<PAGE>
As filed with the Securities and Exchange Commission on September 27, 1996
Registration No. 333-________
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
FIRSTFED AMERICA BANCORP, INC.
First Federal Savings Bank of America Thrift Plan
(exact name of registrant as specified in its certificate of incorporation)
DELAWARE 6035 Being applied for
(state or other (Primary Standard (IRS Employer
jurisdiction of Classification Code Identification No.)
incorporation or Number)
organization)
One North Main Street
Fall River, Massachusetts 02720
(508) 679-8181
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Robert F. Stoico
President and Chief Executive Officer
First Federal Savings Bank of America
One North Main Street
Fall River, Massachusetts 02720
(508) 679-8181
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Douglas P. Faucette, Esquire
Lori M. Beresford, Esquire
Lawrence M.F. Spaccasi, Esquire
Kent M. Krudys, Esquire
Muldoon, Murphy & Faucette
5101 Wisconsin Avenue, N.W.
Washington, D.C. 20016
(202) 362-0840
Approximate date of commencement of proposed sale to public: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. / X /
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<TABLE>
<CAPTION>
=================================================================================
| Amount to | Purchase | Aggregate |
Title of each Class of | be | Price | Offering | Registration
Securities to be Registered | Registered | Per Share | Price(1) | Fee
- ---------------------------------------------------------------------------------
<S> | <C> | <C> | <C> | <C>
Common Stock | 8,712,630 | | |
$.01 par Value | Shares | $10.00 | $87,126,300 | $30,044
- ---------------------------------------------------------------------------------
| 321,260 | | |
Participation Interests | Shares | -- | -- | (2)
=================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) The securities of FIRSTFED AMERICA BANCORP, INC. to be purchased by the
First Federal Savings Bank of America Thrift Plan are included in the
amount shown for Common Stock. Accordingly, no separate fee is required for
the participation interests. In accordance with Rule 457(h) of the
Securities Act of 1933, as amended, the registration fee has been
calculated on the basis of the number of shares of Common Stock that may be
purchased with the current assets of such Plan.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
<PAGE>
FIRSTFED AMERICA BANCORP, INC.
Cross Reference Sheet Showing Location in the Subscription and Community
Offering Prospectus ("Prospectus") of Information Required by Items of Form S-l:
<TABLE>
<CAPTION>
Registration Statement
Item and Caption Prospectus Headings
---------------------------- -------------------
<S> <C>
l. Forepart of the Registration Front Cover Page
Statement and Outside Front
Cover Page of Prospectus
2. Inside Front and Outside Inside Front and Outside Back Cover Pages
Back Cover Page of
Prospectus
3. Summary Information, Risk Summary; Risk Factors
Factors and Ratio of
Earnings to Fixed Charges
4. Use of Proceeds Use of Proceeds
5. Determination of Offering The Conversion-- Stock Pricing
Price
6. Dilution Not Applicable
7. Selling Security Holders Not Applicable
8. Plan of Distribution Front Cover Page; The Conversion --
Subscription Offering and Subscription
Rights; --Community Offering;
--Syndicated Community Offering
9. Description of Securities The Conversion -- Certain Restrictions on
to be Registered Purchases or Transfer of Shares After
Conversion; Restrictions on Acquisition
of the Company and the Bank; Description
of the Capital Stock of the Company;
Description of the Capital Stock of the
Bank
10. Interests of Named Experts Not Applicable
and Counsel
11. Information with Respect Front Cover Page; FIRSTFED AMERICA
to the Registrant BANCORP, INC.; First Federal Savings
Bank of America; Dividend Policy;
Consolidated Statements of Income;
Management's Discussion and Analysis
of Financial Condition and Results of
Operations of the Bank; Business of the
Bank; Regulation; Management of the
Company; Management of the Bank; The
Conversion; Description of the Capital
Stock of the Company; Description of the
Capital Stock of the Bank; Financial
Statements
12. Disclosure of Commission Not Applicable
Position on Indemnification
for Securities Act Liabilities
</TABLE>
<PAGE>
PROSPECTUS SUPPLEMENT
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FIRSTFED AMERICA BANCORP, INC.
FIRST FEDERAL SAVINGS BANK OF AMERICA
EMPLOYEES SAVINGS AND PROFIT SHARING PLAN AND TRUST
This Prospectus Supplement relates to the offer and sale to participants
(the "Participants") in the First Federal Savings Bank of America Profit Sharing
and Savings Plan (the "Plan" or the "401(a) Plan") of participation interests
and shares of FIRSTFED AMERICA BANCORP, INC. common stock, par value $.01 per
share (the "Common Stock"), as set forth herein.
In connection with the proposed conversion of First Federal Savings Bank of
America (the "Bank" or "Employer") from a mutual savings bank to a stock savings
bank, a holding company, FIRSTFED AMERICA BANCORP, INC. (the "Company"), has
been formed. The simultaneous conversion of the Bank to the stock form, the
issuance of the Bank's common stock to the Company and the offer and sale of the
Company's Common Stock to the public are herein referred to as the "Conversion."
The Board of Directors of the Bank has adopted the Pentegra Services, Inc.
Employees' Savings and Profit Sharing Plan and Trust which permits the
investment of Plan assets in Common Stock. The Plan will permit Participants to
direct the trustee of the Plan to purchase Common Stock with amounts in the Plan
attributable to such Participants. This Prospectus Supplement relates to the
initial election of a Participant to direct the purchase of Common Stock in
connection with the Conversion and also to elections to purchase Common Stock
after the Conversion.
The Prospectus dated _________________, 1996 of the Company (the
"Prospectus") which is attached to this Prospectus Supplement, includes detailed
information with respect to the Conversion, the Common Stock and the financial
condition, results of operation and business of the Bank and the Company. This
Prospectus Supplement, which provides detailed information with respect to the
Plan, should be read only in conjunction with the Prospectus. Terms not
otherwise defined in this Prospectus Supplement are defined in the Plan or the
Prospectus.
A PARTICIPANT'S ELIGIBILITY TO PURCHASE COMMON STOCK IN THE CONVERSION
THROUGH THE PLAN IS SUBJECT TO THE PARTICIPANT'S GENERAL ELIGIBILITY TO PURCHASE
SHARES OF COMMON STOCK IN THE CONVERSION AND THE MAXIMUM AND MINIMUM PURCHASE
LIMITATIONS SET FORTH IN THE PLAN OF CONVERSION. SEE "THE CONVERSION" AND
"LIMITATIONS ON COMMON STOCK PURCHASES" IN THE PROSPECTUS.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY EACH
PARTICIPANT, SEE "RISK FACTORS" ON PAGES __ TO __ IN THE PROSPECTUS.
<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION, THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY STATE SECURITIES COMMISSION, OR ANY OTHER AGENCY,
NOR HAS SUCH COMMISSION, DEPARTMENT, CORPORATION OR ANY STATE SECURITIES
COMMISSION OR OTHER AGENCY PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS _________, 1996.
2
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THE PROSPECTUS OR THIS PROSPECTUS
SUPPLEMENT IN CONNECTION WITH THE OFFERING MADE HEREBY, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, BANK OR THE PLAN. THIS PROSPECTUS SUPPLEMENT DOES
NOT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER
ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE BANK OR THE PLAN SINCE THE DATE HEREOF, OR THAT THE INFORMATION
HEREIN CONTAINED OR INCORPORATED BY REFERENCE IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF. THIS PROSPECTUS SUPPLEMENT SHOULD BE READ ONLY
IN CONJUNCTION WITH THE PROSPECTUS THAT IS ATTACHED HERETO AND SHOULD BE
RETAINED FOR FUTURE REFERENCE.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
The Offering...................................... 5
Securities Offered.............................. 5
Election to Purchase Common Stock in the
Conversion................................... 5
Value of Participation Interests................ 5
Method of Directing Transfer.................... 5
Time for Directing Transfer..................... 6
Irrevocability of Transfer Direction............ 6
Direction to Purchase Common Stock
After the Conversion......................... 6
Purchase Price of Common Stock.................. 6
Nature of a Participant's Interest in the
Common Stock................................. 7
Voting and Tender Rights of Common Stock........ 7
Description of the Plan........................... 7
Introduction.................................... 7
Eligibility and Participation................... 8
Contributions under the Plan.................... 9
Limitations on Contributions.................... 9
Investment of Contributions..................... 12
Benefits Under the Plan......................... 16
Withdrawals and Distributions From the Plan..... 16
Administration of the Plan...................... 17
Reports to Plan Participants.................... 18
Plan Administrator.............................. 18
Amendment and Termination....................... 18
Merger, Consolidation or Transfer............... 18
Federal Income Tax Consequences................. 19
ERISA and Other Qualifications.................. 21
Restrictions on Resale.......................... 22
SEC Reporting and Short-Swing Profit Liability.. 23
Legal Opinions.................................... 24
Investment Form................................... 25
</TABLE>
4
<PAGE>
THE OFFERING
SECURITIES OFFERED
The securities offered hereby are participation interests in the Plan and
up to [130,000] shares, at the actual purchase price of $10.00 per share, of
Common Stock which may be acquired by the Plan for the accounts of employees
participating in the Plan. The Company is the issuer of the Common Stock. Only
employees of the Bank may participate in the Plan. Information with regard to
the Plan is contained in this Prospectus Supplement and information with regard
to the Conversion and the financial condition, results of operations and
business of the Bank and the Company is contained in the attached Prospectus.
The address of the principal executive office of the Bank is One North Main
Street, Fall River, Massachusetts 02720. The Bank's telephone number is (508)
679-8181.
ELECTION TO PURCHASE COMMON STOCK IN THE CONVERSION
In connection with the Bank's Conversion, the Bank has adopted the First
Federal Savings Bank of America Employees' Savings and Profit Sharing Plan and
Trust which permits each Participant to direct the trustee of the Plan
("Trustee") to transfer all or part of the funds which represent his or her
beneficial interest in the assets of the Plan to an employer stock fund
("Employer Stock Fund") and to use such funds to purchase Common Stock issued in
connection with the Conversion. Amounts transferred will include employee
contributions, Bank matching contributions and rollover contributions, if any.
The Employer Stock Fund will consist of investments in the Common Stock made on
or after the effective date of the Conversion. Funds not transferred to the
Employer Stock Fund will remain in the other investment funds of the Plan as
directed by the Participant. A PARTICIPANT'S ABILITY TO TRANSFER FUNDS TO THE
EMPLOYER STOCK FUND IN THE CONVERSION IS SUBJECT TO THE PARTICIPANT'S GENERAL
ELIGIBILITY TO PURCHASE SHARES OF COMMON STOCK IN THE CONVERSION. FOR GENERAL
INFORMATION AS TO THE ABILITY OF PARTICIPANTS TO PURCHASE SHARES IN THE
CONVERSION, SEE "THE CONVERSION --SUBSCRIPTION OFFERING AND SUBSCRIPTION RIGHTS"
IN THE ATTACHED PROSPECTUS.
VALUE OF PARTICIPATION INTERESTS
The assets of the Plan are valued on an ongoing basis and each Participant
is informed of the value of his or her beneficial interest in the Plan on a
quarterly basis. This value represents the market value of past contributions to
the Plan by the Bank and by the Participants and earnings thereon, less previous
withdrawals.
5
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METHOD OF DIRECTING TRANSFER
The last page of this Prospectus Supplement is an investment form to direct
a transfer to the Employer Stock Fund (the "Investment Form"). If a Participant
wishes to transfer all or part of his or her beneficial interest in the assets
of the Plan to the Employer Stock Fund to purchase Common Stock issued in
connection with the Conversion, he or she should indicate that decision in Part
2 of the Investment Form. If a Participant does not wish to make such an
election, he or she does not need to take any action.
TIME FOR DIRECTING TRANSFER
The deadline for submitting a direction to transfer amounts to the Employer
Stock Fund in order to purchase Common Stock issued in connection with the
Conversion is _____________, 1996. The Investment Form should be returned to the
Bank's Human Resources Department by 12:00 noon, Eastern Time, on such date.
IRREVOCABILITY OF TRANSFER DIRECTION
A Participant's direction to transfer amounts credited to such
Participant's account in the Plan to the Employer Stock Fund in order to
purchase shares of Common Stock in connection with the Conversion shall be
irrevocable. Participants, however, will be able to direct the reinvestment of
their accounts ("Accounts") under the Plan after the Conversion as explained
below.
DIRECTION TO PURCHASE COMMON STOCK AFTER THE CONVERSION
After the Conversion, a Participant will be able to direct that a certain
percentage of such Participant's interests in the trust assets ("Trust") be
transferred to the Employer Stock Fund and invested in Common Stock, or to the
other investment funds available under the Plan. Alternatively, a Participant
may direct that a certain percentage of such Participant's interest in the
Employer Stock Fund be transferred from the Employer Stock Fund to the other
investment funds available under the Plan. Participants will be permitted to
direct that future contributions made to the Plan by or on their behalf be
invested in Common Stock. Following the initial election, the allocation of a
Participant's interest in the Employer Stock Fund may be changed by the
Participant, with each change generally becoming effective on the last business
day of the month coinciding with or next following the day the Plan
Administrator receives a written notice for such change. Special restrictions
apply to transfers directed by those Participants who are executive officers,
directors and principal stockholders of the Company who are subject to the
provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act").
6
<PAGE>
PURCHASE PRICE OF COMMON STOCK
The funds transferred to the Employer Stock Fund for the purchase of Common
Stock in connection with the Conversion will be used by the Trustee to purchase
shares of Common Stock. The price paid for such shares of Common Stock will be
the same price as is paid by all other persons who purchase shares of Common
Stock in the Conversion.
Any shares of Common Stock purchased by the Trustee after the Conversion
will be acquired in open market transactions. The prices paid by the Trustee for
shares of Common Stock will not exceed "adequate consideration" as defined in
Section 3(18) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA").
NATURE OF A PARTICIPANT'S INTEREST IN THE COMMON STOCK
The Common Stock will be held in the name of the Trustee for the Plan, as
trustee. Each Participant has an allocable interest in the investment funds of
the Plan but not in any particular assets of the Plan. Accordingly, a specific
number of shares of Common Stock will not be directly attributable to the
account of any Participant. Net earnings, e.g., gains and losses, are allocated
to the Account of a Participant based on the particular investment designations
of the Participants. Therefore, earnings with respect to a Participant's Account
should not be affected by the investment designations (including investments in
Common Stock) of other Participants.
VOTING AND TENDER RIGHTS OF COMMON STOCK
The Trustee generally will exercise voting and tender rights attributable
to all Common Stock held by the Trust as directed by Participants with interests
in the Employer Stock Fund. With respect to each matter as to which holders of
Common Stock have a right to vote, each Participant will be allocated a number
of voting instruction rights reflecting such Participant's proportionate
interest in the Employer Stock Fund. The percentage of shares of Common Stock
held in the Employer Stock Fund that are voted in the affirmative or negative on
each matter shall be the same percentage of the total number of voting
instruction rights that are exercised in either the affirmative or negative,
respectively. In the event of a tender offer for the Common Stock, the Plan
provides that each Participant will be allotted a number of tender instruction
rights reflecting such Participant's proportionate interest in the Employer
Stock Fund. The percentage of shares of Common Stock held in the Employer Stock
Fund that will be tendered will be the same as the percentage of the total
number of tender instruction rights that are exercised in favor of tendering.
The remaining shares of Common Stock held in the Employer Stock Fund will not be
tendered. The Plan makes provision for Participants to exercise their voting
instruction rights and tender instruction rights on a confidential basis.
7
<PAGE>
DESCRIPTION OF THE PLAN
INTRODUCTION
Effective as of ____________, the Bank adopted the Financial Institutions
Thrift Plan (the "Prior Plan"), which was a multiple employer defined
contribution plan sponsored by the Financial Institutions Thrift Plan. In
connection with the proposed Conversion, the Bank, effective __________, 1996,
has adopted the First Federal Savings Bank of America Employees' Savings and
Profit Sharing Plan and Trust (the "Plan"). The Plan is sponsored by Pentegra
Services, Inc., which is a corporate affiliate of Financial Institutions Thrift
Plan The Plan is offered in lieu of the Prior Plan to provide Participants with
an opportunity to invest in Common Stock. The Prior Plan was and the Plan is a
tax exempt trusteed savings plan established in accordance with the requirements
under Section 401(a) of the Internal Revenue Code of 1986, as amended (the
"Code").
The Bank intends that the Plan, in operation, will comply with the
requirements under Section 401(a) of the Code. The Bank will adopt any
amendments to the Plan that may be necessary to ensure the qualified status of
the Plan under the Code and applicable Treasury Regulations. The Bank will
submit the Plan to the IRS for a determination that the Plan, as amended, is
qualified under Section 401(a) of the Code.
Employee Retirement Income Security Act. The Plan is an "individual account
plan" other than a "money purchase pension plan" within the meaning of ERISA. As
such, the Plan is subject to all of the provisions of Title I (Protection of
Employee Benefit Rights) and Title II (Amendments to the Internal Revenue Code
Relating to Retirement Plans) of ERISA, except the funding requirements
contained in Part 3 of Title I of ERISA which by their terms do not apply to an
individual account plan (other than a money purchase pension plan). The Plan is
not subject to Title IV (Plan Termination Insurance) of ERISA. Neither the
funding requirements contained in Part 3 of Title I of ERISA nor the plan
termination insurance provisions contained in Title IV of ERISA will be extended
to Participants or beneficiaries under the Plan.
APPLICABLE FEDERAL LAW REQUIRES THE PLAN TO IMPOSE SUBSTANTIAL RESTRICTIONS
ON THE RIGHT OF A PLAN PARTICIPANT TO WITHDRAW AMOUNTS HELD FOR HIS BENEFIT
UNDER THE PLAN PRIOR TO THE PARTICIPANT'S TERMINATION OF EMPLOYMENT WITH THE
BANK. A SUBSTANTIAL FEDERAL TAX PENALTY MAY ALSO BE IMPOSED ON WITHDRAWALS MADE
PRIOR TO THE PARTICIPANT'S ATTAINMENT OF AGE 59-1/2, UNLESS A PARTICIPANT
RETIRES AS PERMITTED UNDER THE PLAN REGARDLESS OF WHETHER SUCH A WITHDRAWAL
OCCURS DURING HIS EMPLOYMENT WITH THE BANK OR AFTER TERMINATION OF EMPLOYMENT.
Reference to Full Text of Plan. The following statements are summaries of
certain the material provisions of the Plan. They are not complete and are
qualified in their entirety by the full text of the Plan, which is filed as an
exhibit to the registration statement filed with the Securities and Exchange
Commission ("SEC"). Copies of the Plan are available to all employees by filing
8
<PAGE>
a request with the Plan Administrator. Each employee is urged to read carefully
the full text of the Plan.
ELIGIBILITY AND PARTICIPATION
Any employee of the Bank is eligible to participate and will become a
Participant in the Plan on the first day of the month following the employee's
completion of a minimum of 1,000 hours of service with the Bank within a twelve
consecutive month period of employment with the Bank. The Plan fiscal year is
the calendar year ("Plan Year"). Directors who are not employees of the Bank are
not eligible to participate in the Plan.
As of [JANUARY 1, 1996], there were approximately ____ employees eligible
to participate in the Plan, and approximately ____ employees had elected to
contribute to the Plan.
CONTRIBUTIONS UNDER THE PLAN
Participant Contributions. Each Participant in the Plan is permitted to
elect to make after-tax contributions pursuant to a salary reduction agreement
by an amount not less than 2% nor more than 15% of the Participant's
Compensation (as defined below) and have that amount contributed to the Plan on
such Participant's behalf. Such amounts are credited to the Participant's
"Regular Account." For purposes of the Plan, "Compensation" means a
Participant's regular basic salary ("Basic Salary"). Due to a statutory change,
effective January 1, 1994, the annual Compensation of each Participant taken
into account under the Plan is limited to $150,000 (adjusted for cost of living
as permitted by the Code). A Participant may elect to modify the amount
contributed to the Plan under such Participant's salary reduction agreement,
which changes generally become effective the first business day of the month
following receipt by the Plan Administrator of such change. Deferred
contributions are generally transferred by the Bank to the Trustee of the Plan
monthly.
Employer Contributions. The Bank currently makes a monthly contribution to
the Plan of an amount equal to 5% of each Participant's monthly contributions to
his or her Regular Account. However, the Bank credited contributions only apply
to the first 6% of a Participant's Compensation.
Rollover Amount from Other Plans. An employee eligible to participate in
the Plan, who has satisfied the service requirements, who, as a result of a plan
termination, termination of employment, disability, or attainment of age 59 1/2,
has had distributed to such employee the entire interest in another plan which
meets the requirements of Section 401(a) of the Code (the "Other Plan") may, in
accordance with Section 402(a)(5) of the Code and procedures approved at the
discretion of the Trustee, transfer the distribution received from the Other
Plan to the Trustee. Any amounts rolled over from an Other Plan will be
contributed to the employee's "Rollover Account."
9
<PAGE>
LIMITATIONS ON CONTRIBUTIONS
Limitations on Annual Additions and Benefits. Pursuant to the requirements
of the Code, the Plan provides that the amount of annual additions allocated to
each Participant's Regular Account during any Plan Year may not exceed the
lesser of 25% of the Participant's "Section 415 Compensation" for the Plan Year
or $30,000 (adjusted for increases in the cost of living as permitted by the
Code). Annual additions are the employer contributions, employee contributions
and forfeitures credited to the account of the employee for the Plan Year. A
Participant's "Section 415 Compensation" is a Participant's compensation from
the Bank, excluding any amount contributed to the Plan under a compensation
reduction agreement or any employer contribution to the Plan or to any other
plan of deferred compensation or any distributions from a plan of deferred
compensation. In addition, annual additions shall be limited to the extent
necessary to prevent the limitations for the combined plans of the Bank from
being exceeded. To the extent that these limitations would be exceeded by reason
of excess annual additions to the Plan with respect to a Participant, such
excess will be disposed of as follows:
(i) Any excess amount in the Participant's Account will be used to
reduce the Bank's contributions for such Participant in the next
Limitation Year, which is the same as the Plan Year, and each
succeeding Limitation Year if necessary;
(ii) If an excess amount still exists, and the Participant is not covered
---
by the Plan at the end of the Limitation Year, the excess amount
will be held unallocated in a suspense account which will then be
applied to reduce future Bank contributions for all remaining
Participants in the next Limitation Year, and each succeeding
Limitation Year if necessary;
(iii) If a suspense account is in existence at any time during the
Limitation Year, it will not participate in the allocation of
investment gains and losses.
However, if the annual addition limitations are exceeded with respect to a
Participant in both the Plan and the defined benefit pension plan maintained by
the Bank, the Participant's annual additions under the Plan will be reduced.
Limitation on Plan Contributions for Highly Compensated Employees. Section
401(m) of the Code limits the amount that may contributed to the Plan in any
Plan Year on behalf of Highly Compensated Employees (defined below) in relation
to the amounts contributed by or on behalf of all other employees eligible to
participate in the Plan. Specifically, the actual contribution percentage for a
Plan Year (i.e., the average of the ratios calculated separately for each
eligible employee in each group, by dividing the amount of employee and employer
contributions credited to the Regular Account of such eligible employee by such
eligible employee's compensation for the Plan Year) of the Highly Compensated
Employees may not exceed the greater of (a) 125% of the actual contribution
percentage of all other eligible employees, or (b) the lesser of (i) 200% of the
10
<PAGE>
actual contribution percentage of all other eligible employees, or (ii) the
actual contribution percentage of all other eligible employees plus two
percentage points.
In general, a Highly Compensated Employee includes any employee who, during
the Plan Year or the preceding Plan Year, (1) was at any time a 5% owner (i.e.,
owns directly or indirectly more than 5% of the stock of the Employer, or stock
possessing more than 5% of the total combined voting power of all stock of the
Employer), (2) received compensation from the Employer in excess of $100,000 (3)
received compensation from the Employer in excess of $66,000 and was in the
group consisting of the top 20% of employees when ranked on the basis of
compensation paid during the Plan Year, or (4) was at any time an officer of the
Employer and received compensation in excess of $60,000 (a "Highly Compensated
Employee"). The dollar amounts in the foregoing sentence are for 1995. Such
amounts are adjusted annually to reflect increases in the cost of living. If
the Employer does not have at least one officer whose annual compensation is in
excess of $60,000, then the highest paid officer of the Employer will be treated
as a Highly Compensated Employee.
In order to prevent the disqualification of the Plan, any amounts
contributed by Highly Compensated Employees that exceed the average deferral
limitation in any Plan Year ("excess contributions"), together with any income
allocable thereto, must be distributed to such Highly Compensated Employees
before the close of the following Plan Year. However, the Bank will be subject
to a 10% excise tax on any excess contributions unless such excess
contributions, together with any income allocable thereto, either are
recharacterized or are distributed before the close of the first 2-1/2 months
following the Plan Year to which such excess contributions relate. In addition,
in order to avoid disqualification of the Plan, any contributions by Highly
Compensated Employees that exceed the average contribution limitation in any
Plan Year ("excess aggregate contributions") together with any income allocable
thereto, must be distributed to such Highly Compensated Employees before the
close of the following Plan Year. However, the 10% excise tax will be imposed
on the Bank with respect to any excess aggregate contributions, unless such
amounts, plus any income allocable thereto, are distributed within 2-1/2 months
following the close of the Plan Year in which they arose.
Top-Heavy Plan Requirements. If for any Plan Year the Plan is a Top-Heavy
Plan (as defined below), then (i) the Bank may be required to make certain
minimum contributions to the Plan on behalf of non-key employees (as defined
below), and (ii) certain additional restrictions would apply with respect to the
combination of annual additions to the Plan and projected annual benefits under
any defined benefit plan maintained by the Bank.
In general, the Plan will be regarded as a "Top-Heavy Plan" for any Plan
Year if, as of the last day of the preceding Plan Year, the aggregate balance of
the Accounts of Participants who are Key Employees exceeds 60% of the aggregate
balance of the Accounts of all Participants. "Key Employees" generally include
any employee who, at any time during the Plan Year or any of the four preceding
Plan Years, is (1) an officer of the Bank having annual compensation in excess
of $60,000 who is in an administrative or policy-making capacity, (2) one of the
ten employees having annual compensation in excess of $30,000 and owning,
directly or indirectly, the largest interests in the
11
<PAGE>
employer, (3) a 5% owner of the employer, (i.e., owns directly or indirectly
more than 5% of the stock of the employer, or stock possessing more than 5% of
the total combined voting power of all stock of the employer) or (4) a 1% owner
of the employer having annual compensation in excess of $150,000.
INVESTMENT OF CONTRIBUTIONS
All amounts credited to Participants' Accounts under the Plan are held in
the Trust which is administered by the Trustee. The Trustee is appointed by the
Bank's Board of Directors. The Plan provides that a Participant may direct the
Trustee to invest all or a portion of his Accounts in various managed investment
portfolios, described below. A Participant may elect to change his investment
directions with respect to both past contributions and for more additions to the
Participant's accounts invested in these investment alternatives. These
elections generally become effective on the business day next following the day
the Plan Administrator receives the Participant's written notice of the
elections. Any amounts credited to a Participant's Accounts for which investment
directions are not given will be invested by the Trustee in Fund D.
Under the Plan, prior to the effective date of the Conversion, the Accounts
of a Participant held in the Trust will be invested by the Trustee at the
direction of the Participant in the following managed portfolios:
Investment Fund A - A passively managed, diversified equity portfolio with the
objective of simulating the performance of the Standard &
Poor's Composite Index of 500 stocks, managed by Mellon
Bank, N.A., as Trustee. An investment in Fund A provides an
opportunity for investment growth generally consistent with
that of widely traded common stocks, but with a
corresponding risk of decline in value.
Investment Fund B - A portfolio of fixed income contracts primarily managed by
Mellon Bank, N.A. with the objective of maximizing income
at minimum risk of capital. Contributions are invested in
fixed income instruments including but not limited to group
annuity contracts issued by insurance companies.
Investment Fund C - A passively managed, diversified portfolio of stocks with
the objective of replicating the performance of the S&P
MidCap Index, managed by Mellon Bank, N.A. An investment
return generally consistent with that of smaller to medium
sized company stocks, with an above average potential for
increase or decrease in value.
Investment Fund D - A government instrument fund with the objective of
maximizing income at minimum risk of capital with
underlying investments in obligations issued or guaranteed
by the United States government or agencies or
instrumentalities thereof, selected by Mellon Bank, N.A. as
Trustee.
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Investment Fund E - A portfolio of high quality treasury, agency, corporate and
asset/mortgage-backed securities managed by Mellon Bank,
N.A. with the objective of replicating the total
performance of the Lehman Brother Aggregate Bond Index.
Effective upon the Conversion, a Participant may invest all or a portion of
his Accounts in the portfolios described above and in Fund F, described below:
Investment Fund F - Employer Stock Fund - invests in common stock of the parent
holding company, FirstFed America Bancorp, Inc.
A Participant may elect (in increments of 5%), to have both past and future
contributions and additions to the Participant's Accounts invested either in the
Employer Stock Fund or in such other managed portfolios listed above. These
elections will generally be effective the last business day or next following
the plan administrators' receipt of such investment directions. Any amounts
credited to a Participant's Accounts for which investment directions are not
given will be invested in a mutual fund. Because investment allocations only are
required to be made in increments of 5%, Participants can invest their Accounts
in each of the six available investment funds. Lack of diversification with
respect to the investment of a Participant's Account is not a significant risk
given the six investment options available to Participants and the ability of
Participants to make investment designations monthly.
The net gain (or loss) in the Accounts from investments other than the
Employer Stock Fund (including interest payments, dividends, realized and
unrealized gains and losses on securities, and expenses paid from the Trust) are
determined monthly during the Plan Year. Net gain (or loss) in the Account from
investments (including interest, dividends, realized and unrealized gain and
expenses paid) from the Employer Stock Fund will be determined weekly. For
purposes of such allocations, all assets of the Trust are valued at their fair
market value.
Prior to the adoption of the Plan, assets of the Prior Plan were invested
in the funds listed below.
A. Funds under the Prior Plan.
1995 1994
---- ----
A. ____% ____%
B. ____% ____%
C. ____% ____%
D. ____% ____%
E. ____% ____%
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B. Funds under the Plan Prior to the Conversion.
Effective contributions under the Plan were invested in the five Funds
listed below. The annual percentage of returns on these funds, calculated prior
to any fees being charged to the portfolio for 1993 and 1994 was:
1995 1994
---- ----
A. PSI 500 Stock Index Fund
B. PSI Stable Value Fund
C. PSI MidCap Fund
D. PSI Government Money
Market Fund
E. PSI Bond Index Fund
B. The Employer Stock Fund.
The Employer Stock Fund will consist of investments in Common Stock made on
and after the effective date of the Conversion. In connection with the
Conversion, pursuant to the attached Investment Form, Participants will be able
to change their investments at a time other than the normal monthly elective
periods. Any cash dividends paid on Common Stock held in the Employer Stock
Fund will be credited to a cash dividend subaccount for each Participant
investing in the Employer Stock Fund. The Trustee will, to the extent
practicable, use all amounts held by it in the Employer Stock Fund (except the
amounts credited to cash dividend subaccounts) to purchase shares of Common
Stock. It is expected that all purchases will be made at prevailing market
prices. Under certain circumstances, the Trustee may be required to limit the
daily volume of shares purchased. Pending investment in Common Stock, assets
held in the Employer Stock Fund will be placed in bank deposits and other short-
term investments.
When Common Stock is purchased or sold, the cost or net proceeds are
charged or credited to the Accounts of Participants affected by the purchase or
sale. The Bank expects to pay any brokerage commissions, transfer fees and
other expenses incurred in the sale and purchase of Common Stock for the
Employer Stock Fund. A Participant's Account will be adjusted to reflect
changes in the value of shares of Common Stock resulting from stock dividends,
stock splits and similar changes.
To the extent dividends are not paid on Common Stock held in the Employer
Stock Fund, the return on any investment in the Employer Stock Fund will consist
only of the market value appreciation of the Common Stock subsequent to its
purchase. Following the conversion, the Board
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of the Company may consider a policy of paying dividends on the Common Stock,
however, no decision has been made by the Board of the Company regarding the
amount or timing of dividends, if any.
As of the date of this Prospectus Supplement, none of the shares of Common
Stock have been issued or are outstanding and there is no established market for
the Common Stock. Accordingly, there is no record of the historical performance
of the Employer Stock Fund.
INVESTMENTS IN THE EMPLOYER STOCK FUND MAY INVOLVE CERTAIN SPECIAL RISKS
ASSOCIATED WITH INVESTMENTS IN COMMON STOCK OF THE COMPANY. FOR A DISCUSSION OF
THESE RISK FACTORS, SEE "RISK FACTORS" ON PAGES __ AND __ IN THE PROSPECTUS.
BENEFITS UNDER THE PLAN
Vesting. A Participant has at all times a fully vested, nonforfeitable
interest in all of his Regular Account and, Rollover Account and the earnings
thereon under the Plan. Employer matching contributions credited to a
Participant's Regular Account and the earnings thereon are also fully vested.
WITHDRAWALS AND DISTRIBUTIONS FROM THE PLAN
APPLICABLE FEDERAL LAW REQUIRES THE PLAN TO IMPOSE SUBSTANTIAL RESTRICTIONS
ON THE RIGHT OF A PLAN PARTICIPANT TO WITHDRAW AMOUNTS HELD FOR HIS BENEFIT
UNDER THE PLAN PRIOR TO THE PARTICIPANT'S ATTAINMENT OF AGE 59 1/2 UNLESS A
PARTICIPANT RETIRES AS PERMITTED UNDER THE PLAN REGARDLESS OF WHETHER SUCH A
WITHDRAWAL OCCURS DURING HIS EMPLOYMENT WITH THE BANK.
Withdrawals Prior to Termination of Employment. A Participant may make a
withdrawal from his Accounts under the Plan pursuant to the rules under the
Plan. A Participant may only make one withdrawal from his Regular Account each
calendar year, except for withdrawals from the Participants contributions made
prior to January 1, 1987. No partial withdrawal is permitted in an amount of
less than $1,000 unless the contribution is for the full amount the Participants
(i) pre 1987 contributions, without earning (ii) pre and post 1987 contributions
and earnings on them, or (iii) total vested account balance.
Notwithstanding, Bank contributions may not be available for withdrawal
prior to termination of employment until (i) such employer contributions have
been invested in the Plan for 2 years, (ii) the employee has been a Plan
Participant for at least 5 years, or (iii) the Participant attains age 59 1/2.
Distribution Upon Retirement, Disability or Termination of Employment.
Payment of benefits to a Participant who retires, incurs a disability, or
otherwise terminates employment
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<PAGE>
generally shall be made in a lump sum cash payment. At the request of the
Participant, the distribution may include an in kind distribution of Common
Stock of the Company credited to the Participant's Account. A Participant whose
total vested account balance equals or exceeds $3,500 at the time of
termination, may elect, in lieu of a lump sum payment, to be paid in annual
installments over a period of 2 to 10, 15 or 20 years, with the right to take a
lump sum distribution of the vested balance at any time during such period.
Benefit payments ordinarily shall be made not later than 60 days following the
end of the Plan Year in which occurs the later of the Participant's: (i)
termination of employment; (ii) attainment of age 65; (iii) 10th anniversary of
commencement of participation in the Plan; but in no event later than the April
1 following the calendar year in which the Participant attains age 70 1/2.
However, if the vested portion of the Participant's Account balances exceeds
$3,500, no distribution shall be made from the Plan prior to the Participant's
attaining age 65 unless the Participant consents to an earlier distribution.
Distribution upon Death. A Participant who dies prior to the benefit
commencement date for retirement, disability or termination of employment, and
who has a surviving spouse shall have his benefits paid to the surviving spouse
in a lump sum by the end of the Plan year following the date of his death, or if
the payment of his benefit had commenced before his death, in accordance with
the distribution method in effect at death. With respect to an unmarried
Participant, and in the case of a married Participant with spousal consent to
the designation of another beneficiary, payment of benefits to the beneficiary
of a deceased Participant shall be made in the form of a lump-sum payment in
cash or in Common Stock, or, if the payment of his benefit had commenced before
his death, in accordance with the distribution method in effect at death.
Nonalienation of Benefits. Except with respect to federal income tax
withholding and as provided with respect to a qualified domestic relations order
(as defined in the Code), benefits payable under the Plan shall not be subject
in any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, charge, garnishment, execution, or levy of any kind, either
voluntary or involuntary, and any attempt to anticipate, alienate, sell,
transfer, assign, pledge, encumber, charge or otherwise dispose of any rights to
benefits payable under the Plan shall be void.
ADMINISTRATION OF THE PLAN
Trustees. The Trustee with respect to the Plan is the named fiduciary of
the Plan for purposes of Section 402 of ERISA. The current trustee of the Plan
is the Bank. Effective 30 days after the Conversion, the Trustee of the Plan
will be the Mellon Bank.
Pursuant to the terms of the Plan, the Trustee receives and holds
contributions to the Plan in trust and has exclusive authority and discretion to
manage and control the assets of the Plan pursuant to the terms of the Plan and
to manage, invest and reinvest the Trust and income therefrom. The Trustee has
the authority to invest and reinvest the Trust and may sell or otherwise dispose
of Trust investments at any time and may hold trust funds uninvested. The
Trustee has authority to invest the assets of the Trust in "any type of
property, investment or security" as defined under ERISA.
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<PAGE>
The Trustee has full power to vote any corporate securities in the Trust in
person or by proxy, provided, however, that the Plan Administrator shall direct
the Trustee as to voting and tendering of all Common Stock held in the Employer
Stock Fund.
