proxy statement for the
meeting of the converting institution's members at which the conversion is to
be voted on, whichever is later. The notice of the Special Meeting of the
Bank's members to vote on the Plan of Conversion described herein is included
at the beginning of this Proxy Statement. The statute and regulation referred
to above should be consulted for further information.
ADDITIONAL INFORMATION
The information contained in the accompanying Prospectus, including a
more detailed description of the Plan of Conversion, consolidated financial
statements of the Bank and a description of the capitalization and business of
the Bank and the Holding Company, including the Bank's directors and executive
officers and their compensation, the anticipated use of the net proceeds from
the sale of the Common Stock and a description of the Common Stock, is
intended to help you evaluate the Conversion and is incorporated by this
reference.
YOUR VOTE IS VERY IMPORTANT TO US. PLEASE TAKE A MOMENT NOW TO
COMPLETE AND RETURN YOUR PROXY CARD IN THE POSTAGE-PAID ENVELOPE PROVIDED. YOU
MAY STILL ATTEND THE SPECIAL MEETING AND VOTE IN PERSON EVEN THOUGH YOU HAVE
VOTED YOUR PROXY. FAILURE TO SUBMIT A PROXY WILL HAVE THE SAME EFFECT AS
VOTING AGAINST THE CONVERSION.
If you have any questions, please call our Information Center at
(312) ___-____.
IMPORTANT: YOU MAY BE ENTITLED TO VOTE IN MORE THAN ONE CAPACITY.
PLEASE SIGN, DATE AND PROMPTLY RETURN EACH PROXY CARD YOU RECEIVE.
THIS PROXY STATEMENT IS NOT AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY STOCK. THE OFFER WILL BE MADE ONLY BY THE PROSPECTUS.
THE COMMON STOCK IS NOT A DEPOSIT OR ACCOUNT AND IS NOT FEDERALLY
INSURED OR GUARANTEED.
6
<PAGE>
FORM OF PROXY
-------------
REVOCABLE PROXY
PREFERRED SAVINGS BANK
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
PREFERRED SAVINGS BANK.
The undersigned member of Preferred Savings Bank of Chicago, Illinois
(the "Bank") hereby appoints the Board of Directors of the Bank as proxies to
cast all votes which the undersigned member is entitled to cast at a Special
Meeting of Members to be held at the Bank's office located at 4800 South
Pulaski Road, Chicago, Illinois 60631-4195, at the hour and date stated in the
Proxy Statement, and at any and all adjournments and postponements thereof,
and to act with respect to all votes that the undersigned would be entitled to
cast, if then personally present, in accordance with the instructions on the
reverse side hereof:
to vote FOR or AGAINST the adoption of the Plan of Conversion to
convert the Bank from a federally chartered mutual savings bank to a federally
chartered stock savings bank, including the adoption of a federal stock
savings bank charter and bylaws, with the simultaneous issuance of its common
stock to PS Financial, Inc.
This proxy will be voted as directed by the undersigned member.
UNLESS CONTRARY DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR ADOPTION OF
THE PLAN OF CONVERSION. In addition, this proxy will be voted at the
discretion of the Board of Directors upon any other matter as may properly
come before the Special Meeting.
The undersigned member may revoke this proxy at any time before it is
voted by delivering to the Secretary of the Bank either by a written
revocation of the proxy or a duly executed proxy bearing a later date, or by
appearing at the Special Meeting and voting in person. The undersigned member
hereby acknowledges receipt of the Notice of Special Meeting and Proxy
Statement.
(IMPORTANT: PLEASE VOTE, DATE AND SIGN ON REVERSE SIDE)
<PAGE>
PREFERRED SAVINGS BANK
Please Mark Votes Below
Approval of the Plan of Conversion
FOR / / AGAINST / /
DATE:__________________________, 1996
X ___________________________________
X ___________________________________
IMPORTANT: Please sign your name
exactly as it appears on this
proxy. Joint accounts need only
one signature. When signing as an
attorney, administrator, agent,
corporation, officer, executor,
trustee or guardian, etc., please
add your full title to your
signature.
NOTE: IF YOU RECEIVE MORE THAN ONE PROXY CARD, PLEASE SIGN AND
RETURN ALL CARDS IN THE ACCOMPANYING ENVELOPE.
<PAGE>
Exhibit 99.3
Stock Order Form, Order Form Instructions and Certification
<PAGE>
STOCK ORDER FORM & PS Financial, Inc.
CERTIFICATION FORM (Proposed Holding Company
for Preferred Savings Bank)
Note: Please read this Stock Order Form Guide and Instructions on the back of
this form before completion.
===============================================================================
Deadline
The Subscription and Community Offering ends at 0:00 p.m., Central time, XXXX
xx, 1996. Your Stock Order Form and Certification Form, properly executed and
with the correct payment, must be received at the address on the bottom of this
form by this deadline, or it will be considered void.
- -----------------------------------------------------------------------------
Number of Shares
<TABLE>
<CAPTION>
<S> <C> <C>
(1) Number of Shares Price Per Share (2) Total Amount Due
---------------------- ----------------------
| | | |
| | X $10.00 = | |
---------------------- ----------------------
</TABLE>
The minimum number of shares that may be subscribed for is 25 and the maximum
purchase is 15,000 shares in the Subscription Offering and Community Offering,
respectively. No person, together with associates of and persons acting in
concert with such person, may purchase more than 90,000 shares of the Common
Stock in the Subscription amd Community Offering. The price per share is based
upon a valuation that is subject to review prior to filling individual stock
orders.
- -----------------------------------------------------------------------------
Method of Payment
(3) | | (I authorize Preferred Savings Bank to make withdrawals from my
Preferred Savings Bank account(s) shown below, and understand that
the amounts will not otherwise be available for withdrawal:
(4) | | Enclosed is a check, bank draft or money order payable to PS
Financial, Inc. Company for $____________ (or cash if presented in
person.)
Account Number(s) Amount(s)
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| | |
-----------------------------------------------------------------------------
| | |
-----------------------------------------------------------------------------
| | |
-----------------------------------------------------------------------------
| | |
-----------------------------------------------------------------------------
| | |
-----------------------------------------------------------------------------
| | |
-----------------------------------------------------------------------------
| | |
-----------------------------------------------------------------------------
Total Withdrawal | |
--------------------
<PAGE>
Purchaser Information
(5) | | Check here if you are a director, officer or employee of Preferred
Savings Bank or a member of such person's immediate family.
| | Check here if you are a depositor or a borrower and enter below
information for all accounts you had at the Eligibility Record Date
(March 31, 1995), Supplemental Eligibility Record Date (September
30, 1996) or the Voting Record Date (XXXX xx, 1996). If additional
space is needed, please utilize the back of this form. Please confirm
account(s) by initializing here. ___________
Account Title (Names on Accounts) Account Number
------------------------------------------------------------------------
| | |
|---------------------------------------------| |
| | |
------------------------------------------------------------------------
| | |
|---------------------------------------------| |
| | |
------------------------------------------------------------------------
- -----------------------------------------------------------------------------
(6) Stock Registration
<TABLE>
<CAPTION>
Form of stock ownership
<S> <C> <C>
| | Individual | | Uniform Transfer to Minors | | Partnership
| | Joint Tenants | | Uniform Gift to Minors | | Individual Retirement Account
| | Tenants in Common | | Corporation | | Fiduciary/Trust (Under Agreement Dated ________)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
---------------------------------------------------------------------------------------------------------------------
|
(7) Name | Social Security or Tax ID
----------------------------------------------------------------|----------------------------------------------------
|
Name | Daytime Telephone
----------------------------------------------------------------|----------------------------------------------------
|
Street Address | Evening Telephone
----------------------------------------------------------------|----------------------------------------------------
|
City State Zip Code | County of Residence
---------------------------------------------------------------------------------------------------------------------
</TABLE>
- -----------------------------------------------------------------------------
NASD AFFILIATION (This section only applies to those individuals who meet the
delineated criteria).
| | Check here if you are a member of the National Association of Securities
Dealers, Inc. ("NASD"), a person associated with an NASD member, a member of the
immediate family of any such person to whose support such person contributes,
directly or indirectly, or the holder of an account in which an NASD member or
person associated with an NASD member has a beneficial interest. To comply with
conditions under which an exemption from the NASD's interpretation With Respect
to Free-Riding and Withholding is available, you agree, if you have checked the
NASD affiliation box: (i) not to sell, transfer or hypothecate the stock for a
period of 90 days following the issuance, and (ii) to report this subscription
in writing to the applicable NASD member within one day of the payment therefor.
- -----------------------------------------------------------------------------
ACKNOWLEDGMENT By signing below, I acknowledge receipt of the Prospectus dated
XXXX xx, 1996 and that I have reviewed all provisions therein and understand I
may not change or revoke my order once it is received by Preferred Savings Bank.
I also certify that this stock order is for my account and there is no agreement
or understanding regarding any further sale or transfer of these shares. Federal
regulations prohibit any persons from transferring, or entering into any
agreement directly or indirectly to transfer, the legal or beneficial ownership
of conversion subscription rights or the underlying securities to the account of
another person. Preferred Savings Bank will pursue any and all legal and
equitable remedies in the event it becomes aware of the transfer of subscription
rights and will not honor orders known by it to involve such transfer. Under
penalties of perjury, I further certify that: (1) the social security number or
taxpayer identification number given above is correct; and (2) I am not subject
to backup withholding. You must cross out his item, (2) above, if you have been
notified by the Internal Revenue Service that you are subject to backup
withholding because of underreporting interest or dividends on your tax return.
- -----------------------------------------------------------------------------
<PAGE>
SIGNATURE Sign and date this form. When purchasing as a custodian, corporate
officer, etc., include your full title. An additional signature is required only
if payment is withdrawal from an account that requires more than one signature
to withdraw funds. YOUR ORDER WILL BE FILLED IN ACCORDANCE WITH THE PROVISIONS
OF THE PROSPECTUS. THIS ORDER IS NOT VALID IF THE STOCK ORDER FORM AND
CERTIFICATION FORM ARE NOT BOTH SIGNED. If you need help completing this Form,
you may call the Stock Information Center at (312) XXX-XXXX.
------------------------------------------------------------------------
|Signature Title (if applicable) Date |
| |
| |
|-----------------------------------------------------------------------|
|Signature Title (if applicable) Date |
| |
| |
------------------------------------------------------------------------
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE SAVINGS ASSOCIATION
INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY.
- -------------------------------------------------------------------------------
Date Rec'd ___/___/____ Order # __________ Batch # _________
OFFICE USE Check # ____________ Category _________
Amount $ ____________ Initials _________
- -------------------------------------------------------------------------------
STOCK INFORMATION CENTER
4800 South Pulaski Road
Chicago, Illinois 60632-4195
(312) XXX-XXXX
<PAGE>
Item Instruction
- -------------------------------------------------------------------------------
Items I and 2- Fill in the number of shares that you wish to purchase and the
total payment due. The amount due is determined by multiplying the number of
shares by the subscription price of $10.00 per share. The minimum purchase is 25
shares. The maximum purchase amount in the Conversion by any person is 15,000
shares in the Subscription and Community Offering. No person, together with
associates of and persons acting in concert with such person, may purchase more
than 90,000 shares of the Common Stock in the Subscription Offering.
PS Financial, Inc. has reserved the right to reject the subscription of any
order received in the Community Offering, in whole or in part.
Item 3- Payment for shares may be made in cash (only if delivered by you in
person) or by check, bank draft or money order made payable to Midwest Savings
Bank. DO NOT MAIL CASH. If you choose to make a cash payment, take your Stock
Order Form, signed Certification Form and payment in person to Preferred Savings
Bank. Your funds will earn interest at Preferred Savings Bank's passbook rate,
currently xxx% per annum.
Item 4- To pay by withdrawal from a savings account or certificate at Preferred
Savings Bank, insert the account number(s) and the Amount(s) you wish to
withdraw from each account. If more than one signature is required to withdraw,
each must sign in the Signature box on the front of this form. To withdraw from
an account with checking privileges, please write a check. No early withdrawal
penalty will be charged on funds used to purchase our stock. A hold will be
placed on the account(s) for the amount(s) you show. Payments will remain in
certificate account(s) until the stock offering closes. However, if a partial
withdrawal reduces the balance of a certificate account to less than the
applicable minimum, the remaining balance will thereafter earn interest at the
passbook rate.