The Trustee is entitled to reasonable compensation for its services and is
also entitled to reimbursement for expenses properly and actually incurred in
the administration of the Trust. The expenses of the Trustee and the
compensation of the persons so employed is paid out of the Trust except to the
extent such expenses and compensation are paid by the Bank.
The Trustee must render at least annual reports to the Bank and to the
Participants in such form and containing information that the Trustee deems
necessary.
REPORTS TO PLAN PARTICIPANTS
The Administrator will furnish to each Participant a statement at least
quarterly showing (i) the balance in the Participant's Account as of the end of
that period, (ii) the amount of contributions allocated to such Participant's
Account for that period, and (iii) the adjustments to such Participant's Account
to reflect earnings or losses (if any).
PLAN ADMINISTRATOR
Pursuant to the terms of the Plan, the Plan Administrator is the Bank. A
committee of the Bank has been designated by the Board of Directors of the Bank
to act on the Bank's behalf as the Plan Administrator. The name, address and
telephone number of the current Plan Administrator is First Federal Savings Bank
of America, One North Main Street, Fall River, Massachusetts 02720. The Bank's
telephone number is (508) 679-8181. The Administrator is responsible for the
administration of the Plan, interpretation of the provisions of the Plan,
prescribing procedures for filing applications for benefits, preparation and
distribution of information explaining the Plan, maintenance of plan records,
books of account and all other data necessary for the proper administration of
the Plan, and preparation and filing of all returns and reports relating to the
Plan which are required to be filed with the U.S. Department of Labor and the
IRS, and for all disclosures required to be made to Participants, beneficiaries
and others under Sections 104 and 105 of ERISA.
AMENDMENT AND TERMINATION
The Bank may terminate the Plan at any time. If the Plan is terminated in
whole or in part, then regardless of other provisions in the Plan, each employee
who ceases to be a Participant shall have a fully vested interest in his
Account. The Bank reserves the right to make, from time to time, any amendment
or amendments to the Plan which do not cause any part of the Trust to be used
for, or diverted to, any purpose other than the exclusive benefit of the
Participants or their beneficiaries.
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<PAGE>
MERGER, CONSOLIDATION OR TRANSFER
In the event of the merger or consolidation of the Plan with another plan,
or the transfer of the Trust to another plan, the Plan requires that each
Participant (if either the Plan or the other plan had then terminated) receive a
benefit 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 (if the Plan or the
other plan had then terminated).
FEDERAL INCOME TAX CONSEQUENCES
The following is only a brief summary of the material federal income tax
aspects of the Plan which are of general application under the Code and is not
intended to be a complete or definitive description of the federal income tax
consequences of participating in or receiving distributions from the Plan. The
summary is necessarily general in nature and does not purport to be complete.
Moreover, statutory provisions are subject to change, as are their
interpretations, and their application may vary in individual circumstances.
Finally, the consequences under applicable state and local income tax laws may
not be the same as under the federal income tax laws.
PARTICIPANTS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE
FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF PARTICIPATING IN AND RECEIVING
DISTRIBUTIONS FROM THE PLAN.
The Plan shall be submitted to the IRS for a determination that it is
qualified under Section 401(a) of the Code, and that the related Trust is exempt
from tax under Section 501(a) of the Code. A plan that is "qualified" under
these sections of the Code is afforded special tax treatment which include the
following: (1) The sponsoring employer is allowed an immediate tax deduction
for the amount of matching contributions made to the Plan each year; (2)
Participants pay no current income tax on amounts contributed by the employer on
their behalf; and (3) Earnings of the plan are tax-exempt thereby permitting the
tax-free accumulation of income and gains on investments. The Plan will be
administered to comply in operation with the requirements of the Code as of the
applicable effective date of any change in the law. The Bank expects to timely
adopt any amendments to the Plan that may be necessary to maintain the qualified
status of the Plan under the Code. Following such an amendment, the Plan will
be submitted to the IRS for a determination that the Plan, as amended, continues
to qualify under Sections 401(a) and 501(a) of the Code.
Assuming that the Plan is administered in accordance with the requirements
of the Code and that the IRS issues a favorable determination as described in
the preceding paragraph, participation in the Plan under existing federal income
tax laws will have the following effects:
(a) Bank matching contributions credited to a Participant's Regular
Account and all investment earnings on this Account are not includable
in a Participant's federal taxable income until such contributions or
earnings are actually distributed or withdrawn from the Plan. Special
tax treatment may apply to the taxable portion of
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<PAGE>
any distribution that includes Common Stock or
qualifies as a Lump Sum Distribution (as described below).
(b) Income earned on assets held by the Trust will not be taxable to the
Trust.
Lump Sum Distribution. A distribution from the Plan to a Participant or
the beneficiary of a Participant will qualify as a "Lump Sum Distribution" if it
is made: (i) within a single taxable year of the Participant or beneficiary;
(ii) on account of the Participant's death or separation from service, or after
the Participant attains age 59 1/2; and (iii) consists of the balance to the
credit of the Participant under the Plan and all other profit sharing plans, if
any, maintained by the Bank. The portion of any Lump Sum Distribution that is
required to be included in the Participant's or beneficiary's taxable income for
federal income tax purposes (the "total taxable amount") consists of the entire
amount of such Lump Sum Distribution less the amount of after-tax contributions,
if any, made by the Participant to any other profit sharing plans maintained by
the Bank which is included in such distribution.
Averaging Rules. The portion of the total taxable amount of a Lump Sum
Distribution (the "ordinary income portion") will be taxable generally as
ordinary income for federal income tax purposes. However, a Participant who has
completed at least five years of participation in the Plan before the taxable
year in which the distribution is made, or a beneficiary who receives a Lump Sum
Distribution on account of the Participant's death (regardless of the period of
the Participant's participation in the Plan or any other profit-sharing plan
maintained by the Employer), may elect to have the ordinary income portion of
such Lump Sum Distribution taxed according to a special averaging rule ("five-
year averaging"). The election of the special averaging rules may apply only to
one Lump Sum Distribution received by the Participant or beneficiary, provided
such amount is received on or after the Participant turns 59-1/2 and the
recipient elects to have any other Lump Sum Distribution from a qualified plan
received in the same taxable year taxed under the special averaging rule. Under
a special grandfather rule, individuals who turned 50 by 1986 may elect to have
their Lump Sum Distribution taxed under either the five-year averaging rule or
under the prior law ten-year averaging rule. Such individuals also may elect to
have that portion of the Lump Sum Distribution attributable to the Participant's
pre-1974 participation in the Plan taxed at a flat 20% rate as gain from the
sale of a capital asset.
Common Stock Included in Lump Sum Distribution. If a Lump Sum Distribution
includes Common Stock, the distribution generally will be taxed in the manner
described above, except that the total taxable amount will be reduced by the
amount of any net unrealized appreciation with respect to such Common Stock,
i.e., the excess of the value of such Common Stock at the time of the
distribution over its cost to the Plan. The tax basis of such Common Stock to
the Participant or beneficiary for purposes of computing gain or loss on its
subsequent sale will be the value of the Common Stock at the time of
distribution less the amount of net unrealized appreciation. Any gain on a
subsequent sale or other
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<PAGE>
taxable disposition of such Common Stock, to the extent of the amount of net
unrealized appreciation at the time of distribution, will be considered long-
term capital gain regardless of the holding period of such Common Stock. Any
gain on a subsequent sale or other taxable disposition of the Common Stock in
excess of the amount of net unrealized appreciation at the time of distribution
will be considered either short-term capital gain or long-term capital gain
depending upon the length of the holding period of the Common Stock. The
recipient of a distribution may elect to include the amount of any net
unrealized appreciation in the total taxable amount of such distribution to the
extent allowed by the regulations to be issued by the IRS.
Distributions: Rollovers and Direct Transfers to Another Qualified Plan or
to an IRA. Pursuant to a change in the law, effective January 1, 1993,
virtually all distributions from the Plan may be rolled over to another
qualified Plan or to an IRA without regard to whether the distribution is a Lump
Sum Distribution or a Partial Distribution. Effective January 1, 1993,
Participants have the right to elect to have the Trustee transfer all or any
portion of an "eligible rollover distribution" directly to another plan
qualified under Section 401(a) of the Code or to an IRA. If the Participant
does not elect to have an "eligible rollover distribution" transferred directly
to another qualified plan or to an IRA, the distribution will be subject to a
mandatory federal withholding tax equal to 20% of the taxable distribution. An
"eligible rollover distribution" means any amount distributed from the Plan
except: (1) a distribution that is (a) one of a series of substantially equal
periodic payments made (not less frequently than annually) over the
Participant's life or the joint life of the Participant and the Participant's
designated beneficiary, or (b) for a specified period of ten years or more; (2)
any amount that is required to be distributed under the minimum distribution
rules; and (3) any other distributions excepted under applicable federal law.
The tax law change described above did not modify the special tax treatment of
Lump Sum Distributions, that are not rolled over or transferred i.e., forward
averaging, capital gains tax treatment and the nonrecognition of net unrealized
appreciation, discussed earlier.
Additional Tax on Early Distributions. A Participant who receives a
distribution from the Plan prior to attaining age 59-1/2 will be subject to an
additional income tax equal to 10% of the taxable amount of the distribution.
The 10% additional income tax will not apply, however, to the extent the
distribution is rolled over into an IRA or another qualified plan or the
distribution is (i) made to a beneficiary (or to the estate of a Participant) on
or after the death of the Participant, (ii) attributable to the Participant's
being disabled within the meaning of Section 72(m)(7) of the Code, (iii) part of
a series of substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the Participant or the joint
lives (or joint life expectancies) of the Participant and his beneficiary, (iv)
made to the Participant after separation from service on account of early
retirement under the Plan after attainment of age 55, (v) made to pay medical
expenses to the extent deductible for federal income tax purposes, (vi) pursuant
to a qualified domestic relations order, or (vii) made to effect the
distribution of excess contributions or excess deferrals.
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ERISA AND OTHER QUALIFICATIONS
As noted above, the Plan is subject to certain provisions of ERISA and will
be submitted to the IRS for a determination that it is qualified under Section
401(a) of the Code.
THE FOREGOING IS ONLY A BRIEF SUMMARY OF THE MATERIAL FEDERAL INCOME TAX
ASPECTS OF THE PLAN WHICH ARE OF GENERAL APPLICATION UNDER THE CODE AND IS NOT
INTENDED TO BE A COMPLETE OR DEFINITIVE DESCRIPTION OF THE FEDERAL INCOME TAX
CONSEQUENCES OF PARTICIPATING IN OR RECEIVING DISTRIBUTIONS FROM THE PLAN.
ACCORDINGLY, EACH PARTICIPANT IS URGED TO CONSULT A TAX ADVISOR CONCERNING THE
FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF PARTICIPATING IN AND RECEIVING
DISTRIBUTIONS FROM THE PLAN.
RESTRICTIONS ON RESALE
Any person receiving shares of Common Stock under the Plan who is an
"affiliate" of the Company as the term "affiliate" is used in Rules 144 and 405
under the Securities Act of 1933, as amended ("Securities Act") (e.g.,
directors, officers and substantial stockholders of the Company) may reoffer or
resell such shares only pursuant to a registration statement filed under the
Securities Act or, assuming the availability thereof, pursuant to Rule 144 or
some other exemption of the registration requirements of the Securities Act.
Any person who may be an "affiliate" of the Company may wish to consult with
counsel before transferring any Company Stock owned by him. In addition,
Participants are advised to consult with counsel as to the applicability of
Section 16 of the Securities Exchange Act of 1934, as amended ("Exchange Act")
which may restrict the sale of Common Stock where acquired under the Plan, or
other sales of Common Stock.
Persons who are not deemed to be "affiliates" of the Company at the time of
resale will be free to resell any shares of Common Stock distributed to them
under the Plan, either publicly or privately, without regard to the registration
and prospectus delivery requirements of the Securities Act or compliance with
the restrictions and conditions contained in the exemptive rules thereunder. An
"affiliate" of the Company is someone who directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under common control,
with the Company. Normally, a director, principal officer or major shareholder
of a corporation may be deemed to be an "affiliate" of that corporation. A
person who may be deemed an "affiliate" of the Company at the time of a proposed
resale will be permitted to make public resales of the Company's Common Stock
only pursuant to a "reoffer" Prospectus or in accordance with the restrictions
and conditions contained in Rule 144 under the Securities Act or some other
exemption from registration, and will not be permitted to use this Prospectus in
connection with any such resale. In general, the amount of the Company's Common
Stock which any such affiliate may publicly resell pursuant to Rule 144 in any
three-month period may not exceed the greater of one percent of the Company's
Common Stock then outstanding or the average weekly trading volume reported on
the National Association of Securities Dealers Automated Quotation System during
the four calendar weeks prior to the sale. Such sales
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<PAGE>
may be made only through brokers without solicitation and only at a time when
the Company is current in filing the reports required of it under the Exchange
Act.
SEC REPORTING AND SHORT-SWING PROFIT LIABILITY
Section 16 of the Exchange Act imposes reporting and liability requirements
on executive officers, directors and persons beneficially owning more than ten
percent of public companies such as the Company. Section 16(a) of the Exchange
Act requires the filing of reports of beneficial ownership. Within ten days of
becoming a person subject to the reporting requirements of Section 16(a), a Form
3 reporting initial beneficial ownership must be filed with the Securities and
Exchange Commission (the "SEC"). Certain changes in beneficial ownership, such
as purchases, sales, gifts and participation in savings and retirement plans
must be reported periodically, either on a Form 4 within ten days after the end
of the month in which a change occurs, or annually on a Form 5 within 45 days
after the close of the Company's fiscal year. Participation in the Employer
Stock Fund of the Plan by executive officers, directors and persons beneficially
owning more than ten percent of Common Stock of the Company must be reported to
the SEC annually on a Form 5 by such individuals.
In addition to the reporting requirements described above, Section 16(b) of
the Exchange Act provides for the recovery by the Company of profits realized by
any officer, director or any person beneficially owning more than ten percent of
the Company's Common Stock ("Section 16(b) Persons") resulting from the purchase
and sale or sale and purchase of the Company's Common Stock within any six-month
period.
The SEC has adopted rules that provide exemption from the profit recovery
provisions of Section 16(b) for Participant-directed employer security
transactions within an employee benefit plan, such as the Plan, provided certain
requirements are met. These requirements generally involve restrictions upon
the timing of elections to acquire or dispose of employer securities for the
accounts of Section 16(b) Persons.
Except for distributions of Common Stock due to death, disability,
retirement, termination of employment or under a qualified domestic relations
order under the Plan, Section 16(b) Persons are required to hold shares of
Common Stock distributed from the Plan for six months following such
distribution and are prohibited from directing additional purchases of units
within the Employer Stock Fund for six months after receiving such a
distribution. Finally, Section 16(b) Persons who terminate their participation
in the Plan may not rejoin the Plan for six months following the date of their
termination. These Plan restrictions conform with the rules issued by the SEC
to exempt transactions in the Plan from becoming subject to the profit-recovery
rules of Section 16(b) of the Exchange Act.
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LEGAL OPINIONS
The validity of the issuance of the Common Stock will be passed upon by
Muldoon, Murphy & Faucette, Washington, D.C., which firm is acting as special
counsel for the Company in connection with the Bank's Conversion from a mutual
savings bank to a stock savings bank and the concurrent formation of the
Company.
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FIRST FEDERAL SAVINGS BANK OF AMERICA
EMPLOYEES' SAVINGS AND PROFIT SHARING PLAN AND TRUST
INVESTMENT FORM
Name of Plan Participant: __________________ Address: _______________________
Social Security Number: ____________________
1. INSTRUCTIONS. In connection with the proposed Conversion of First Federal
Savings Bank of America from a mutual savings bank to a stock based
organization (the "Conversion"), the First Federal Savings Bank of America
Employees' Savings and Profit Sharing Plan and Trust (the "401(a) Plan") has
been adopted to permit Participants to direct their ___________, 1996,
account balances into a new fund, the Employer Stock Fund. The percentage of
a Participant's account transferred at the direction of the Participant into
the Employer Stock Fund will be used to purchase shares of common stock of
FirstFed America Bancorp, Inc. (the "Common Stock").
To direct a transfer of all or a part of the funds credited to your accounts
to the Employer Stock Fund, you must complete and file this form with the
Human Resources Department no later than ______________, 1996. A
representative for the Plan Administrator will retain a copy of this form and
return a copy to you. If you need any assistance in completing this form,
please contact _____________________________ at ___________________. If you
do not complete and return this form to the Human Resources Department by
____________, 1996, the funds credited to your accounts under the 401(a) Plan
will continue to be invested in accordance with your prior investment
direction, or in accordance with the terms of the 401(a) Plan if no
investment direction had been provided.
2. TRANSFER DIRECTIONS. I hereby direct the Plan Administrator to invest the
following percentage (in multiples of not less than 5%) of my account balance
in the:
A. PSI 500 Stock Index Fund _____%
B. PSI Stable Value Fund _____%
C. PSI MidCap 400 Stock Index _____%
D. PSI Government Money Market Fund _____%
E. PSI Bond Index Fund _____%
F. Employer Stock Fund _____%
NOTE: THE TOTAL PERCENTAGE STATED ABOVE MAY NOT EXCEED 100%. YOUR ABILITY TO
TRANSFER FUNDS TO THE EMPLOYER STOCK FUND IN THE CONVERSION IS SUBJECT TO
YOUR GENERAL ELIGIBILITY TO PURCHASE SHARES OF COMMON STOCK IN THE
CONVERSION AND THE MAXIMUM AND MINIMUM PURCHASE LIMITATIONS SET FORTH IN
THE PLAN OF CONVERSION. FOR GENERAL INFORMATION AS TO YOUR ELIGIBILITY TO
PURCHASE SHARES OF COMMON STOCK AND THE MINIMUM AND MAXIMUM AMOUNTS THAT
MAY BE PURCHASED IN THE CONVERSION, SEE "THE CONVERSION--SUBSCRIPTION
OFFERING AND SUBSCRIPTION RIGHTS" AND "LIMITATION ON COMMON STOCK
PURCHASES" IN THE PROSPECTUS.
3. ACKNOWLEDGEMENT OF PARTICIPANT. I understand that this Investment Form shall
be subject to all of the terms and conditions of the 401(a) Plan. I
acknowledge that I have received a copy of the Prospectus and the Prospectus
Supplement.
_____________________________ Date ________________________
Signature of Participant
ACKNOWLEDGMENT OF RECEIPT BY PLAN ADMINISTRATOR. This Investment Form was
received by the Plan Administrator and will become effective on the date noted
below. Pentegra Services, Inc. is hereby authorized to make the above listed
change(s) to this participant's account.
________________________________ Date ________________________
Plan Administrator
24
<PAGE>
[To be used in connection with the Syndicated Community Offering only]
SYNDICATED PROSPECTUS SUPPLEMENT
FIRSTFED AMERICA BANCORP, INC.
(PROPOSED HOLDING COMPANY FOR FIRST FEDERAL SAVINGS BANK OF AMERICA)
__________ SHARES OF COMMON STOCK
FIRSTFED AMERICA BANCORP, INC. (the "Company"), a Delaware corporation, is
offering for sale in a syndicated community offering (the "Syndicated Community
Offering") __________ shares, at a per share price of $10.00, of its common
stock, par value $.01 per share (the "Common Stock"), to be issued upon the
conversion (the "Conversion") of First Federal Savings Bank of America, Fall
River, Massachusetts (the "Bank") from a federally chartered mutual savings bank
to a federally chartered stock savings bank and the issuance of the Bank's
outstanding capital stock to the Company pursuant to a plan of conversion, as
amended, (the "Plan of Conversion"). The remaining __________ shares of the
Common Stock have been subscribed for in subscription and community offerings
(the "Subscription and Community Offerings") by the Bank's holders of deposit
accounts with the Bank with a balance of $50 or more as of June 30, 1995, by the
First Federal Savings Bank of America Employee Stock Ownership Plan, a tax-
qualified employee benefit plan, and related trust (the "ESOP"), by holders of
deposit accounts with a balance of $50 or more as of ______________, 1996, by
certain other account holders and borrowers of the Bank and then by certain
members of the general public. See "The Conversion - General." Contained
herein is the Prospectus in the form used in the Subscription and Community
Offerings. The purchase price for all shares purchased in the Syndicated
Community Offering will be the same as the price paid by subscribers in the
Subscription and Community Offerings (the "Purchase Price"). The Purchase Price
of $10.00 per share is the amount to be paid for each share at the time a
purchase order is submitted. See the cover page of the Prospectus and the table
below for information as to the method by which the range within which the
number of shares offered may vary and the method of subscribing for shares of
the Common Stock.
Funds submitted to the Bank with purchase orders will earn interest at the
Bank's passbook rate of interest from the date of receipt until completion or
termination of the Conversion. The Syndicated Community Offering will expire no
later than _______________, 1996, unless extended by the Bank and the Company
with the approval of the Office of Thrift Supervision (the "OTS"). Such
extensions may not go beyond _______________, 1998. If an extension of time has
been granted, all subscribers will be notified of such extension, and of their
rights to confirm their subscriptions, or to modify or rescind their
subscriptions and have their funds returned promptly with interest, and of the
time period within which the subscriber must notify the Bank of his intention to
confirm, modify or rescind his subscription. If an affirmative response to any
resolicitation is not received by the Bank and the Company from subscribers,
such orders will be rescinded and all funds will be returned promptly with
interest. The minimum number of shares which may be purchased
<PAGE>
is 25 shares. Except for the ESOP, which may purchase up to 10% of the total
number of shares of Common Stock issued in the Conversion, no person, together
with associates of and persons acting in concert with such person, may purchase
more than the total number of shares offered in the Community Offering and the
Syndicated Community Offering that could be purchased for $300,000 at the
Purchase Price and no person, together with associates of and persons acting in
concert with such person, may purchase more than 1.0% of the total number of
shares issued in the Conversion. See "Plan of Conversion - Subscription Rights
and Limitations on Common Stock Purchases." The Company reserves the right, in
its absolute discretion, to accept or reject, in whole or in part, any or all
subscriptions in the Syndicated Community Offering.
The Company and the Bank have engaged Sandler, O'Neill & Partners, L.P.
("Sandler O'Neill") as financial advisors to assist them in the sale of the
Common Stock in the Syndicated Community Offering. It is anticipated that
Sandler O'Neill will use the services of other registered broker-dealers
("Selected Dealers") and that fees to Sandler O'Neill and such Selected Dealers
will be ____% of the aggregate Purchase Price of the shares sold in the
Syndicated Community Offering. Neither Sandler O'Neill nor any Selected Dealer
shall have any obligation to take or purchase any shares of Common Stock in the
Syndicated Community Offering.
The Company has received conditional approval to have its Common Stock
listed on the American Stock Exchange ("AMEX") under the symbol "FAB." Prior to
this offering, there has not been a public market for the Common Stock, and
there can be no assurance that an active and liquid trading market for the
Common Stock will develop. The absence or discontinuance of a market may have
an adverse impact on both the price and liquidity of the stock.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION, DEPARTMENT OF THE
TREASURY, OR ANY OTHER FEDERAL AGENCY OR ANY STATE SECURITIES COMMISSION, NOR
HAS SUCH COMMISSION, OFFICE, OTHER AGENCY OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR DEPOSITS
AND ARE NOT FEDERALLY INSURED OR GUARANTEED.
2
<PAGE>
<TABLE>
<CAPTION>
Estimated Estimated Net Pro-
Underwriting Estimated Net ceeds of Subscrip-
Commissions Proceeds of tion, Community
Syndicated and Other Syndicated and Syndicated
Community Fees and Community Community
Offering Price Expenses(1) Offering Offerings(2)(3)
===================================================================================================================================
<S> <C> <C> <C> <C>
Minimum Per Share $ 10.00 $ $ $
- -----------------------------------------------------------------------------------------------------------------------------------
Midpoint Per Share $ 10.00 $ $ $
- -----------------------------------------------------------------------------------------------------------------------------------
Maximum Per Share $ 10.00 $ $ $
- -----------------------------------------------------------------------------------------------------------------------------------
Total Minimum(5) $ $ $ $
- -----------------------------------------------------------------------------------------------------------------------------------
Total Midpoint $ $ $ $
- -----------------------------------------------------------------------------------------------------------------------------------
Total Maximum(5) $ $ $ $
- -----------------------------------------------------------------------------------------------------------------------------------
Total Maximum, As Adjusted(6) $ $ $ $
===================================================================================================================================
</TABLE>
_____________________
(1) Consists of a pro rata allocation of estimated expenses of the Bank and the
Company in connection with the Conversion (other than estimated fees to be
paid to Sandler O'Neill for services in connection with the Subscription and
Community Offerings) and estimated compensation of Sandler O'Neill and
Selected Dealers in connection with the sale of the remaining shares in the
Syndicated Community Offering which fees are estimated to be $__________
million and $__________ million at the minimum and the maximum of the
estimated price range and may be deemed to be underwriting fees. The
information under "Pro Forma Data" in the Prospectus was based on the
assumptions stated therein, which may differ from the estimates used for
this table. See "The Conversion - Marketing and Underwriting Arrangements"
for a more detailed discussion of fee arrangements.
(2) The Company applied to retain up to 50% of the net proceeds. The balance of
the net proceeds will be transferred to the Bank in exchange for all of the
capital stock of the Bank to be issued in connection with the Conversion.
(3) The net proceeds of the Subscription and Community Offerings (based upon the
sale of the __________ shares subscribed for at a price of $10.00 per share
and after allocation of a pro rata portion of the estimated expenses
relating to the Conversion) are estimated to be $__________.
(4) Based on an estimated price range of $__________ to $__________ at $10.00
per share (the "Estimated Price Range). The Total Minimum reflects the sale
of __________ shares at a per share price of $10.00, leaving a total of
__________ shares to be sold in the Syndicated Community Offering.
(5) Gives effect to an increase in the number of shares which could occur due to
an increase in the Estimated Price Range of up to 15% to reflect changes in
market and financial conditions following commencement of the offerings.
See "The Conversion - Stock Pricing." For a discussion of the distribution
and allocation of the additional shares, see "The Conversion - Subscription
Rights and Limitations on Common Stock Purchases."
SANDLER O'NEILL & PARTNERS, L.P.
_________________________________
The date of this Prospectus Supplement is _______________, 1996.
3
<PAGE>
PROSPECTUS
FIRSTFED AMERICA BANCORP, INC.
(Proposed Holding Company for First Federal Savings Bank of America)
7,015,000 Shares of Common Stock
FIRSTFED AMERICA BANCORP, INC. (the "Company" or "FIRSTFED"), a
Delaware corporation, is offering up to 7,015,000 shares of its common stock,
par value $.01 per share (the "Common Stock"), in connection with the conversion
of First Federal Savings Bank of America (the "Bank" or "First Federal") from a
federally-chartered mutual savings bank to a federally-chartered capital stock
savings bank pursuant to the Bank's plan of conversion, as amended, (the "Plan"
or "Plan of Conversion"). The simultaneous conversion of the Bank to stock form,
the issuance of the Bank's stock to the Company and the offer and sale of the
Common Stock by the Company are herein referred to as the "Conversion." In
certain circumstances, the Company may increase the amount of Common Stock
offered hereby to 8,067,250 shares. See Footnote 4 to the table below.
(continued on following page)
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY EACH
PROSPECTIVE INVESTOR, SEE "RISK FACTORS" BEGINNING ON PAGE __.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION, OR ANY OTHER
FEDERAL AGENCY OR ANY STATE SECURITIES COMMISSION, NOR HAS SUCH
COMMISSION, OFFICE OR OTHER AGENCY OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR
ANY OTHER GOVERNMENT AGENCY.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Estimated Underwriting
Subscription Price(1) Commissions Estimated Net Proceeds(3)
and Other Fees and Expenses(2)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum Per Share............... $10.00 $.36 $9.64
- -----------------------------------------------------------------------------------------------------------------------------------
Midpoint Per Share.............. $10.00 $.33 $9.67
- -----------------------------------------------------------------------------------------------------------------------------------
Maximum Per Share............... $10.00 $.30 $9.70
- -----------------------------------------------------------------------------------------------------------------------------------
Total Minimum(1)................ $51,850,000 $1,859,000 $49,991,000
- -----------------------------------------------------------------------------------------------------------------------------------
Total Midpoint(1)............... $61,000,000 $1,989,400 $59,010,600
- -----------------------------------------------------------------------------------------------------------------------------------
Total Maximum(1)................ $70,150,000 $2,119,800 $68,030,200
- -----------------------------------------------------------------------------------------------------------------------------------
Total Maximum, as adjusted(4)... $80,672,500 $2,269,800 $78,402,700
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Determined in accordance with an independent appraisal prepared by Keller &
Company, Inc. ("Keller") dated September 6, 1996, which states that the
aggregate estimated pro forma market value of the Common Stock ranged from
$51.9 million to $70.2 million, with a midpoint of $61.0 million (the
"Valuation Range"). The independent appraisal of Keller is based upon
estimates and projections that are subject to change and the valuation must
not be construed as a recommendation as to the advisability of purchasing
such shares nor an assurance that a purchaser will thereafter be able to
sell such shares at prices in the range of the foregoing valuation. Based
on the Valuation Range, the Board of Directors (the "Board of Directors")
established the estimated price range of $51.9 million to $70.2 million
(the "Estimated Price Range"), or between 5,185,000 and 7,015,000 shares of
Common Stock at the $10.00 price per share (the "Purchase Price") to be
paid for each share of Common Stock subscribed for or purchased in
offerings. See "The Conversion - Stock Pricing" and "- Number of Shares to
be Issued."
(2) Consists of the estimated costs to the Bank and the Company arising from
the Conversion, including estimated fixed expenses of $1,144,000 and
marketing fees to be paid to Sandler O'Neill & Partners, L.P. ("Sandler
O'Neill") estimated to be $715,000 and $975,800 at the minimum and the
maximum of the Estimated Price Range, respectively. See "The Conversion -
Marketing and Underwriting Arrangements." See "Pro Forma Data" for the
assumptions used to arrive at these estimates. The actual fees and expenses
may vary from the estimates.
(3) Actual net proceeds may vary substantially from estimated amounts depending
on the number of shares sold in each of the offerings and other factors.
Includes the purchase of shares of Common Stock by the First Federal
Savings Bank of America Employee Stock Ownership Plan and related trust
(the "ESOP") and funded by a loan to the ESOP, by a wholly-owned subsidiary
of the Company or from a third party, which will be deducted from the
Company's stockholders' equity. See "Use of Proceeds" and "Pro Forma Data."
(4) As adjusted to reflect the sale of up to an additional 15% of the Common
Stock which may be offered at the Purchase Price, without resolicitation of
subscribers or any right of cancellation, due to regulatory considerations,
changes in market conditions or general financial and economic conditions.
See "Pro Forma Data" and "The Conversion - Stock Pricing." For a discussion
of the distribution and allocation of the additional shares, if any, see
"The Conversion -Subscription Offering and Subscription Rights," "-
Community Offering" and "- Limitations on Common Stock Purchases."
------------------------------
Sandler O'Neill & Partners, L.P.
The date of this Prospectus is November __, 1996.
<PAGE>
NON-TRANSFERABLE RIGHTS TO SUBSCRIBE FOR THE COMMON STOCK HAVE BEEN
GRANTED, IN ORDER OF PRIORITY, TO EACH OF THE BANK'S ELIGIBLE ACCOUNT HOLDERS,
WITH A PREFERENCE GIVEN TO LOCAL ELIGIBLE ACCOUNT HOLDERS, TO THE BANK'S
TAX-QUALIFIED EMPLOYEE BENEFIT PLANS, INCLUDING THE ESOP (THE "EMPLOYEE PLANS"),
TO THE bANK'S SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS, WITH A PREFERENCE GIVEN TO
LOCAL SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS, AND TO CERTAIN OTHER MEMBERS, WITH
A PREFERENCE GIVEN TO LOCAL OTHER MEMBERS (EACH AS DEFINED HEREIN) IN A
SUBSCRIPTION OFFERING (THE "SUBSCRIPTION OFFERING"). SUBSCRIPTION RIGHTS ARE
NON-TRANSFERABLE. PERSONS FOUND TO BE TRANSFERRING SUBSCRIPTION RIGHTS WILL BE
SUBJECT TO THE FORFEITURE OF SUCH RIGHTS AND POSSIBLE FURTHER SANCTIONS AND
PENALTIES IMPOSED BY THE OFFICE OF THRIFT SUPERVISION ("OTS"). Concurrently, and
subject to the prior rights of holders of subscription rights, the Company is
offering the shares of Common Stock not subscribed for in the Subscription
Offering for sale in a community offering to certain members of the general
public, with preference given to natural persons residing in the counties of
Bristol, Plymouth, Barnstable, Middlesex, Worcester, Hampden and Norfolk in the
Commonwealth of Massachusetts and the counties of Bristol, Newport, Washington,
Kent and Providence in the State of Rhode Island (the Bank's "Local Community")
(the "Community Offering") (the Subscription Offering and Community Offering are
referred to collectively as the "Subscription and Community Offerings"). Shares
not subscribed for in the Subscription and Community Offerings will be offered
to members of the general public in a syndicated community offering (the
"Syndicated Community Offering") (the Subscription and Community Offerings and
the Syndicated Community Offering are referred to collectively as the
"Offerings").
Except for the ESOP, which intends to subscribe for up to 8% of the
Common Stock issued in connection with the Conversion, including shares issued
to the First Federal Savings Bank of America Foundation (the "Foundation"), no
Eligible Account Holder, Supplemental Eligible Account Holder or Other Member
may, in their respective capacities as such, purchase in the Subscription
Offering more than $300,000 of the total number of shares of Common Stock
offered in the Conversion; no person, together with associates of and persons
acting in concert with such person, may purchase in the Community Offering and
the Syndicated Community Offering more than $300,000 of the total number of
shares offered in the Conversion; and no person, together with associates of and
persons acting in concert with such person, may purchase in the aggregate more
than the overall maximum purchase limitation of 1.0% of the total number of
shares of Common Stock offered in the Conversion; provided, however, that the
-----------------
overall maximum purchase limitation may be increased and the amount that may be
subscribed for may be increased or decreased in the sole discretion of the Bank
or the Company without further approval of the Bank's members. See "The
Conversion - Subscription Offering and Subscription Rights," "- Community
Offering" and "- Limitations on Common Stock Purchases." The minimum purchase is
25 shares.
Pursuant to the Plan, the Company intends to establish a charitable
foundation in connection with the Conversion. The Plan provides that the Bank
and the Company will create the Foundation, which will be incorporated under
Delaware law as a non-stock corporation, and will be funded with shares of
Common Stock contributed by the Company, in an amount equal to 8% of the number
of shares of Common Stock sold in the Conversion. The Foundation will be
dedicated to charitable and educational purposes within the communities in which
the Bank operates. The establishment of the Foundation is subject to the
approval of the Bank's members at the special meeting being held to consider the
Plan of Conversion. For a discussion of the Foundation and the effects on the
Conversion, including if members do not approve the establishment of the
Foundation, see "Risk Factors - Establishment of the Charitable Foundation,"
"Pro Forma Data," and "The Conversion - Establishment of Charitable Foundation."
THE SUBSCRIPTION AND COMMUNITY OFFERINGS WILL TERMINATE AT 5:00 P.M.,
FALL RIVER TIME, ON ____________________, 1996 (THE "EXPIRATION DATE") UNLESS
EXTENDED BY THE BANK AND THE COMPANY, WITH APPROVAL OF THE OTS, IF NECESSARY.
Orders submitted are irrevocable until the completion of the Conversion;
provided that, if the Conversion is not completed within 45 days after the close
of the Subscription and Community Offerings, unless such period has been
extended with the consent of the OTS, if necessary, all subscribers will have
their funds returned promptly with interest, and all withdrawal authorizations
will be cancelled. Such extensions may not go beyond _______________, 1998. See
"The Conversion - Subscription Offering and Subscription Rights" and "-
Procedure for Purchasing Shares in Subscription and Community Offerings."
The Company has received conditional approval to have its Common Stock
listed on the American Stock Exchange ("AMEX") under the symbol "FAB" upon
completion of the Conversion. Prior to this offering there has not been a public
market for the Common Stock, and there can be no assurance that an active and
liquid trading market for the Common Stock will develop or that the Common Stock
will trade at or above the Purchase Price. The absence or discontinuance of a
market may have an adverse impact on both the price and liquidity of the Common
Stock. See "Risk Factors - Absence of Market for Common Stock."
2
<PAGE>
[MAP GOES HERE]
3
<PAGE>
SUMMARY
This summary is qualified in its entirety by the more detailed
information and Consolidated Financial Statements of the Bank and Notes thereto
appearing elsewhere in this Prospectus.
FIRSTFED AMERICA BANCORP, INC.
FIRSTFED AMERICA BANCORP, INC. is a Delaware corporation recently
organized by the Bank for the purpose of acquiring all of the capital stock of
the Bank to be issued in the Conversion. Immediately following the Conversion,
the only significant assets of the Company will be the capital stock of the Bank
and a wholly-owned subsidiary incorporated under the laws of Massachusetts which
intends to loan funds to the Bank's ESOP (the "ESOP Loan Subsidiary") to the
extent such loan is not funded by a third party lender, and the net proceeds of
the Offerings retained by the Company. The Company will purchase all of the
capital stock of the Bank to be issued upon Conversion in exchange for the
greater of that portion of the net proceeds sufficient to increase the Bank's
tangible capital to 10% of the Bank's total adjusted assets or up to 50% of the
net proceeds, with the remaining net proceeds to be retained by the Company.