Item 5- Please check this box if you were a depositor on the Eligibility Record
Date (March 31, 1995), and/or a depositor on the Supplemental Eligibility Record
Date (September 30, 1996) or a depositor on the Voting Record Date (XXXX xx,
1996) and list all names on the account(s) and all account number(s) of those
accounts you had at these dates to ensure proper identification of your purchase
rights.
Items 6 and 7- The stock transfer industry has developed a uniform system of
shareholder registrations that we will use in the issuance of Midwest Savings
Bank common stock. Print the name(s) in which you want the stock registered and
the mailing address of the registration. Include the first name, middle initial
and last name of the shareholder. Avoid the use of two initials. Please omit
words that do not affect ownership rights, such as "Mrs.", "Mr.", "Dr."
"special account", etc.
Subscription rights are not transferable. If you are a qualified member, to
protect your priority over other purchasers as described in the Offering
Circular, you must take ownership in at least one of the account holder's name.
Enter the Social Security or Tax I.D. number of one registered owner. This
registered owner must be listed on the first "NAME" line. Be sure to include
your telephone number because we will need to contact you if we cannot execute
your order as given. Review the Stock Ownership Guide on this page and refer to
the instructions for Uniform Gift to Minors/Uniform Transfer to Minors and
Fiduciaries.
Account Title (Names on Accounts) Account Number
-----------------------------------------------------------------------
| | |
|---------------------------------------------| |
| | |
|-----------------------------------------------------------------------|
| | |
|---------------------------------------------| |
| | |
|-----------------------------------------------------------------------|
| | |
|---------------------------------------------| |
| | |
|-----------------------------------------------------------------------|
| | |
|---------------------------------------------| |
| | |
-----------------------------------------------------------------------
<PAGE>
Stock Ownership Guide
- -------------------------------------------------------------------------------
Individual- The Stock is to be registered in an individual's name only. You may
not list beneficiaries for this ownership.
Joint Tenants- Joint tenants with right of survivorship identifies two or more
owners. When stock is held by joint tenants with rights of survivorship,
ownership automatically passes to the surviving joint tenant(s) upon the death
of any joint tenant. You may not list beneficiaries for this ownership.
Tenants in Common- Tenants in common may also identify two or more owners. When
stock is to be held by tenants in common, upon the death of one co-tenant,
ownership of the stock will be held by the surviving co-tenant(s) and by the
heirs of the deceased co-tenant. All parties must agree to the transfer or sale
of shares held by tenants in common. You may not list beneficiaries for this
ownership.
Individual Retirement Account- Individual Retirement Account ("IRA") holders may
make stock purchases from their deposits through a prearranged
"trustee-to-trustee" transfer. Stock may only be held in a self-directed IRA.
The Midwest Savings Bank does not offer a self-directed IRA. Please contact the
Stock Information Center you have any questions about your IRA account or to
obtain a list of local brokers who will open a self-directed IRA, or check with
your broker. There will be no early withdrawal or IRS penalties incurred by
these transactions.
Uniform Gift to Minors- For residents of many state, stock may be held in the
name of a custodian for the benefit of a minor under the Uniform Transfer to
Minors Act. For residents in other states, stock may be held in a similar type
of ownership under the Uniform Gift to Minors Act of the Individual states. For
either ownership, the minor is the actual owner of the stock with the adult
custodian being responsible for the investment until the child reaches legal
age.
Instructions: See your legal advisor if you are unsure about the correct
registration of your stock.
On the first line, print the first name, middle initial and last name of the
custodian, with the abbreviation "CUST" after the name. Print the first name,
middle initial and last name of the minor on the second "NAME" line. Only one
custodian and one minor may be designated.
Corporation/Partnership- Corporations/Partnerships may purchase stock. Please
provide the Corporation/Partnership's legal name and Tax I.D. To have depositor
rights, the Corporation/Partnership must have an account in the legal name.
Please contact the stock Information Center to verify depositor rights and
purchase limitations.
Fiduciary/Trust- Generally, fiduciary relationships (such as Trusts, Estates,
Guardianships, etc.) are established under a form of trust agreement or are
pursuant to a court order. Without a legal document establishing a fiduciary
relationship, your stock may not be registered in a fiduciary capacity.
Instructions: On the first "NAME" line, print the first name, middle initial and
last name of the fiduciary if the fiduciary is an individual. If the fiduciary
is a corporation, list the corporate title on the first "NAME" line. Following
the name, print the fiduciary "title" such as trustee, executor, personal
representative, etc.
On the second "NAME" line, print either the name of the maker, donor or testator
OR the name of the beneficiary. Following the name, indicate the type of legal
document establishing the fiduciary relationship (agreement, court order, etc.).
In the blank after "Under Agreement Dated", fill in the date of the document
governing the relationship. The date of the document need not be provided for a
trust created by a will.
An example of fiduciary ownership of stock in the case of a trust is: John D.
Smith, Trustee for Thomas A. Smith Under Agreement Dated 06/09/87
Definition of Associate
- -------------------------------------------------------------------------------
The term "associate" of a person is defined to mean (i)any corporation or other
organization (other than the Primary Parties or a majority owned subsidiary of
the Bank) of which such person is a director, officer or partner or is directly
or indirectly the beneficial owner of 10% or more of any class of equity
securities; (ii)any trust or other estate in which such person has a substantial
beneficial interest or as to which such person serves a trustee or in a similar
fiduciary capacity, provided, however, that such term shall not include any
tax-qualified employee stock benefit plan to the Primary Parties 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 person, who either has the same home as such person or who
is a director or officer of the Primary Parties or any of their subsidiaries.
<PAGE>
CERTIFICATION FORM
(This Form Must Accompany A Signed Stock Order Form)
I ACKNOWLEDGE THAT THE SHARES OF COMMON STOCK, $0.01 PAR VALUE PER SHARE
("COMMON STOCK"), OF MIDWEST SAVINGS BANK ("MIDWEST SAVINGS") ARE NOT FEDERALLY
INSURED AND ARE NOT GUARANTEED BY, MIDWEST SAVINGS OR THE FEDERAL GOVERNMENT.
If anyone asserts that the shares of Common Stock are federally insured or
guaranteed, or are as safe as an insured deposit, I should call the Office of
Thrift Supervision Central Regional Director, Ronald N. Karr, at (312) 917-5000.
I further certify that, before purchasing the shares of Common Stock of Midwest
Savings, I received a copy of the Prospectus dated, XXXXX xx, 1996 which
discloses the nature of the shares of Common Stock being offered thereby and
describes the following risks involved in an investment in the Common Stock
under the heading "Risk Factors" beginning on page X of the Prospectus:
1. Limited Growth Potential; Difficulty in Fully Leveraging Capital
2. Interest Rate Risk Exposure
3. Competition
4. Disparity Between BIF and SAIF Insurance Premiums
5. Takeover Defensive Provisions
6. Post Conversion Overhead Expense
7. Regulatory Oversight
8. Risk of Delayed Offering
9. Absence of Market for the Common Stock
10. Possible Consequences of Amendment to Plan of Conversion
- -------------------------------- --------------------------------
Signature Signature
(Note: If stock is to be held jointly, both parties must sign)
Date:
-------------------
<PAGE>
(receipt of order letter - Preferred Savings Bank letterhead)
Date
Name
Address Tax I.D. Number XXX-XX-XXX
City, State, Zip
Receipt of Order
This letter is to acknowledge receipt of your order to purchase stock offered by
PS Financial, Inc. Please check the following information carefully to ensure
that we have entered your order correctly. Each order is assigned a prioritized
category described below. Acceptance of your order will be subject to the
allocation provisions of the Plan of Conversion, as well as other conditions and
limitations described in the Prospectus.
Our records indicate the following:
Number of Shares Ordered:
Purchase Price Per Share: $10.00
Total Order Amount: $_________
Date Order Received: / /
Category Assigned:
Category Description
1. Eligible Account Holders as of March 31, 1995
2. Employee Stock Ownership Plan (ESOP)
3. Supplemental Account Holders as of September 30, 1996
4. Other Members as of , 1996
5. Officers, Directors and Employees
6. General Public
If this does not agree with your records or if you have any questions, please
call our Stock Information Center at (312) _______________. Thank you for your
order.
Sincerely,
Kimberly P. Rooney
President and Chief Executive Officer
<PAGE>
Exhibit 99.4
Question and Answer Brochure
<PAGE>
- ------------------------------------------
STOCK OFFERING
QUESTIONS
AND ANSWERS
- ------------------------------------------
PS Financial, Inc.
THE SHARES OF COMMON STOCK BEING OFFERED
ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND
ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE BANK INSURANCE
FUND, THE SAVINGS ASSOCIATION INSURANCE
FUND OR ANY OTHER GOVERNMENTAL AGENCY.
THIS IS NOT AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY STOCK. THE
OFFER IS MADE ONLY BY THE PROSPECTUS.
<PAGE>
FACTS ABOUT CONVERSION
The Board of Directors of Preferred
Savings Bank ("Preferred Savings")
unanimously adopted a Plan of Conversion
(the "Conversion") to convert from a
federally chartered mutual savings bank
to a federally chartered stock savings
bank.
This brochure answers some of the most
frequently asked questions about the
Conversion and about your opportunity to
invest in PS Financial, Inc., (the
"Holding Company"), the newly formed
corporation that will serve as holding
company for Preferred Savings following
the conversion.
Investment in the stock of PSB Holding
Company involves certain risks. For a
discussion of these risks and other
factors, investors are urged to read the
accompanying Prospectus, especially the
discussion under the heading "Risk
Factors".
WHY IS PREFERRED SAVINGS CONVERTING TO
STOCK FORM?
- --------------------------------------
The stock form of ownership is used by
most business corporations and an
increasing number of savings
institutions. Through the sale of stock,
Preferred Savings will raise additional
capital enabling it to:
support and expand its current financial
and other services.
allow customers and friends to purchase
stock and share in the Holding Company's
and Preferred Savings' future.
<PAGE>
WILL THE CONVERSION AFFECT ANY OF MY
DEPOSIT ACCOUNTS OR LOANS?
- ------------------------------------
No. The Conversion will have no effect
on the balance or terms of any savings
account or loan, and your deposits will
continue to be federally insured by the
Federal Deposit Insurance Corporation
("FDIC") to the maximum legal limit.
Your savings account is not being
converted to stock.
WHO IS ELIGIBLE TO PURCHASE STOCK IN
THE SUBSCRIPTION AND COMMUNITY
OFFERINGS?
- ------------------------------------
Certain past and present depositors of
Preferred Savings, the Holding Company's
Employee Stock Ownership Plan and
members of the general public.
HOW MANY SHARES OF STOCK ARE BEING
OFFERED AND AT WHAT PRICE?
- ----------------------------------
PS Financial, Inc. is offering up to
000,000 shares of common stock, subject
to adjustment as described in the
Prospectus, at a price of $10.00 per
share through the Prospectus.
HOW MUCH STOCK MAY I BUY?
- -------------------------
The minimum order is 25 shares. No
person, together with associates of and
persons acting in concert with such
person, may purchase more than $900,000
of the common stock sold.
DO MEMBERS HAVE TO BUY STOCK?
- -----------------------------
No. However, the Conversion will allow
Preferred Savings' depositors an
opportunity to buy stock and become
charter shareholders of the holding
company for the local financial
institution with which they do
business.
<PAGE>
How Do I ORDER STOCK?
You must complete the enclosed Stock
Order Form and the Certification Form
Instructions for completing your Stock
Order Form and Certification Form are
contained in this packet. Your order
must be received by 0:00 p.m. on XXX XX,
1996.
HOW MAY I PAY FOR MY SHARES OF STOCK?
First, you may pay for stock by check,
cash or money order. Interest will be
paid by Preferred Savings on these funds
at the passbook rate, which is currently
0.00/o per annum, from the day the funds
are received until the completion or
termination of the Conversion. Second,
you may authorize us to withdrawal funds
from your Preferred Savings' savings
account or certificate of deposit for
the amount of funds you specify for
payment. You will not have access to
these funds from the day we receive your
order until completion or termination of
the Conversion.
CAN I PURCHASE SHARES USING FUNDS
IN MY PREFERRED SAVINGS IRA
ACCOUNT?
Federal regulations do not permit the
purchase of conversion stock from your
existing Preferred Savings IRA account.