Funds retained by the Company will be used for general business activities,
including the capitalization of the ESOP Loan Subsidiary which intends to loan
funds to the ESOP to enable the ESOP to purchase up to 8% of the Common Stock
issued in the Conversion, including shares issued to the Foundation. On an
interim basis, the net proceeds are expected to be deposited by the Company into
a deposit account at the Bank. See "Use of Proceeds." The business of the
Company will initially consist of the business of the Bank. See "Business of the
Bank" and "Regulation - Holding Company Regulation."
The Company's executive offices are located at the administrative
office of the Bank at One North Main Street, Fall River, Massachusetts 02720.
The Company's telephone number is (508) 679-8181.
FIRST FEDERAL SAVINGS BANK OF AMERICA
The Bank was originally organized in 1946 and operated as First Federal
Savings and Loan Association of Fall River. In 1982, the Bank merged with First
Federal Savings and Loan Association of Attleboro, which was originally
organized in 1854 and became a federally-chartered savings and loan association
in 1959. In 1983, the Bank became a federally-chartered savings bank, changing
its name to First Federal Savings Bank of America. In 1984, the Bank added
mortgage banking activities to its operations. The Bank conducts business from
its administrative/branch and operations offices located in Fall River,
Massachusetts and its eleven other branch offices located in the municipalities
of Fall River, Attleboro, New Bedford, Seekonk, Somerset and Taunton,
Massachusetts and Pawtucket, East Providence and Warwick, Rhode Island, and the
Bank's five loan origination centers located in Yarmouth, Auburn, Agawam and
Burlington, Massachusetts and East Greenwich, Rhode Island. See "Business of the
Bank Market Area and Competition." At June 30, 1996, the Bank had total assets
of $802.8 million, total deposit accounts of $600.6 million and retained
earnings of $47.5 million. The Bank's deposits are insured up to the maximum
allowable amount by the Savings Association Insurance Fund ("SAIF") of the
Federal Deposit Insurance Corporation ("FDIC").
The Bank is a community-oriented savings institution whose business
primarily consists of accepting deposits from customers and investing those
funds in mortgage loans secured by one- to four-family residences within its
primary market area. The Bank also engages in mortgage banking operations
whereby it generally originates fixed-rate one- to four-family loans for sale in
the secondary market, generally retaining the servicing rights of loans sold. To
a significantly lesser extent, the Bank invests in commercial real estate,
commercial, construction and land, multi-family and consumer loans.
4
<PAGE>
At June 30, 1996, the Bank's loans receivable, net, totalled $727.4 million, or
90.6% of total assets. In addition to its lending activities, the Bank, to a
significantly lesser extent, invests in investment securities, consisting
primarily of U.S. Government and U.S. Government sponsored agency obligations,
and mortgage-backed securities, primarily those guaranteed by governmental
agencies such as the Federal Home Loan Mortgage Corporation ("FHLMC") and
Government National Mortgage Association ("GNMA"). At June 30, 1996, the
securities portfolio totalled $29.4 million, or 3.7% of total assets, $28.6
million of which were classified as held to maturity. At June 30, 1996, the
Bank's deposit accounts totalled $600.6 million, or 79.5% of total liabilities,
of which $191.0 million, or 31.8%, were core deposits (business checking, money
market, savings and NOW accounts). The Bank also uses advances from the Federal
Home Loan Bank of Boston ("FHLB-Boston") as a source of funds. At June 30, 1996,
such advances totalled $136.6 million, or 18.1% of total liabilities. See "First
Federal Savings Bank of America" and "Business of the Bank."
Since the mid 1980s, the Bank's operating strategy has been to
emphasize controlled growth, build its loan servicing portfolio and loan
servicing fee income, manage interest rate risk and increase its one- to
four-family lending market share in its primary market area primarily through
its mortgage banking activities whereby it generally retains all adjustable-rate
one- to four-family mortgages and sells all fixed-rate one- to four-family loans
in the secondary market on a servicing retained basis. In late 1993, the Bank
began to focus more heavily on building its loan and deposit franchise and
increasing its level of interest-earning assets and retail deposits. The Bank
has focused upon expanding its franchise in its existing market area and other
areas in Southeastern Massachusetts and Rhode Island through the establishment
of de novo branch offices and new loan origination facilities. In this regard,
-------
since 1994, the Bank has opened four new branch offices in Seekonk,
Massachusetts and East Providence, Pawtucket and Warwick, Rhode Island, one new
loan origination office in Burlington, Massachusetts. The Bank plans to open an
additional branch office in New Bedford, Massachusetts in early 1997 and open a
new centralized administrative and operations center and branch office in late
1997 in Swansea, Massachusetts. See "Business of the Bank - Subsidiary
Activities" and "- Properties." Additionally, the Bank, pursuant to its
expansion strategy, is currently seeking new branch sites and new loan
origination center sites in its primary market area and in areas adjacent to its
primary market area, including areas in the state of Connecticut. In order to
increase its level of interest-earning assets in fiscal 1996, the Bank retained
shorter-term, fixed-rate one- to four-family loans with terms of 15 years or
less, as well as adjustable rates loans, and focused on increasing its level of
retail deposits by competitively pricing deposit products and increasing its
marketing efforts. While the Bank has been successful in increasing its loan and
deposit base through these measures, the Bank has also experienced an increase
in noninterest expense which should continue as the Bank expands its franchise.
See "Risk Factors - Recent Increase in Noninterest Expense and Expansion
Strategy."
FIRST FEDERAL SAVINGS BANK OF AMERICA FOUNDATION
In furtherance of the Bank's long-standing commitment to its local
community, the Bank's Plan of Conversion, as amended, provides for the
establishment of a charitable foundation in connection with the Conversion. The
Plan provides that the Bank and the Company will create the Foundation, which
will be incorporated under Delaware law as a non-stock corporation, and will
fund the Foundation with shares of common stock contributed by the Company, as
further described below. The Company and the Bank believe that the funding of
the Foundation with Common Stock of the Company is a means of establishing a
common bond between the Bank and the communities it serves thereby enabling such
communities to share in the potential growth and success of the Company over the
long-term. By further enhancing the Bank's visibility and reputation in the
communities it serves, the Bank believes that the Foundation will enhance the
long-term value of the Bank's community banking franchise.
5
<PAGE>
The Foundation will be dedicated to the promotion of charitable
purposes within the communities served by the Bank and surrounding communities,
including, but not limited to, grants or donations to support housing
assistance, scholarships, local education, not-for-profit medical facilities,
not-for-profit community groups and other types of organizations or civic minded
projects. The Foundation will be a private foundation under the Internal Revenue
Code of 1986, as amended, (the "Code"). As required under the Code, in order to
maintain its exempt status as a private foundation, the certificate of
incorporation of the Foundation provides that the earnings of the Foundation
shall not result in any private benefit for its members, directors or officers.
While this provision would not prohibit the payment of reasonable compensation
for services rendered, the Foundation does not presently intend to pay any
compensation to its directors and officers. Pursuant to the Foundation's bylaws,
the Foundation's board of directors will be comprised of nine members, at least
two of whom must be civic and community leaders in the communities in which the
Bank operates who are unaffiliated with either the Bank or the Company, or their
directors and officers ("Disinterested Directors"). The remaining three members
of the board will be directors of the Company or the Bank. See "The Conversion
- -- Establishment of Charitable Foundation -- Structure of Foundation." The
Foundation's place of business will be located at the Bank's administrative
offices and initially, the Foundation will have no employees but will utilize
members of the Bank's staff to provide administrative support services to the
Foundation which are ministerial in nature. The board of directors will appoint
such officers as may be necessary to manage the operations of the Foundation and
it is anticipated that any such officers would initially be selected from the
board of directors of the Foundation.
The Company proposes to establish the Foundation by contributing to the
Foundation immediately following the Conversion a number of shares of authorized
but unissued Common Stock equal to 8% of the Common Stock sold in the Offerings,
or 414,800, 488,000 and 561,200 shares at the minimum, midpoint and maximum,
respectively, of the Estimated Price Range. Such contribution, once made, will
not be recoverable by the Company or the Bank. The Foundation would receive
working capital from any dividends that may be paid on the Company's Common
Stock in the future and, subject to applicable federal and state laws, from
loans collateralized by the Common Stock or from the proceeds of the sale of any
of the Common Stock in the open market from time to time as may be permitted to
provide the Foundation with additional liquidity. As a private foundation under
Section 501(c)(3) of the Code, the Foundation will be required to distribute
annually in grants or donations, a minimum of 5% of the average fair market
value of its net investment assets. One of the conditions imposed on the gift of
common stock by the Company is that the amount of Common Stock that may be sold
by the Foundation in any one year shall not exceed 5% of the average market
value of the assets held by the Foundation, except where the board of directors
of the Foundation, by three-fourths vote, determines that the failure to sell an
amount of Common Stock greater than such amount would result in a long-term
reduction of the value of the Foundation's assets and as such would jeopardize
the Foundation's capacity to carry out its charitable and educational purposes.
Establishment of the Foundation is also subject to certain conditions imposed by
the OTS in connection with its approval of the conversion. See "The Conversion -
Establishment of the Foundation" and "- Regulatory Conditions Imposed on the
Foundation." Assuming the sale of shares at the maximum of the Estimated Price
Range, the Company will have 7,576,200 shares issued and outstanding, of which
the Foundation will own 561,200 shares or 7.4%. DUE TO THE ADDITIONAL ISSUANCE
OF SHARES OF COMMON STOCK TO THE FOUNDATION, PERSONS PURCHASING SHARES IN THE
CONVERSION WILL HAVE THEIR OWNERSHIP AND VOTING INTERESTS IN THE COMPANY DILUTED
BY 7.4%. SEE "PRO FORMA DATA."
The Company and the Bank have been advised by their independent
accountants that a contribution of Common Stock to the Foundation by the Company
would be tax deductible, subject to a limitation based on 10% of the Company's
annual taxable income. For federal tax purposes, the Company will be able to
carryforward any unused portion of the deduction for five years following the
contribution. However, the Bank will not be able to utilize any such
carryforward for state tax purposes. Neither the
6
<PAGE>
Company nor the Bank expect to make any further contributions to the Foundation
within the first five years following the initial contribution. After that time,
the Company and the Bank may consider future contributions to the Foundation.
Any such decisions would be based on an assessment of, among other factors, the
financial condition of the Company and the Bank at that time, the interests of
shareholders and depositors of the Company and the Bank, and the financial
condition and operations of the Foundation.
If the Foundation is established, the Company will recognize an expense
in the full amount of the contribution, offset in part by the corresponding tax
deduction, during the quarter in which the contribution is made, which is
expected to be the third quarter of fiscal 1997. Such expense would reduce
earnings and have a material impact on the Company's earnings for the year.
Assuming a contribution of $5.6 million in Common Stock, based on the maximum of
the Estimated Price Range, the Company estimates a net tax effected expense of
$3.6 million. If the Foundation had been established at March 31, 1996, the
Bank's net income would have been $1.0 million rather than experiencing earnings
of $4.6 million. Management cannot predict earnings for fiscal 1997, but expects
that the establishment and funding of the Foundation will have an adverse impact
on the Company's earnings for the fiscal year. In addition to the contribution
to the Foundation, the Bank expects in the future to continue making ordinary
charitable contributions within its local community. Such additional
contributions are expected to range from $20,000 to $30,000 per year. For
further discussion of the Foundation and its impact on purchasers in the
Conversion, see "Risk Factors - Establishment of the Charitable Foundation,"
"Pro Forma Data," and "The Conversion - Establishment of the Foundation."
The establishment of the Foundation is subject to the approval of a
majority of the total outstanding votes of the Bank's members eligible to be
cast at the special meeting being held to consider the Conversion. The
establishment of the Foundation will be considered as a separate matter from
approval of the Plan of Conversion. If the Bank's members approve the Plan of
Conversion, but not the establishment of the Foundation, the Bank intends to
complete the Conversion without the Foundation. Failure to approve the
Foundation may materially increase the pro forma market value of the Common
Stock being offered since the Valuation Range, as set forth herein, takes into
account the dilutive impact of the issuance of shares to the Foundation. In such
an event, the Bank may establish a new Estimated Price Range and commence a
resolicitation of subscribers. In the event of a resolicitation, unless an
affirmative response is received within a specified period of time, all funds
will be promptly returned to investors, as described elsewhere herein. See "The
Conversion - Stock Pricing."
THE CONVERSION AND THE SUBSCRIPTION AND COMMUNITY OFFERINGS
On August 2, 1996, the Board of Directors of the Bank adopted, and
subsequently amended, the Plan of Conversion. Pursuant to the Plan, the Bank is
converting from a federally-chartered mutual savings bank to a federally-
chartered stock savings bank, the Common Stock of the Company will be offered
and sold hereby and all of the outstanding capital stock of the Bank will be
acquired by the Company in exchange for the greater of that portion of the net
proceeds of the Offerings sufficient to increase the Bank's tangible capital to
10% of its total adjusted assets or up to 50% of the net proceeds from the
Offerings. The Conversion and the Offerings are subject to OTS approval, which
was received on _______________, 1996, and approval of the Bank's members at a
special meeting to be held on _______, 1996 (the "Special Meeting"). See "The
Conversion - General."
The Bank is converting to increase its capital and to structure itself
in the holding company form of organization used by many commercial banks and
other business entities and a growing number of savings institutions. The
Conversion will enhance the Bank's ability to access capital markets, expand its
current operations, acquire other financial institutions or branch offices or
diversify into other financial
7
<PAGE>
services, to the extent allowable by applicable law and regulation. The
potential impact of the Conversion upon the Bank's capital base is significant.
The Conversion will significantly increase the Bank's capital position to a
level whereby the Bank will be better positioned to take advantage of business
opportunities and engage in activities which, prior to Conversion, would have
been more difficult for the Bank to engage in and still continue to meet its
status as a "well capitalized" institution. The holding company form of
organization is expected to provide additional flexibility to diversify the
Bank's business activities through existing or newly formed subsidiaries, or
through acquisitions of or mergers with other financial institutions, as well as
other companies. See "The Conversion - Purposes of Conversion."
Common Stock will be offered in the Subscription and Community
Offerings and, to the extent shares are available, in the Syndicated Community
Offering. Common Stock offered in the Subscription Offering will be offered in
the following order of priority: (1) depositors whose accounts in the Bank
totalled $50 or more on June 30, 1995 ("Eligible Account Holders"), with a
preference given to Eligible Account Holders residing in the counties of
Bristol, Plymouth, Barnstable, Middlesex, Worcester, Hampden and Norfolk in the
Commonwealth of Massachusetts and the counties of Bristol, Newport, Washington,
Kent and Providence in the State of Rhode Island (the Bank's "Local Community"),
("Local Eligible Account Holders"); (2) the Employee Plans, including the ESOP;
(3) depositors whose eligible savings accounts in the Bank totalled $50 or more
on September 30, 1996 ("Supplemental Eligible Account Holders"), with a
preference given to Supplemental Eligible Account Holders residing in the Bank's
Local Community ("Local Supplemental Eligible Account Holders"); and (4) other
members of the Bank, consisting of depositors of the Bank as of __________,
1996, the voting record date ("Voting Record Date") for the special meeting of
members to vote on the Conversion, and borrowers with loans outstanding as of
_________________ which continue to be outstanding as of the Voting Record Date,
other than those members who otherwise qualify as Eligible Account Holders or
Supplemental Eligible Account Holders ("Other Members"), with a preference given
to Other Members residing in the Bank's Local Community, ("Local Other
Members"). Subject to the prior rights of holders of subscription rights, Common
Stock not subscribed for in the Subscription Offering is being concurrently
offered in the Community Offering to certain members of the general public, with
preference given to natural persons residing in the Bank's Local Community. The
Company and the Bank reserve the absolute right to reject or accept any orders
in the Community Offering, in whole or in part, either at the time of receipt of
an order or as soon as practicable following the Expiration Date.
All shares of Common Stock not purchased in the Subscription and
Community Offerings, if any, will be offered for sale to the general public in a
Syndicated Community Offering through a syndicate of registered broker-dealers
to be formed and managed by Sandler O'Neill acting as agent of the Company to
assist the Company and the Bank in the sale of the Common Stock. The Company and
the Bank reserve the absolute right to reject orders, in whole or part, in their
sole discretion, in the Syndicated Community Offering.
Neither Sandler O'Neill nor any registered broker-dealer shall have any
obligation to take or purchase any shares of the Common Stock in the
Subscription Offering, Community Offering or Syndicated Community Offering.
However, Sandler O'Neill has agreed to use its best efforts in the sale of
shares in the Syndicated Community Offering. Subscription rights will expire if
not exercised by 5:00 p.m., Fall River Time, on _______________, 1996, unless
extended by the Bank and the Company. See "The Conversion - Subscription
Offering and Subscription Rights" and "- Community Offering." The Bank and the
Company have hired Sandler O'Neill as conversion agent and financial advisor in
connection with the Offerings and to assist in soliciting subscriptions and
purchase orders in the Offerings. The Bank and the Company will pay a fee to
Sandler O'Neill which will be based on the aggregate Purchase Price of the
Common Stock sold in the Offerings. See "The Conversion - Marketing and
Underwriting Arrangements."
8
<PAGE>
PROSPECTUS DELIVERY AND PROCEDURE FOR PURCHASING SHARES
To ensure that each purchaser receives a prospectus at least 48 hours
prior to the Expiration Date in accordance with Rule 15c2-8 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), no prospectus will be
mailed any later than five days prior to the Expiration Date or hand delivered
any later than two days prior to such date. Stock order forms will only be
distributed with a prospectus. The Bank is not obligated to accept for
processing orders not submitted on original stock order forms. Stock order forms
unaccompanied by an executed certification form will not be accepted. Payment by
check, money order, bank draft, cash or debit authorization to an existing
account at the Bank must accompany the stock order and certification forms. No
wire transfers will be accepted. See "The Conversion - Procedure for Purchasing
Shares in Subscription and Community Offerings."
RESTRICTIONS ON TRANSFER OF SUBSCRIPTION RIGHTS AND SHARES
Prior to the completion of the Conversion, no person may transfer or
enter into any agreement or understanding to transfer the legal or beneficial
ownership of the subscription rights issued under the Plan or the shares of
Common Stock to be issued upon their exercise. Following the Conversion there
generally will be no restrictions on the transfer or sale of shares by
purchasers other than affiliates of the Company and the Bank. See "Regulation -
Federal Securities Laws" and "The Conversion - Certain Restrictions on Purchase
or Transfer of Shares After Conversion."
PURCHASE LIMITATIONS
The minimum purchase in the Subscription and Community Offerings is 25
shares. With the exception of the ESOP, no Eligible Account Holder, Supplemental
Eligible Account Holder or Other Member, in their capacity as such, may purchase
in the Subscription Offering for more than $300,000 of the Common Stock to be
issued; no person, together with associates of or persons acting in concert with
such person, may purchase in the Community Offering and the Syndicated Community
Offering in the aggregate more than $300,000 of the Common Stock issued; and no
person, together with associates of or persons acting in concert with such
person, may purchase in the Offerings more than the overall maximum purchase
limitation of 1.0% of the total number of shares of Common Stock to be issued in
the Conversion, exclusive of any shares issued pursuant to an increase in the
Estimated Price Range of up to 15%. At any time during the Conversion and
without further approval by the Bank's members, the Company and the Bank may in
their sole discretion decrease the maximum purchase limitation below $300,000 of
the Common Stock to be issued in the Subscription and Community Offerings.
Additionally, at any time during the Conversion and without further approval by
the Bank's members, the Company and Bank may in their sole discretion increase
the overall maximum purchase limitation and/or increase the amount that may be
subscribed for in the Subscription and Community Offerings, up to 5% of the
shares to be issued in the Conversion. Prior to consummation of the Conversion,
if the maximum purchase limitation is increased, subscribers for the maximum
amount will be, and certain other large subscribers in the sole discretion of
the Bank may be, given the opportunity to increase their subscriptions up to the
then applicable limit. In the event of an increase in the Estimated Price Range,
the additional shares will be distributed and allocated to fill unfilled orders
in the Subscription and Community Offerings, with priority given to the ESOP,
without any resolicitation of subscribers, as described in "The Conversion -
Subscription Offering and Subscription Rights," "- Community Offering" and "-
Limitations on Common Stock Purchases."
9
<PAGE>
STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED IN THE CONVERSION
Federal regulations require that the aggregate purchase price of the
Common Stock to be issued in the Conversion be consistent with an independent
appraisal of the estimated pro forma market value of the Common Stock giving
effect to the Conversion. Keller & Company, Inc., an independent appraiser, has
advised the Bank that in its opinion, dated September 6, 1996, the estimated
aggregate pro forma market value of the Common Stock being offered for sale in
connection with the Conversion ranged from $51.9 million to $70.2 million, with
a midpoint of $61.0 million. For further information concerning Keller, see "The
Conversion - Stock Pricing." THE APPRAISAL OF THE COMMON STOCK IS NOT INTENDED
AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION OF ANY KIND AS TO THE
ADVISABILITY OF PURCHASING SUCH STOCK NOR CAN ANY ASSURANCE BE GIVEN THAT
PURCHASERS OF THE COMMON STOCK IN THE CONVERSION WILL BE ABLE TO SELL SUCH
SHARES AFTER THE COMPLETION OF THE CONVERSION AT OR ABOVE THE PURCHASE PRICE.
Based upon the above Valuation Range, the Board of Directors of the
Bank has established the Estimated Price Range of $51.9 million to $70.2
million, assuming the issuance of 5,185,000 shares to 7,015,000 shares of Common
Stock at the Purchase Price of $10.00 per share. All shares of Common Stock
issued in the Conversion will be sold at the Purchase Price of $10.00 per share,
as determined by the Bank and approved by the Company. The actual number of
shares to be issued in the Conversion will be determined by the Company and the
Bank based upon the final updated estimate of the aggregate pro forma market
value of the Common Stock, giving effect to the Conversion, at the completion of
the Offerings. The maximum of the Estimated Price Range may be increased by up
to 15% and the number of shares of Common Stock to be issued in the Conversion
may be increased to 8,067,250 shares due to regulatory considerations, changes
in market conditions or general financial and economic conditions. No
resolicitation of subscribers will be made and subscribers will not be permitted
to modify or cancel their subscriptions unless the gross proceeds from the sale
of the Common Stock are less than the minimum or more than 15% above the maximum
of the current Estimated Price Range. See "Risk Factors - Possible Increase in
Estimated Price Range and Number of Shares Issued," "Pro Forma Data," and "The
Conversion - Stock Pricing" and "- Number of Shares to be Issued."
The number of shares to be outstanding following the Conversion may be
increased to fund the Foundation. If the Foundation is approved by the Bank's
members, the Company will issue an additional 561,200 shares of its Common Stock
from authorized but unissued shares immediately following completion of the
Conversion, assuming the sale of common stock at the maximum of the Estimated
Price Range in the Offerings. In that event, the Company will have a total of
7,576,200 shares of common stock outstanding. Of that amount, the Foundation
will own 7.4%. Funding the Foundation with authorized but unissued shares will
have the effect of diluting the ownership and voting interests of persons
purchasing shares in the Conversion by 7.4% since a greater number of shares
will be outstanding upon completion of the Conversion. See "Risk Factors" and
"Pro Forma Data."
USE OF PROCEEDS
Net proceeds from the sale of the Common Stock are estimated to be
between $50.0 million and $68.0 million (or $78.4 million if the Estimated Price
Range is increased by 15%) depending on the number of shares sold and the
expenses of the Conversion. See "Pro Forma Data." The Company will purchase all
of the outstanding capital stock of the Bank to be issued upon Conversion in
exchange for the greater of that portion of the net proceeds sufficient to
increase the Bank's tangible capital to 10% of its total adjusted assets or 50%
of the net proceeds, with the remaining net proceeds to be retained by the
Company. Net proceeds to be retained by the Company after the purchase of the
capital stock of the Bank are estimated to be between $13.2 million and $31.2
million (or $39.2 million if the Estimated Price
10
<PAGE>
Range is increased by 15%). The Company will be unable to utilize any of the net
proceeds until the close of the Offerings.
Funds retained by the Company will be used for general business activities,
including the capitalization of the ESOP Loan Subsidiary which intends to loan
funds to the ESOP (to the extent such loan is not funded by a third party), the
expansion of the Bank's franchise and, subject to applicable limitations, the
possible payment of dividends and repurchases of Common Stock. The Company
intends to initially deposit net proceeds not used to fund the ESOP in an
account at the Bank. Assuming the acquisition by the ESOP of 8% of the shares to
be issued in the Conversion, and Common Stock issued to the Foundation, the
amount of the loan to the ESOP is estimated to be between $4.5 million and $6.1
million (or $7.0 million if the Estimated Price Range is increased by 15%) to be
repaid over a nine year period at the prevailing prime rate, which is currently
8.25%. See "Management of the Bank - Benefits-Employee Stock Ownership Plan and
Trust." Funds received by the Bank from the Company's purchase of its capital
stock will be used to repay FHLB advances, the expansion of the Bank's franchise
and for other general business purposes. The Company and the Bank may use such
funds to expand operations through the acquisition or establishment of branch
offices and the acquisition of smaller financial institutions or assets of other
financial institutions. Neither the Bank nor the Company has any pending
agreements or understandings regarding acquisitions of any specific financial
institutions, branch offices or assets of other financial institutions. However,
the Bank, consistent with its expansion strategy, plans to open two de novo
-------
branch offices in early 1997 and late 1997 and is currently seeking sites for
additional branch office and loan origination center locations. The Bank
currently anticipates capital expenditures of approximately $15.5 million
related to the opening of its new centralized administrative and operations
center, the two new branch offices and renovation activity. See "Use of
Proceeds" and "Business of the Bank."
DIVIDENDS
The Board of Directors of the Company intends to consider a policy of
paying cash dividends on the Common Stock in the future. However, no decision
has been made as to the amount or timing of such dividends, if any. See
"Dividend Policy."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered by prospective investors. "Risk Factors" include: "Weakness in
Regional and Local Economy;" "Recent Increase in Noninterest Expense and
Expansion Strategy;" "Increased Lending Risks Associated with Multi-Family,
Commercial Real Estate and Commercial Loans;" "Sensitivity to Increases in
Interest Rates;" "Establishment of the Charitable Foundation;" "Highly
Competitive Industry and Geographic Market;" "Recapitalization of SAIF and Its
Impact on SAIF Premiums;" "Financial Institution Regulation and Possible
Legislation;" "Stock-Based Benefits to Management and Directors and Change in
Control Payments;" "Possible Dilutive Effect of Stock Programs and Stock
Options;" "Certain Anti-Takeover Provisions Which May Discourage Takeover
Attempts;" "Absence of Market for Common Stock;" "Possible Increase in Estimated
Price Range and Number of Shares Issued;" and "Possible Adverse Income Tax
Consequences of the Distribution of Subscription Rights."
11
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF THE BANK
The selected consolidated financial and other data of the Bank set forth
below is derived in part from, and should be read in conjunction with, the
Consolidated Financial Statements of the Bank and Notes thereto presented
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
At June 30, At March 31,
-------------------------- -------------------------------------------------------------
1996(1) 1995(1) 1996 1995 1994 1993 1992
------------ ----------- -------- ---------- --------- --------- ---------
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Consolidated Financial
Data:
Total assets........................... $802,811 $570,489 $723,778 $560,038 $469,433 $399,752 $442,218
Loans receivable, net(2)............... 727,401 500,407 637,592 499,977 411,773 339,825 384,180
Investment securities available
for sale(3)........................ 773 632 725 518 - - -
Investment securities held to
maturity(3)........................ 21,487 20,988 23,987 20,988 10,049 12,151 13,290
Mortgage-backed securities held to
maturity(3)........................ 7,138 2,627 7,248 2,721 3,437 4,828 6,060
Mortgage loans held for sale........... 6,530 11,062 17,747 6,816 15,779 20,253 18,592
Deposits .............................. 600,584 465,170 583,750 440,107 360,093 329,418 335,050
FHLB advances.......................... 136,648 50,615 75,141 66,592 59,542 33,882 74,455
Retained earnings...................... 47,521 43,033 46,418 41,697 36,469 29,554 24,490
Allowance for loan losses.............. 6,445 4,659 5,607 4,239 3,964 3,524 1,795
Nonperforming loans.................... 3,702 3,147 4,045 3,033 4,221 5,005 5,115
Nonperforming assets................... 4,140 3,411 4,688 3,329 5,160 5,469 5,700
<CAPTION>
For the Three
Months Ended
June 30, For the Year Ended March 31,
------------------------ --------------------------------------------------------------
1996(1) 1995(1) 1996 1995 1994 1993 1992
---------- ----------- ---------- ---------- ---------- ---------- ----------
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Operating Data:
Interest income........................ $13,885 $10,752 $46,044 $37,487 $33,206 $33,994 $35,953
Interest expense....................... 8,416 5,987 26,382 18,337 14,196 17,361 23,928
----- ----- ------ ------ ------- ------- ------
Net interest income................. 5,469 4,765 19,662 19,150 19,010 16,633 12,025
Provision for loan losses........... 1,000 475 2,626 653 1,035 2,102 1,222
------ ------ ------ ------ ------ ------ ------
Net interest income after
provision for loan losses........ 4,469 4,290 17,036 18,497 17,975 14,531 10,803
Total noninterest income............... 1,230 1,034 4,592 2,509 4,470 7,651 4,295
Total noninterest expense.............. 3,847 3,086 13,672 12,193 12,790 12,688 8,986
------ ------ ------- ------- ------- ------- ------
Income before income tax expense
and cumulative effect of change in
accounting for income taxes......... 1,852 2,238 7,956 8,813 9,655 9,494 6,112
Income tax expense .................... 781 943 3,353 3,852 4,235 4,430 3,231
------ ------- ------- ------- ------- ------- -----
Net income before cumulative effect
of change in accounting for income
taxes............................... 1,071 1,295 4,603 4,961 5,420 5,064 2,881
Cumulative effect of change in
accounting for income taxes......... - - - - 1,495 - -
------- ------- ------- ------- ------- ------- -------
Net income ............................ $ 1,071 $ 1,295 $ 4,603 $ 4,961 $ 6,915 $ 5,064 $ 2,881
======= ======= ======= ======= ======= ======= =======
(continued on next page)
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
At or For the Three
Months Ended At or For the Year Ended
June 30, March 31,
--------------------- ----------------------------------------------------------
1996(1) 1995(1) 1996 1995 1994 1993 1992
--------- --------- -------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Financial Ratios and Other
Data(4):
Performance Ratios:
Return on average assets.................... 0.56% 0.92% 0.76% 0.96% 1.51% 1.18% 0.72%
Return on average retained earnings......... 9.15 12.26 10.40 12.83 20.51 18.69 12.62
Average retained earnings to
average assets........................... 6.15 7.52 7.26 7.45 7.35 6.33 5.68
Retained earnings to total assets
at end of period.......................... 5.92 7.54 6.41 7.45 7.77 7.40 5.54
Average interest rate spread(5)............. 2.46 3.00 2.79 3.39 3.85 3.98 2.92
Net interest margin(6)...................... 2.99 3.54 3.37 3.86 4.37 4.12 3.13
Average interest-earning assets to average
interest-bearing liabilities.............. 111.50 112.32 112.90 112.71 115.88 103.25 103.37
Total noninterest expense to
average assets............................ 2.02 2.20 2.24 2.35 2.79 2.96 2.24
Efficiency ratio(7)......................... 57.43 53.22 56.37 56.30 54.47 52.25 55.06
Regulatory Capital Ratios(8):
Tangible capital............................ 5.87 7.49 6.36 7.40 7.77 7.40 5.54
Core capital................................ 5.87 7.49 6.36 7.40 7.77 7.40 5.54
Risk-based capital.......................... 11.58 14.27 12.48 14.13 14.56 13.93 10.22
Asset Quality Ratios:
Non-performing loans as a percent of
loans(9)(10).............................. 0.50 0.62 0.63 0.60 1.02 1.46 1.33
Non-performing assets as a percent
of total assets(10)....................... 0.52 0.60 0.65 0.59 1.10 1.37 1.29
Allowance for loan losses as a percent
of loans(3)(9)............................ 0.88 0.92 0.87 0.84 0.95 1.03 0.47
Allowance for loan losses as a
percent of non-performing
loans(3)(10).............................. 174.14 148.05 138.62 139.76 93.91 70.41 35.09
Number of full-service customer
facilities(11).............................. 11 9 10 9 8 8 8
Number of loan origination centers............. 5 5 5 5 5 4 2
</TABLE>
_________________________
(1) The data presented for the three months ended June 30, 1996 and 1995 was
derived from unaudited consolidated financial statements and reflect, in
the opinion of management, all adjustments (consisting only of normal
recurring adjustments) which are necessary to present fairly the results
for such interim periods. Interim results at and for the three months ended
June 30, 1996 are not necessarily indicative of the results that may be
expected for the year ending March 31, 1997.
(2) The allowance for loan losses at June 30, 1996, June 30, 1995, March 31,
1996, 1995, 1994, 1993 and 1992 was $6.4 million, $4.7 million, $5.6
million, $4.2 million, $4.0 million, $3.5 million and $1.8 million,
respectively.
(3) The Bank has historically classified its investment and mortgage-backed
securities as "held for investment" until April 1, 1994, at which time a
portion of the Bank's portfolio was classified as "available for sale." The
Bank adopted Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS
115"), as of April 1, 1994. Investment securities at June 30, 1996 do not
include $7.0 million of FHLB-Boston stock.
(4) Asset Quality Ratios and Regulatory Capital Ratios are end of period
ratios. With the exception of end of period ratios, all ratios are based on
average monthly balances during the indicated periods and are annualized
where appropriate.
(5) The average interest rate spread represents the difference between the
weighted average yield on average interest-earning assets and the weighted
average cost of average interest-bearing liabilities.
(6) The net interest margin represents net interest income as a percent of
average interest-earning assets.
(7) The efficiency ratio represents the ratio of noninterest expenses divided
by the sum of net interest income and noninterest income.
(8) For definitions and further information relating to the Bank's regulatory
capital requirements, see "Regulation - Federal Savings Institution
Regulation - Capital Requirements." See "Regulatory Capital Compliance"
for the Bank's pro forma capital levels as a result of the Offerings.
(9) Loans include loans receivable, net, excluding the allowance for loan
losses.
(10) Non-performing assets consist of non-performing loans and real estate
owned ("REO"). Non-performing loans consist of all loans 90 days or
more past due and other loans which have been identified by the Bank as
presenting uncertainty with respect to the collectability of interest or
principal. It is the Bank's policy to cease accruing interest on all such
loans. See "Business of the Bank."
(11) In August 1996, the Bank opened a twelfth branch office in Warwick,
Rhode Island. See "Business of the Bank - Properties."
13
<PAGE>
RISK FACTORS
The following risk factors, in addition to those discussed elsewhere in
this Prospectus, should be considered by investors in deciding whether to
purchase the Common Stock offered hereby.
WEAKNESS IN REGIONAL AND LOCAL ECONOMY
Economic conditions at the local and national levels, as well as
government policies and regulations concerning, among other things, monetary and
fiscal affairs, significantly affect the operations of financial institutions
such as the Bank. The New England region of the United States, including
Southeastern Massachusetts and Rhode Island (the Bank's primary market area)
experienced a significant economic decline beginning approximately in 1988. This
decline adversely affected employment levels, the real estate markets and the
financial services industry in the Bank's market area. Over the past decade, due
primarily to the reduction in manufacturing jobs in Southeastern Massachusetts
and parts of Rhode Island, these areas have generally experienced higher
unemployment rates than national averages and the levels experienced by the
Commonwealth of Massachusetts as a whole. As a result of the decline in the
regional economy, delinquencies increased and the underlying values of
properties located in the Bank's primary market area declined. The effects of
the economic downturn were especially pronounced in the commercial real estate
market, where prices declined substantially in many cases. The declining rental
market and decrease in market values of properties in turn adversely affected
the ability of some real estate developers and borrowers to repay or refinance
their commercial real estate and construction loans. Additionally, numerous
failures of financial institutions operating in the New England region resulted
in the placement of commercial and residential properties into the hands of
federal liquidators contributing to the oversupply of properties available for
sale and also contributed to a further decline of real estate prices. The
economic conditions affecting the Bank's primary market area also resulted in
reduced loan demand and increased competition for the existing lower level of
loan demand. While there have been signs of improvement in the economies and
real estate markets of some New England areas, and there are signs that the
market values of residential and commercial properties in those areas have
stabilized since the sharp declines experienced in the late 1980s and early
1990s, the economies and real estate markets in the Bank's primary market area
have not significantly recovered. While the Bank has not, in recent years,
suffered the same detrimental impact as other financial institutions, the poor
economic conditions and depressed real estate markets could adversely affect the
financial condition and results of operations of the Bank in the future.
SENSITIVITY TO INCREASES IN INTEREST RATES
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 on interest-earning assets, such as loans
and investments, and its interest expense on interest-bearing liabilities, such
as deposits and borrowings. Accordingly, the Bank's results of operations and
financial condition are largely dependent on movements in market interest rates
and its ability to manage its assets in response to such movements.
The Bank's recent results of operations have been adversely affected by
the increase in market interest rates during 1996 and by the increase in the
average balances of higher cost certificates of deposit accounts resulting from
the Bank's recent deposit growth. In particular, during the three months ended
June 30, 1996, the Bank experienced a decrease in its average interest rate
spread, which declined to 2.46% as compared to 3.00% for the same period in
1995, and a decrease in its net interest margin, which declined to 2.99% from
3.54% for the same period in 1995. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations." In addition, during 1996, the
Bank has increased its utilization of FHLB advances to fund asset growth which
such advances increased from $75.1 million at
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March 31, 1996 to $136.6 million at June 30, 1996. FHLB advances generally bear
interest rates higher than retail deposits and are generally more sensitive to
increases in market interest rates.