To accommodate our depositors however,
we have made arrangements with an
outside trustee to allow such purchases.
Please call our Stock Information Center
for additional information.
<PAGE>
WILL THE STOCK BE INSURED?
No. Like any other common stock, the
Holding Company's stock will not be
insured.
WILL DIVIDENDS BE PAID ON THE STOCK?
The Board of Directors of the Holding
Company will consider whether to pay a
cash dividend in the future, subject to
regulatory limits and requirements. No
decision has been made as to the amount
or timing of such dividends, if any.
How WILL THE STOCK BE TRADED?
The Holding Company's stock will trade
on the Nasdaq National Market under the
symbol "XXXX". However, no assurance can
be given that an active and liquid
market will develop.
ARE OFFICERS AND DIRECTORS OF
PREFERRED SAVINGS PLANNING TO
PURCHASE STOCK?
Yes! Preferred Savings' officers and
directors plan to purchase, in the
aggregate, $000,000 worth of stock or
approximately 0.00 % of the stock
offered at the midpoint of the offering
range.
MUST I PAY A COMMSSION?
No. You will not be charged a commission
or fee on the purchase of shares in the
Conversion.
SHOULD I VOTE?
Yes. Your "YES' vote is very important!
PLEASE V0TE, SIGN AND RETURN ALL
PROXYCARDS!
<PAGE>
WHY DID I GET SEVERAL PROXY CARDS?
If you have more than one account, you
could receive more than one proxy card,
depending on the ownership structure of
your accounts.
How MANY VOTES Do I HAVE?
Your proxy card(s) show(s) the number of
votes you have. Every depositor entitled
to vote may cast one vote for each $
1,000, or fraction thereof, on deposit
as of the voting record date.
MAY I VOTE IN PERSON AT THE SPECIAL
MEETING?
Yes, but we would still like you to sign
and mail your proxy today. If you decide
to revoke your proxy you may do so by
giving notice at the special meeting.
FOR ADDITIONAL INFORMATION YOU MAY CALL
OUR STOCK INFORMATION CENTER BETWEEN
9:00 A.M. AND 5:00 P.M. MONDAY, TUESDAY
AND THURSDAY AND FRIDAY BETWEEN 9:00
A.M. AND 8:00 P.M.
STOCK IONFORMATION
CENTER (342) XXX-XXXX
PSB Holding Company
4800 South Pulaski Road
Chicago. Illinois 60632-4195
Phone: (312) 376-3800
Fax: (312) 376-8222
<PAGE>
Exhibit 99.5
Advertising, Training and Community
Informational Meeting Materials
<PAGE>
XXXX xx, 1996
Dear Member:
We are pleased to announce that Preferred Savings Bank ("Preferred
Savings") is converting from a federally chartered mutual savings bank to a
federally chartered stock savings bank (the "Conversion"). In conjunction with
the Conversion, PS Financial, Inc., the newly-formed corporation that will
serve as holding company for Preferred Savings, is offering shares of common
stock in a subscription offering and community offering to certain of our
depositors, to our Employee Stock Ownership Plan and some members of the general
public pursuant to a Plan of Conversion.
To accomplish this Conversion, we need your participation in an
important vote. Enclosed is a proxy statement describing the Plan of Conversion
and your voting and subscription rights. Preferred Savings Bank's Plan of
Conversion has been approved by the Federal Deposit Insurance Corporation and
now must be approved by you. YOUR VOTE IS VERY IMPORTANT.
Enclosed, as part of the proxy material, is your proxy card located
behind the window of your mailing envelope. This proxy should be signed and
returned to us prior to the Special Meeting scheduled for XXXX xx, 1996. Please
take a moment to sign the enclosed proxy card and return it to us in the
postage-paid envelope provided. FAILURE TO VOTE HAS THE SAME EFFECT AS VOTING
AGAINST THE CONVERSION.
The Board of Directors of Preferred Savings feels that the Conversion
will offer a number of advantages, such as an opportunity for depositors and
customers of Preferred Savings to become shareholders. Please remember:
* Your accounts at Preferred Savings will continue to be insured up to the
maximum legal limit by the Federal Deposit Insurance Corporation
("FDIC").
* There will be no change in the balance, interest rate, or maturity of
any deposit accounts because of the Conversion.
* Members have a right, but no obligation, to buy stock before it is
offered to the public.
* Like all stock, stock issued in this offering will not be insured by
the FDIC.
Enclosed are materials describing the stock offering. We urge you to
read these materials carefully. If you are interested in purchasing the common
stock of PS Financial, Inc., you must submit your Stock Order Form,
Certification Form, and payment prior to 0:00 p.m. XXXX xx, 1996.
If you have additional questions regarding the stock offering, please
call us at (312) 000-0000, Monday, Tuesday and Thursday from 9:00 am. to 5:00
p.m. or Friday from 9:00 a.m. to 8:00 p.m., or stop by the Stock Information
Center located at 4800 South Pulaski Road in Chicago.
Sincerely,
Kimberly P. Rooney
President and Chief Executive Officer
THE SHARES OF COMMON STOCK BEING OFFERED IN THIS OFFERING ARE NOT SAVINGS
ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE BANK INSURANCE FUND OR THE SAVINGS ASSOCIATION INSURANCE FUND
OR ANY OTHER GOVERNMENT AGENCY. THIS IS NOT AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY STOCK. THE OFFER WILL BE MADE ONLY BY THE PROSPECTUS.
<PAGE>
XXXX xx, 1996
Dear Member:
We are pleased to announce that Preferred Savings Bank ("Preferred
Savings") is converting from a federally chartered mutual savings bank to a
federally chartered stock savings bank (the "Conversion"). In conjunction with
the Conversion, PS Financial, Inc., the newly-formed corporation that will
serves as holding company for Preferred Savings, is offering shares of common
stock in a subscription offering and community offering.
Unfortunately, PS Financial, Inc. is unable to either offer or sell
its common stock to you because the small number of eligible subscribers in
your jurisdiction makes registration or qualification of the common stock
under the securities laws of your jurisdiction impractical, for reasons of
cost or otherwise. Accordingly, this letter should not be considered an offer
to sell or a solicitation of an offer to buy the common stock of PS Financial,
Inc.
However, as a member of Preferred Savings, you have the right to vote
on the Plan of Conversion at the Special Meeting of Members to be held on XXXX
xx, 1996. Therefore, enclosed is a proxy card, a Proxy Statement (which
includes the Notice of the Special Meeting), Prospectus (which contains
information incorporated into the Proxy Statement) and a return envelope for
your proxy card.
I invite you to attend the Special Meeting on XXXX xx, 1996. However,
whether or not you are able to attend, please complete the enclosed proxy card
and return it in the enclosed envelope.
Sincerely,
Kimberly P. Rooney
President and Chief Executive Officer
<PAGE>
XXXX xx, 1996
Dear Friend:
We are pleased to announce that Preferred Savings Bank, ("Preferred
Savings") is converting from a federally chartered mutual savings bank to a
federally chartered stock savings bank (the "Conversion"). In conjunction with
the Conversion, PS Financial, Inc., the newly-formed corporation that will
serve as holding company for Preferred Savings, is offering shares of common
stock in a subscription offering and community offering. The sale of stock in
connection with the Conversion will enable Preferred Savings to raise
additional capital to support and enhance its current operations.
Because we believe you may be interested in learning more about the
merits of PS Financial, Inc.'s stock as an investment, we are sending you the
following materials which describe the stock offering.
PROSPECTUS: This document provides detailed information about
operations at Preferred Savings and the proposed stock offering.
QUESTIONS AND ANSWERS: Key questions and answers about the stock
offering are found in this pamphlet.
STOCK ORDER AND CERTIFICATION FORM: This form is used to purchase
stock by signing and returning it with your payment in the enclosed
business reply envelope. The deadline for ordering stock is 0:00
p.m., XXXX xx, 1996.
As a friend of Preferred Savings, you will have the opportunity to
buy stock directly from PS Financial, Inc. in the Conversion without
commission or fee. If you have additional questions regarding the Conversion
and stock offering, please call us at (312) 000-0000, Monday, Tuesday and
Thursday from 9:00 a.m. to 5:00 p.m. and Friday from 9:00 a.m. to 8:00 p.m. or
stop by the Stock Information Center at 4800 South Pulaski Road in Chicago.
We are pleased to offer you this opportunity to become a charter
shareholder of PS Financial, Inc.
Sincerely,
Kimberly P. Rooney
President and Chief Executive Officer
THE SHARES OF COMMON STOCK BEING OFFERED ARE NOT SAVINGS ACCOUNTS OR DEPOSITS
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK
INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER
GOVERNMENTAL AGENCY. THIS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS.
<PAGE>
[Closing Letter PSB Holding Company Letterhead]
_________, 1996
Dear Subscriber,
I want to thank you for your interest in PS Financial, Inc. common shares. We
are extremely proud of the overwhelming support we received from our customers
and the community as we successfully completed the sale of xxx,xxx shares of
common stock.
As you purchased your shares with a check or cash, we are enclosing a check
for payment of the interest on those funds. Your stock certificate(s) are
being mailed directly to you from our Transfer Agent, XXXXXXXX.
Again, thank you for your interest. If you have any questions, please do not
hesitate to contact me.
Sincerely,
Kimberly P. Rooney
President and Chief Executive officer
<PAGE>
(Oversubscription Letter- check, PSB Holding Company Letterhead]
_________, 1996
Dear Subscriber:
I want to thank you for your interest in PS Financial, Inc. common shares. We
are extremely proud of the overwhelming support we received from our customers
and the community as we successfully completed the sale of xxx,xxx shares of
common stock.
However, due to the oversubscription of our common shares during the
Subscription Offering, we regret we were unable to fill a portion of your
order. Enclosed is a refund check for the amount of your order we were unable
to fill plus interest. The stock certificates for the balance of your order
are being sent to you directly from our transfer agent, XXXXXXX.
If you continue to be interested in acquiring common shares of PS Financial,
Inc., the following brokerage firms have indicated their intent to make a
market in our stock. You may contact any of them for assistance.
[List of Market Makers]
Again, thank you for your interest. If you have any questions, please do not
hesitate to contact me.
Sincerely,
Kimberly P. Rooney
President and Chief Executive Officer
<PAGE>
[Closing Letter, PS Financial, Inc. Letterhead]
XXXX xx, 1996
Dear Shareholder:
It is my pleasure to welcome you as a shareholder of Preferred Savings Bank.
We are extremely proud of the overwhelming support we received from our
customers and the community as we successfully completed the sale of 000,000
common shares.
Your new Stock certificate is enclosed and should be kept in a safe place.
Please take a moment to be sure that the name(s), number of shares, and
mailing address are correct.
We have selected (Name of Transfer Agent) to serve as our Transfer Agent and
Registrar. If there is an error on your stock certificate, if your address
changes, or if at any time you want to change the registration of your
certificate, you should contact (Name of Transfer Agent) at the address listed
below:
[Transfer Agent]
If the original certificate must be forwarded to the Transfer Agent to be
reissued, the certificate should be sent registered mail. Lost or destroyed
certificates can be replaced, but an indemnity bond will be required to
replace the certificate.
Please be advised that Preferred Savings Bank will trade NASDAQ-NMS under the
symbol "XXXX". Should you be interested in purchasing additional shares or
selling your shares of Preferred Savings Bank, the following brokerage firms
have indicated their intent to make a market in our stock. You may contact any
of them for assistance.
[List of Market Makers]
If you purchased your shares with a check or cash, you will receive a check
for payment of the interest earned on those funds in a separate mailing.
On behalf of Preferred Savings Bank and the Board of Directors and Employees
of Preferred Savings Bank, we look forward to the opportunities now ahead of
us and pledge our best efforts to make your investment a profitable one.
Sincerely,
Kimberly P. Rooney
President and Chief Executive Officer
<PAGE>
STOCK GRAM
We are pleased to announce that Preferred Savings Bank, ("Preferred Savings")
is offering shares of common stock in a subscription and community Offering.
The sale of stock in connection with the offering will enable Preferred
Savings to raise additional capital to support and enhance its current
franchise.
We previously mailed to you a Prospectus providing detailed information about
Preferred Savings' operations and the proposed stock offering. We urge you to
read this carefully.
We invite our loyal customers and community members to become shareholders of
PS Financial, Inc. (the proposed Holding Company for Preferred Savings Bank).