At June 30, 1996, the Bank's total interest-bearing liabilities
maturing or repricing within one year exceeded its total interest-earning assets
maturing or repricing in the same time period by $142.1 million, representing a
one-year interest sensitivity gap as a percentage of total assets of negative
17.7%. Accordingly, in a rapidly rising interest rate environment, the cost of
the Bank's interest-bearing liabilities will generally increase at a rate faster
than the yield on its interest-earning assets thereby adversely affecting the
Bank's net interest income. Increases in interest rates also could adversely
affect the type (fixed-rate or adjustable-rate) and amount of loans originated
by the Bank and the average life of loans and securities which, in turn, could
adversely impact the yields earned on the Bank's loan and securities portfolios
as well as the amount of secondary market activity in which the Bank engages.
The Bank attempts to manage its interest rate risk by primarily originating for
sale all longer-term, fixed-rate one- to four-family loans, originating for
portfolio shorter-term and adjustable-rate loans, purchasing adjustable-rate
mortgage-backed securities and structuring its FHLB advances to correspond with
the maturities of its interest-earning assets.
The Bank's mortgage banking activity has resulted in the Bank building
a loan serviced for others portfolio which, at June 30, 1996, totalled $1.1
billion. The Bank's mortgage banking activity may also be adversely affected by
a declining interest rate environment to the extent such environment results in
increased loan prepayment activity of serviced loans. In this regard, the Bank
has incurred the cost of originating loans held for sale in order to obtain the
servicing of such loans which, if such loans are prepaid, may result in an
increased amortization of the Bank's mortgage servicing right asset, which it
began to recognize in fiscal 1997 in connection with its implementation of
Statement of Financial Accounting Standards No. 122 ("SFAS No. 122"). See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Impact of New Accounting Standards." Declining interest rates may
also adversely affect the Bank's mortgage banking activity due to the effect of
borrowers that may determine not to close loans that the Bank has committed to
originate due to decreases in interest rates from the time the loan commitment
is made to the time of the closing of the loan. Additionally, increases in
interest rates from the time a borrower has selected an interest rate for a loan
to the time the loan closes, will adversely affect the pricing of the sale of
such loan in the secondary market, if not covered by a forward commitment.
In connection with its mortgage banking activities, the Bank utilizes
forward sale commitment contracts as a method of hedging such loan sales. The
Bank generally covers 70% to 100% of loan commitments and loans originated for
sale with forward commitment contracts depending on management's estimation of
the amount of such loans that are expected to close and its expectation of
future market interest rates. See "Business of the Bank - Origination, Sale,
Servicing and Purchase of Loans." With respect to loans originated for sale that
are not covered by forward commitment contracts, if market interest rates rise
from the time of the loan commitment to the actual time of sale of such loans,
the market value of such loans will be adversely affected, thereby exposing the
Bank to potential losses with respect to such loans. With respect to loans
originated for sale that are covered by forward commitments, if borrowers
determine not to close such loans, the Bank may be required to fund such forward
commitment contracts with loans purchased at a premium or take other measures
which may result in losses related to such activity.
Increases in interest rates would result in interest rates on the
Bank's adjustable-rate loans increasing, thereby resulting in increased loan
payment amounts by the borrowers which, in turn, may result in higher
delinquencies on such loans. Increases in the level of interest rates may also
adversely affect the value of the Bank's investment and mortgage-backed
securities and other interest-earning assets
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and, in turn, its results of operations or retained earnings. At June 30, 1996,
the Bank's investment securities available for sale had an estimated fair value
of $773,000, which was greater than the amortized cost of $55,000. At the same
date, the Bank's investment and mortgage-backed securities held to maturity had
an estimated fair value of $28.8 million, which was $146,000 greater than their
amortized cost of $28.6 million. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Management of Interest Rate
Risk," "Business of the Bank - Lending Activities - One- to Four-Family Mortgage
Lending" and "- Investment Activities."
RECENT INCREASE IN NONINTEREST EXPENSE AND EXPANSION STRATEGY
In connection with the Bank's expansion strategy, since 1994, the Bank
has established four new branch office facilities and one loan origination
center and currently plans to open an additional branch office in early 1997 and
a new centralized administrative and operations center and branch office in late
1997. Additionally, the Bank is currently seeking sites for new branch offices
in its primary market area and new loan origination center locations in both its
primary market area and areas adjacent to its primary market area, including
areas of the state of Connecticut. In addition to its geographic expansion, the
Bank has increased its promotional and marketing efforts in order to increase
its lending and retail deposit market share in its primary market area as well
as surrounding areas. As a result of these efforts, and the addition of new
personnel and office infrastructure, the Bank's noninterest expense has
increased by 6.9% from $12.8 million for fiscal 1994 to $13.7 million for fiscal
1996. The Bank currently has budgeted approximately $15.5 million of additional
capital expenditures related to its planned expansion. While the Bank's
operating efficiency ratio compares favorably to peer group institutions, to the
extent the Bank continues to expand and add office infrastructure and personnel,
the Bank's net income could be adversely affected by further increases in
noninterest expense. The Bank believes that any short-term increase in
noninterest expense due to expansion will be beneficial in the long-term to the
extent the Bank increases its geographic customer base and market share of loans
and deposits. See "Use of Proceeds" and "Pro Forma Data."
INCREASED LENDING RISKS ASSOCIATED WITH MULTI-FAMILY, COMMERCIAL REAL
ESTATE AND COMMERCIAL LOANS
At June 30, 1996, the Bank's multi-family, commercial real estate and
commercial loan portfolios totalled $45.4 million, or 6.1% of total loans
receivable. Of this amount, $4.8 million, or 0.7% consisted of multi-family
loans, $25.6 million, or 3.4%, consisted of commercial real estate loans, and
$15.1 million, or 2.0%, consisted of commercial loans. Multi-family, commercial
real estate and commercial loans are generally viewed as exposing the lender to
greater credit risk than one- to four-family residential loans and typically
involve higher loan principal amounts. Repayment of multi-family and commercial
real estate loans generally is dependent, in large part, on sufficient income
from the property to cover operating expenses and debt service. The Bank
attempts to offset the risks associated with multi-family and commercial real
estate lending primarily by originating such loans on a selective basis, by
lending to individuals who will be actively involved in the management of the
property and who have proven management experience, and by making such loans
with lower loan-to-value ratios than one- to four-family loans. Additionally,
the Bank generally requires personal guarantees from the borrowers of its
multi-family and commercial real estate loans. Economic events and government
regulations, which are outside the control of the borrower or lender, could
impact the value of the property securing the loan or the future cash flow of
the affected properties. Additionally, the decline in real estate values
experienced in the Bank's lending area has been more pronounced with respect to
multi-family and commercial properties as compared to owner-occupied one- to
four-family properties. See "Weakness in Regional and Local Economy" and
"Business of the Bank - Lending Activities."
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The Bank also makes secured and unsecured commercial loans. Unsecured
commercial loans are generally considered to involve a higher degree of risk
than secured commercial loans and real estate lending, due to the absence of
collateral securing the loan. Secured commercial loans are generally secured by
equipment, leases, inventory and accounts receivable. Accordingly, the value of
the collateral securing the Bank's commercial loans may not be as easy to
ascertain as compared to real property, and such collateral may depreciate over
time and may not be as readily saleable as compared to real property. Both
secured and unsecured commercial loans are often substantially dependent upon
the success of the borrower's business. Accordingly, commercial loans involve a
greater degree of risk than a one- to four-family loan and other types of
mortgage loans. See "Business of the Bank - Lending Activities."
ESTABLISHMENT OF THE CHARITABLE FOUNDATION
Pursuant to the Plan, the Company intends to establish a charitable
foundation in connection with the Conversion. The Plan provides that the Bank
and the Company will establish the Foundation, which will be incorporated under
Delaware law as a non-stock corporation and will be funded with shares of Common
Stock contributed by the Company. Establishment of the Foundation is subject to
the approval of the Bank's members at the special meeting being held to vote
upon the Conversion. If approved by members, the establishment of the Foundation
will be dilutive to the interests of stockholders and will have an adverse
impact on the operating results of the Company in fiscal 1997, possibly
resulting in an operating loss in fiscal 1997, the fiscal year in which the
Foundation is established.
Dilution of Stockholders' Interests. The Company proposes to establish
the Foundation with Company Common Stock in an amount equal to 8% of the Common
Stock sold in the Conversion. At the minimum, midpoint and maximum of the
Estimated Price Range, the contribution to the Foundation would equal 414,800,
488,000 and 561,200 shares, with a value of $4.1 million, $4.9 million and $5.6
million, respectively, based on the Purchase Price of $10.00 per share. Upon
completion of the Conversion and establishment of the Foundation, the Company
will have 7,576,200 shares issued and outstanding at the maximum of the
Estimated Price Range, of which the Foundation will own 561,200 shares, or 7.4%.
AS A RESULT, PERSONS PURCHASING SHARES IN THE CONVERSION WILL HAVE THEIR
OWNERSHIP AND VOTING INTERESTS IN THE COMPANY DILUTED BY 7.4%. SEE "PRO FORMA
DATA." IN ADDITION, THE TRADING PRICE OF THE COMMON STOCK COULD BE ADVERSELY
AFFECTED IN THE EVENT THE MARKET PRICE OF THE COMMON STOCK REFLECTS LESS OF A
SPECULATIVE TAKEOVER PREMIUM AS A RESULT OF THE FOUNDATION HOLDING 7.4% OF THE
COMPANY'S OUTSTANDING COMMON STOCK.
Negative Impact on Earnings. Assuming receipt of approval of the Bank's
members, establishment of the Foundation will have an adverse impact on the
Company's and the Bank's earnings in the year in which the contribution is made.
The Company will recognize an expense in the amount of the contribution to the
Foundation in the quarter in which it occurs, which is expected to be the third
quarter of fiscal 1997. Such expense would reduce earnings and have a material
impact on the Company's earnings for the year. The amount of the contribution
will range from $4.1 million to $5.6 million, depending on the amount of Common
Stock sold in the Conversion. The contribution expense will be partially offset
by the tax deductibility of the expense. The Company and the Bank have been
advised by their independent accountants that the contribution to the Foundation
will be tax deductible, subject to a limitation based on 10% of the Company's
annual taxable income. Assuming a contribution of $5.6 million in Common Stock,
based on the maximum of the Estimated Price Range, the Company estimates a net
tax effected expense of $3.6 million. If the Foundation had been established at
March 31, 1996 the Bank's net income would have been $1.0 million rather than
experiencing earnings of $4.6 million for the year ended March 31, 1996.
Management cannot predict earnings for fiscal 1997, but expects that the
establishment and funding of the Foundation will have an adverse impact on the
Company's earnings for the fiscal year. In addition to the contribution to the
Foundation, the Bank expects in the future to
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continue making ordinary charitable contributions within its community. Such
additional contributions are expected to range from $20,000 to $30,000 per year.
Possible Nondeductibility of the Contribution. The Company and the Bank
have been advised by their independent accountants that an organization created
for the above purposes would qualify as a Section 501(c)(3) exempt organization
under the Code, and should be classified as a private foundation. In this
regard, the Foundation will submit a request to the IRS to be recognized as an
exempt organization. The Company and the Bank have received an opinion of their
independent accountants that the Foundation would qualify as a Section 501(c)(3)
exempt organization under the Code, except that such opinion does not consider
the impact of the regulatory condition on the gift imposed by the OTS which
requires the shares held by the Foundation to be voted in the same ratio as all
other shares of Common Stock. See, "The Conversion - Establishment of the
Foundation" and "- Regulatory Conditions Imposed on the Foundation." In the
event that the Company or the Foundation receives an opinion of their tax
counsel satisfactory to OTS that compliance with this condition would have the
effect of causing the Foundation to lose its tax exempt status, otherwise have
material adverse tax consequences on the Foundation or subject the Foundation to
an excise tax under Section 4941 of the Code, the OTS will waive such condition
upon submission of such opinion(s) by the Company or the Foundation. The
independent accountants' opinion further provides that there is substantial
authority for the position that the Company's contribution of its own stock to
the Foundation would not constitute an act of self-dealing, and that the Company
would be entitled to a deduction in the amount of the fair market value of the
stock at the time of the contribution, subject to a limitation based on 10% of
the Company's annual taxable income. The Company, however, would be able to
carry forward any unused portion of the deduction for five years following the
contribution for federal tax purposes. Thus, while the Company expects to
receive a charitable contribution deduction of approximately $500,000 in
calendar year 1996, the Company is permitted under the Code to carryover the
excess contribution over a five-year period for federal tax purposes. The
Company would not be able to utilize such carryover for state income tax
purposes. Assuming the sale of Common Stock at the midpoint of the Estimated
Price Range, the Company estimates that substantially all of the deduction
should be deductible over the combined six-year period. However, no assurances
can be made that the Company will have sufficient pre-tax income over the five
year period to fully utilize the carryover related to the excess contribution.
Although the Company and the Bank have received an opinion of their independent
accountants that the Company will be entitled to the deduction for the
charitable contribution, there can be no assurances that the IRS will recognize
the Foundation as a Section 501(c)(3) exempt organization or that the deduction
will be permitted. In such event, the Company's contribution to the Foundation
would be fully expensed, resulting in a further reduction in earnings in the
year in which the IRS makes such a determination.
Comparison of Valuation and Other Factors Assuming the Foundation is
Not Established as Part of the Conversion. The establishment of the Foundation
was taken into account by Keller in determining the estimated pro forma market
value of the Company. The aggregate price of the shares of Common Stock being
offered in the Subscription and Community Offerings is based upon the
independent appraisal conducted by Keller of the estimated pro forma market
value of the Company. The pro forma aggregate price of the shares being offered
for sale in the Conversion is currently estimated to be between $51.9 million
and $70.2 million, with a midpoint of $61.0 million. Based on the appraisal, the
pro forma market capitalization of the Bank at the midpoint, including shares
contributed to the Foundation, is $65.9 million. The pro forma price to book
ratio and the pro forma price to earnings ratio are 65.65% and 11.00x,
respectively, at the midpoint of the Estimated Price Range. In the event that
the Conversion did not include the Foundation, Keller has estimated that the
estimated pro forma market capitalization of the Bank would be approximately
$69.0 million at the midpoint based on a pro forma price to book ratio and the
pro forma price to earnings ratio that are approximately the same as the
independent appraisal at 65.01% and 11.03x, respectively. If the Foundation was
not part of the Conversion, the pro forma market
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value of the shares being offered is estimated to be between $58.7 million and
$79.4 million. See "Comparison of Valuation and Pro Forma Information with No
Foundation." This estimate by Keller was prepared at the request of the OTS and
is solely for purposes of providing depositors with sufficient information with
which to make an informed decision on the Foundation. There is no assurance that
if the Foundation is not approved the appraisal prepared at that time would
conclude that the pro forma market value of the Company would be the same as
that the amount estimated herein. Any appraisal prepared at that time would be
based on the facts and circumstances existing at that time, including, among
other things, market and economic conditions.
The Bank believes that the establishment of the Foundation is in the
best interests of the Bank, its depositors, its prospective stockholders and the
communities it serves. The Foundation is integrally tied to the Bank's business
of operating a community banking institution and the Bank believes that the
Foundation will have a positive impact on the Bank's long-term franchise value.
The amount of Common Stock being offered in the Conversion at the midpoint of
the Estimated Price Range is approximately $8.0 million less than the estimated
amount of Common Stock that would be offered in the Conversion without the
Foundation based on the estimate provided by Keller, and, as such, certain
depositors of the Bank who subscribe to purchase Common Stock in the
Subscription Offering may receive less shares depending on the appraisal
valuation at that time, the number of shares sold based on that appraisal, the
size of a depositor's stock order and the amount of his or her qualifying
deposits in the Bank. The decrease in the amount of Common Stock being offered
will not have a significant effect on the Company or the Bank's capital
position. The Bank's regulatory capital is significantly in excess of its
regulatory capital requirements and will further exceed such requirements
following the Conversion. The Bank's tangible, leverage and risk-based capital
ratios at June 30, 1996 were 5.87%, 5.87% and 11.58%, respectively. Assuming the
sale of shares at the midpoint of the Estimated Price Range, the Bank's pro
forma tangible, leverage and risk-based capital ratios at June 30, 1996 would be
10.00%, 10.00% and 18.90%, respectively. On a consolidated basis, the Company's
pro forma stockholders' equity would be $100.3 million or approximately 11.73%
of pro forma consolidated assets, assuming the sale of shares at the midpoint of
the Estimated Price Range. Pro forma stockholders' equity per share and pro
forma net earnings per share would be $15.23 and $0.23, respectively. If the
Foundation was not being established in the Conversion, based on the Keller
estimate, the Company's pro forma stockholders' equity would be approximately
$106.1 million or approximately 12.32% of pro forma consolidated assets at the
midpoint of the estimate and pro forma stockholders' equity per share and pro
forma net earnings per share would be approximately the same with the Foundation
as without the establishment of the Foundation. See "Comparison of Valuation and
Pro Forma Information with No Foundation."
Potential Anti-Takeover Effect. If approved by the Bank's members, upon
completion of the Conversion, the Foundation will own 7.4% of the total shares
of the Company's Common Stock outstanding. Such shares will be owned solely by
the Foundation; however, pursuant to the terms of the contribution as mandated
by the OTS, the shares of Common Stock held by the Foundation must be voted in
the same ratio as all other shares of the Company's Common Stock on all
proposals considered by the stockholders of the Company. See "The Conversion -
Establishment of the Foundation" and "Regulatory Conditions Imposed on the
Foundation." The Company and the Foundation will take the necessary steps to
provide such requirement in the Foundation's corporate governance documents. As
such, the Company does not believe the Foundation will have an anti-takeover
effect on the Company. In the event that the OTS were to waive this requirement
as provided in the condition, however, the Foundation's board of directors would
exercise sole voting power over such shares and would no longer be subject to
the restriction. See "The Conversion - Establishment of the Foundation -
Regulatory Conditions Imposed on the Foundation." Although only two of the
Foundation's nine directors will be directors of the Company, management of the
Company and the Bank may benefit to the extent that a majority of the board of
directors of the Foundation determines to vote the shares of Common Stock held
by the Foundation in
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favor of proposals supported by the Company and the Bank. Furthermore, when the
Foundation's shares are combined with shares purchased directly by officers and
directors of the Company, shares held by proposed stock benefit plans, if
approved by stockholders, and shares held in the Bank's ESOP, the aggregate of
such shares could exceed 20% of the Company's outstanding Common Stock, which
could enable management to defeat stockholder proposals requiring 80% approval,
assuming the Foundation voted in favor of management's position. Consequently,
this potential voting control might preclude takeover attempts that certain
stockholders deem to be in their best interest, and might tend to perpetuate
management. Since the ESOP shares are allocated to all eligible employees of the
Bank, and any unallocated shares will be voted by an independent trustee, and
because any stock benefit plans must first be approved by stockholders no sooner
than six months following completion of the Conversion, and awards under such
proposed plans may be granted to employees other than executive officers and
directors, management of the Company does not expect to have voting control of
all shares covered by the ESOP and other stock benefit plans. See, " - Certain
Anti-Takeover Provisions - Voting Control of Officers and Directors."
In the event the voting restriction was waived by the OTS, management
of the Company has sought to mitigate the potential anti-takeover effect of the
Foundation through the structure of the Foundation and certain of the policies
and procedures under which the Foundation must operate. Although two directors
of the Company and/or the Bank will serve on the Foundation's board, the
Foundation's bylaws mandate that at all times at least nine members of the board
must be Disinterested Directors. Therefore, Disinterested Directors will
comprise more than 75% of the Foundation's board. Furthermore, there will be no
agreements or understandings, written or tacit, with respect to the exercise of
either direct or indirect control over the management or policies of the
Company, including agreements related to voting, acquisition or disposition of
the Company's Common Stock. Finally, as the Foundation sells its shares of
Common Stock over time, its ownership interest and voting power in the Company
is expected to decrease.
Possible Litigation. The establishment and funding of a charitable
foundation as part of a conversion is innovative and has been done only on two
other occasions in connection with a conversion. As such, the Foundation may be
subject to potential challenges by depositors of the Bank notwithstanding that
the Boards of Directors of the Company and the Bank have carefully considered
the various factors involved in the establishment of the Foundation in reaching
its determination to establish the Foundation as part of the Conversion. See
"The Conversion -- Establishment of Charitable Foundation -- Purpose of
Foundation." In conjunction with its approval of the Conversion, the Bank
determined to submit the Foundation for a vote of depositors so that depositors
have a right to vote on whether the Foundation should be established as part of
the Conversion. If certain depositors, stockholders or other third parties were
to institute an action seeking to require the Bank to eliminate establishment of
the Foundation in connection with the Conversion, no assurances can be made that
the resolution of such action would not result in a delay in the consummation of
the Conversion or that any objecting persons would not be ultimately successful
in obtaining such removal or other equitable relief or monetary damages against
the Company or the Bank. Additionally, if the Company and the Bank are forced to
eliminate the Foundation, the Company may be required to resolicit subscribers
in the Offerings.
Approval of Members. Establishment of the Foundation is subject to the
approval of a majority of the total outstanding votes of the Bank's members
eligible to be cast at the special meeting being held to consider the
Conversion. The Foundation will be considered as a separate matter from approval
of the Plan of Conversion. If the Bank's members approve the Plan of Conversion,
but not the establishment of the Foundation, the Bank intends to complete the
Conversion without the establishment of the Foundation. Failure to approve the
Foundation may materially increase the pro forma market value of the Common
Stock being offered for sale in the Offerings since the Valuation Range, as set
forth herein,
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takes into account the dilutive impact of the issuance of shares to the
Foundation. If the pro forma market value of the Company without the Foundation
is either greater than $80.7 million or less than $51.9 million, the Bank will
establish a new Estimated Price Range and commence a resolicitation of
subscribers (i.e., subscribers will be permitted to continue their orders, in
which case they will need to affirmatively reconfirm their subscriptions prior
to the expiration of the resolicitation offering or their subscriptions funds
will be promptly refunded with interest at the Bank's passbook rate of interest,
or be permitted to increase, decrease, or cancel their subscriptions). Any
change in the Estimated Price Range must be approved by the OTS. See "The
Conversion - Stock Pricing." A resolicitation, if any, following the conclusion
of the Subscription and Community Offerings would not exceed 45 days unless
further extended by the OTS for periods of up to 90 days not to extend beyond
_______________, 1998.
HIGHLY COMPETITIVE INDUSTRY AND GEOGRAPHIC AREA
The Bank faces significant competition in its market area both in
attracting deposits and in originating loans. The Bank's primary market area,
Southeastern Massachusetts and Rhode Island, is a highly competitive market. The
Bank faces direct competition from a significant number of financial
institutions operating in its market area, many with a state-wide or regional
presence, and, in some cases, a national presence. This competition arises from
commercial banks, savings banks, cooperative banks, mortgage brokers, mortgage
banking companies, credit unions, and other providers of financial services,
many of which are significantly larger than the Bank and, therefore, have
greater financial and marketing resources than those of the Bank. In addition,
the Bank has experienced significant competition from credit unions in some
areas within its primary market area, particularly in Fall River and Rhode
Island, some of which are significant in asset size. Federal and state credit
unions have a significant competitive advantage over banks and savings
institutions as they do not pay income taxes. This advantage, which is unique to
credit unions, places significant competitive pressure on the Bank's loan and
deposit pricing policies, which directly affects the Bank's profitability. See
"Business of the Bank - Market Area and Competition."
RECAPITALIZATION OF SAIF AND ITS IMPACT ON SAIF PREMIUMS
Deposits of the Bank are presently insured by the SAIF. Both the SAIF
and the Bank Insurance Fund ("BIF"), the deposit insurance fund that covers most
commercial bank deposits, are statutorily required to be recapitalized to a
1.25% of insured deposits ratio. The BIF achieved the required ratio in 1995 but
the SAIF is not expected to achieve the ratio until after the year 2000, largely
because a portion of the insurance assessment paid by SAIF members is required
by statute to be used to make payments on bonds issued by the Financing
Corporation ("FICO") which were issued in the late 1980s to recapitalize the
predecessor to the SAIF.
Until recently, members of the SAIF and BIF were paying deposit
insurance premiums of between 23 and 31 basis points. In view of the BIF having
achieved the 1.25% ratio, in 1996 the FDIC adopted a new assessment rate
schedule of 0 to 27 basis points for BIF members. Under that schedule,
approximately 92% of BIF members are required to pay only $2,000 per year, the
legal minimum, in insurance premiums. With respect to SAIF member institutions,
the existing assessment rate schedule applicable to SAIF member institutions of
23 to 31 basis points has been retained. Consequently, there is a significant
differential in the insurance premiums paid by BIF and SAIF members. As long as
the premium differential continues, it may place SAIF members, such as the Bank,
at a substantial competitive disadvantage to BIF members with respect to pricing
of loans and deposits and the ability to achieve lower operating costs.
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Several bills have been introduced in Congress to mitigate the effect
of the BIF/SAIF premium disparity. Among other things, these bills would impose
a special assessment on SAIF-member institutions, including the Bank, to
recapitalize the SAIF fund and would spread the FICO payments across all BIF and
SAIF members. Current proposals would base the special assessment on the amount
of SAIF deposits held on March 31, 1995 and it has been estimated that the
special assessment would range from 79-85 basis points. Certain pending
legislation would also require the BIF and the SAIF to be merged by January 1,
1998, provided that subsequent legislation is adopted to eliminate the federal
thrift charter. The payment of the special assessment would have the effect of
immediately reducing the capital of SAIF-member institutions by the amount of
the fee, net of any tax effect. See "Regulatory Capital Compliance" and
"Regulation - Insurance of Deposit Accounts." Management cannot predict whether
legislation imposing such a special assessment will be enacted, or, if enacted,
the amount of any such assessment, whether such assessment will be calculated
based on the amount of deposits held by the institution on March 31, 1995 or
some other date, whether ongoing SAIF premiums will be reduced to a level equal
to that of BIF premiums or whether the BIF and SAIF will eventually be merged.
The Bank's assessment rate for fiscal 1996 was 23 basis points and the
premiums paid for the year ended March 31, 1996 were $1.0 million. A significant
increase in SAIF insurance premiums or a significant special assessment to
recapitalize the SAIF would have an adverse effect on the operating expenses and
results of operations of the Bank. Based on the Bank's deposit insurance
assessment base as of March 31, 1995 or June 30, 1996, an 85 basis point
assessment to recapitalize the SAIF would result in a pre-tax basis expense of
$3.7 million or $5.1 million, respectively. If the Bank had been required to pay
the special assessment of 85 basis points based on its deposit insurance
assessment base as of March 31, 1995, the Bank's after-tax income would have
been reduced by $2.2 million for the fiscal year ended March 31, 1996 or the
three months ended June 30, 1996. If the Bank had been required to pay the
special assessment of 85 basis points based on its deposit insurance assessment
base as of June 30, 1996, the Bank's after-tax income would have been reduced by
$3.0 million for the fiscal year ended March 31, 1996 or the three months ended
June 30, 1996.
FINANCIAL INSTITUTION REGULATION AND POSSIBLE LEGISLATION
The Bank is subject to extensive regulation and supervision as a
federal savings association. In addition, the Company, as a savings association
holding company, is subject to extensive regulation and supervision. Such
regulations, which affect the Bank on a daily basis, may be changed at any time,
and the interpretation of the relevant law and regulations is also subject to
change by the authorities who examine the Bank and interpret those laws and
regulations. Any change in the regulatory structure or the applicable statutes
or regulations, whether by the OTS, the FDIC or the Congress, could have a
material impact on the Company, the Bank, its operations or the Bank's
Conversion. See "Regulation."
Congress currently has under consideration various proposals to
eliminate the federal thrift charter and abolish the OTS. Several of the bills
presently pending in Congress would require that all federal savings
associations convert to national or state banks by no later than January 1, 1998
and would treat all state savings associations as state banks for purposes of
federal banking laws as of that date. Subject to a narrow grandfathering, all
savings and loan holding companies would become bank holding companies under the
pending legislative proposals and would be subject to the activities
restrictions applicable to bank holding companies. Under the pending bills, any
lawful activity in which a savings association was engaged on September 13, 1995
would be grandfathered for up to 2 years following the effective date of its
conversion to a bank charter, plus two additional one year extensions at the
discretion of the regulator, and existing thrift intrastate and interstate
branches which were operated as branches on September 13, 1995 would also be
grandfathered. The legislative proposals would also abolish the OTS and transfer
its functions to three federal bank regulators and to the Board of Governors of
the Federal
22
<PAGE>
Reserve System (the "Federal Reserve Board") with respect to the regulation of
holding companies. All state savings and loan associations would be regulated as
state banks by the FDIC. The outcome of any pending legislation is uncertain.
Therefore, the Bank is unable to determine the extent to which such legislation,
if enacted, would affect its business.
Legislation regarding bad debt recapture has been signed into law
effective for tax years beginning on or after January 1, 1996. The legislation
requires recapture of reserves accumulated after 1987. The recapture tax on
post-1987 reserves must be paid over a six year period starting in 1996. The
payment of the tax can be deferred in each of 1996 and 1997 if an institution
originates at least the same average annual principal amount of purchased
mortgage loans that it originated in the six years prior to 1996. See "Federal
and State Taxation - Federal Taxation - Bad Debt Reserve."
STOCK-BASED BENEFITS TO MANAGEMENT AND DIRECTORS AND CHANGE IN CONTROL PAYMENTS
Stock Programs. The Company intends to adopt stock-based benefit plans
which would provide for the granting of common stock to non-employee directors,
officers and employees of the Company and its affiliates (the "Stock Programs")
and seek stockholder approval of such plans at a meeting of stockholders
following the Conversion which, under current OTS regulations, may be held no
earlier than six months after completion of the Conversion. Assuming the receipt
of stockholder approval, the Company expects to acquire Common Stock on behalf
of the Stock Programs in an amount equal to 4% of the Common Stock issued in the
Conversion, including shares issued to the Foundation, or 223,992 shares and
303,048 shares at the minimum and maximum of the Estimated Price Range,
respectively. These shares will be acquired either through open market purchases
or from authorized but unissued Common Stock. See "- Possible Dilutive Effect of
Stock Programs and Stock Options."
Although no specific award determinations have been made, the Company
anticipates that it will provide awards to the directors, officers and employees
to the extent permitted by applicable regulations. Current OTS regulations
provide that, with respect to any such benefit plan which is implemented within
one year after consummation of the Conversion, no individual may receive more
than 25% of the shares of any such plan and non-employee directors may not
receive more than 5% individually, or 30% in the aggregate, of the shares
awarded under any such plan. Common Stock awarded under the Stock Programs will
be awarded at no cost to the recipients. Under the terms of the Stock Programs,
an independent trustee will vote unallocated shares in the same proportion as it
receives instructions from recipients with respect to allocated shares which
have not been earned and distributed. The trustee will not vote allocated shares
which have not been distributed if it does not receive instructions from the
recipient. The specific terms of the Stock Programs intended to be adopted and
the amounts of awards thereunder have not yet been determined by the Board of
Directors, and any such determination will consider various factors, including
but not limited to, the financial condition of the Company, current and past
performance of plan participants and tax and securities law and regulation
requirements. The stock-based benefits provided under the Stock Programs and
stock option plans, discussed below, may be provided under separate Stock
Program plans and stock option plans for officers, employees and non-employee
directors or such benefits may be provided for under a single master stock-based
benefit plan adopted by the Company which would incorporate the benefits and
features in the separate plans (the "Master Stock-Based Benefit Plan"). See
"Management of the Bank - Benefits - Stock Programs."
Stock Option Plans. The Company also intends to adopt stock-based
benefit plans which would provide options to purchase Common Stock ("Stock
Options") to officers, employees and non-employee directors of the Company and
its affiliates (the "Stock Option Plans") and to seek stockholder approval of
such plans at a meeting of stockholders following the Conversion, which under
current OTS regulations may be held no earlier than six months after completion
of the Conversion. Although no specific
23
<PAGE>
determinations have been made, assuming the receipt of stockholder approval, the
Company expects that executive officers and directors will be granted options to
purchase an amount of authorized but unissued Common Stock or treasury stock, if
any, equal to 10% of the Common Stock issued in the Conversion, including shares
issued to the Foundation, or 559,980 shares and 757,620 shares at the minimum
and maximum of the Estimated Price Range. Under the Stock Option Plans, the
exercise price of options will be equal to the fair market value of the
underlying Common Stock on the date of grant. Such options will permit such
officers and directors to benefit from any increase in the market value of the
shares in excess of the exercise price at the time of exercise. Officers and
directors receiving such options will not be required to pay for the shares
until the date of exercise. The specific terms of the Stock Option Plans
intended to be adopted and amounts and awards thereunder have not yet been
determined by the Board of Directors and any such determination will consider
various factors, including but not limited to, the financial condition of the
Company, current and past performance of award recipients and tax and securities
law and regulation requirements. The stock options discussed above may be
provided under the Stock Option Plans, may be provided under separate stock
option plans for officers, employees and non-employee directors or may be
provided for under the Master Stock-Based Benefit Plan which would incorporate
the features and benefits of the separate stock option plans. Although no
specific award determinations have been made, the Company anticipates that it
will provide awards to the directors, officers and employees to the extent
permitted by applicable regulations. Current OTS regulations provide that, with
respect to any such benefit plan which is implemented within one year after
consummation of the Conversion, no individual may receive more than 25% of the
shares of any such plan and non-employee directors may not receive more than 5%
individually, or 30% in the aggregate, of the shares awarded under any such
plan. See "Management of the Bank - Benefits - Stock Option Plans."
Employment Contracts and Change In Control Provisions. Employment and
Change in Control agreements with certain officers and the Employee Severance
Plan provide for benefits and cash payments in the event of a change in control
of the Company or the Bank. The provisions in such agreements and plan would
provide the recipient with a change in control payment in the event of the
recipient's involuntary or, in certain circumstances, voluntary termination of
employment subsequent to a change in control of the Company or the Bank. These
provisions may have the effect of increasing the cost of acquiring the Company,
thereby discouraging future attempts to take over the Company or the Bank. Based
on current salaries, cash payments to be paid in the event of a change in
control pursuant to the terms of the employment agreements, change in control
agreements and the employee severance compensation plan would be approximately
$5.8 million, including a $1.1 million payment to the Chief Executive Officer
and President of the Company and the Bank. However, the actual amount to be paid
in the event of a change in control of the Bank or the Company cannot be
estimated at this time because the actual amount is based on the average salary
of the employee and other factors existing at the time of the change in control.
See "Restrictions on Acquisition of the Company and the Bank - Restrictions in
the Company's Certificate of Incorporation and Bylaws," "Management of the Bank
- - Employment Agreements," "- Change-in-Control Agreements," "- Employee
Severance Compensation Plan," "- Benefits - Stock Option Plans" and "- Benefits
- - Stock Programs."
POSSIBLE DILUTIVE EFFECT OF STOCK PROGRAMS AND STOCK OPTIONS
Following the Conversion, the Stock Programs will acquire an amount of
shares equal to 4% of the shares of Common Stock issued in the Conversion,
either through open market purchases or the issuance of authorized but unissued
shares of Common Stock from the Company. If the Stock Programs are funded by the
issuance of authorized but unissued shares, the voting interests of existing
shareholders will be diluted by 3.8%. Also following the Conversion, directors,
officers and employees will be granted options under the Stock Options Plans.
Although no specific determinations have been made, the Company expects that
executive officers and directors will be granted options to purchase authorized
but
24
<PAGE>
unissued shares in an amount equal to 10% of the Common Stock issued in the
Conversion. Under certain circumstances, such options may be exercised and sold
on the same day, thereby eliminating any risk to officers and directors in
exercising options in the event that the market price exceeds the exercise
price. If all of the options were to be exercised using authorized but unissued
Common Stock and the Stock Programs were funded with authorized but unissued
shares, the voting interests of existing stockholders would be diluted by 12.3%.
CERTAIN ANTI-TAKEOVER PROVISIONS WHICH MAY DISCOURAGE TAKEOVER ATTEMPTS
Provisions in the Company's and the Bank's Governing Instruments.
Certain provisions of the Company's Certificate of Incorporation and Bylaws,
particularly a provision limiting voting rights, and the Bank's Stock Charter
and Bylaws, as well as certain federal regulations, assist the Company in
maintaining its status as an independent publicly owned corporation. These
provisions provide for, among other things, supermajority voting on certain
matters, staggered boards of directors, non-cumulative voting for directors,
limits on the calling of special meetings, limits on voting shares in excess of
10% of the outstanding shares, and certain uniform price provisions for certain
business combinations. The Bank's Stock Charter also prohibits, for five years,
the acquisition or offer to acquire, directly or indirectly, the beneficial
ownership of more than 10% of the Bank's equity securities. Any person violating
this restriction may not vote the Bank's securities in excess of 10%. These
provisions in the Bank's and the Company's governing instruments may discourage
potential proxy contests and other potential takeover attempts, particularly
those which have not been negotiated with the Board of Directors, and thus,
generally may serve to perpetuate existing management. For a more detailed
discussion of these provisions, see "Restrictions on Acquisition of the Company
and the Bank."