If you are interested in purchasing the common stock of PSB Holding Company,
you must submit you Stock Order and Certification Form and payment prior to
0:00 p.m., Central Time, on XXXX xx, 1996.
Should you have additional questions regarding the stock offering or need
additional materials, please call the Stock Information Center at (312)
000-0000 or stop by the Stock Information Center at 4800 South Pulaski Road in
Chicago.
The shares of common stock being offered are not savings accounts or deposits
and are not insured by the Federal Deposit Insurance Corporation, the Bank
Insurance Fund or any other governmental agency. This is not an offer to sell
or a solicitation of an offer to buy stock. The offer is made only by the
Prospectus.
<PAGE>
- ------------------------------------------------------------------------------
PS Financial, Inc.
the holding company for
Preferred Savings Bank
Become a Charter Shareholder!
- ------------------------------------------------------------------------------
<PAGE>
Capital Requirements
50.0%
45.0% 45.2%
40.0%
35.0%
30.0%
25.0% 21.9% 21.7%
20.0%
15.0%
10.0% 8.0%
5.0% 3.0%
0.0% 1.5%
--------------------------------------------------------
Tangible Core Risk-
Capital Capital Based
Capital
/ / Required / / 6/3O/96 / / Pro Forma*
At XXXX xx, 1996 Preferred Savings Bank
exceeded each of the three capital requirements.
*Assumes the sale of 1,650,000 shares and retention of 5O%
of the net conversion proceeds by the Holding Company
===============================================================================
Return on Average Assets
Preferred Savings Bank has been successful in
maintaining a high return on average assets. The
average return on assets for the last five years was
1.86%.
0.200%
1.74% 1.95% 1.46% 1.99% 2.16%
0.180%
0.160%
0.140%
0.120%
0.100%
0.080%
0.060%
0.040%
0.020%
0.000%
---------------------------------------------------------------------
2/29/92 2/28/93 12/31/94 12/31/95 6/30/96
<PAGE>
===============================================================================
Loan Portfolio
One to four-
family
71.8%
Other
0.7%
Construction
real estate
9.4%
Multi-family
18.1%
At December 31, 1995
The primary emphasis of the Bank's lending
activity is the origination of loans secured by first
mortgages on one- to four-family residential
properties. In addition, the Bank has historically
originated multi-family residential loans, non
residential real estate loans, and a minor amount
of residential construction loans and non-
mortgage loans.
<PAGE>
PRO FORMA DATA*
At or For the Year Ended XXXY, xx 1996
<TABLE>
<CAPTION>
MINIMUM MIDPOINT MAXIMUM MAXIMUM
OF RANGE OF RANGE OF RANGE OF RANGE (adj.)
===================================================================================================================================
<S> <C> <C> <C> <C>
Shares Outstanding
Sale Price Per Share
Gross Proceeds
Pro Forma
Stockholders' Equity
Stockholders' Equity per Share
Price/Book Ratio (a)
Earnings Per Common Share
Price/Earnings Ratio (a)
===================================================================================================================================
</TABLE>
* Information based upon assumptions in the Prospectus under "Pro Forma Data"
(a) This is not intended to represent potential price appreciation. There are
no assurances that the market price will be at or above the offering price
once the shares are issued.
SELECTED FINANCIAL RATIOS
<TABLE>
<CAPTION>
Year Ended
December 31, Year Ended Year Ended
x Months Ended ------------------ February 28, February 29,
XXXX xx, 1996 1995 1994 1993 1992
=========================================================================================================================
<S> <C> <C> <C> <C> <C>
Return on average assets 1.99% 1.46% 1.96% 1.74%
Return on average equity 9.42% 7.53% 11.82% 11.22%
Average Interest rate spread 4.26% 4.38% 3.96% 2.58%
Equity to assets 21.91% 20.36% 17.72% 16.99%
Nonperforming assets to 3.92% 2.58% 1.68% 1.80%
total assets at end of period
Allowance for loan losses to 0.39% 0.41% 0.20% 0.14%
total loans at end of period
=========================================================================================================================
</TABLE>
The shares of common stock offered in the Conversion are not savings accounts or
deposits and are not insured by the Federal Deposit Insurance Corporation, the
Bank Insurance Fund, the Savings Association Insurance Fund, or any other
governmental agency. This is not an offer to sell or solicitation of an offer to
buy stock. The offer is made by the Prospectus.
<PAGE>
Stock Information Center
4800 South Pulaski Road
Chicago, Illinois 60632-4195
(312) 000-0000
<PAGE>
PROXY GRAM
We recently forwarded to you a proxy statement and related materials regarding
a proposal to convert Preferred Savings Bank from a federally chartered mutual
savings bank to a federally chartered stock savings bank.
Your vote on our Plan of Conversion has not yet been received. Failure to Vote
has the Same Effect as Voting Against the Conversion.
Your vote is important to us, and we, therefore, are requesting that you sign
the enclosed proxy card and return it promptly in the enclosed postage-paid
envelope.
Voting for the Conversion does not obligate you to purchase stock or affect
the terms or insurance on your accounts.
The Board of Directors unanimously recommend you vote "FOR" the Conversion.
PREFERRED SAVINGS BANK
Chicago, Illinois
Kimberly P. Rooney
President and Chief Executive Officer
If you mailed the proxy, please accept our thanks and disregard this request.
For further information call (312) 000-0000.
- -------------------------------------------------------------------------------
The shares of common stock being offered are not savings accounts or deposits
and are not insured by the Federal Deposit Insurance Corporation, the Bank
Insurance Fund or any other governmental agency. This is not an offer to sell
or a solicitation of an offer to buy stock. The offer is made only by the
Prospectus.
<PAGE>
LOGO LOGO
Charles Webb & Company
A Division of
KEEFE, BRUYETTE & WOODS, INC.
Investment Bankers and Financial Advisors
To Members and Friends of
Preferred Savings Bank
- ------------------------------------------------------------------------------
Charles Webb & Company, a member of the National Association of Securities
Dealers, Inc. ("NASD"), is assisting The Preferred Savings Bank ("Preferred
Savings") in its conversion from an Ohio mutual savings bank to an Ohio
capital stock savings bank and the concurrent offering of shares of common
stock by PS Financial, Inc. (the "Holding Company"), the newly formed
corporation that will serve as holding company for Preferred Savings following
the conversion.