Voting Control of Officers and Directors. Directors and executive
officers of the Bank and the Company expect to purchase approximately 2.6% or
2.1% of the shares of Common Stock to be issued in the Conversion, based upon
the minimum and the maximum of the Estimated Price Range, respectively,
exclusive of shares that may be attributable to directors and officers through
the Stock Programs, the Stock Options Plans and the ESOP. Management's potential
voting control could, together with additional stockholder support, defeat
stockholder proposals requiring 80% approval of stockholders. As a result, this
potential voting control may preclude takeover attempts that certain
stockholders deem to be in their best interest and may tend to perpetuate
existing management. See "Restrictions on Acquisition of the Company and the
Bank - Restrictions in the Company's Certificate of Incorporation and Bylaws."
ABSENCE OF MARKET FOR COMMON STOCK
The Company and the Bank have never issued capital stock. The Company
has received conditional approval to have its Common Stock listed on the AMEX
under the symbol "FAB" upon completion of the Conversion. However, there can be
no assurance that an active and liquid trading market for the Common Stock will
develop, or, once developed, will continue, nor can there be any assurances that
purchasers of the Common Stock will be able to sell their shares at or above the
Purchase Price. The absence or discontinuance of a market for the Common Stock
would have an adverse impact on both the price and liquidity of the Common
Stock. See "Market for the Common Stock."
POSSIBLE INCREASE IN ESTIMATED PRICE RANGE AND NUMBER OF SHARES ISSUED
The number of shares to be sold in the Conversion may be increased as a
result of an increase in the Estimated Price Range of up to 15% to reflect
changes in market or financial and economic conditions following the
commencement of the Subscription and Community Offerings. In the event that the
Estimated Price Range is so increased, it is expected that the Company will
issue up to 8,067,250 shares
25
<PAGE>
of Common Stock at the Purchase Price for an aggregate purchase price of up to
$80,672,500. An increase in the number of shares issued will decrease a
subscriber's pro forma net earnings per share and stockholders' equity per share
and will increase the Company's pro forma consolidated stockholders' equity and
net earnings. Such an increase will also increase the Purchase Price as a
percentage of pro forma stockholders' equity per share and net earnings per
share.
POSSIBLE ADVERSE INCOME TAX CONSEQUENCES OF THE DISTRIBUTION OF SUBSCRIPTION
RIGHTS
The Bank has received an opinion from Keller which states that,
pursuant to Keller's valuation, that subscription rights granted to Eligible
Account Holders, Supplemental Eligible Account Holders and Other Members have no
value. However, such valuation is not binding on the IRS. If the subscription
rights granted to Eligible Account Holders, Supplemental Eligible Account
Holders and Other Members are deemed to have an ascertainable value, receipt of
such rights could result in taxable gain to those Eligible Account Holders,
Supplemental Eligible Account Holders or Other Members who receive and/or
exercise the subscription rights in an amount equal to such value. Additionally,
the Bank could recognize a gain for tax purposes on such distribution. Whether
subscription rights are considered to have ascertainable value is an inherently
factual determination. See "The Conversion - Effects of Conversion" and "- Tax
Aspects."
FIRSTFED AMERICA BANCORP, INC.
The Company was organized in September 1996 at the direction of the
Board of Directors of the Bank for the purpose of acquiring all of the capital
stock to be issued by the Bank. The Company has applied to the OTS to become a
savings and loan holding company, and, as such, will be subject to regulation by
the OTS. See "The Conversion - General." After completion of the Conversion, the
Company will conduct business initially as a unitary savings and loan holding
company. See "Regulation - Holding Company Regulation." Upon consummation of the
Conversion, the Company's assets will consist of all of the outstanding shares
of the Bank's capital stock issued to the Company in the Conversion and that
portion of the net proceeds of the Offerings retained by the Company. The
Company intends to use part of the net proceeds it retains to capitalize the
ESOP Loan Subsidiary which intends to loan funds to the ESOP to enable the ESOP
to purchase 8% of the Common Stock issued in the Conversion, including shares
issued to the Foundation, and intends to initially deposit the remaining
proceeds with the Bank. See "Use of Proceeds." The Company and Bank may,
however, alternatively choose to fund the ESOP through a loan to the ESOP trust
by a third party financial institution. Immediately after the Conversion, the
Company will have no significant liabilities. The management of the Company is
set forth under "Management of the Company." Initially, the Company will neither
own nor lease any property, but will instead use the premises, equipment and
furniture of the Bank. At the present time, the Company does not intend to
employ any persons other than officers of the Company who are also officers of
the Bank, but will utilize the support staff of the Bank from time to time.
Additional employees will be hired as appropriate to the extent the Company
expands its business in the future.
Management believes that the holding company structure will provide the
Company with additional flexibility to diversify, should it decide to do so, its
business activities through existing or newly-formed subsidiaries, or through
acquisitions of other financial institutions and financial services related
companies. In addition, management believes that the Company will be in a
position after the Conversion, subject to regulatory limitations and the
Company's financial position, to take advantage of any acquisition and expansion
opportunities that may arise. With the exception of the Bank's current plans to
open a de novo branch office in early 1997 and a centralized administrative and
operations center and branch office in late 1997, there are no current
arrangements, understandings or agreements, written
26
<PAGE>
or oral, regarding any such opportunities or transactions. The initial
activities of the Company are anticipated to be funded by the net proceeds
retained by the Company and earnings thereon or, alternatively, through
dividends from the Bank.
FIRST FEDERAL SAVINGS BANK OF AMERICA
The Bank was originally organized in 1946 and operated as First Federal
Savings and Loan Association of Fall River. In 1982, the Bank merged with First
Federal Savings and Loan Association of Attleboro, which was originally
organized in 1854 and became a federally-chartered savings and loan association
in 1959. In 1983, the Bank became a federally-chartered savings bank changing
its name to First Federal Savings Bank of America. In 1984, the Bank added
mortgage banking activities to its operations. The Bank conducts business from
its administrative/branch and operations offices located in Fall River,
Massachusetts, its eleven other branch offices located in the municipalities of
Fall River, Attleboro, New Bedford, Seekonk, Somerset and Taunton, Massachusetts
and Pawtucket, East Providence and Warwick, Rhode Island, and its five loan
origination centers located in Yarmouth, Auburn, Agawam and Burlington,
Massachusetts and East Greenwich, Rhode Island. See "Business of the Bank -
Market Area and Competition." At June 30, 1996, the Bank had total assets of
$802.8 million, total deposit accounts of $600.6 million and retained earnings
of $47.5 million. The Bank's deposits are insured up to the maximum allowable
amount by the Savings Association Insurance Fund ("SAIF") of the Federal Deposit
Insurance Corporation ("FDIC").
The Bank is a community-oriented savings institution whose business
primarily consists of accepting deposits from customers and investing those
funds primarily in mortgage loans secured by one- to four-family residences
located within its primary market area. To a significantly lesser extent, the
Bank invests in multi-family, commercial real estate, construction and land,
commercial and consumer loans. The Bank originates one- to four-family loans for
investment and for sale in the secondary market, generally selling all longer
term fixed-rate loans on a servicing retained basis and retaining for its
portfolio all adjustable-rate and shorter term fixed-rate one- to four-family
loans. At June 30, 1996 the Bank's loans receivable, net totalled $727.4
million, or 90.6% of total assets. At such date, the Bank serviced $1.1 billion
of loans for others which such servicing rights were derived from loans sold by
the Bank. To a significantly lesser extent, the Bank also invests in investment
securities, consisting of U.S. Government and agency obligations, and
mortgage-backed securities, primarily consisting of those guaranteed by
governmental agencies such as the FHLMC and GNMA. At June 30, 1996, investment
and mortgage-backed securities totalled $29.4 million, or 3.7% of total assets,
$28.6 million, or 97.4%, of which were classified as held to maturity. At June
30, 1996, the Bank's deposit accounts totalled $600.6 million, or 79.5% of total
liabilities, of which $191.0 million, or 31.8%, were core deposits. The Bank
also uses advances from the Federal Home Loan Bank of Boston ("FHLB-Boston") as
a source of funds. At June 30, 1996, such advances totalled $136.6 million, or
18.1% of total liabilities. See "Business of the Bank."
The Bank's executive offices are located at One North Main Street, Fall
River, Massachusetts 02720 and its telephone number is (508) 679-8181.
27
<PAGE>
REGULATORY CAPITAL COMPLIANCE
At June 30, 1996, the Bank exceeded all regulatory capital
requirements. See "Regulation - Federal Savings Institution Regulation - Capital
Requirements." Set forth below is a summary of the Bank's compliance with
regulatory capital standards as of June 30, 1996, on a historical and pro forma
basis assuming that the indicated number of shares were sold as of such date and
receipt by the Bank of the greater of 50% of the net proceeds or the amount of
the net proceeds sufficient to increase the Bank's tangible capital to 10% of
its total adjusted assets. For purposes of the table below, the amount expected
to be borrowed by the ESOP and the cost of the shares expected to be acquired by
the Stock Programs are deducted from pro forma regulatory capital.
<TABLE>
<CAPTION>
First Federal Savings Bank of America
Pro Forma at June 30, 1996 Based Upon Sale at $10.00 Per Share
---------------------------------------------------------------------------
5,185,000 Shares 6,100,000 Shares 7,015,000 Shares
(Minimum of (Midpoint of (Maximum of
Historical at Estimated Estimated Estimated
June 30, 1996 Price Range) Price Range) Price Range)
--------------------- ---------------------- ---------------------- ----------------------
Percent Percent Percent Percent
of of of of
Amount Assets(2) Amount Assets(2) Amount Assets(2) Amount Assets(2)
--------- ---------- --------- ---------- -------- ---------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP Capital............... $47,521 5.92% $84,338 10.04% $84,338 10.04% $84,338 10.04%
======= ===== ======= ====== ======= ====== ======= ======
Tangible Capital:
Capital Level......... $47,104 5.87% $83,921 10.00% $83,921 10.00% $83,921 10.00%
Requirement........... 12,036 1.50 12,588 1.50 12,588 1.50 12,588 1.50
------- ----- ------- ------ ------- ------ ------- ------
Excess................ $35,068 4.37% $71,333 8.50% $71,333 8.50% $71,333 8.50%
======= ===== ======= ====== ======= ====== ======= ======
Core Capital:
Capital Level......... $47,104 5.87% $83,921 10.00% $83,921 10.00% $83,921 10.00%
Requirement(3)........ 24,072 3.00 25,176 3.00 25,176 3.00 25,176 3.00
------- ----- ------- ------ ------- ------ ------- ------
Excess................ $23,032 2.87% $58,745 7.00% $58,745 7.00% $58,745 7.00%
======= ===== ======= ====== ======= ====== ======= ======
Risk-Based Capital:
Capital Level(4)(5)... $52,689 11.58% $89,506 18.90% $89,506 18.90% $89,506 18.90%
Requirement........... 36,413 8.00 37,886 8.00 37,886 8.00 37,873 8.00
------- ----- ------- ------ ------- ------ ------- ------
Excess................ $16,276 3.58% $51,620 10.90% $51,620 10.90% $51,633 10.90%
======= ===== ======= ====== ======= ====== ======= ======
8,067,250 Shares
(15% above
Maximum
of Estimated
Price Range)(1)
--------------------
Percent
of
Amount Assets(2)
-------- ----------
(Dollars in thousands)
GAAP Capital............... $86,723 10.30%
======= ======
Tangible Capital:
Capital Level......... $86,306 10.26%
Requirement........... 12,624 1.50
------- ------
Excess................ $73,682 8.76%
======= ======
Core Capital:
Capital Level......... $86,306 10.26%
Requirement(3)........ 25,248 3.00
------- ------
Excess................ $61,058 7.26%
======= ======
Risk-Based Capital:
Capital Level(4)(5)... $91,891 19.35%
Requirement........... 37,981 8.00
------- ------
Excess................ $53,910 11.35%
======= ======
</TABLE>
- ------------------------------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Price Range of up to 15%
as a result of regulatory considerations or changes in market or general
financial and economic conditions following the commencement of the
Subscription and Community Offerings.
(2) Tangible capital levels are shown as a percentage of tangible assets.
Core capital levels are shown as a percentage of total adjusted assets.
Risk-based capital levels are shown as a percentage of risk-weighted
assets.
(3) The current OTS core capital requirement for savings associations is 3%
of total adjusted assets. The OTS has proposed core capital requirements
which would require a core capital ratio of 3% of total adjusted assets
for thrifts that receive the highest supervisory rating for safety and
soundness and a 4% to 5% core capital ratio requirement for all other
thrifts. See "Regulation - Federal Savings Institution Regulation -
Capital Requirements."
(4) Assumes net proceeds are invested in assets that carry a 50% risk-
weighting.
(5) The difference between equity under generally accepted accounting
principles ("GAAP") and regulatory risk-based capital is attributable to
the addition of the general valuation allowance of $6.2 million at June
30, 1996.
28
<PAGE>
USE OF PROCEEDS
Although the actual net proceeds from the sale of the Common Stock
cannot be determined until the Conversion is completed, it is presently
anticipated that the net proceeds from the sale of the Common Stock will be
between $50.0 million and $68.0 million (or $78.4 million if the Estimated Price
Range is increased by 15%). See "Pro Forma Data" and "The Conversion - Stock
Pricing" as to the assumptions used to arrive at such amounts. The Company will
be unable to utilize any of the net proceeds of the Offerings until the
consummation of the Conversion.
The Company will purchase all of the outstanding capital stock of the
Bank to be issued upon Conversion in exchange for the greater of that portion of
the net proceeds of the Offerings sufficient to increase the Bank's tangible
capital to 10% of its total adjusted assets, or 50% of the net proceeds, with
the remaining net proceeds to be retained by the Company. Based on net proceeds
of $50.0 million to $68.0 million and the assets of the Bank as of June 30,
1996, the Company expects to utilize $36.8 million of net proceeds to purchase
the common stock of the Bank. Such portion of net proceeds will be added to the
Bank's general funds which the Bank currently intends to utilize for the
repayment of outstanding FHLB advances and other general corporate purposes,
including investment in one- to four-family residential mortgage loans and other
loans, investment in federal funds, short-term, investment grade marketable
securities and mortgage-backed securities and to fund the Stock Programs or
Master Stock - Based Benefit Plan. The Bank may also use such funds for the
expansion of its facilities, and to expand operations through acquisitions of
other financial institutions, branch offices or other financial services
companies, including those located within the Bank's market area or the
establishment of de novo branch offices or loan origination facilities. Apart
from the amount expected to be used to repay a portion of currently outstanding
FHLB advances, the Bank has not yet determined the approximate amount of net
proceeds to be used for any of the purposes mentioned above.
The Company intends to use a portion of the net proceeds to capitalize
the ESOP Loan Subsidiary which intends to loan funds to the ESOP to enable the
ESOP to purchase 8% of the Common Stock issued in the Conversion, including
shares issued to the Foundation. The Company and Bank may alternatively choose
to fund the ESOP's stock purchases through a loan by a third party financial
institution. The remaining net proceeds retained by the Company will initially
be invested in a deposit account at the Bank which the Bank intends to utilize
to repay outstanding FHLB advances and for other general business purposes.
Based upon the sale of 5,185,000 shares or 7,015,000 shares at the minimum and
maximum of the Estimated Price Range, and the issuance of shares to the
Foundation, the amount of the loan to the ESOP would be $4.5 million or $6.1
million, respectively (or $7.0 million if the Estimated Price Range is increased
by 15%) to be repaid over a nine year period at the prevailing prime rate of
interest, which currently is 8.25%. See "Management of the Bank - Benefits -
Employee Stock Ownership Plan and Trust."
The net proceeds retained by the Company may also be used to support
the future expansion of operations through branch acquisitions, the
establishment of branch offices and the acquisition of smaller financial
institutions or their assets, including those located within the Bank's market
area or diversification into other banking related businesses. With the
exception of the Bank's current plans to open a de novo branch office in early
1997 and a centralized administrative and operations center and branch office in
late 1997, the Company has no current arrangements, understandings or agreements
regarding any such opportunities or transactions. However, the Bank, consistent
with its expansion strategy, is currently seeking sites for additional branch
office and loan origination center locations. The Bank currently anticipates
capital expenditures of approximately $15.5 million related to the opening of
its new centralized administrative and operations center, the two new branch
offices and renovation activity. The Company, upon the Conversion, will be a
unitary savings and loan holding company, which
29
<PAGE>
under existing laws would generally not be restricted as to the types of
business activities in which it may engage, provided that the Bank continues to
be a qualified thrift lender ("QTL"). See "Regulation Holding Company
Regulation" for a description of certain regulations applicable to the Company.
Upon completion of the Conversion, the Board of Directors of the
Company will have the authority to adopt stock repurchase plans, subject to
statutory and regulatory requirements. Unless approved by the OTS, the Company,
pursuant to OTS regulations, will be prohibited from repurchasing any shares of
the Common Stock for three years except (i) for an offer to all stockholders on
a pro rata basis, or (ii) for the repurchase of qualifying shares of a director.
Notwithstanding the foregoing and except as provided below, beginning one year
following completion of the Conversion, the OTS regulations permit the Company
to repurchase its Common Stock so long as: (i) the repurchases within the
following two years are part of an open-market program not involving greater
than 5% of its outstanding capital stock during a twelve-month period; (ii) the
repurchases do not cause the Bank to become "undercapitalized" within the
meaning of the OTS prompt corrective action regulation; and (iii) the Company
provides to the Regional Director of the OTS no later than 10 days prior to the
commencement of a repurchase program written notice containing a full
description of the program to be undertaken and such program is not disapproved
by the Regional Director. See "Regulation - Prompt Corrective Regulatory
Action." In addition, under current OTS policies, repurchases may be allowed in
the first year following Conversion and in amounts greater than 5% in the second
and third years following Conversion provided there are valid and compelling
business reasons for such repurchases and the OTS does not object to such
repurchases.
Based upon facts and circumstances following Conversion and subject to
applicable regulatory requirements, the Board of Directors may determine to
repurchase stock in the future. Such facts and circumstances may include but not
be limited to: (i) market and economic factors such as the price at which the
stock is trading in the market, the volume of trading, the attractiveness of
other investment alternatives in terms of the rate of return and risk involved
in the investment, the ability to increase the book value and/or earnings per
share of the remaining outstanding shares, and the opportunity to improve the
Company's return on equity; (ii) the avoidance of dilution to stockholders by
not having to issue additional shares to cover the exercise of stock options or
to fund employee stock benefit plans; and (iii) any other circumstances in which
repurchases would be in the best interests of the Company and its shareholders.
In the event the Company determines to repurchase stock, such repurchases may be
made at market prices which may be in excess of the Purchase Price in the
Conversion. To the extent that the Company repurchases stock at market prices in
excess of the Purchase Price in the Conversion, such repurchases may have a
dilutive effect upon the interests of existing stockholders.
Any stock repurchases will be subject to the determination of the Board
of Directors that both the Company and the Bank will be capitalized in excess of
all applicable regulatory requirements after any such repurchases and that such
capital will be adequate, taking into account, among other things, the level of
non-performing and other risk assets, the Company's and the Bank's current and
projected results of operations and asset/liability structure, the economic
environment, tax and other considerations. See "The Conversion - Certain
Restrictions on Purchase or Transfer of Shares after Conversion."
While the Company's Board of Directors intends to consider a policy of
paying cash dividends in the future, the Board has not currently formulated a
policy with respect to the payment of dividends. The payment of dividends or
repurchase of stock, however, would be prohibited if stockholders' equity would
be reduced below the amount required to maintain the Bank's liquidation account.
See "Dividend Policy" and "The Conversion - Liquidation Rights" and "- Certain
Restrictions on Purchase or Transfer of Shares After Conversion."
30
<PAGE>
DIVIDEND POLICY
Upon Conversion, the Board of Directors of the Company will have the
authority to declare dividends on the Common Stock, subject to statutory and
regulatory requirements. In the future, the Board of Directors intends to
consider a policy of paying cash or stock dividends on the Common Stock.
However, no decision has been made with respect to the payment of dividends.
Declarations of dividends by the Board of Directors, if any, will depend upon a
number of factors, including the amount of net proceeds retained by the Company
in the Conversion, investment opportunities available to the Company or the
Bank, capital requirements, regulatory limitations, the Company's and the Bank's
financial condition and results of operations, tax considerations and general
economic conditions. No assurances can be given, however, that any dividends
will be paid or, if commenced, will continue to be paid.
The Bank will not be permitted to pay dividends to the Company on its
capital stock if its stockholders' equity would be reduced below the amount
required for the liquidation account. See "The Conversion - Liquidation Rights."
For information concerning federal regulations which apply to the Bank in
determining the amount of proceeds which may be retained by the Company and
regarding a savings institution's ability to make capital distributions
including payment of dividends to its holding company, see "Federal and State
Taxation - Federal Taxation - Distributions" and "Regulation - Federal Savings
Institution Regulation - Limitation on Capital Distributions."
Unlike the Bank, the Company is not subject to OTS regulatory
restrictions on the payment of dividends to its stockholders, although the
source of such dividends will be dependent on the net proceeds retained by the
Company and earnings thereon and may be dependent, in part, upon dividends from
the Bank. The Company is subject, however, to the requirements of Delaware law,
which generally limit dividends to an amount equal to the excess of the net
assets of the Company (the amount by which total assets exceed total
liabilities) over its statutory capital (generally defined as the aggregate par
value of the outstanding shares of the Company's capital stock having a par
value plus the amount of the consideration paid for shares of the Company's
capital stock without par value) or, if there is no such excess, to its net
profits for the current and/or immediately preceding fiscal year.
MARKET FOR THE COMMON STOCK
The Company and Bank have not previously issued capital stock and,
consequently, there is no established market for the Common Stock. The Company
has received conditional approval to have its Common Stock listed on the AMEX
under the symbol "FAB" upon completion of the Conversion. Such approval is
subject to various conditions, including completion of the Conversion and the
satisfaction of applicable listing criteria. There can be no assurance that the
Common Stock will be able to meet the applicable listing criteria in order to
maintain its listing on the AMEX or that an active and liquid trading market
will develop or, if developed, will be maintained. 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
Common Stock at any given time, which is not within the control of the Company.
No assurance can be given that an investor will be able to resell the Common
Stock at or above the purchase price of the Common Stock after the Conversion.
31
<PAGE>
CAPITALIZATION
The following table presents the unaudited historical consolidated
capitalization of the Bank at June 30, 1996, and the pro forma consolidated
capitalization of the Company after giving effect to the Conversion, including
the issuance of shares to the Foundation, based upon the sale of the number of
shares indicated in the table and the other assumptions set forth under "Pro
Forma Data."
<TABLE>
<CAPTION>
Company Pro Forma Based Upon Sale at $10.00 Per Share
-------------------------------------------------------------------
5,185,000 8,067,250
Shares 6,100,000 7,015,000 Shares
(Minimum Shares Shares (15% above
of (Midpoint of (Maximum of Maximum of
Bank Estimated Estimated Estimated Estimated
Historical Price Range) Price Range) Price Range) Price Range)(1)
---------- -------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
(In thousands)
Deposit accounts(2)................. $ 600,584 $600,584 $600,584 $600,584 $600,584
FHLB advances....................... 136,648 136,648 136,648 136,648 136,648
--------- ------- ------- ------- -------
Total deposit accounts and
FHLB advances.................... $ 737,232 $737,232 $737,232 $737,232 $737,232
========= ======== ======== ======== ========
Stockholders' equity:
Preferred Stock, $.01 par
value, 1,000,000 shares
authorized; none to be
issued....................... $ -- $ -- $ -- $ -- $ --
Common Stock, $.01 par
value, 25,000,000 shares
authorized; shares to be
issued as reflected.......... -- 56 66 76 87
Less: Expense of contribution to
the Foundation, net of
taxes(3)................. -- (2,683) (3,163) (3,642) (4,193)
Plus: Shares issued to
the Foundation........... -- 4,148 4,880 5,612 6,454
Less: Common Stock acquired
by the ESOP(4)........... -- (4,480) (5,270) (6,061) (6,970)
Additional paid-in capital(5).... -- 49,935 58,944 67,954 78,316
Retained earnings(6)............. 47,521 47,521 47,521 47,521 47,521
Common Stock acquired by
the Stock Programs(7)........ -- (2,240) (2,635) (3,030) (3,485)
-------- -------- -------- -------- --------
Total stockholders' equity.......... $ 47,521 $ 92,257 $100,343 $108,430 $117,730
======== ======== ======== ======== ========
</TABLE>
32
<PAGE>
- -----------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Price Range of up to
15% as a result of regulatory considerations or changes in market or
general financial and economic conditions following the commencement of
the Subscription and Community Offerings.
(2) Does not reflect withdrawals from deposit accounts for the purchase of
Common Stock in the Conversion. Such withdrawals would reduce pro forma
deposits by the amount of such withdrawals.
(3) Represents the value of the contribution of Common Stock to the
Foundation at $10.00 per share reduced by the associated tax benefit of
$1,465,000, $1,717,000, $1,970,000 and $2,261,000 at the minimum,
midpoint, maximum and 15% above the maximum of the range, respectively.
The realization of the federal tax benefit is limited annually to 10%
of the Company's annual taxable income, subject to the ability of the
Company to carry forward any unused portion of the deduction for five
years following the year in which the contribution is made. For state
income tax purposes, the Bank will not be able to utilize any such
carry forward.
(4) Assumes that 8% of the shares issued in connection with the Conversion,
including shares issued to the Foundation, will be purchased by the
ESOP and that the funds used to acquire such shares will be borrowed
from the ESOP Loan Subsidiary. The Common Stock acquired by the ESOP is
reflected as a reduction of stockholders' equity. See "Management of
the Bank - Benefits -Employee Stock Ownership Plan and Trust."
(5) No effect has been given to the issuance of additional shares of Common
Stock to the Foundation at a value of $10.00 per share or to the
issuance of additional shares pursuant to the Company's Stock Option
Plans intended to be adopted by the Company and presented for approval
of stockholders at a meeting of stockholders following the Conversion.
If approved by the stockholders of the Company, an amount equal to 10%
of the shares of Common Stock issued in the Conversion, including
shares issued to the Foundation, will be reserved for issuance upon the
exercise of options to be granted under the Stock Option Plans. See
"Risk Factors - Possible Dilutive Effect of Stock Programs and Stock
Options," Footnote 3 to the tables under "Pro Forma Data" and
"Management of the Bank - Benefits - Stock Option Plans."
(6) The retained earnings of the Bank will be substantially restricted
after the Conversion. See "The Conversion - Liquidation Rights" and
"Regulation - Federal Savings Institution Regulation - Limitations on
Capital Distributions."
(7) Assumes that, subsequent to the Conversion, an amount equal to 4% of
the shares of Common Stock sold in the Conversion and issued to the
Foundation is purchased by the Stock Programs through open market
purchases at the offering price of $10.00 per share. The Common Stock
purchased by the Stock Programs is reflected as a reduction of
stockholders' equity. Implementation of the Stock Programs is subject
to the approval of the Company's stockholders at a meeting following
the Conversion. See "Risk Factors - Possible Dilutive Effect of Stock
Programs and Stock Options," Footnote 2 to the tables under "Pro Forma
Data" and "Management of the Bank - Benefits - Stock Programs."
33
<PAGE>
PRO FORMA DATA
The actual net proceeds from the sale of the Common Stock cannot be
determined until the Conversion is completed. However, net proceeds are
currently estimated to be between $50.0 million and $68.0 million (or $78.4
million in the event the Estimated Price Range is increased by 15.0%) based upon
the following assumptions: (i) 100% of the shares of Common Stock will be sold
in the Subscription Offering to Eligible Account Holders, the ESOP and
Supplemental Eligible Account Holders; (ii) directors, officers and employees of
the Bank and members of their immediate families (collectively, "Insiders") will
purchase an aggregate of $1.5 million of Common Stock and the ESOP will purchase
8% of the Common Stock issued in connection with the Conversion, including
shares issued to the Foundation; (iii) Sandler O'Neill will receive a fee equal
to 1.56% of the aggregate Purchase Price of shares sold in the Subscription and
Community Offerings, excluding shares purchased by directors, officers,
employees and any immediate family member thereof and the ESOP for which Sandler
O'Neill will not receive a fee; and (iv) Conversion expenses, excluding the
marketing fees paid to Sandler O'Neill, will be approximately $1.1 million.
Actual Conversion expenses may vary from those estimated.
Pro forma consolidated net income of the Company for the three months
ended June 30, 1996, and for the year ended March 31, 1996, have been calculated
as if the Common Stock had been sold at the beginning of the respective periods
and the net proceeds had been invested at 6.37% and 6.50%, respectively, the
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 (as required by OTS regulations). The tables below do not
reflect the effect of withdrawals from deposit accounts for the purchase of
Common Stock or the effect of any possible use of the net Conversion proceeds.
The pro forma after-tax yields for the Company and the Bank are assumed to be
3.68% for the three months ended June 30, 1996, based on an effective tax rate
of 42.2%, and 3.66% for the year ended March 31, 1996, based on an effective tax
rate of 43.7%. Historical and pro forma net earnings per share amounts have been
calculated by dividing historical and pro forma amounts by the indicated number
of shares of Common Stock issued, as adjusted to give effect to the purchase of
shares by the ESOP and the issuance of shares to the Foundation. Historical and
pro forma stockholders' equity per share amounts have been calculated by
dividing historical and pro forma amounts by the indicated number of shares of
Common Stock issued.
The following pro forma information may not be representative of the
financial effects of the foregoing transactions at the dates on which such
transactions actually occur and should not be taken as indicative of future
results of operations. Pro forma consolidated stockholders' equity represents
the difference between the stated amount of assets and liabilities of the
Company. The pro forma stockholders' equity is not intended to represent the
fair market value of the Common Stock and may be greater than amounts that would
be available for distribution to stockholders in the event of liquidation.
The following tables summarize historical data of the Bank and pro
forma data of the Company at or for the three months ended June 30, 1996, and at
or for the year ended March 31, 1996, based on the assumptions set forth above
and in the table and should not be used as a basis for projections of market
value of the Common Stock following the Conversion. The tables below give effect
to the Stock Programs, which are expected to be adopted by the Company following
the Conversion and presented to stockholders for approval at a meeting of
stockholders. See Footnote 2 to the tables and "Management of the Bank -
Benefits - Stock Programs." No effect has been given in the tables to the
possible issuance of additional shares reserved for future issuance pursuant to
the Stock Option Plans to be adopted by the Board of Directors of the Company
and presented to stockholders for approval at a meeting of stockholders, nor
does book value give any effect to the liquidation account to be established for
the benefit of Eligible Account Holders and Supplemental Eligible Account
Holders or, in the event of
34
<PAGE>
liquidation of the Bank, to the tax effect of the bad debt reserve and other
factors. See Footnote 3 to the tables below, "The Conversion - Liquidation
Rights" and "Management of the Bank - Benefits - Stock Option Plans." THE
FOLLOWING TABLE ASSUMES THAT THE FOUNDATION IS APPROVED AS PART OF THE
CONVERSION AND THEREFORE GIVES EFFECT TO THE ISSUANCE OF AUTHORIZED BUT UNISSUED
SHARES OF THE COMPANY'S COMMON STOCK TO THE FOUNDATION CONCURRENTLY WITH THE
COMPLETION OF THE CONVERSION. THE VALUATION RANGE, AS SET FORTH HEREIN AND IN
THE TABLE BELOW, TAKES INTO ACCOUNT THE DILUTIVE IMPACT OF THE ISSUANCE OF
SHARES TO THE FOUNDATION.
35
<PAGE>
<TABLE>
<CAPTION>
At or For the Three Months Ended June 30, 1996
----------------------------------------------------------------------
5,185,000 6,100,000 7,015,000 8,067,250
Shares Sold Shares Sold Shares Sold Shares Sold
at $10.00 at $10.00 at $10.00 at $10.00 Per
Per Share Per Share Per Share Share (15%
(Minimum (Midpoint (Maximum above Maximum
of Estimated of Estimated of Estimated of Estimated
Price Range) Price Range) Price Range) Price Range)(6)
------------- ------------- -------------- -----------------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds.......................... $51,850 $61,000 $70,150 $80,673
Plus: Shares acquired by the
Charitable Trust Foundation
(equal to 8% of the stock
sold in the Conversion)....... 4,148 4,880 5,612 6,454
----- ----- ----- -----
Pro forma market capitalization......... $55,998 $65,880 $75,762 $87,127
======= ======= ======= =======
Gross proceeds.......................... $51,850 $61,000 $70,150 $80,673
Less: Offering expenses and
commission.................... (1,859) (1,990) (2,120) (2,270)
------- ------- ------- -------
Estimated net proceeds.................. 49,991 59,010 68,030 78,403
Less: Common Stock purchased by
ESOP.......................... (4,480) (5,270) (6,061) (6,970)
Common Stock purchased by
Stock Programs................ (2,240) (2,635) (3,030) (3,485)
------- ------- ------- -------
Estimated net proceeds, as adjusted.. $43,271 $51,105 $58,939 $67,948
======= ======= ======= =======
Consolidated net earnings(1):
Historical........................... $1,071 $1,071 $1,071 $1,071
Pro forma earnings on net
proceeds ........................ 398 470 543 625
Less: Pro forma ESOP
adjustment(2).............. (72) (85) (97) (112)
Pro forma Stock Programs
adjustment(3).............. (65) (76) (88) (101)
---- ---- ---- -----
Pro forma net earnings........... $1,332 $1,380 $1,429 $1,483
====== ====== ====== ======
Per share net earnings(1):
Historical........................... $0.20 $0.17 $0.14 $0.13
Pro forma earnings on net
proceeds ........................ 0.08 0.08 0.08 0.08
Less: Pro forma ESOP
adjustment(2).............. (0.01) (0.01) (0.01) (0.01)
Pro forma Stock Programs
adjustment(3).............. (0.01) (0.01) (0.01) (0.01)
------ ------ ------ ------
Pro forma net earnings
per share..................... $0.26 $0.23 $0.20 $0.19
===== ===== ===== =====
Stockholders' equity:
Historical........................... $47,521 $47,521 $47,521 $47,521
Estimated net proceeds............... 49,991 59,010 68,030 78,403
Plus: Shares acquired by Foundation. 4,148 4,880 5,612 6,454
Less: After tax cost of Foundation.. (2,683) (3,163) (3,642) (4,193)
Common Stock acquired
by ESOP(2)................. (4,480) (5,270) (6,061) (6,970)
Common Stock acquired
by Stock Programs(3)....... (2,240) (2,635) (3,030) (3,485)
------- ------- ------- -------
Pro forma stockholders'
equity(3)(4)(5)............... $92,257 $100,343 $108,430 $117,730
======= ======== ======== ========
Stockholders' equity per share:
Historical........................... $ 8.49 $ 7.21 $ 6.27 $ 5.45
Estimated net proceeds............... 8.93 8.96 8.98 9.00
Plus: Shares acquired by Foundation. 0.74 0.74 0.74 0.74
Less: After tax cost of Foundation.. (0.48) (0.48) (0.48) (0.48)
Common Stock acquired
by ESOP(2)................. (0.80) (0.80) (0.80) (0.80)
Common Stock acquired
by Stock Programs(3)....... (0.40) (0.40) (0.40) (0.40)
------ ------ ------ ------
Pro forma stockholders' equity
per share(3)(4)(5)............ $16.48 $15.23 $14.31 $13.51
====== ====== ====== ======
Offering price as a percentage of
pro forma stockholders' equity
per share 60.70% 65.65% 69.87% 74.01%
Offering price to pro forma net
earnings per share................... 9.69x 11.00x 12.23x 13.54x
</TABLE>
36
<PAGE>
- ---------------------------
(1) Does not give effect to the non-recurring expense that will be
recognized in the third quarter of fiscal 1997 if the establishment of
the Foundation is approved. In that event, the Company will recognize
an after-tax expense for the amount of the contribution to the
Foundation which is expected to be $2.6 million, $3.2 million, $3.6
million, and $4.2 million at the minimum, midpoint, maximum, and
maximum as adjusted, of the Estimated Price Range, respectively.
(2) It is assumed that 8% of the shares of Common Stock issued in the
Conversion, including shares issued to the Foundation, will be
purchased by the ESOP. For purposes of this table, the funds used to
acquire such shares are assumed to have been borrowed by the ESOP from
the ESOP Loan Subsidiary. The amount to be borrowed is reflected as a
reduction of stockholders' equity. The Bank intends to make annual
contributions to the ESOP in an amount at least equal to the principal
and interest requirement of the debt. The Bank's total annual payment
of the ESOP debt is based upon nine equal annual installments of
principal, with an assumed interest rate at 8.75%. The pro forma net
earnings assumes: (i) that the Bank's contribution to the ESOP is
equivalent to the debt service requirement for the three months ended
June 30, 1996, and was made at the end of the period; (ii) that 12,444,
14,640, 16,836 and 19,361 shares at the minimum, midpoint, maximum and
15% above the maximum of the range, respectively, were committed to be
released during the three months ended June 30, 1996, at an average
fair value of $10.00 per share in accordance with Statement of Position
("SOP") 93-6; and (iii) only the ESOP shares committed to be released
were considered outstanding for purposes of the net earnings per share
calculations. See "Management of the Bank -Benefits - Employee Stock
Ownership Plan and Trust."
(3) Gives effect to the Stock Programs expected to be adopted by the
Company following the Conversion and presented for approval at a
meeting of stockholders. If the Stock Programs are approved by
stockholders, the Stock Programs intend to acquire an amount of Common
Stock equal to 4% of the shares of Common Stock sold in the Conversion,
and issued to the Foundation, or 223,992, 263,520, 303,048 and 348,505
shares of Common Stock at the minimum, midpoint, maximum and 15% above
the maximum of the Estimated Price Range, respectively, either through
open market purchases, if permissible, or from authorized but unissued
shares of Common Stock or treasury stock of the Company, if any. Funds
used by the Stock Programs to purchase the shares will be contributed
to the Stock Programs by the Bank. In calculating the pro forma effect
of the Stock Programs, it is assumed that the required stockholder
approval has been received, that the shares were acquired by the Stock
Programs at the beginning of the period presented in open market
purchases at the Purchase Price and that 5% of the amount contributed
was an amortized expense during such period. The issuance of authorized
but unissued shares of the Company's Common Stock to the Stock Programs
instead of open market purchases would dilute the voting interests of
existing stockholders by approximately 3.8% and pro forma net earnings
per share would be $0.25, $0.22, $0.20 and $0.18 at the minimum,
midpoint, maximum and 15% above the maximum of the range, respectively,
and pro forma stockholders' equity per share would be $16.23, $15.03,
$14.15 and $13.38 at the minimum, midpoint, maximum and 15% above the
maximum of the range, respectively. There can be no assurance that
stockholder approval of the Stock Programs will be obtained, or that
the actual purchase price of the shares will be equal to the Purchase
Price. See "Management of the Bank - Benefits - Stock Programs."
(4) No effect has been given to the issuance of additional shares of Common
Stock pursuant to the Stock Option Plans expected to be adopted by the
Company following the Conversion. The Company expects to present the
Stock Option Plans for approval at a meeting of stockholders. If the
Stock Option Plans are approved by stockholders, an amount equal to 10%
of the Common Stock issued in the Conversion, including shares issued
to the Foundation, or 559,980, 658,800, 757,620 and 871,263 shares at
the minimum, midpoint, maximum and 15% above the maximum of the
Estimated Price Range, respectively, will be reserved for future
issuance upon the exercise of options to be granted under the Stock
Option Plans. The issuance of Common Stock pursuant to the exercise of
options under the Stock Option Plans will result in the dilution of
existing stockholders' interests. Assuming stockholder approval of the
Stock Option Plans and all options were exercised at the end of the
period at an exercise price of $10.00 per share, the pro forma net
earnings per share would be $0.24, $0.22, $0.19 and $0.18,
respectively, and the pro forma stockholders' equity per share would be
$15.89, $14.76, $13.92 and $13.19, respectively. See "Management of the
Bank - Benefits - Stock Option Plans. "
(5) The retained earnings of the Bank will continue to be substantially
restricted after the Conversion. See "Dividend Policy," "The
Conversion -Liquidation Rights" and "Regulation - Federal Savings
Institution Regulation -Limitation on Capital Distributions."
(6) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Price Range of up to
15% as a result of regulatory considerations or changes in market or
general financial and economic conditions following the commencement of
the Subscription and Community Offerings.
37
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended March 31, 1996
-----------------------------------------------------------------------
5,185,000 6,100,000 7,015,000 8,067,250
Shares Sold Shares Sold Shares Sold Shares Sold
at $10.00 at $10.00 at $10.00 at $10.00 Per
Per Share Per Share Per Share Share (15%
(Minimum (Midpoint (Maximum above Maximum
of Estimated of Estimated of Estimated of Estimated
Price Range) Price Range) Price Range) Price Range)(6)
-------------- ------------- -------------- ------------------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds.......................... $51,850 $61,000 $70,150 $80,673
Plus: Shares acquired by the
Charitable Trust Foundation
(equal to 8% of the stock
sold in the Conversion).......... 4,148 4,880 5,612 6,454
----- ----- ----- -----
Pro Forma market capitalization......... $55,998 $65,880 $75,762 $87,127
======= ======= ======= =======
Gross proceeds.......................... $51,850 $61,000 $70,150 $80,673
Less: Offering expenses and commissions (1,859) (1,990) (2,120) (2,270)
------- ------- ------- -------
Estimated net proceeds.................. 49,991 59,010 68,030 78,403
Less: Common Stock purchased by
ESOP......................... (4,480) (5,270) (6,061) (6,970)
Common Stock purchased by
Stock Programs................ (2,240) (2,635) (3,030) (3,485)
------- ------- ------- -------
Estimated net proceeds, as adjusted... $43,271 $51,105 $58,939 $67,948
======= ======= ======= =======
Consolidated net earnings(1):
Historical............................ $4,603 $4,603 $4,603 $4,603
Pro forma earnings on net proceeds.... 1,582 1,869 2,155 2,485
Less: Pro forma ESOP adjustment(2).... (280) (330) (379) (436)
Pro forma Stock Programs
adjustment(3)................. (252) (297) (341) (392)
----- ----- ----- -----
Pro forma net earnings............. $5,653 $5,845 $6,038 $6,260
====== ====== ====== ======
Per share net earnings(1):
Historical............................ $ 0.89 $ 0.75 $ 0.65 $ 0.56
Pro forma earnings on net proceeds.... 0.30 0.31 0.31 0.31
Less: Pro forma ESOP adjustment(2).... (0.05) (0.05) (0.05) (0.05)
Pro forma Stock Programs
adjustment(3)................. (0.05) (0.05) (0.05) (0.05)
------ ------ ------ ------
Pro forma net earnings per share... $ 1.09 $ 0.96 $ 0.86 $ 0.77
====== ====== ======= ======
Stockholders' equity:
Historical............................ $46,418 $46,418 $46,418 $46,418
Estimated net proceeds................ 49,991 59,010 68,030 78,403
Plus:Shares acquired by Foundation.... 4,148 4,880 5,612 6,454
Less: After tax cost of Foundation.... (2,620) (3,089) (3,558) (4,097)
Common Stock acquired by
ESOP(2)....................... (4,480) (5,270) (6,061) (6,970)
Common Stock acquired
by Stock Programs(2).......... (2,240) (2,635) (3,030) (3,485)
------- ------- ------- -------
Pro forma stockholders'
equity(3)(4)(5).................. $91,217 $99,314 $107,411 $116,723
======= ======= ======== ========
Stockholders' equity per share:
Historical............................ $ 8.29 $ 7.05 $ 6.13 $ 5.33
Estimated net proceeds................ 8.93 8.96 8.98 9.00
Plus:Shares acquired by Foundation.... 0.74 0.74 0.74 0.74
Less: After tax cost of Foundation.... (0.47) (0.47) (0.47) (0.47)
Common Stock acquired
by ESOP(2).................... (0.80) (0.80) (0.80) (0.80)
Common Stock acquired
by Stock Programs(3).......... (0.40) (0.40) (0.40) (0.40)
------ ------ ------ ------
Pro forma stockholders' equity
per share(3)(4)(5)............... $16.29 $15.08 $14.18 $13.40
====== ====== ====== ======
Offering price as a percentage of
pro forma stockholders' equity
per share............................. 61.39% 66.34% 70.53% 74.64%
Offering price to pro forma net
earnings per share.................... 9.20x 10.47x 11.66x 12.93x
</TABLE>
38
<PAGE>
- -------------------------
(1) Does not give effect to the non-recurring expense that will be recognized
in the third quarter of fiscal 1997 if the establishment of the Foundation
is approved. In that event, the Company will recognize an after-tax expense
for the amount of the contribution to the Foundation which is expected to
be $2.6 million, $3.1 million, $3.6 million, and $4.1 million at the
minimum, midpoint, maximum, and maximum as adjusted, of the Estimated Price
Range, respectively.
(2) It is assumed that 8% of the shares of Common Stock issued in the
Conversion, including shares issued to the Foundation, will be purchased by
the ESOP. For purposes of this table, the funds used to acquire such shares
are assumed to have been borrowed by the ESOP from the ESOP Loan
Subsidiary. The amount to be borrowed is reflected as a reduction of
stockholders' equity. The Bank intends to make annual contributions to the
ESOP in an amount at least equal to the principal and interest requirement
of the debt. The Bank's total annual payment of the ESOP debt is based upon
nine equal annual installments of principal, with an assumed interest rate
at 8.75%. The pro forma net earnings assumes: (i) that the Bank's
contribution to the ESOP is equivalent to the debt service requirement for
the year ended March 31, 1996, and was made at the end of the period; (ii)
that 49,776, 58,560, 67,344 and 77,446 shares at the minimum, midpoint,
maximum and 15% above the maximum of the range, respectively, were
committed to be released during the year ended March 31, 1996 at an average
fair value of $10.00 per share in accordance with SOP 93-6; and (iii) only
the ESOP shares committed to be released were considered outstanding for
purposes of the net earnings per share calculations. See "Management of the
Bank Benefits - Employee Stock Ownership Plan and Trust."
(3) Gives effect to the Stock Programs expected to be adopted by the Company
following the Conversion and presented for approval at a meeting of
stockholders. If the Stock Programs are approved by stockholders, the Stock
Programs intend to acquire an amount of Common Stock equal to 4% of the
shares of Common Stock sold in the Conversion, and issued to the
Foundation, or 223,992, 263,520, 303,048 and 348,505 shares of Common Stock
at the minimum, midpoint, maximum and 15% above the maximum of the
Estimated Price Range, respectively, either through open market purchases,
if permissible, or from authorized but unissued shares of Common Stock or
treasury stock of the Company, if any. In calculating the pro forma effect
of the Stock Programs, it is assumed that the required stockholder approval
has been received, that the shares were acquired by the Stock Programs at
the beginning of the period presented in open market purchases at the
Purchase Price and that 20% of the amount contributed was an amortized
expense during such period. The issuance of authorized but unissued shares
of the Company's Common Stock to the Stock Programs instead of open market
purchases would dilute the voting interests of existing stockholders by
approximately 3.8% and pro forma net earnings per share would be $0.96,
$0.85, $0.77 and $0.69 at the minimum, midpoint, maximum and 15% above the
maximum of the range, respectively, and pro forma stockholders' equity per
share would be $16.05, $14.88, $14.02 and $13.27 at the minimum, midpoint,
maximum and 15% above the maximum of the range, respectively. There can be
no assurance that stockholder approval of the Stock Programs will be
obtained, or that the actual purchase price of the shares will be equal to
the Purchase Price. See "Management of the Bank - Benefits - Stock
Programs."
(4) No effect has been given to the issuance of additional shares of Common
Stock pursuant to the Stock Option Plans expected to be adopted by the
Company following the Conversion. The Company expects to present the Stock
Option Plans for approval at a meeting of stockholders. If the Stock Option
Plans are approved by stockholders, an amount equal to 10% of the Common
Stock issued in the Conversion, including shares issued to the Foundation,
or 559,980, 658,800, 757,620 and 871,263 shares at the minimum, midpoint,
maximum and 15% above the maximum of the Estimated Price Range,
respectively, will be reserved for future issuance upon the exercise of
options to be granted under the Stock Option Plans. The issuance of Common
Stock pursuant to the exercise of options under the Stock Option Plans will
result in the dilution of existing stockholders' interests. Assuming
stockholder approval of the Stock Option Plans and all options were
exercised at the end of the period at an exercise price of $10.00 per
share, the pro forma net earnings per share would be $1.03, $0.91, $0.82
and $0.74, respectively, and the pro forma stockholders' equity per share
would be $15.72, $14.61, $13.80 and $13.09, respectively. See "Management
of the Bank - Benefits - Stock Option Plans."
(5) The retained earnings of the Bank will continue to be substantially
restricted after the Conversion. See "Dividend Policy," "The Conversion -
Liquidation Rights" and "Regulation - Federal Savings Institution
Regulation - Limitation on Capital Distributions."
(6) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Price Range of up to 15% as
a result of regulatory considerations or changes in market or general
financial and economic conditions following the commencement of the
Subscription and Community Offerings.
39
<PAGE>
COMPARISON OF VALUATION AND PRO FORMA INFORMATION WITH NO FOUNDATION
In the event that the Foundation was not being established as part of
the Conversion, Keller has estimated that the pro forma market capitalization of
the Bank would be approximately $69.0 million, at the midpoint, which is
approximately $3.1 million greater than the pro forma market capitalization of
the Bank if the Foundation is approved by the members of the Bank and would
result in approximately an $8.0 million increase, or 13.11%, in the amount of
Common Stock offered for sale in the Conversion. The pro forma price to book
ratio and pro forma price to earnings ratio would be approximately the same
under both the current appraisal and the estimate of the value of the Company
without the Foundation. Further, assuming the midpoint of the Estimated Price
Range, pro forma stockholders' equity per share and pro forma earnings per share
would be virtually the same with the Foundation as without the Foundation. In
this regard, pro forma stockholders' equity and pro forma net income per share
would be $15.38 and $0.23, respectively, at the midpoint of the estimate,
assuming no Foundation, and $15.23 and $0.23, respectively, with the Foundation.
The pro forma price to book ratio and the pro forma price to earnings ratio are
65.01% and 11.03x, respectively, at the midpoint of the estimate, assuming no
Foundation and are 65.65% and 11.00x, respectively, with the Foundation. This
estimate by Keller was prepared at the request of the OTS and is solely for
purposes of providing depositors with sufficient information with which to make
an informed decision on the Foundation. There is no assurance that in the event
the Foundation is not approved at the Special Meeting of members that the
appraisal prepared at that time would conclude that the pro forma market value
of the Company would be the same as that estimated herein. Any appraisal
prepared at that time would be based on the facts and circumstances existing at
that time, including, among other things, market and economic conditions.
For comparative purposes only, set forth below are certain pricing
ratios and financial data and ratios, at the minimum, midpoint, maximum and
maximum, as adjusted, of the Estimated Price Range, assuming the Conversion was
completed at June 30, 1996.
<TABLE>
<CAPTION>
At the Minimum At the Midpoint
----------------------------- --------------------------------
With No With No
Foundation Foundation Foundation Foundation
-------------- ------------- --------------- ---------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Estimated offering amount...................... $ 51,850 $ 58,650 $ 61,000 $ 69,000
Pro forma market capitalization................ 55,998 58,650 65,880 69,000
Total assets................................... $847,547 $852,461 $855,633 $861,421
Total liabilities.............................. 755,290 755,290 755,290 755,290
Pro forma stockholders' equity................. 92,257 97,171 100,343 106,131
Pro forma consolidated net earnings............ 1,332 1,385 1,380 1,442
Pro forma stockholders' equity per share....... $16.48 $16.57 $15.23 $15.38
Pro forma consolidated net earnings per share.. 0.26 0.26 0.23 0.23
Pro Forma Pricing Ratios:
Offering price as a percentage of pro
forma stockholders' equity per share 60.70% 60.36% 65.65% 65.01%
Offering price to pro forma
net earnings per share............. 9.69x 9.76x 11.00x 11.03x
Offering price to assets.............. 6.61% 6.88% 7.70% 8.01%
Pro Forma Financial Ratios:
Return on assets............................ 0.63% 0.65% 0.65% 0.67%
Return on stockholders' equity.............. 5.78 5.70 5.50 5.44
Stockholders' equity to assets.............. 10.89 11.40 11.73 12.32
<CAPTION>
At the Maximum,
At the Maximum as Adjusted
----------------------------- --------------------------------
With No With No
Foundation Foundation Foundation Foundation
-------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
Estimated offering amount...................... $ 70,150 $ 79,350 $ 80,673 $ 91,253
Pro forma market capitalization................ 75,762 79,350 87,126 91,253
Total assets................................... $863,720 $870,380 $873,020 $880,684
Total liabilities.............................. 755,290 755,290 755,290 755,290
Pro forma stockholders' equity................. 108,430 115,090 117,730 125,394
Pro forma consolidated net earnings............ 1,429 1,499 1,483 1,565
Pro forma stockholders' equity per share....... $14.31 $14.50 $13.51 $13.74
Pro forma consolidated net earnings per share.. 0.20 0.21 0.19 0.19
Pro Forma Pricing Ratios:
Offering price as a percentage of pro
forma stockholders' equity per share 69.87% 68.95% 74.01% 72.77%
Offering price to pro forma
net earnings per share............. 12.23x 12.20x 13.54x 13.44x
Offering price to assets.............. 8.77% 9.12% 9.98% 10.36%
Pro Forma Financial Ratios:
Return on assets............................ 0.66% 0.69% 0.68% 0.71%
Return on stockholders' equity.............. 5.27 5.21 5.04 4.99
Stockholders' equity to assets.............. 12.55 13.22 13.49 14.24
</TABLE>
40
<PAGE>
FIRST FEDERAL SAVINGS BANK OF AMERICA AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
The following Consolidated Statements of Income of the Bank and
subsidiary for each of the years in the three fiscal year period ended March 31,
1996 have been audited by KPMG Peat Marwick LLP, independent certified public
accountants, whose report thereon is included elsewhere in this Prospectus. With
respect to the information for the three months ended June 30, 1996 and 1995,
which is unaudited, in the opinion of management, all adjustments necessary for
a fair presentation of such interim periods have been included and are of a
normal recurring nature. Results for the three months ended June 30, 1996 are
not necessarily indicative of the results that may be expected for the fiscal
year ended March 31, 1997. These Consolidated Statements of Income should be
read in conjunction with the Consolidated Financial Statements and notes thereto
and Management's Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
For the Three Months For the Year
Ended June 30, Ended March 31,
-------------------------- -----------------------------------------------
1996 1995 1996 1995 1994
----------- ----------- ------------- ------------ --------------
(unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C>
Interest and dividend income:
Loans ......................................... $13,295 $10,231 $43,757 $35,871 $31,767
Investment securities ......................... 358 346 1,519 837 645
Mortgage-backed securities .................... 126 58 321 261 355
Federal Home Loan Bank stock................... 106 117 447 518 439
------ ------ ------ ------ ------
Total interest income .................... 13,885 10,752 46,044 37,487 33,206
------ ------ ------ ------ ------
Interest expense:
Deposit accounts (note 7)...................... 6,789 4,945 23,131 13,890 10,394
Borrowed funds................................. 1,627 1,042 3,251 4,447 3,802
------ ------ ------ ------ ------
Total interest expense ................... 8,416 5,987 26,382 18,337 14,196
------ ------ ------ ------ ------
Net interest income before
provision for loan losses.............. 5,469 4,765 19,662 19,150 19,010
Provision for loan losses (note 4)................. 1,000 475 2,626 653 1,035
------ ------ ------ ------ ------
Net interest income after
provision for loan losses 4,469 4,290 17,036 18,497 17,975
------ ------ ------ ------ ------
Noninterest income:
Loan servicing income ........................ 693 632 2,628 2,539 1,982
Gain (loss) on sale of mortgage loans,
net (note 5)................................ 44 (196) (841) (1,879) 1,636
Other income................................... 493 598 2,805 1,849 852
------ ------ ------ ------ ------
Total noninterest income .............. 1,230 1,034 4,592 2,509 4,470
------ ------ ------ ------ ------
Noninterest expense:
Compensation and employee benefits ............ 2,075 1,768 7,366 7,108 7,235
Office occupancy and equipment ................ 420 342 1,504 1,285 1,262
Advertising and business promotion ............ 275 142 916 691 370
Federal deposit insurance premiums ............ 302 236 1,044 854 739
Data processing ............................... 180 127 570 622 603
Provision for accelerated prepayment .......... -- -- -- -- 1,006
Other ......................................... 595 471 2,272 1,633 1,575
------ ------ ------- ------- -------
Total noninterest expense ................ 3,847 3,086 13,672 12,193 12,790
------ ------ ------- ------- -------
Income before income tax
expense and cumulative effect
of change in accounting for
income taxes .......................... 1,852 2,238 7,956 8,813 9,655
Income tax expense (note 11) ...................... 781 943 3,353 3,852 4,235
------ ------ ------ ------ ------
Net income before cumulative
effect of change in accounting
for income taxes........................ 1,071 1,295 4,603 4,961 5,420
Cumulative effect of change in accounting
for income taxes............................... -- -- -- -- 1,495
------ ------ ------- ------- -------
Net income......................................... $1,071 $1,295 $ 4,603 $ 4,961 $ 6,915
====== ====== ======= ======= =======
</TABLE>
See accompanying notes to Consolidated Financial Statements.
41
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company has only recently been formed and, accordingly, has no
results of operations. The Bank's results of operations are dependent primarily
on net interest income, which is the difference between the income earned on its
loan and investment portfolios and its cost of funds, consisting of the interest
paid on deposits and borrowings. Results of operations are also affected by the
Bank's provision for loan losses, loan sale activities and loan servicing. The
Bank's noninterest expense principally consists of compensation and employee
benefits, office occupancy and equipment expense, federal deposit insurance
premiums, data processing, advertising and business promotion and other
expenses. Results of operations are also significantly affected by general
economic and competitive conditions, particularly changes in interest rates,
government policies and actions of regulatory authorities. See "Regulation" for
a discussion of the regulatory changes resulting from the Financial Institutions
Reform Recovery and Enforcement Act of 1989 ("FIRREA") and the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA") and the impact of such
changes on the Bank. Future changes in applicable law, regulations or government
policies may materially impact the Bank.
MANAGEMENT STRATEGY
In recent years, the Bank's operating strategy has consisted of
maintaining profitability and managing its interest rate risk primarily by
emphasizing its one- to four-family mortgage banking operations whereby it
originates longer term fixed-rate one- to four-family loans for sale, generally
on a servicing retained basis, and originates shorter term fixed-rate and
adjustable-rate one- to four-family loans for investment. The Bank has also
focused on a growth strategy which has attempted to broaden the Bank's franchise
and its lending and deposit base by expanding its operations through the
establishment of de novo branch offices and loan origination centers in and
around Southeastern Massachusetts and Rhode Island, the utilization of loan
correspondents throughout New England to originate one- to four-family loans and
increased emphasis on its consumer, commercial and commercial real estate
lending activities. The Bank's current operating strategy consists primarily of:
(1) enhancing net income by building its loan servicing portfolio and
controlling interest rate risk by retaining shorter-term and adjustable-rate
loans and generally selling all longer-term, fixed-rate one- to four-family
loans on a servicing retained basis; (2) investing funds, not utilized for
investment in loans primarily in shorter-term U.S Government obligations and, to
a lesser extent, adjustable-rate mortgage-backed securities; (3) placing
increased emphasis on attracting commercial deposits, including business
checking and money market accounts, and increasing its commercial lending
activity by focusing its marketing to smaller businesses operating in the Bank's
primary market area and through the restructuring of its commercial and
commercial real estate lending division by hiring commercial business personnel
with experience in commercial lending in the Bank's primary market area; (4)
focusing on increasing its loan and deposit market share and the retention of
existing deposit accounts by offering competitive rates on its deposit and loan
products and opening new branch offices in and around its primary market area;
and (5) maintaining a low expense ratio by efficiently utilizing personnel and
banking and loan facilities to service its customers.
MANAGEMENT OF INTEREST RATE RISK
The principal objective of the Bank's interest rate risk management
function is to evaluate the interest rate risk included in certain balance sheet
accounts, determine the level of risk appropriate given the Bank's business
strategy, operating environment, capital and liquidity requirements and
performance
42
<PAGE>
objectives, and manage the risk consistent with Board of Directors' approved
guidelines. Through such management, the Bank seeks to reduce the vulnerability
of its operations to changes in interest rates. The Bank monitors its interest
rate risk as such risk relates to its operating strategies. The Bank's Board of
Directors has established an Asset/Liability Committee, responsible for
reviewing its asset/liability policies and interest rate risk position, which
meets on a monthly basis and reports trends and interest rate risk position to
the Board of Directors on a quarterly basis. The extent of the movement of
interest rates is an uncertainty that could have a negative impact on the
earnings of the Bank. See "Risk Factors-Potential Impact of Changes in Interest
Rates."
In recent years, the Bank has primarily utilized the following strategies
to manage interest rate risk: (1) emphasizing the origination and retention of
adjustable-rate and shorter-term fixed-rate, one- to four-family mortgage loans;
(2) selling in the secondary market longer-term, fixed-rate mortgage loans
originated while generally retaining the servicing rights on such loans; (3)
primarily investing in short-term U.S. Government securities or mortgage-backed
securities with adjustable interest rates; and (4) attempting to reduce the
overall interest rate sensitivity of liabilities by emphasizing longer-term
deposits and utilizing FHLB advances to replace rate sensitive deposits.
Gap Analysis. The matching of assets and liabilities may be analyzed by
------------
examining the extent to which such assets and liabilities are "interest rate
sensitive" and by monitoring a bank's interest rate sensitivity "gap." An asset
or liability is said to be interest rate sensitive within a specific time period
if it will mature or reprice within that time period. The interest rate
sensitivity gap is defined as the difference between the amount of
interest-earning assets maturing or repricing within a specific time period and
the amount of interest-bearing liabilities maturing or repricing within that
same time period. At June 30, 1996, the Bank's cumulative interest rate gap
(which is the difference between the amount of interest-earning assets maturing
or repricing within one year) as a percentage of total assets, was a negative
17.70%. A gap is considered positive when the amount of interest rate sensitive
assets exceeds the amount of interest rate sensitive liabilities. A gap is
considered negative when the amount of interest rate sensitive liabilities
exceeds the amount of interest rate sensitive assets. Accordingly, during a
period of rising interest rates, an institution with a negative gap position
would be in a worse position to invest in higher yielding assets as compared to
an institution with a positive gap position which, consequently, may result in
the cost of its interest-bearing liabilities increasing at a rate faster than
its yield on interest-earning assets than if it had a positive gap. During a
period of falling interest rates, an institution with a negative gap would tend
to have its interest-bearing liabilities repricing downward at a faster rate
than its interest-earning assets as compared to an institution with a positive
gap which, consequently, may tend to positively affect the growth of its net
interest income.
The following table sets forth the amounts of interest-earning assets
and interest-bearing liabilities outstanding at June 30, 1996, which are
anticipated by the Bank, based upon certain assumptions, to reprice or mature in
each of the future time periods shown (the "GAP Table"). Except as stated below,
the amount of assets and liabilities shown which reprice or mature during a
particular period were determined in accordance with the earlier of term to
repricing or the contractual maturity of the asset or liability. The table sets
forth an approximation of the projected repricing of assets and liabilities at
June 30, 1996, on the basis of contractual maturities, anticipated prepayments,
and scheduled rate adjustments within a three month period and subsequent
selected time intervals. The loan amounts in the table reflect principal
balances expected to be redeployed and/or repriced as a result of contractual
amortization and anticipated prepayments of adjustable-rate loans and fixed-rate
loans, and as a result of contractual rate adjustments on adjustable-rate loans.
Annual prepayment rates for adjustable-rate and fixed-rate one- to four-family
and multi-family mortgage loans are assumed to range from 5.82% to 14.34% and
6.18% to 15.78%, respectively. The annual prepayment rate for mortgage-backed
securities is assumed to be 5.16. Money market deposit accounts, savings
accounts and negotiable order of withdrawal ("NOW") accounts
43
<PAGE>
are assumed to have annual decay rates of 67.7%, 2.4% and 3.4%, respectively.
See "Business of the Bank - Lending Activities," "- Investment Activities" and
"- Sources of Funds."
44
<PAGE>
<TABLE>
<CAPTION>
3 More than More than More than More than
Months 3 Months to 6 Months to 1 Year to 3 Years to
or Less 6 Months 1 Year 3 Years 5 Years
---------- --------------- ------------- ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Investment securities ............................. $ 4,773 $ 2,000 $ 5,996 $ 9,491 $ -
Loans receivable (1) .............................. 106,004 50,468 85,374 159,136 146,535
Mortgage-backed securities......................... 96 93 183 687 4,413
Stock in FHLB-Boston............................... 6,967 - - - -
-------- -------- --------- --------- ---------
Total interest-earning assets............. 117,840 52,561 91,553 169,314 150,948
-------- -------- --------- --------- ---------
Interest-bearing liabilities:
Money market accounts.............................. 3,445 3,011 4,929 10,501 3,567
Savings accounts................................... 470 2,098 927 3,600 3,435
NOW accounts....................................... 324 320 633 2,429 2,272
Certificate accounts............................... 93,263 79,727 76,705 70,206 14,380
IRA and KEOGH accounts............................. 16,521 11,370 20,806 16,984 9,654
FHLB advances...................................... 74,516 5,000 10,000 39,083 8,000
-------- -------- --------- -------- ---------
Total interest-bearing liabilities........ 188,539 101,526 114,000 142,803 41,308
------- -------- --------- -------- ---------
Interest-earning assets less interest-bearing
liabilities................................... $(70,699) (48,965) (22,447) $ 26,511 $ 109,640
======== ======== ========= ========= =========
Cumulative interest-rate sensitivity gap........... $(70,699) $(119,664) $(142,111) $(115,600) $ (5,960)
======== ======== ========= ========= =========
Cumulative interest-rate gap as a percentage
of total assets at June 30, 1996.............. (8.81)% (14.90)% (17.70)% (14.40)% (0.74)%
Cumulative interest rate gap as a percentage
of total interest-earning assets at
June 30, 1996................................. (9.13)% (15.45)% (18.35)% (14.92)% (0.77)%
Cumulative interest-earning assets as a percentage
of cumulative interest-bearing liabilities at
June 30, 1996................................. 62.50% 58.75% 64.83% 78.86% 98.99%
<CAPTION>
More
Than Total
5 Years Amount
------------ --------------
<S> <C> <C>
Interest-earning assets:
Investment securities ............................. $ - $ 22,260
Loans receivable (1) .............................. 190,747 738,264
Mortgage-backed securities......................... 1,666 7,138
Stock in FHLB-Boston............................... - 6,967
--------- ---------
Total interest-earning assets............. 192,413 774,629
-------- ---------
Interest-bearing liabilities:
Money market accounts.............................. 1,833 27,286
Savings accounts................................... 71,193 81,723
NOW accounts....................................... 32,847 38,825
Certificate accounts............................... - 334,281
IRA and KEOGH accounts............................. - 75,335
FHLB advances...................................... 49 136,648
-------- ---------
Total interest-bearing liabilities........ 105,922 694,098
------- ---------
Interest-earning assets less interest-bearing
liabilities................................... $ 86,491 $ 80,531
======== =========
Cumulative interest-rate sensitivity gap........... $80,531
=======
Cumulative interest-rate gap as a percentage
of total assets at June 30, 1996.............. 10.03%
Cumulative interest rate gap as a percentage
of total interest-earning assets at
June 30, 1996................................. 10.40%
Cumulative interest-earning assets as a percentage
of cumulative interest-bearing liabilities at
June 30, 1996................................. 111.60%
</TABLE>
(1) Includes total loans receivable and mortgage loans held for sale, net of
non-performing loans and undisbursed proceeds of construction mortgages in
process.
45
<PAGE>
Certain shortcomings are inherent in the method of analysis presented
in the foregoing table. For example, although certain assets and liabilities may
have similar maturities or periods to repricing, they may react in different
degrees to changes in market interest rates. Also, the interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market
interest rates, while interest rates on other types may lag behind changes in
market rates. Additionally, certain assets, such as adjustable-rate loans, have
features which restrict changes in interest rates both on a short-term basis and
over the life of the asset. Further, in the event of change in interest rates,
prepayment and early withdrawal levels would likely deviate significantly from
those assumed in calculating the table. Finally, the ability of many borrowers
to service their adjustable-rate loans may decrease in the event of an interest
rate increase.
Net Portfolio Value. The Bank's interest rate sensitivity is monitored
by management through the use of a model which internally generates estimates of
the change in the Bank's net portfolio value ("NPV") over a range of interest
rate scenarios. NPV is the present value of expected cash flows from assets,
liabilities, and off-balance sheet contracts. The NPV ratio, under any interest
rate scenario, is defined as the NPV in that scenario divided by the market
value of assets in the same scenario. The OTS also produces a similar analysis
using its own model, based upon data submitted on the Bank's quarterly Thrift
Financial Reports, the results of which may vary from the Bank's internal model
primarily due to differences in assumptions utilized between the Bank's internal
model and the OTS model, including estimated loan prepayment rates, reinvestment
rates and deposit decay rates. See "Regulation - Federal Savings Institution
Regulation." The following table sets forth the Bank's NPV as of June 30, 1996,
as calculated by the OTS.
<TABLE>
<CAPTION>
NPV as % of Portfolio
Net Portfolio Value Value of Assets
Change in ---------------------------------------- ---------------------------
Interest Rates % NPV %
In Basis Points
(Rate Shock) Amount $ Change Change Ratio Change (1)
- ------------------------- ------------ ----------- ----------- ----------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
400 $18,926 $(61,722) (77)% 2.48% (7.2)%
300 35,394 (45,255) (56) 4.53 (5.1)
200 51,881 (28,768) (36) 6.48 (3.2)
100 67,594 (13,055) (16) 8.25 (1.4)
Static 80,649 - - 9.64 -
(100) 89,515 8,866 11 10.54 0.9
(200) 91,451 10,802 13 10.69 1.1
(300) 88,566 7,917 10 10.33 0.7
(400) 86,806 6,157 8 10.08 0.4
</TABLE>
- ----------------------
(1) Based on the portfolio value of the Bank's assets assuming no change in
interest rates.
As is the case with the GAP Table, certain shortcoming are inherent in
the methodology used in the above interest rate risk measurements. Modeling
changes in NPV requires the making of certain assumptions which may or may not
reflect the manner in which actual yields and costs respond to changes in market
interest rates. In this regard, the NPV model presented assumes that the
composition of the Bank's interest sensitive assets and liabilities existing at
the beginning of a period remains constant over the period being measured and
also assumes that a particular change in interest rates is reflected uniformly
across the yield curve regardless of the duration to maturity or repricing of
specific assets and liabilities.
46
<PAGE>
Accordingly, although the NPV measurements and net interest income models
provide an indication of the Bank's interest rate risk exposure at a particular
point in time, such measurements are not intended to and do not provide a
precise forecast of the effect of changes in market interest rates on the Bank's
net interest income and will differ from actual results.
ANALYSIS OF NET INTEREST INCOME
Net interest income represents the difference between income on interest-
earning assets and expense on interest-bearing liabilities. Net interest income
also depends upon the relative amounts of interest-earning assets and interest-
bearing liabilities and the interest rate earned or paid on them.
47
<PAGE>
AVERAGE BALANCE SHEET
The following table sets forth certain information relating to the Bank
at and for the three months ended June 30, 1996 and 1995 and for the years ended
March 31, 1996, 1995 and 1994. The average yields and costs are derived by
dividing income or expense by the average balance of interest-earning assets or
interest-bearing liabilities, respectively, for the periods shown except where
noted otherwise and reflect annualized yields and costs. Average balances are
derived from average month-end balances. Management does not believe that the
use of average monthly balances instead of average daily balances has caused any
material differences in the information presented. The yields and costs include
fees which are considered adjustments to yields.
<TABLE>
<CAPTION>
For the Three Months Ended June 30,
-------------------------------
At June 30, 1996 1996
--------------------------- -------------------------------
Yield/ Average
Balance Cost Balance Interest
------------- ------------ --------------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Loans receivable, net and mortgage loans held for sale(1) $733,931 7.41% $695,716 $13,295
Investment securities(2)................................ 29,227 6.12 29,813 464
Mortgage-backed securities.............................. 7,138 7.05 7,199 126
-------- ---- -------- -------
Total interest-earning assets........................ 770,296 7.36 732,728 13,885
---- -------
Noninterest-earning assets.............................. 32,515 31,002
-------- --------
Total assets......................................... $802,811 $763,730
======== ========
Liabilities and Retained Earnings:
Interest-bearing liabilities:
Money market accounts................................... $27,286 2.83 $28,752 206
Savings accounts........................................ 81,723 2.50 80,301 499
NOW accounts............................................ 38,825 1.98 37,363 181
Certificate accounts.................................... 409,616 5.90 402,075 5,903
------- ---- -------- ------
Total................................................ 557,450 4.98 548,491 6,789
FHLB advances .......................................... 136,648 5.77 108,671 1,627
-------- ---- -------- ------
Total interest-bearing liabilities................... 694,098 5.13 657,162 8,416
---- ------
Non-interest-bearing liabilities(3)........................ 61,192 59,612
-------- --------
Total liabilities.................................... 755,290 716,774
-------- --------
Retained earnings.......................................... 47,521 46,956
-------- --------
Total liabilities and retained earnings................. $802,811 $763,730
======== ========
Net interest rate spread(4)................................ 2.23% $ 5,469
==== =======
Net interest margin(5).....................................
Ratio of interest-earning assets to
interest-bearing liabilities............................ 110.98% 111.50%
====== ======
<CAPTION>
For the Three Months Ended June 30,
--------------------------------------------------------
1996 1995
------------ ------------------------------------------
Average Average
Yield/ Average Yield/
Cost Balance Interest Cost
------------ -------------- ---------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Loans receivable, net and mortgage loans held for sale(1) 7.66% $507,848 $10,231 8.08%
Investment securities(2)................................ 6.24 28,616 463 6.49
Mortgage-backed securities.............................. 7.02 2,679 58 8.68
---- -------- ------- ----
Total interest-earning assets........................ 7.60 539,143 10,752 8.00
---- ------- ----
Noninterest-earning assets.............................. 24,204
--------
Total assets......................................... $563,347
=========
Liabilities and Retained Earnings:
Interest-bearing liabilities:
Money market accounts................................... 2.87 $26,876 192 2.87
Savings accounts........................................ 2.49 75,918 472 2.49
NOW accounts............................................ 1.94 26,998 133 1.98
Certificate accounts.................................... 5.89 289,692 4,148 5.74
---- ------- ------- ----
Total................................................ 4.96 419,484 4,945 4.73
FHLB advances .......................................... 6.01 60,520 1,042 6.91
---- -------- ------- ----
Total interest-bearing liabilities................... 5.14 480,004 5,987 5.00
---- ------- ----
Non-interest-bearing liabilities(3)........................ 40,969
---------
Total liabilities.................................... 520,973
--------
Retained earnings.......................................... 42,374
---------
Total liabilities and retained earnings................. $563,347
========
Net interest rate spread(4)................................ 2.46% $4,765 3.00%
==== ====== ====
Net interest margin(5)..................................... 2.99% 3.54%
==== ====
Ratio of interest-earning assets to
interest-bearing liabilities............................ 112.32%
======
</TABLE>
- ----------------------------
(1) Amount is net of deferred loan origination costs, undisbursed proceeds of
construction mortgages in process, allowance for loan losses and includes
non-performing loans.