At the request of the Holding Company, we are enclosing materials explaining
this process and your options, including an opportunity to invest in shares of
the Holding Company's common stock being offered to customers and the
community through XXXX xx, 1996. Please read the enclosed offering materials
carefully. The Holding Company has asked us to forward these documents to you
in view of certain requirements of the securities laws in your state.
If you have any questions, please visit our Stock Information Center at 4800
South Pulaski Road, Chicago, Illinois or feel free to call the Stock
Information Center at (312) 000-0000.
Very truly yours,
Charles Webb & Company
<PAGE>
Exhibit 99.6
Letter Agreement regarding Appraisal Services
and Business Plan Preparation
<PAGE>
KELLER & COMPANY, INC.
555 METRO PLACE NORTH
SUITE 524
DUBLIN, OHIO 43017
(614) 766-1426
(614) 766-1459 FAX
May 16, 1996
The Board of Directors
Preferred Savings Bank
4800 S. Pulaski Road
Chicago, IL 60632
Re: Conversion Valuation Agreement
Attn: Kim P. Rooney, President
Keller & Company, Inc. (hereinafter referred to as KELLER) hereby
proposes to prepare an independent conversion appraisal of Preferred Savings
Bank, Chicago, Illinois (hereinafter referred to as PREFERRED), relating to
the conversion of PREFERRED from a mutual to a stock institution. KELLER will
provide a pro forma valuation of the market value of the shares to be sold in
the proposed conversion of PREFERRED.
KELLER is a financial consulting firm that primarily serves the
financial institution industry. KELLER is experienced in evaluating and
appraising thrift institutions and thrift institution holding companies.
KELLER is an experienced conversion appraiser for filings with the Federal
Deposit Insurance Corporation ("FDIC") and the Office of Thrift Supervision
("OTS"), and is also approved by the Internal Revenue Service as an expert in
thrift stock valuations.
KELLER agrees to prepare the conversion appraisal in the format
required by the OTS in a timely manner for prompt filing with the OTS and the
Securities and Exchange Commission. KELLER will provide any additional
information as requested and will complete appraisal updates in accordance
with regulatory requirements.
1
<PAGE>
The appraisal report will provide a detailed description of
PREFERRED, including its financial condition, operating performance, asset
quality, rate sensitivity position, liquidity level and management
qualifications. The appraisal will include a description of PREFERRED's market
area, including both economic and demographic characteristics and trends. An
analysis of other publicly-traded thrift institutions will be performed to
determine a comparable group and adjustments to the appraised value will be
made based on a comparison of PREFERRED with the comparable group.
In making its appraisal, KELLER will rely upon the information in the
Subscription and Community Offering Circular (Prospectus), including the
financial statements. Among other factors, KELLER will also consider the
following: the present and projected operating results and financial condition
of PREFERRED; the economic and demographic conditions in PREFERRED's existing
marketing area; pertinent historical financial and other information relating
to PREFERRED; a comparative evaluation of the operating and financial
statistics of PREFERRED with those of other thrift institutions; the proposed
price per share; the aggregate size of the offering of Common Stock; the
impact of the Conversion on PREFERRED's capital position and earnings
potential; PREFERRED's proposed dividend policy; and the trading market for
securities of comparable institutions and general conditions in the market for
such securities. In preparing the appraisal, KELLER will rely solely upon, and
assume the accuracy and completeness of, financial and statistical information
provided by PREFERRED, and will not independently value the assets or
liabilities of PREFERRED in order to prepare the appraisal.
Upon completion of the conversion appraisal, KELLER will make a
presentation to the Board of Directors of PREFERRED to review the content of
the appraisal, the format and the assumptions. A written presentation will be
provided to each board member.
For its services in making this appraisal, KELLER's fee will be a fee
of $15,000, plus out-of-pocket expenses for travel and copying and binding not
to exceed $500. The appraisal fee will include the preparation of two
valuation updates. All additional valuation updates will be subject to an
additional fee of $1,000 each. Upon the acceptance of this proposal, KELLER
shall be paid a retainer of $3,000 to be applied to the total appraisal fee of
$15,000, the balance of which will be payable at the time of the completion of
the appraisal.
PREFERRED agrees, by the acceptance of this proposal, to indemnify
KELLER and its employees and affiliates for certain costs and expenses,
including reasonable legal fees, in connection with claims or litigation
relating to the appraisal and arising out of any misstatement or untrue
statement of a material fact in information supplied to KELLER by PREFERRED or
by an intentional omission by PREFERRED to state a material fact in the
information so provided, accept where KELLER has been negligent or at fault.
2
<PAGE>
This proposal will be considered accepted upon the execution of the
two enclosed copies of this agreement and the return of one executed copy to
KELLER, accompanied by the specified retainer.
KELLER & COMPANY, INC.
By: /s/ Michael R. Keller
----------------------------
Michael R. Keller
President
PREFERRED SAVINGS BANK
By: /s/ Kim P. Rooney
----------------------------
Kim P. Rooney
President
Date: 5-31-96
--------------------------
3
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 AND
FOR THE INTERIM PERIOD ENDED MAY 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAY-31-1996
<CASH> 362
<INT-BEARING-DEPOSITS> 2,768
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 14,942
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 35,888
<ALLOWANCE> 186
<TOTAL-ASSETS> 54,853
<DEPOSITS> 41,945
<SHORT-TERM> 0
<LIABILITIES-OTHER> 879
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 12,029
<TOTAL-LIABILITIES-AND-EQUITY> 54,853
<INTEREST-LOAN> 1,377
<INTEREST-INVEST> 404
<INTEREST-OTHER> 72
<INTEREST-TOTAL> 1,853
<INTEREST-DEPOSIT> 725
<INTEREST-EXPENSE> 725
<INTEREST-INCOME-NET> 1,128
<LOAN-LOSSES> 50
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 353
<INCOME-PRETAX> 752
<INCOME-PRE-EXTRAORDINARY> 752
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 440
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 5.09
<LOANS-NON> 584
<LOANS-PAST> 16
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 136
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 186
<ALLOWANCE-DOMESTIC> 52
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 134
</TABLE>