(2) Includes investment securities available for sale and held to maturity and
stock in FHLB-Boston.
(3) Consists primarily of business checking accounts.
(4) Net interest rate spread represents the difference between the weighted
average yield on interest-earnings assets and the weighted average cost of
interest-bearing liabilities.
(5) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
48
<PAGE>
<TABLE>
<CAPTION>
For the Years Ended March 31,
------------------------------------------------------------------
1996 1995
-------------------------------------- --------------------------
Average
Average Yield/ Average
Balance Interest Cost Balance Interest
----------- ---------- ------------ -------------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Loans receivable, net and mortgage loans held for sale(1) $548,558 $43,757 7.98% $471,050 $35,871
Investment securities(2)................................ 30,808 1,966 6.38 21,922 1,355
Mortgage-backed securities.............................. 4,411 321 7.28 3,033 261
--------- ------- ---- --------- -------
Total interest-earning assets........................ 583,777 46,044 7.89 496,005 37,487
------- ---- -------
Noninterest-earning assets................................. 25,570 23,146
-------- --------
Total assets......................................... $609,347 $519,151
======== =========
Liabilities and Retained Earnings:
Interest-bearing liabilities:
Money market accounts................................... $ 27,194 783 2.88 $ 33,011 885
Savings accounts........................................ 76,511 1,915 2.50 81,525 2,037
NOW accounts............................................ 30,088 599 1.99 24,153 479
Certificate accounts.................................... 332,977 19,834 5.96 230,383 10,489
------- ------- ----- -------- --------
Total................................................ 466,770 23,131 4.96 369,072 13,890
FHLB advances .......................................... 50,321 3,251 6.46 71,005 4,447
------- ------- ----- ------- -------
Total interest-bearing liabilities................... 517,091 26,382 5.10 440,077 18,337
------- ---- -------
Non-interest-bearing liabilities(3)........................ 48,015 40,415
------- -------
Total liabilities.................................... 565,106 480,492
-------- --------
Retained earnings.......................................... 44,241 38,659
-------- --------
Total liabilities and retained earnings................. $609,347 $519,151
======== ========
Net interest rate spread(4)................................ $19,662 2.79% $19,150
======= ==== =======
Net interest margin(5)..................................... 3.37%
====
Ratio of interest-earning assets to
interest-bearing liabilities............................ 112.90% 112.71%
====== ======
<CAPTION>
---------------------------------------------------------
1994
---------------- ---------------------------------------
Average Average
Yield/ Average Yield/
Cost Balance Interest Cost
---------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Loans receivable, net and mortgage loans held for sale(1) 7.62% $413,512 $31,767 7.68%
Investment securities(2)................................ 6.18 17,785 1,084 6.10
Mortgage-backed securities.............................. 8.61 4,124 355 8.61
---- -------- -------- ----
Total interest-earning assets........................ 7.56 435,421 33,206 7.63
---- ------- ----
Noninterest-earning assets................................. 23,498
--------
Total assets......................................... $458,919
========
Liabilities and Retained Earnings:
Interest-bearing liabilities:
Money market accounts................................... 2.68 $ 32,728 749 2.29
Savings accounts........................................ 2.50 82,480 2,898 3.51
NOW accounts............................................ 1.98 21,799 370 1.70
Certificate accounts.................................... 4.55 170,741 6,377 3.73
----- ------- ------- -----
Total................................................ 3.76 307,748 10,394 3.38
FHLB advances .......................................... 6.26 67,994 3,802 5.59
---- -------- ------- ----
Total interest-bearing liabilities................... 4.17 375,742 14,196 3.78
---- ------- ----
Non-interest-bearing liabilities(3)........................ 49,469
---------
Total liabilities.................................... 425,211
--------
Retained earnings.......................................... 33,708
---------
Total liabilities and retained earnings................. $458,919
========
Net interest rate spread(4)................................ 3.39% $19,010 3.85%
==== ======= ====
Net interest margin(5)..................................... 3.86% 4.37%
==== ====
Ratio of interest-earning assets to
interest-bearing liabilities............................ 115.88%
======
</TABLE>
(1) Amount is net of deferred loan origination costs, undisbursed proceeds of
construction mortgages in process, allowance for loan losses and includes
non-performing loans.
(2) Includes investment securities available for sale and held to maturity and
stock in FHLB-Boston.
(3) Consists primarily of business checking accounts.
(4) Net interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities.
(5) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
49
<PAGE>
Rate/Volume Analysis. The following table presents the extent to which
--------------------
changes in interest rates and changes in the volume of interest-earning assets
and interest-bearing liabilities have affected the Bank's interest income and
interest expense during the periods indicated. Information is provided in each
category with respect to: (i) changes attributable to changes in volume (changes
in volume multiplied by prior rate); (ii) changes attributable to changes in
rate (changes in rate multiplied by prior volume); and (iii) the net change. The
changes attributable to the combined impact of volume and rate have been
allocated on a proportional basis between changes in rate and volume.
<TABLE>
<CAPTION>
Three Months Ended Year Ended
June 30, 1996 March 31, 1996
Compared to Compared to
Three Months Ended Year Ended
June 30, 1995 March 31, 1995
--------------------------------- ---------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
-------------------- --------------------
Volume Rate Net Volume Rate Net
-------- -------- --------- --------- -------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Investment securities.................. $ 75 $ (74) $ 1 $ 566 $ 45 $ 611
Loans receivable, net and mortgage
loans held for sale................. 6,427 (3,363) 3,064 6,127 1,759 7,886
Mortgage-backed securities............. 140 (72) 68 105 (45) 60
----- ----- ----- ----- ----- -----
Total interest-earning assets....... 6,642 (3,509) 3,133 6,798 1,759 8,557
----- ----- ----- ----- ----- -----
Interest-bearing liabilities:
Money market accounts.................. 14 - 14 (164) 62 (102)
Savings accounts....................... 27 - 27 (122) - (122)
NOW accounts........................... 66 (18) 48 118 2 120
Certificate accounts................... 1,644 111 1,755 5,511 3,834 9,345
----- ----- ----- ----- ----- -----
Total............................... 1,751 93 1,844 5,343 3,898 9,241
FHLB advances.......................... 1,439 (854) 585 (1,334) 138 (1,196)
----- ----- ----- ----- ----- -----
Total interest-bearing liabilities.. 3,190 (761) 2,429 4,009 4,036 8,045
----- ----- ----- ----- ----- -----
Net change in net interest income.......... $3,452 $(2,748) $704 $2,789 $(2,277) $ 512
====== ======= ==== ====== ======= ======
<CAPTION>
Year Ended
March 31, 1995
Compared to
Year Ended
March 31, 1994
------------------------------------
Increase (Decrease)
Due to
--------------------
Volume Rate Net
--------- -------- -----------
(In thousands)
<S> <C> <C> <C>
Interest-earning assets:
Investment securities.................. $ 257 $ 14 $ 271
Loans receivable, net and mortgage
loans held for sale................. 4,356 (252) 4,104
Mortgage-backed securities............. (94) - (94)
----- ----- -----
Total interest-earning assets....... 4,519 (238) 4,281
----- ----- -----
Interest-bearing liabilities:
Money market accounts.................. 6 130 136
Savings accounts....................... (34) (827) (861)
NOW accounts........................... 43 66 109
Certificate accounts................... 2,524 1,588 4,112
----- ----- -----
Total............................... 2,539 957 3,496
FHLB advances.......................... 174 471 645
--- --- ---
Total interest-bearing liabilities.. 2,713 1,428 4,141
----- ----- -----
Net change in net interest income.......... $1,806 $(1,666) $ 140
====== ======= ======
</TABLE>
50
<PAGE>
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1996 AND MARCH 31, 1996
Total assets increased by $79.0 million, or 10.9%, from $723.8 million
at March 31, 1996 to $802.8 million at June 30, 1996. The growth in assets is
primarily attributable to a $89.8 million increase in loans receivable, net,
which was offset, in part, by a $11.2 million decrease in mortgage loans held
for sale. The increase in loans receivable, net primarily reflects an increase
of $82.0 million in one- to four-family loans, $2.2 million of commercial real
estate loans and $5.5 million of consumer loans. The increase in one- to
four-family loans held for investment reflects increased loan origination
activity due to favorable market interest rates in early 1996, which resulted in
increased loan closings in the three months ended June 30, 1996, and
management's determination to increase the level of its interest-earning assets
by retaining for its portfolio fixed-rate one- to four-family loans with
maturities of up to 15 years. Timing differences accounted for the decrease in
mortgage loans held for sale as origination volume levels influenced the
outstanding balances at June 30, 1996 and March 31, 1996. Investment securities
held to maturity decreased by $2.5 million due to $5 million in maturities of
investment securities which exceeded purchases of $2.5 million. As a result, at
June 30, 1996, the Bank's liquidity ratio was 5.15% as compared to the minimum
regulatory liquidity ratio of 5.0%. The increase in assets was funded primarily
by an increase in FHLB advances, which increased to $136.6 million at June 30,
1996 from $75.1 million at March 31, 1996. Funding for asset growth was also
provided by a $16.8 million, or 2.9%, increase in deposits, which increased to
$600.6 million at June 30, 1996 as compared to $583.8 million at March 31, 1996,
primarily due to an increase in certificate of deposit accounts which increased
from $392.0 million at March 31, 1996 to $409.6 million at June 30, 1996.
Retained earnings at June 30, 1996 totalled $47.5 million, or 5.92% of assets,
as compared to $46.4 million, or 6.41% of assets, at March 31, 1996.
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 1996 AND MARCH 31, 1995
Total assets increased by $163.8 million, or 29.2%, from $560.0 million
at March 31, 1995 to $723.8 million at March 31, 1996. The growth in assets is
primarily attributable to a $137.6 million increase in loans receivable, net and
a $10.9 million increase in mortgage loans held for sale. Cash on hand and due
from banks, investment securities available for sale and investment securities
held to maturity increased by a total of $6.6 million from $31.4 million at
March 31, 1995 to $38.0 million at March 31, 1996. The $137.6 million increase
in loans receivable, net was primarily attributable to the increased balances of
one- to four-family mortgage loans, primarily consisting of shorter term
fixed-rate loans, which reflects management's determination to retain fixed-rate
one- to four-family loans with maturities of 15 years or less. The increase was
also attributable to increased loan origination volume in fiscal 1996 due to
favorable market interest rates. As a result, the Bank's portfolio of fixed-rate
residential mortgage loans and construction and land loans increased by $112.2
million between March 31, 1995 and March 31, 1996 while adjustable-rate
residential mortgage loans and construction and land loans increased by $12.4
million during the same period. The declining interest rate environment during
most of 1995 and the beginning of 1996 resulted in increased originations of
fixed-rate loans while demand for adjustable-rate loans diminished. Market
interest rates began declining at the beginning of fiscal year 1996 and
continued to decline until the middle of the last quarter of the fiscal year
ended March 31, 1996. The mortgage-backed securities portfolio increased by $4.5
million, from a balance of $2.7 million at March 31, 1995 to a balance of $7.2
million at March 31, 1996 primarily due to a $5.0 million purchase of an
adjustable-rate mortgage-backed security. The growth in assets was funded
primarily by deposits which increased by $143.6 million, or 32.6%, to $583.8
million at March 31, 1996 as compared to $440.1 million as of March 31, 1995 due
primarily to the favorable impact of the Bank's continuing expansion strategy
and competitive pricing strategy to attract new deposit accounts. Deposit growth
occurred primarily in higher cost certificate of deposit accounts which
increased from $280.5 million at March 31, 1995, or 54.1% of total liabilities,
to $392.0 million at March 31, 1996, or 57.9% of total liabilities. FHLB
advances, which increased by $8.5 million to $75.1 million at March 31, 1996 as
compared to
51
<PAGE>
$66.6 million at March 31, 1995, also funded asset growth. Retained earnings at
March 31, 1996 totalled $46.4 million, or 6.41% of total assets, compared to
$41.7 million, or 7.45%, at March 31, 1995.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND
JUNE 30, 1995
GENERAL
The Bank's net income for the three months ended June 30, 1996 was $1.1
million compared to $1.3 million for the three months ended June 30, 1995. The
decline of $224,000, or 17.3%, in net income was primarily due to increased
noninterest expense, which increased due to higher office occupancy and
equipment expense, advertising and business promotion expense and compensation
and employee benefits costs associated with to the Bank's branch office
expansion, and an increased provision for loan losses. The increased expense
items offset higher net interest income and higher noninterest income.
INTEREST INCOME
Interest income for the three months ended June 30, 1996 was $13.9
million as compared to $10.8 million for the same period in 1995, an increase of
$3.1 million, or 29.1%. The increase in interest income was primarily the result
of an increase in the average balance of interest-earning assets of $193.6
million, or 35.9%, from $539.1 million for the three months ended June 30, 1995
to $732.7 million for the same period in 1996. The increase in average
interest-earning assets was primarily the result of a $187.9 million increase in
the average balance of loans receivable, net, and mortgage loans held for sale.
The increase in the average balance of loans receivable, net, was due primarily
to increased one- to four-family loan origination activity resulting in a
corresponding increase in the retention of adjustable-rate and shorter term
fixed-rate one- to four-family loans. The effect of higher average balances in
interest-earning assets resulted in a total increase of $6.6 million in interest
income but was offset, in part, by lower average yields on interest-earning
assets. The average yield on interest-earning assets decreased to 7.60% during
the three months ended June 30, 1996 as compared to an average yield of 8.00%
for the three month period ended June 30, 1995. The decreased yield in
interest-earning assets resulted in a decrease in interest income of $3.5
million during the three months ended June 30, 1996 as compared to the same
period in 1995. Market interest rates generally declined during the three months
ended June 30, 1996, and as a result, the index rates used for adjustments on
the Bank's adjustable-rate one- to four-family loans caused an overall decrease
in the average yield of such portfolio during the months ended June 30, 1996.
The average yield on loans receivable decreased from 8.08% for the three months
ended June 30, 1995 to 7.66% for the three months ended June 30, 1996. The
average yield on investment securities decreased from 6.49% for the three months
ended June 30, 1995 to 6.24% for the three months ended June 30, 1996 due to the
lower market interest rates.
INTEREST EXPENSE
Interest expense for the three months ended June 30, 1996 was $8.4
million compared to $6.0 million for the three months ended June 30, 1995, an
increase of $2.4 million, or 40.6%. The increase in interest expense was
primarily due to the $177.2 million, or 36.9%, increase in the average balance
of interest-bearing liabilities from $480.0 million for the three month period
ended June 30, 1995 as compared to $657.2 million for the same period in 1996
and an increase in the weighted average cost of interest-bearing liabilities
from 5.00% to 5.14%. The increase in the average balance of interest-bearing
liabilities resulted primarily from an increase in the average balance of total
deposit accounts of $129.0 million, or 30.8%, primarily due to an increase in
the average balance of certificate accounts which increased by $112.4 million,
or 38.8%. Certificate accounts increased as a result of the competitive pricing
of such deposit accounts to attract such deposit accounts and the effect of the
Bank's opening of
52
<PAGE>
two new branch offices. The increase in the average balance of higher cost
certificate accounts was also the primary reason for the increase in the overall
cost of deposits despite a lower interest rate environment in the three months
ended June 30, 1996 as compared to the same period in 1995, which resulted in
interest expense on deposits increasing by $1.8 million, or 37.3%, from $4.9
million for the three months ended June 30, 1995 to $6.8 million for the same
period in 1996. The average balance of FHLB advances increased by $48.2 million
resulting in interest expense on average FHLB advances increasing $585,000 from
$1.0 million for the three months ended June 30, 1995 to $1.6 million for the
same period in 1996.
NET INTEREST INCOME
Net interest income before the provision for loan losses increased by
$704,000, or 14.8%, as the increase in the average balance of the Bank's
interest-earning assets offset a decrease in the Bank's net interest rate
spread, from 3.00% for the three months ended June 30, 1995 to 2.46% for the
same period in 1996. The decrease in the net interest rate spread was due
primarily to an increase in the average balance of higher cost certificate
accounts. This resulted in the Bank's net interest margin decreasing from 3.54%
for the three months ended June 30, 1995 to 2.99% for the same period in 1996.
PROVISION FOR LOAN LOSSES
The Bank's provision for loan losses amounted to $1.0 million for the
three months ended June 30, 1996, as compared to a provision of $475,000 for the
three months ended June 30, 1995. The increase in the provision for loan losses
resulted from management's review and evaluation of the loan portfolio and the
reclassification of one commercial real estate loan to Doubtful at June 30,
1996. In particular, management considered the overall increase in the balance
of its loan portfolio as well as an increase in higher risk commercial and
commercial real estate loans. As a result of the increased provision, the Bank's
ratio of loan loss allowance to loans remained relatively stable, declining from
0.92% at June 30, 1995 compared to 0.88% at June 30, 1996. The Bank establishes
provisions for loan losses, which are charged to operations, in order to
maintain the allowance for loan losses at a level which is deemed to be
appropriate based upon management's assessment of the risk inherent in its loan
portfolio in light of current economic conditions, actual loss experience,
industry trends and other factors which may affect the 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
loan losses. Such agencies may require the Bank to provide additions to the
allowance based upon judgments which differ from those of management. While
management of the Bank believes that the allowance for loan losses is sufficient
based on information currently available to it at this time, no assurances can
be made that future events, conditions or regulatory directives will not result
in increased provisions for loan losses or additions to the Bank's allowance for
loan losses which may adversely affect net income. See "Business of the Bank -
Lending Activities - Delinquencies and Classified Assets" and "- Allowance
for Loan Losses."
NONINTEREST INCOME
Total noninterest income for the three months ended June 30, 1996
increased $196,000, or 19.0%, to $1.2 million as compared to noninterest income
of $1.0 million for the three months ended June 30, 1995. The primary reasons
for the improvement were the reporting of a gain of $44,000 on the sale of loans
during the three months ended June 30, 1996 as compared to a loss on the sale of
loans of $196,000 in the comparable period in 1995 and due to the recovery of
unrealized losses on mortgage loans held for sale. The gain on the sale of
mortgage loans for the three months ended June 30, 1996 benefited from the
adoption of SFAS No. 122, "Accounting for Mortgage Servicing Rights," on April
1, 1996, which resulted in the inclusion in income of $261,000, reflecting the
recognition of loan servicing rights. Loan servicing income increased by $61,000
to $693,000 for the three months ended June 30, 1996 from
53
<PAGE>
$632,000 for the same period in 1995; the balances of loans serviced for others
at June 30, 1996 and June 30, 1995 were $1.1 billion and $1.0 billion,
respectively. Other noninterest income for the three months ended June 30, 1996
decreased to $493,000 from $598,000 for the three months ended June 30, 1995.
This decline in other noninterest income reflected the reversal in the June 1995
period of a reserve that management had established in fiscal 1994 pertaining to
the Bank's reconciliation of certain loans being serviced for others; such
reserve was subsequently determined not to be needed and the previously
established reserve was recovered.
NONINTEREST EXPENSE
Total noninterest expense increased by $761,000, or 24.7%, from $3.1
million for the three months ended June 30, 1995 to $3.8 million for the same
period in 1996. The increase was primarily due to increased compensation and
employee benefits expense, increased office occupancy and equipment expense and
increased advertising and business promotion expense, all of which corresponded
to the Bank's franchise expansion strategy whereby it added two new branch
facilities from June 30, 1995 to June 30, 1996, and increased the number of
personnel by a total of 37. Compensation and employee benefits expense increased
by 17.4% from $1.8 million during the three months ended June 30, 1995 to $2.1
million for the comparable period in 1996 and office occupancy and equipment
expense and advertising and business promotion expense increased by 22.8% and
93.7%, respectively, in the three month period ended June 30, 1996 versus the
three month period ended June 30, 1995 due to the significant advertising and
promotion, additional staffing and ongoing subsequent operation of two new
branch offices located in East Providence and Pawtucket, Rhode Island.
Noninterest expense also increased due to increased federal deposit insurance
premiums, which increased by 28.0% from $236,000 during the three months ended
June 30, 1995 to $302,000 for the comparable period in 1996 primarily due to the
higher average deposit balances during the three months ended June 30, 1996. The
Bank continues to qualify for the lowest cost FDIC assessment risk
classification for its particular portion of the financial services industry
(SAIF) thereby continuing to pay FDIC insurance premiums on insured deposits at
a rate of 23 basis points. Data processing expense increased by $53,000, or
41.7%, to $180,000 for the three months ended June 30, 1996 from $127,000 during
the comparable period in 1995 and other expense increased by $124,000, or 26.3%,
to $595,000 for the three months ended June 30, 1996 from $471,000 during the
comparable period in 1995. Both of these increases are attributable to increases
in operational costs as a result of the significant growth in the number of
customers between the comparable periods and the necessary operational support
and servicing of them. The Bank intends to open additional branch offices in
1996 and 1997 and anticipates the completion of a new administrative facility in
1997, which will result in further increases in the Bank's noninterest expense
in the future and on an ongoing basis. See "Risk Factors - Increase in
Noninterest Expense and Expansion Strategy."
INCOME TAXES
Income tax expense was $781,000 for the three months ended June 30,
1996 (resulting in an effective tax rate of 42.2%), compared to $943,000 for the
three months ended June 30, 1995 (resulting in an effective tax rate of 42.1%).
The decrease in income tax expense was due to lower pre-tax income.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED MARCH 31, 1996 AND
MARCH 31, 1995
GENERAL
Net income for the fiscal year ended March 31, 1996 decreased by
$358,000, or 7.2%, from $5.0 million for the year ended March 31, 1995 to $4.6
million for the year ended March 31, 1996. The decrease was primarily
attributable to a higher provision for loan losses in fiscal 1996 and an
increase in
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noninterest expenses which were partially offset by higher noninterest income
resulting from reduced losses on the sale of mortgage loans, net, an increase in
other income, an increase in net interest income and reduced income tax expense.
INTEREST INCOME
Total interest income for the fiscal year ended March 31, 1996
increased by $8.6 million to $46.0 million as compared to $37.5 million for
fiscal 1995. The increase in interest income for fiscal 1996 was primarily
attributable to increased average balances of interest-earning assets, primarily
due to an increase in the average balance of loans, which increased by $77.5
million, or 16.5%, from $471.1 million for fiscal 1995 to $548.6 million for
fiscal 1996. The increase in loans receivable primarily reflects increased one-
to four-family loan originations and the Bank's determination to retain
fixed-rate one- to four-family loans with terms of 15 years or less which it
generally originates for sale. As a result, interest income on loans increased
by $7.9 million to $43.8 million, or 22.0%, for fiscal 1996 as compared to $35.9
million for fiscal 1995. The increase in interest income was also the result of
higher average yields on interest-earning assets which increased from 7.56% for
fiscal 1995 to 7.89% for fiscal 1996 due to the retention of fixed-rate one- to
four-family loans which generally bear higher rates than adjustable-rate loans.
Interest income on investment and mortgage-backed securities also increased by
$671,000 due to increased average balances.
INTEREST EXPENSE
Interest expense increased by $8.0 million, or 43.9%, for fiscal 1996
to $26.4 million as compared to $18.3 million for fiscal 1995 primarily due to
increased average balances of deposit accounts resulting from the growth in the
Bank's certificate accounts. The growth in higher cost certificate accounts
resulted in an increase of $9.2 million, or 66.5%, in interest expense on
deposit accounts. The Bank's competitive deposit pricing strategy resulted in an
increase in the average cost of deposits of 120 basis points from an average
cost of 3.76% for fiscal 1995 to an average cost of 4.96% for fiscal 1996.
Average balances increased by $97.7 million from an average balance of $369.1
million for the year ended March 31, 1995 to an average balance of $466.8
million for the year ended March 31,1996. The increase in interest expense on
deposits was offset partially by a decrease in interest expense on FHLB advances
of $1.2 million, or 26.9%, due to a decrease in the average balance of FHLB
advances from $71.0 million for fiscal 1995 to $50.3 million for fiscal 1996.
Interest expense on FHLB advances decreased despite an increase in the average
cost of FHLB advances of 20 basis points, from 6.26% for fiscal 1995 to 6.46%
for fiscal 1996.
NET INTEREST INCOME
Net interest income before provision for loan losses increased by
$512,000, or 2.7%, from $19.2 million to $19.7 million for fiscal 1996. Net
interest income increased despite a decrease in the net interest spread which
decreased from 3.39% for fiscal 1995 to 2.79% for fiscal 1996. The decrease in
the net interest spread was due primarily to increased average balance of higher
cost certificate accounts and the Bank's competitive pricing strategy to attract
and retain certain certificate of deposit accounts. The net interest margin for
fiscal 1996 decreased to 3.37% from 3.86% for fiscal 1995 primarily due to the
increase in the average cost of certificate accounts. The impact of the reduced
net interest margin was offset by average balance increase in fiscal 1996 versus
fiscal 1995 and, as a result, net interest income improved for fiscal 1996
versus fiscal 1995.
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PROVISION FOR LOAN LOSSES
The Bank's provision for loan losses amounted to $2.6 million for the
year ended March 31,1996, as compared to a provision of $653,000 for the year
ended March 31, 1995. The increase in the provision for loan losses was due
primarily to management's review and evaluation of the loan portfolio and
increased chargeoff activity. In particular, management considered the increase
in loan chargeoffs which increased from $400,000 to $1.3 million primarily due
to the chargeoff of one commercial real estate loan. As a result, the Bank's
allowance for loan losses to loans at March 31, 1996 was 0.87% as compared to
0.84% at March 31, 1995.
NONINTEREST INCOME
Total noninterest income increased by $2.1 million, or 83.0%, from $2.5
million for fiscal 1995 to $4.6 million for fiscal 1996. The increase was
primarily attributable to a $1.0 million reduction in losses on the sale of
mortgage loans, which decreased from a $1.9 million loss for fiscal 1995 to an
$841,000 loss for fiscal 1996, as well as an increase in other income of $1.0
million which increased from $1.8 million for fiscal 1995 to $2.8 million for
fiscal 1996. The decrease in losses on the sale of mortgage loans in fiscal 1996
was primarily due to a less volatile market interest rate environment in fiscal
1996 and the amount of the Bank's sales of loans which were not hedged by
forward loan sale commitments during fiscal 1995. During the year ended 1996,
the Bank maintained a higher ratio of loans for sale hedged with forward sale
commitments than in the previous fiscal year. The $1.0 million increase in other
income was composed primarily of an $813,000 benefit due to the reversal in the
fiscal 1996 period of a reserve that management had established in fiscal 1994
pertaining to the Bank's reconciliation of certain loans serviced for others;
such reserve was subsequently determined not to be needed and the previously
established reserve was recovered.
NONINTEREST EXPENSE
Total noninterest expense for the year ended March 31, 1996 increased
by $1.5 million, or 12.1%, from $12.2 million for fiscal 1995 to $13.7 million
for fiscal 1996. The increase of $1.5 million, or 12.1%, was in part
attributable to an increase of $258,000, or 3.6%, in compensation and employee
benefits expense, an increase of $219,000, or 17.0%, in office occupancy and
equipment expense, an increase of $225,000, or 32.6%, in advertising and
business promotion expense as well as a $190,000, or 22.2%, increase in federal
deposit insurance premiums expense. The increase in compensation and employee
benefits and office occupancy and equipment expenses was primarily due to
increased personnel and facilities in connection with the Bank's expansion
strategy and the opening of two new branch facilities in fiscal 1996. The
increase in federal deposit insurance resulted from higher average balances of
deposit accounts in fiscal 1996. Data processing expense decreased by $52,000
from $622,000 for fiscal 1995 to $570,000 for fiscal 1996 primarily due to
contract adjustments negotiated with the Bank's service bureau. Other
noninterest expense was $1.6 million for the year ended March 31, 1995 as
compared to $2.3 million for the year ended March 31, 1996. The increase in
other noninterest expense was primarily due to higher costs related to the
servicing of higher balances or number of loan and deposit accounts.
INCOME TAXES
Income tax expense was $3.4 million for the year ended March 31, 1996
(resulting in an effective tax rate of 42.1%), compared to $3.9 million in
income tax expense for the year ended March 31, 1995 (resulting in an effective
tax rate of 43.7%). The $499,000 decrease in income tax expense is due to
decreased pre-tax income.
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COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED MARCH 31, 1995 AND
MARCH 31, 1994
GENERAL
Net income decreased by $2.0 million, or 28.3%, from $6.9 million for
the year ended March 31, 1994 to $5.0 million for fiscal 1995. The decrease was
primarily attributable to a $1.9 million loss on the sale of mortgage loans,
net, for fiscal 1995 compared to a $1.6 million gain on the sale of mortgage
loans, net, for fiscal 1994 as well as the recognition in fiscal 1994 of a $1.5
million tax benefit due to the cumulative effect of a change in accounting for
income taxes. These events were offset, in part, by an increase in other income
of $1.0 million in fiscal 1995 and the absence of a $1.0 million provision in
fiscal 1994 which related to the acceleration of amortization of excess
servicing of loans serviced for others caused by management's consideration of
loan prepayment activity which occurred in fiscal 1994.
INTEREST INCOME
Total interest income for the year ended March 31, 1995 increased $4.3
million, or 12.9%, to $37.5 million as compared to the $33.2 million for the
year ended March 31, 1994. Interest income on loans increased by $4.1 million,
or 12.9%, to $35.9 million in the year ended March 31, 1995 as compared to $31.8
million in the year ended March 31, 1994. The increase in interest income on
loans was attributable to increased average balance of loans, primarily due to
an increase in one- to four-family loans. The average balance of loans increased
to $471.1 million for the year ended March 31, 1995 from $413.5 million for the
year ended March 31, 1994. This balance increase was partially offset by a
slight reduction in the average yield from 7.68% for fiscal 1994 to an average
yield of 7.62% in fiscal 1995. Interest income on mortgage-backed securities
decreased by $94,000 due to a lower average balance during fiscal 1995. While
the average yield on mortgage-backed securities remained constant at 8.61% for
each period, the average balance decreased from $4.1 million for fiscal 1994 to
$3.0 million for fiscal 1995. Interest income on investment securities increased
by $271,000 primarily due to an increase of $4.1 million in the average balance
of investment securities.
INTEREST EXPENSE
Interest expense increased by $4.1 million, or 29.2%, to $18.3 million
for the fiscal year ended March 31, 1995 as compared to $14.2 million for fiscal
1994. Interest expense on deposit accounts increased by $3.5 million, or 33.6%,
for fiscal 1995 due to an increase in both average balance and average cost of
deposits. The average cost of deposits increased from 3.38% for fiscal 1994 to
an average cost of deposits of 3.76% for fiscal 1995 primarily due to a higher
interest rate environment in fiscal 1995 and an increased balance of higher cost
certificate accounts and the Bank's competitive pricing of such deposit
products. The average balance of deposit accounts increased by $61.4 million
from an average balance of $307.7 million for fiscal 1994 to an average balance
of $369.1 million for fiscal 1995. In addition to the increases in deposit
interest expense, interest expense on FHLB advances increased from $3.8 million
for fiscal 1994 to $4.4 million for fiscal 1995, an increase of $645,000 or
17.0% due to a higher average balance of FHLB advances. The average cost of FHLB
advances increased by 67 basis points from an average of 5.59% for fiscal 1994
to 6.26% for fiscal 1995 due to the higher interest rate environment. The
average balance of FHLB advances increased from an average balance of $68.0
million for fiscal 1994 to an average balance of $71.0 million for fiscal 1995.
The increases in FHLB advances were primarily used to fund originations of
adjustable-rate one- to four-family mortgage loans.
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NET INTEREST INCOME
Net interest income remained relatively stable increasing from $19.0
million for fiscal 1994 to $19.2 million for fiscal 1995. The Bank's net
interest spread decreased from 3.85% for fiscal 1994 to 3.39% for fiscal 1995.
The decrease in the net interest spread primarily resulted from an increase in
the average balance of higher cost certificate accounts. The net interest margin
for the year ended March 31, 1995 decreased to 3.86% from 4.37% for the year
ended March 31, 1994.
PROVISION FOR LOAN LOSSES
The Bank's provision for loan losses amounted $653,000 for the year
ended March 31, 1995 as compared to a provision of $1.0 million for the year
ended March 31, 1994. The decrease in the provision for loan losses was due
primarily to management's consideration of decreased chargeoff activity and the
reduction in nonperforming loans. Chargeoffs for fiscal 1995 totalled $400,000
as compared to $628,000 for fiscal 1994 and nonperforming loans decreased from
$4.2 million, or 1.01% of loans, at March 31, 1994 to $3.0 million, or 0.60% of
loans, at March 31, 1995. As a result, the Bank's allowance for loan losses to
loans receivable, net was 0.84% at March 31, 1995 as compared to 0.95% at March
31, 1994.
NONINTEREST INCOME
Total noninterest income was $2.5 million for the year ended March 31,
1995, a decrease from the $4.5 million for the year ended March 31, 1994. Loss
on sale of mortgage loans from secondary market activity totalled $1.9 million
for the year ended March 31, 1995 compared to gain on sale of loans which
totalled $1.6 million for the year ended March 31, 1994. The difference between
periods was attributable to a declining interest rate environment in 1994 as
compared to a rising interest rate environment in 1995 which resulted in higher
loan sale losses due to market pricing. Loan servicing income increased to $2.5
million for the year ended March 31, 1995 compared to $2.0 million for the year
ended March 31, 1994 due to increased balances in loans serviced which was a
result of the continued sale of loans in the secondary market with servicing
retained. Other noninterest income for the year ended March 31, 1995 was $1.8
million compared to $852,000 for the year ended March 31, 1994 as a result of a
reserve established in 1994 pertaining to the Bank's reconciliation of loans
serviced for others and recognition of gains on sale of real estate owned and
other service fee income increases in 1995.
NONINTEREST EXPENSE
Total noninterest expense decreased $597,000, or 4.7%, to $12.2 million
for the year ended March 31, 1995 from $12.8 million for the year ended March
31, 1994. Compensation and employee benefits decreased $127,000 to $7.1 million
for the year ended March 31, 1995 compared to $7.2 million for the year ended
March 31, 1994 due to reduced pension expenses and reduced cash bonuses in 1995.
Advertising and business promotion increased $321,000 to $691,000 for the year
ended March 31, 1995 from $370,000 for the year ended March 31, 1994 as the Bank
began to more aggressively promote its expanding mortgage lending area and, in
particular, promote the new banking office located in Seekonk, Massachusetts,
which opened in June 1994. Federal deposit insurance premiums increased by
$115,000, or 15.6%, for the year ended March 31, 1995 to $854,000 as compared to
$739,000 for the year ended March 31, 1994 due primarily to increased deposit
balances. Data processing and office occupancy and equipment both remained
fairly stable for the years ended March 31, 1995 and March 31, 1994, increasing
by 3.2% and 1.8%, respectively. In addition, the year ended March 31, 1994
included a $1.0 million provision to reduce the balance of previously
capitalized excess servicing fees due to the accelerated
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prepayment of loans serviced for others as a result of the decreasing interest
rate environment during 1994. There was no corresponding provision for
accelerated prepayment for the year ended March 31, 1995.
INCOME TAXES
Income tax expense was $3.9 million for the year ended March 31, 1995
(resulting in an effective tax rate of 43.7%), compared to $4.2 million for the
year ended March 31, 1994 (resulting in an effective tax rate of 43.9%).
LIQUIDITY AND CAPITAL RESOURCES
The Bank's primary sources of funds are deposits, principal and
interest payments on loans, mortgage-backed and investment securities and FHLB
advances. While maturities and scheduled amortization of loans are predictable
sources of funds, deposit flows and mortgage prepayments are greatly influenced
by general interest rates, economic conditions and competition. Due to the
success of the expansion of the Bank's branch network, as well as the Bank's
competitive pricing strategy to attract and retain new deposit accounts, the
Bank experienced strong deposit inflows over the past several years. Coupled
with that growth, the Bank has grown in assets during the past several years as
well. The Bank has continued to maintain the required levels of liquid assets as
defined by OTS regulations. This requirement of the OTS, which may be varied at
the direction of the OTS depending upon economic conditions and deposit flows,
is based upon a percentage of deposits and short-term borrowings. The Bank's
currently required liquidity ratio is 5%. At June 30, 1996 and 1995, the Bank's
liquidity ratios were 5.15% and 7.17%, respectively, and at March 31, 1996,
1995, 1994, 1993 and 1992, the Bank's liquidity ratios were 6.31%, 6.67%, 5.53%,
7.78% and 6.89%, respectively. Management has attempted to maintain liquidity as
close as possible to the minimum requirement so that it may invest any excess
liquidity in higher yielding interest-earning assets or use such funds to repay
FHLB advances.
At June 30, 1996, the Bank exceeded all of its regulatory capital
requirements with a tangible capital level of $47.1 million, or 5.87%, of total
adjusted assets, which is above the required level of $12.0 million, or 1.5%;
core capital of $47.1 million, or 5.87%, of total adjusted assets, which is
above the required level of $24.1 million, or 3.0%; and risk-based capital of
$52.7 million, or 11.58%, of risk- weighted assets, which is above the required
level of $36.4 million, or 8.0%. See "Regulatory Capital Compliance."
The Bank's most liquid assets are cash and investment securities. The
levels of these assets are dependent on the Bank's operating, financing, lending
and investing activities during any given period. At June 30, 1996, cash and
investment securities totalled $36.1 million, or 4.5% of total assets.
The Bank has other sources of liquidity if a need for additional funds
arises, including FHLB advances. At June 30, 1996, the Bank had $136.6 million
in advances outstanding from the FHLB, and at June 30, 1996, had an additional
overall borrowing capacity from the FHLB of $303.3 million. During the six
months ended December 31, 1995, the Bank used a strong growth in deposits as its
primary source of funds for its increased level of loan originations, and for
the six months ended June 30, 1996, the Bank used continued growth in savings
and a strong increase in FHLB advances to continue to fund loan originations.
The Bank expects to repay a portion of the increase in FHLB advances outstanding
at June 30, 1996 with net Conversion proceeds. Depending on market conditions,
the pricing of deposit products and FHLB advances, the Bank may continue to rely
on FHLB borrowing to fund asset growth.
At June 30, 1996, the Bank had commitments to originate loans and
unused outstanding lines of credit and undisbursed proceeds of construction
mortgages totalling $111.4 million. The Bank anticipates
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that it will have sufficient funds available to meet its current loan
origination commitments. Certificate accounts, including IRA and KEOGH accounts,
which are scheduled to mature in less than one year from June 30, 1996, totalled
$296.9 million. The Bank expects that substantially all of the maturing
certificate accounts will be retained by the Bank at maturity.
IMPACT OF INFLATION AND CHANGING PRICES
The Consolidated Financial Statements and Notes thereto presented
herein have been prepared in accordance with GAAP, which require the measurement
of financial position and operating results generally in terms of historical
dollar amounts without considering the changes in the relative purchasing power
of money over time due to inflation. The impact of inflation is reflected in the
increased cost of the Bank's operations. Unlike industrial companies, nearly all
of the assets and liabilities of the Bank are monetary in nature. As a result,
interest rates have a greater impact on the Bank's performance than do the
effects of general levels of inflation. Interest rates do not necessarily move
in the same direction or to the same extent as the prices of goods and services.
IMPACT OF NEW ACCOUNTING STANDARDS
Accounting for Long Lived Assets. In March 1995, the FASB issued
Statement of Financial Accounting Standards No. 121, "Accounting for Impairment
of Long-Lived Assets and for Long Lived Assets to be Disposed of" ("SFAS No.
121"). This Statement establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related to
those assets to be held and used and for long-lived assets and certain
identifiable intangibles to be disposed of. The Statement requires that
long-lived assets and certain identifiable intangibles to be held and used by an
institution be reviewed for impairment whenever events change and circumstances
indicate the carrying amount of the asset may not be recoverable. This Statement
became effective for the Bank on April 1, 1996. Adoption of this Statement did
not have a material impact on the earnings or financial position of the Bank.
Accounting for Stock-Based Compensation. In November 1995, the FASB
issued Statement of Financial Accounting Standards No. 123, "Accounting for
Stock Based Compensation" ("SFAS No. 123"). This statement establishes financial
accounting standards for stock-based employee compensation plans. SFAS No. 123
permits the Bank to choose either a new fair value based method or the current
Accounting Principles Board ("APB") Opinion 25 intrinsic value based method of
accounting for its stock-based compensation arrangements. SFAS No. 123 requires
pro forma disclosures of net earnings and earnings per share computed as if the
fair value based method had been applied in financial statements of companies
that continue to follow current practice in accounting for such arrangements
under 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. SFAS
No. 123 also applies to plans in which the employer incurs liabilities to
employees in amounts based on the price of the employer's stock, (e.g., stock
option plans, stock purchase plans, restricted stock plans, and stock
appreciation rights). The statement also specifies the accounting for
transactions in which a company issues stock options or other equity instruments
for services provided by nonemployees or to acquire goods or services from
outside suppliers or vendors. The recognition provisions of SFAS No. 123 for
companies choosing to adopt the new fair value based method of accounting for
stock-based compensation arrangements may be adopted immediately and will apply
to all transactions entered into in fiscal years that begin after December 15,
1995, however, disclosure of the pro forma net earnings and earnings per share,
as if the fair value method of accounting for stock-based compensation had been
elected, is required for all awards granted in fiscal years beginning after
December 31, 1994. Any effect that this statement will have on the Bank will be
applicable upon the consummation
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of the Conversion. The Bank has elected to continue to follow the APB Opinion 25
method upon adoption, but will provide pro forma disclosure as if the fair value
method had been applied.
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. In June 1996 the FASB issued SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" ("SFAS No. 125"). This Statement provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities based on consistent application of a
financial-components approach that focuses on control. It distinguishes
transfers of financial assets that are sales from transfers that are secured
borrowings. Under the financial-components approach, after a transfer of
financial assets, an entity recognizes all financial and servicing assets it
controls and liabilities it has incurred and derecognizes financial assets it no
longer controls and liabilities that have been extinguished. The
financial-components approach focuses on the assets and liabilities that exist
after the transfer. Many of these assets and liabilities are components of
financial assets that existed prior to the transfer. If a transfer does not meet
the criteria for a sale, the transfer is accounted for as a secured borrowing
with a pledge of collateral. The Statement is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring after
December 31, 1996, and should be applied prospectively. Earlier or retroactive
application of this Statement is not permitted. The Company has not yet
determined the impact that this Statement will have on the Company's
consolidated financial statements.
BUSINESS OF THE BANK
GENERAL
The Bank's principal business has been and continues to be attracting
retail deposits from the general public in the areas surrounding its branch
offices and investing those deposits, together with funds generated from
operations and borrowings, primarily in adjustable-rate and shorter-term
fixed-rate one- to four-family residential mortgage loans. Through its 12 branch
offices and five loan origination offices, the Bank originates loans for
investment and loans for sale in the secondary market, generally retaining the
servicing rights to all loans sold. To a lesser extent, the Bank invests in
multi-family, commercial real estate, construction and land, commercial and
consumer loans. Loan sales are made from loans designated as being held for sale
or originated for sale during the period. The Bank's revenues are derived
principally from interest on its mortgage loans, and to a lesser extent,
interest and dividends on its investment and mortgage-backed securities and loan
servicing income. The Bank's primary sources of funds are deposits, principal
and interest payments on loans and mortgage-backed securities, FHLB advances and
proceeds from the sale of loans.
MARKET AREA AND COMPETITION
The Bank is a community-oriented savings institution offering a variety
of financial products and services to meet the needs of the communities it
serves. The Bank's deposit gathering is concentrated in the communities
surrounding its twelve full service branch offices located in the Southeastern
Massachusetts municipalities of Fall River, Attleboro, New Bedford, Seekonk,
Somerset and Taunton and the Rhode Island municipalities of Pawtucket, East
Providence and Warwick. The Bank also maintains loan origination centers in the
municipalities of Yarmouth, Auburn, Agawam and Burlington, Massachusetts and
East Greenwich, Rhode Island. The Bank primarily invests in loans secured by
first or second mortgages on properties located in Southeastern Massachusetts
and Rhode Island and, to a lesser extent, other areas of Massachusetts and
Connecticut.
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The Bank's main office is located in Fall River, Massachusetts. Fall
River is located in the Southeastern region of Massachusetts and is adjacent to
Rhode Island. All of the Bank's twelve branch offices are located within 30
miles of Fall River. The Southeastern Massachusetts and Rhode Island suburbs are
primarily low to middle income residential communities with individuals employed
primarily in Fall River and New Bedford, Massachusetts and Providence, Rhode
Island and areas along Interstates 195, 95 and 495 and Route 24.
Southeastern New England has generally lagged behind the rest of the
nation in coming out of the recession of the late 1980s and early 1990s.
However, with the exception of the Fall River and New Bedford, Massachusetts
areas, which continue to experience unemployment rates higher than the national
average, over the past two years the regional economy in the Bank's primary
market area has stabilized and begun to strengthen. Small businesses, service
firms and tourism form the backbone of the region's economy. Cuts to the defense
industry, changes in the costume jewelry industry and uncertainty in some
high-tech areas conspired to dampen traditional areas of emphasis. The region is
still represented by many well-known manufacturers, such as The Acushnet
Company, Textron, American Power Conversion, Globe Manufacturing, Electric Boat
and Hasbro. See "Risk Factors - Weakness in Regional and Local Economy."
With the economic downturn experienced during the 1990s, the market
value of many one- to four-family residences declined throughout the region.
Loan demand diminished and competition for such loans increased. During and
subsequent to the recession of the late 1980s and early 1990s, a number of bank
closings and mergers also occurred. These events also served to raise regional
unemployment. Except for the areas of Fall River and New Bedford, Massachusetts,
which continue to experience the recessionary impact of the early 1990s, the
region's economy now appears to be stable and a number of recent initiatives
have been introduced. These initiatives include the proposed extension of the
Greater Boston area's commuter rail line to both Fall River and New Bedford,
Massachusetts and the construction of a third rail which would serve the
industrial firms located in Rhode Island.
The Bank faces significant competition both in generating loans and in
attracting deposits. The Bank's primary market area is highly competitive and
the Bank faces direct competition from a significant number of financial
institutions, many with a state-wide or regional presence and, in some cases, a
national presence. Many of these financial institutions are significantly larger
and have greater financial resources than the Bank. The Bank's competition for
loans comes principally from commercial banks, savings banks, credit unions,
mortgage brokers, mortgage banking companies and insurance companies. Its most
direct competition for deposits has historically come from savings, cooperative
and commercial banks and credit unions, particularly in Fall River and New
Bedford. In addition, the Bank faces increasing competition for deposits from
non-bank institutions such as brokerage firms and insurance companies in such
instruments as short-term money market funds, corporate and government
securities funds, mutual funds and annuities. Competition may also increase as a
result of the lifting of restrictions on the interstate operations of financial
institutions. In the areas of Fall River and Rhode Island, the Bank has
experienced significant competition from credit unions which have a competitive
advantage as they do not pay state or federal income taxes. Such competitive
advantage has placed increased pressure on the Bank with respect to its loan and
deposit pricing. See "Risk Factors - Competitive Market Area."
Since the mid 1980s, the Bank's operating strategy has been to
emphasize controlled growth, build its loan servicing portfolio and loan
servicing fee income, manage interest rate risk and increase its one- to
four-family lending market share in its primary market area primarily through
its mortgage banking activities whereby it generally retains all adjustable-rate
one- to four-family mortgages and sells all longer-term fixed-rate one- to
four-family loans in the secondary market on a servicing retained basis. In late
1993, the Bank began to focus more heavily on building its loan and deposit
franchise and increasing its
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level of interest-earning assets and retail deposits. The Bank has focused upon
expanding its franchise in its existing market area and other areas in
Southeastern Massachusetts and Rhode Island through the establishment of de novo
branch offices and new loan origination facilities. In this regard, since 1994,
the Bank has opened four new branch offices in Seekonk, Massachusetts and East
Providence, Pawtucket and Warwick, Rhode Island, one new loan origination office
in Burlington, Massachusetts, and plans to open an additional branch office in
New Bedford, Massachusetts in early 1997. The Bank also plans to open a new
centralized administrative and operations center and branch office in late 1997
in Swansea, Massachusetts. See "- Subsidiary Activities" and "- Properties."
Additionally, the Bank, pursuant to its expansion strategy, is currently seeking
new branch sites and new loan origination center sites within its primary market
area and in areas adjacent to its primary market area, including areas in the
state of Connecticut.
LENDING ACTIVITIES
Loan Portfolio Composition. The Bank's loan portfolio consists
primarily of first mortgage loans secured by one- to four-family residences. At
June 30, 1996, loans receivable, net totalled $727.4 million, of which $613.9
million were one- to four-family, residential mortgage loans, or 82.6% of the
Bank's total loans receivable. At such date, the remainder of the loan portfolio
consisted of: $4.8 million of multi-family residential loans, or 0.7% of total
loans receivable; $25.6 million of commercial real estate loans, or 3.4% of
total loans receivable; $26.8 million of construction and land loans, or 3.6% of
total loans receivable; $15.1 million of commercial loans, or 2.0% of total
loans receivable; and $57.4 million of consumer loans, or 7.7% of total loans
receivable, consisting of $26.5 million of home equity lines of credit, $24.7
million of second mortgages and $6.1 million of other consumer loans. The Bank
had $6.5 million of mortgage loans held for sale at June 30, 1996 consisting of
one- to four-family fixed-rate mortgage loans. At that same date, 47.5% of the
Bank's residential mortgage loans and construction and land loans, excluding
mortgage loans held for sale, had adjustable interest rates, most of which are
indexed to the one-year Constant Maturity Treasury ("CMT") Index.
The types of loans that the Bank may originate are subject to federal
and state laws and regulations. Interest rates charged by the Bank on loans are
affected by the demand for such loans and the supply of money available for
lending purposes and the rates offered by competitors. These factors are, in
turn, affected by, among other things, economic conditions, monetary policies of
the federal government, including the Federal Reserve Board, and legislative tax
policies.
63
<PAGE>
The following table sets forth the composition of the Bank's loan
portfolio in dollar amounts and as a percentage of the portfolio at the dates
indicated.
<TABLE>
<CAPTION>
At June 30, At March 31,
----------------------- --------------------------------------------------------------------------
1996 1996 1995 1994
----------------------- -------------------- -------------------------- ------------------------
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>
Mortgage Loans:
Residential:
One- to four-family...... $613,860 82.57% $531,849 81.63% $405,747 79.20% $335,374 78.84%
Multi-family............. 4,798 0.65 4,703 0.72 5,157 1.00 5,257 1.24
Commercial real estate..... 25,567 3.44 23,368 3.59 19,968 3.90 14,849 3.49
Construction and land...... 26,792 3.60 25,297 3.88 26,337 5.14 20,142 4.73
------ ---- ------ ---- ------ ---- ------ ----
Total mortgage loans... 671,017 90.26 585,217 89.82 457,209 89.24 375,622 88.30
------- ----- ------- ----- ------- ----- ------- -----
Commercial .................. 15,051 2.03 14,473 2.22 12,756 2.49 10,269 2.41
-------- ----- ------ ----- ------ ----- ------ -----
Consumer Loans:
Home equity lines........ 26,542 3.57 27,995 4.30 29,373 5.73 30,409 7.15
Second mortgages......... 24,732 3.32 18,064 2.77 9,111 1.78 5,438 1.28
Other consumer loans..... 6,080 .82 5,813 .89 3,874 .76 3,672 .86
-------- ---- ------ ---- ------ ---- ----- ----
Total consumer loans... 57,354 7.71 51,872 7.96 42,358 8.27 39,519 9.29
-------- ---- ------ ---- ------ ---- ------ ----
Total loans receivable..... 743,422 100.00% 651,562 100.00% 512,323 100.00% 425,410 100.00%
====== ====== ====== ======
Less:
Allowance for loan
losses................. (6,445) (5,607) (4,239) (3,964)
Undisbursed proceeds of
construction mortgages
in process............. (7,986) (6,568) (5,511) (6,758)
Deferred loan origination
fees, net.............. (1,590) (1,795) (2,596) (2,915)
------- ------- ------- -------
Loans receivable, net...... 727,401 637,592 499,977 411,773
Mortgage loans held for
sale................... 6,530 17,747 6,816 15,779
----- ------ ----- ------
Loans receivable, net and
mortgage loans held for
sale..................... $733,931 $655,339 $506,793 $427,552
======== ======== ======== ========
At March 31,
----------------------------------------------------
1993 1992
--------------------------- ----------------------
Percent Percent
Amount of Total Amount of Total
--------------- --------- ---------- ---------
Mortgage Loans:
Residential:
One- to four-family...... $263,911 76.42% $305,495 78.84%
Multi-family............. 3,948 1.14 4,206 1.09
Commercial real estate..... 11,932 3.46 9,348 2.41
Construction and land...... 13,091 3.79 12,371 3.19
------ ---- ------ ----
Total mortgage loans... 292,882 84.81 331,420 85.53
------- ----- ------- -----
Commercial .................. 7,396 2.14 7,550 1.95
----- ----- ----- ----
Consumer Loans:
Home equity lines........ 33,492 9.70 35,096 9.06
Second mortgages......... 7,371 2.13 8,308 2.14
Other consumer loans..... 4,215 1.22 5,110 1.32
------ ---- ------ -----
Total consumer loans... 45,078 13.05 48,514 12.52
------ ----- ------ -----
Total loans receivable..... 345,356 100.00% 387,484 100.00%
====== ======
Less:
Allowance for loan
losses................. (3,524) (1,795)
Undisbursed proceeds of
construction mortgages
in process............. (810) (632)
Deferred loan origination
fees, net.............. (2,854) (2,876)
------- -------
Loans receivable, net...... 338,168 382,181
Mortgage loans held for
sale................... 20,253 18,592
------- -------
Loans receivable, net and
mortgage loans held for
sale..................... $358,421 $400,773
======== ========
</TABLE>
64
<PAGE>
Loan Maturity. The following table shows the remaining contractual
maturity of the Bank's loans at June 30, 1996. The table does not include the
effect of future principal prepayments.
<TABLE>
<CAPTION>
At June 30, 1996
--------------------------------------------------------------------------------
One- to
Four- Multi- Commercial Construction
Family Family Real Estate and Land Commercial
------------ ----------- --------------- -------------- -------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Amounts due:
One year or less............................ $ 402 $ - $ 1,646 $ 10,776 $ 7,346
--------- --------- -------- -------- ---------
After one year:
More than one year to three years........ 2,756 125 6,129 15 2,891
More than three years to five years...... 7,099 104 12,549 - 3,658
More than five years to 10 years......... 81,661 566 2,890 608 1,011
More than 10 years to 20 years........... 224,022 2,551 1,767 8,143 145
More than 20 years....................... 297,920 1,452 586 7,250 -
-------- -------- --------- --------- -----------
Total due after one year................. 613,458 4,798 23,921 16,016 7,705
-------- ------ ------- ------- ------
Total amount due......................... $613,860 $ 4,798 $ 25,567 $ 26,792 $ 15,051
======== ======= ======== ======== ========
Total
Consumer Loans
------------- -----------
Amounts due:
One year or less............................ $ 29,955 $ 50,125
-------- ---------
After one year:
More than one year to three years........ 2,704 14,620
More than three years to five years...... 5,422 28,832
More than five years to 10 years......... 12,132 98,868
More than 10 years to 20 years........... 7,110 243,738
More than 20 years....................... 31 307,239
------- -------
Total due after one year................. 27,399 693,297
------- -------
Total amount due......................... $ 57,354 743,422
========
Less:
Allowance for loan losses............................................................... (6,445)
Undisbursed proceeds of construction mortgages in process............................... (7,986)
Deferred loan origination fees, net..................................................... (1,590)
--------
Loans receivable, net.......................................................................... $727,401
========
</TABLE>
65
<PAGE>
The following table sets forth, at June 30, 1996, the dollar amount of
loans, excluding mortgage loans held for sale, contractually due after June 30,
1997, and whether such loans have fixed interest rates or adjustable interest
rates.
<TABLE>
<CAPTION>
Due After June 30, 1997
--------------------------------------------------
Fixed Adjustable Total
------------- -------------- --------------
(In thousands)
<S> <C> <C> <C>
Mortgage loans:
One- to four-family...................... $335,921 $277,537 $613,458
Multi-family............................. 507 4,291 4,798
Commercial real estate................... 12,914 11,007 23,921
Construction and land.................... 1,521 14,495 16,016
-------- -------- --------
Total mortgage loans................... 350,863 307,330 658,193
Commercial loans............................ 3,411 4,294 7,705
Consumer loans.............................. 27,399 - 27,399
------ --------- --------
Total loans ......................... $381,673 $311,624 $693,297
======== ======== ========
</TABLE>
Origination, Sale and Servicing of Loans. The Bank's mortgage lending
activities are conducted primarily by its loan personnel operating at its 12
branch offices and five loan origination centers and through a network of
approximately 65 active loan correspondents, wholesale loan brokers and other
financial institutions approved by the Bank. All loans originated by the Bank,
either through internal sources or through loan correspondents are underwritten
by the Bank pursuant to the Bank's policies and procedures. For fiscal 1996, and
the three months ended June 30, 1996, the Bank's loan correspondents originated
$100.6 million and $84.5 million in loans, respectively. The Bank originates
both adjustable-rate and fixed-rate loans. The Bank's ability to originate
fixed- or adjustable-rate loans is dependent upon the relative customer demand
for such loans, which is affected by the current and expected future level of
interest rates.
Generally, all loans originated by the Bank are originated for
investment with the exception of longer-term fixed-rate one- to four-family
mortgage loans. While the Bank has in the past, from time to time, retained
fixed-rate one- to four-family loans and sold adjustable-rate one-to four-family
loans, it is currently the general policy of the Bank to sell substantially all
of the one- to four-family fixed-rate mortgage loans with maturities over 12
years that it originates and to retain substantially all fixed-rate loans with
maturities of up to 12 years and all adjustable-rate one- to four-family
mortgage loans which it originates. The one- to four-family loan products
currently originated for sale by the Bank include a variety of mortgage loans
which conform to the underwriting standards specified by the Federal National
Mortgage Association ("FNMA") and FHLMC ("conforming loans") and, to a lesser
extent, loans which do not conform to FNMA or FHLMC standards due to loan
amounts ("jumbo loans"), or due to the substandard credit quality of the
borrowers ("B and C loans"). The Bank also sells all mortgage loans insured by
FHA and VA. All one- to four-family loans sold by the Bank are sold pursuant to
master commitments negotiated with FNMA, FHLMC and other investors to purchase
loans meeting such investors' defined criteria. Although the Bank has entered
into such master commitment contracts, such contracts generally do not require
the purchasers to buy or the Bank to deliver a specific amount of mortgage
loans. The Bank currently sells all longer-term fixed-rate conforming mortgage
loans it originates to FNMA and FHLMC. Sales of loans are made without recourse
to the Bank in the event of default by the borrower, except, in the case of VA
loans, which are subject to limitations on the VA's loan
66
<PAGE>
guarantees. The Bank generally retains the servicing rights on the mortgage
loans sold to FNMA and FHLMC but generally sells all VA, FHA, jumbo loans and B
and C loans to institutional investors on a servicing released basis.
Between the time the Bank issues loan commitments and the time such
loans or the securities into which they are converted are sold, the Bank is
exposed to movements in the market price due to changes in market interest
rates. The Bank attempts to manage this risk by utilizing forward cash sales of
loans or mortgage-backed securities primarily to FNMA and FHLMC (such forward
sales of loans or mortgage-backed securities are collectively referred to as
"forward sale commitments"). Generally, the Bank attempts to cover between 70%
and 100% of the principal amount of the loans that it has committed to fund at
specified interest rates with forward sale commitments. However, the type,
amount and delivery date of forward sale commitments the Bank will enter into is
based upon anticipated movements in market interest rates, bond market
conditions and management's estimates as to closing volumes and the length of
the origination or purchase commitments. Differences between the volume and
timing of actual loan originations and purchases and management's estimates can
expose the Bank to losses. If the Bank is not able to deliver the mortgage loans
or mortgage-backed securities during the appropriate delivery period called for
by the forward sale commitment, the Bank may be required to pay a non-delivery
fee, repurchase the delivery commitments at current market prices or purchase
whole loans at a premium for delivery. The above activity is managed
continually; however, there can be no assurances that the Bank will be
successful in its efforts to eliminate the risk of interest rate fluctuation
between the time origination or purchase commitments are issued and the ultimate
sale of the loan. At June 30, 1996, the Bank had $13.4 million of forward sale
commitments representing 71.7% of closed mortgage loans held for sale and loan
commitments at specified interest rates at such date. See "Risk Factors -
Sensitivity to Increases in Interest Rates."
At June 30, 1996, the Bank was servicing its portfolio of $733.9
million of loans receivable, net and mortgage loans held for sale and $1.1
billion of loans for others, primarily consisting of conforming fixed-rate loans
sold by the Bank. Loan servicing includes collecting and remitting loan
payments, accounting for principal and interest, contacting delinquent
mortgagors, supervising foreclosures and property dispositions in the event of
unremedied defaults, making certain insurance and tax payments on behalf of the
borrowers and generally administering the loans. In the past, the Bank has
recognized gains from excess servicing, which is the present value of any
difference between the interest rate charged to the borrower and the interest
rate paid to the purchaser after deducting a normal servicing fee, and is
recognizable as an adjustment to the cash gain or loss. The excess servicing
gain or loss is dependent on prepayment estimates and discount rate assumptions.
All of the loans currently being serviced for others are loans which have been
sold by the Bank. The gross servicing fee income from loans originated and
purchased is generally 0.25% to 0.38% of the total balance of the loan serviced.
In the past, the Bank recognized the present value of the income attributable to
excess servicing rights upon the sale of loans. The Bank has amortized all of
the excess servicing fees. Currently, the Bank has elected to sell the excess
servicing through the pricing received from FNMA and FHLMC.
During the fiscal years ended March 31, 1996 and March 31, 1995, the
Bank originated $375.1 million and $230.4 million of fixed-rate and
adjustable-rate one- to four-family loans, respectively, of which $190.9 million
and $89.4 million, respectively, were retained by the Bank. The fixed-rate loans
retained by the Bank consisted primarily of loans with terms of 15 years or
less. The Bank recognizes, at the time of sale, the cash gain or loss on the
sale of the loans based on the difference between the net cash proceeds received
and the carrying value of the loans sold. On April 1, 1996, the Bank implemented
SFAS No. 122 whereby the value of servicing rights are recognized as an asset of
the Bank. See "- Lending Activities - Origination, Sale and Servicing of Loans."
At June 30, 1996, the Bank had $6.5 million of mortgage loans held for sale
consisting of fixed-rate one- to four-family loans. The Bank has,
67
<PAGE>
in the past, from time to time, purchased loans or participations in loans,
primarily one- to four-family mortgage loans, and had $9.3 million of purchased
loans at June 30, 1996. With the exception of purchases of loans from
correspondent financial institutions, which are underwritten pursuant to the
Bank's policies and closed in the name of the correspondent financial
institution but immediately purchased by the Bank for its mortgage banking
activities, the Bank currently does not purchase loans or participations in
loans.
68
<PAGE>
The following table sets forth the Bank's loan originations, purchases,
sales and principal repayments for the periods indicated:
<TABLE>
<CAPTION>
For the Three Months
Ended June 30, For the Year Ended March 31,
------------------------- ---------------------------------------
1996 1995 1996 1995 1994
----------- ----------- ------------ ----------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
Beginning balance(1)........................ $655,339 $506,793 $506,793 $427,552 $358,449
Loans originated:
Mortgage loans:
One- to four-family.................. 132,299 34,679 375,063 230,433 664,046
Multi-family......................... 189 - 40 68 -
Commercial real estate............... 3,316 2,399 6,839 8,408 5,067
Construction and land................ 8,922 7,207 29,519 33,270 31,591
------- ------- --------- -------- --------
Total mortgage loans............. 144,726 44,285 411,461 272,179 700,704
-------- ------- -------- -------- --------
Commercial.............................. 2,286 1,345 8,660 8,289 7,805
----- ----- ----- ------- -----
Consumer loans:
Home equity lines.................... 1,414 2,265 10,695 8,253 11,394
Second mortgages..................... 8,260 3,754 13,868 6,252 1,871
Other consumer loans................. 751 834 2,688 1,085 1,052
----- ----- ------ ------- -------
Total consumer loans............. 10,425 6,853 27,251 15,590 14,317
------ ------- ------ ------ ------
Total loans originated.................. 157,437 52,483 447,372 296,058 722,826
-------- -------- -------- -------- ---------
Total............................ 812,776 559,276 954,165 723,610 1,081,275
Less:
Principal repayments and
other, net........................... (33,869) (23,256) (112,546) (73,931) (107,013)
Loan charge-offs, net................... (162) (55) (1,258) (378) (595)
Proceeds from sale of mortgage loans.... (44,647) (24,496) (184,207) (141,043) (544,510)
Transfer of mortgage loans to REO....... (167) - (815) (1,465) (1,605)
-------- --------- --------- --------- ---------
Loans receivable, net and mortgage loans
held for sale........................... 733,931 511,469 655,339 506,793 427,552
Mortgage loans held for sale............ (6,530) (11,062) (17,747) (6,816) (15,779)
------- -------- -------- ------- --------
Ending balance, loans receivable, net....... $727,401 $500,407 $637,592 $499,977 $411,773
======== ======== ======== ======== ========
</TABLE>
- --------------
(1) Includes mortgage loans held for sale.
69
<PAGE>
One- to Four-Family Mortgage Lending. The Bank offers both fixed-rate
------------------------------------
and adjustable-rate mortgage loans ("ARM") secured by one- to four-family
residences with maturities of up to thirty years. Substantially all of such
loans are secured by property located in the Bank's primary market area. Loan
originations are generally obtained from the Bank's commissioned loan
representatives, correspondent banking relationships and wholesale brokers and
their contacts with the local real estate industry, existing or past customers,
and members of the local communities. At June 30, 1996, one- to four-family
mortgage loans totalled $613.9 million, or 82.6% of the Bank's total loans
receivable. Of the Bank's mortgage loans secured by residential mortgage loans
and construction and land loans, $341.4 million, or 52.9%, were fixed-rate loans
and $304.0 million, or 47.1%, were adjustable-rate loans.
The Bank's fixed-rate mortgage loans currently are made for terms from
seven to 30 years. The Bank sells substantially all of the 30-year, fixed-rate
residential mortgage loans that it originates and retains the servicing on all
loans sold to FNMA and FHLMC. All other loans are sold on a servicing released
basis. The Bank generally retains for its portfolio shorter-term, fixed-rate
loans with maturities of 15 years or less and all adjustable-rate one- to
four-family loans.
The Bank currently offers a number of ARM loan programs with interest
rates which are fixed for a period of one, three, four, five or seven years and
adjust annually thereafter. The Bank's ARM loans generally provide for periodic
(not more than 2%) and overall (not more than 6%) caps on the increase or
decrease in the interest rate at any adjustment date and over the life of the
loan. The interest rate adjustment on these loans is indexed to the one-year
U.S. Treasury CMT Index.
The Bank's policy is to originate one- to four-family residential
mortgage loans in amounts up to 80% of the lower of the appraised value or the
selling price of the property securing the loan and up to 95% of the appraised
value or selling price if private mortgage insurance is obtained with the
exception of FHA and VA loans. Mortgage loans originated by the Bank include
due-on-sale clauses which provide the Bank with the contractual right to deem
the loan immediately due and payable in the event the borrower transfers
ownership of the property without the Bank's consent. Due-on-sale clauses are an
important means of adjusting the rates on the Bank's fixed-rate mortgage loan
portfolio and the Bank has generally exercised its rights under these clauses.
The origination of adjustable-rate residential mortgage loans, as
opposed to fixed-rate residential mortgage loans, helps reduce the Bank's
exposure to increases in interest rates. However, adjustable-rate loans
generally pose credit risks not inherent in fixed-rate loans, primarily because
as interest rates rise, the underlying payments of the borrower rise, thereby
increasing the potential for default. Periodic and lifetime caps on interest
rate increases help to reduce the credit risk associated with its
adjustable-rate loans but also limit the interest rate sensitivity of its
adjustable-rate mortgage loans.
In an effort to provide financing for first-time and moderate income
home buyers, the Bank offers FHA and VA loans and also has its own first-time
home buyer program. These programs offer single-family residential mortgage
loans to qualified individuals. These loans are offered with terms of up to 30
years. Such loans must be secured by a one- to four-family owner-occupied unit.
These loans are originated using modified underwriting guidelines with reduced
down payments and loan fees. Such loans are originated in amounts up to 97% of
the lower of the property's appraised value or the sale price. Private mortgage
insurance is normally required. With respect to loans originated under the first
time home buying program, because the Bank typically charges a lower rate of
interest, lower mortgage origination fees or a discount on closing costs on such
loan programs, the Bank expects to achieve a lower rate of return on such loans,
as compared to other residential mortgage loans.
70
<PAGE>
Commercial Real Estate Lending. The Bank originates commercial real
------------------------------
estate loans that are generally secured by owner-occupied properties used for
business purposes such as light manufacturing, small office buildings or retail
facilities located in the Bank's primary market area. The Bank's commercial real
estate underwriting policy provides that commercial real estate loans may be
made in amounts up to 80% of the appraised value of the property. The Bank's
commercial real estate lending is limited by the regulatory loans-to-one
borrower limit which at June 30, 1996 was $7.1 million. The Bank currently
originates commercial real estate loans, generally with terms of up to five
years and amortizations of 20 years with the outstanding balance due and payable
at the end of the loan term. The Bank's adjustable-rate loans have interest
rates that adjust daily and are indexed to the Bank's prime rate of interest. In
reaching its decision on whether to make a commercial real estate loan, the Bank
considers the net operating income of the property, the borrower's expertise,
credit history and profitability and the value of the underlying property. The
Bank has generally required that the properties securing commercial real estate
loans have debt service coverage ratios (the ratio of earnings before debt
service to debt service) of at least 1.25x. In addition, environmental impact
surveys are required for all commercial real estate loans in excess of $500,000.
Generally, all commercial real estate loans made to corporations, partnerships
and other business entities require personal guarantees by the principals. On an
exception basis, the Bank may not require a personal guarantee on such loans
depending on the creditworthiness of the borrower and the amount of the
downpayment and other mitigating circumstances. The Bank's commercial real
estate loan portfolio at June 30, 1996 was $25.6 million, or 3.4% of total loans
receivable. The largest commercial real estate loan in the Bank's portfolio at
June 30, 1996 had an outstanding carrying balance of $995,000 and is secured by
an industrial building located in New Bedford, Massachusetts.
Loans secured by commercial real estate properties are generally larger
and involve a greater degree of risk than one- to four-family residential
mortgage loans. Because payments on loans secured by commercial real estate
properties are often dependent on successful operation or management of the
properties, repayment of such loans may be subject to a greater extent to the
then prevailing conditions in the real estate market or the economy. The Bank
seeks to minimize these risks through its underwriting standards. See "Risk
Factors - Increased Lending Risks."
Commercial Lending. The Bank also originates commercial loans to
------------------
businesses operating in the Bank's primary market area. Such loans are generally
secured by equipment, leases, inventory and accounts receivable. The Bank offers
commercial loans in the form of term loans and lines of credit. Term loans are
generally offered with either fixed or adjustable rates of interest and terms of
up to ten years. All term loans fully amortize during the term of such loan.
Business lines of credit have terms of one-year which adjust on a daily basis,
are indexed to the Bank's prime rate of interest or the prime rate as published
in the Wall Street Journal and are renewable annually.
-------------------
In making commercial loans, the Bank considers primarily the financial
resources of the borrower, the borrower's ability to repay the loan out of net
operating income, the Bank's lending history with the borrower and the value of
the collateral. Generally, if the borrower is a corporation, partnership or
other business entity, personal guarantees by the principals are required.
However, personal guarantees may not be required on such loans depending on the
creditworthiness of the borrower and other mitigating circumstances. The Bank's
largest commercial loan at June 30, 1996 was an $800,000 line of credit of which
$600,000 was advanced as of June 30, 1996. At such date, the Bank had $7.8
million of unadvanced commercial lines of credit. At June 30, 1996, the Bank had
$15.1 million of commercial loans which amounted to 2.0% of the Bank's total
loans receivable.
71
<PAGE>
Unlike mortgage loans, which generally are made on the basis of the
borrower's ability to make repayment from his or her employment or other income,
and which are secured by real property whose value tends to be more easily
ascertainable, commercial loans are of higher risk and typically are made on the
basis of the borrower's ability to make repayment from the cash flow of the
borrower's business. As a result, the availability of funds for the repayment of
commercial loans may be substantially dependent on the success of the business
itself. Further, any collateral securing such loans may depreciate over time,
may be difficult to appraise and may fluctuate in value based on the success of
the business.
Multi-Family Lending. The Bank originates adjustable-rate multi-family
--------------------
mortgage loans generally secured by five to 12 unit residential apartment
buildings located in the Bank's primary market area. Such loans adjust annually,
have a 25 year term and are indexed to the one year FHLB advance rate. As a
result of uncertain market conditions in its primary market area, the Bank
currently originates multi-family loans on a limited and highly selective basis.
In reaching its decision on whether to make a multi-family loan, the Bank
considers the value of the underlying property as well as the qualifications of
the borrower. Other factors relating to the property to be considered are: the
net operating income of the mortgaged premises before debt service and
depreciation; the debt service ratio; and the ratio of the loan amount to
appraised value. Pursuant to the Bank's current underwriting policies, a
multi-family mortgage loan may only be made in an amount up to 60% of the
appraised value of the underlying property. The maximum amount of a multi-family
loan is limited by the Bank's loans-to-one borrower limit which, at June 30,
1996, was $7.1 million.
When evaluating the qualifications of the borrower for a multi-family
loan, the Bank considers the financial resources and income level of the
borrower, the borrower's experience in owning or managing similar property, and
the Bank's lending experience with the borrower. The Bank's underwriting
guidelines require that the borrower be able to demonstrate strong management
skills and the ability to maintain the property from current rental income. The
borrower is required to present evidence of the ability to repay the mortgage
and a history of making mortgage payments on a timely basis. In making its
assessment of the creditworthiness of the borrower, the Bank generally reviews
the financial statements, employment and credit history of the borrower, as well
as other related documentation. All multi-family loans made to corporations,
partnerships and other business entities require personal guarantees by the
principal borrowers. The Bank's multi-family loan portfolio at June 30, 1996,
totalled $4.8 million, or 0.7% of total loans receivable. At June 30, 1996, the
Bank had no multi-family loans with an outstanding carrying balance in excess of
$250,000.
Loans secured by apartment buildings and other multi-family residential
properties generally involve a greater degree of risk than one- to four-family
residential mortgage loans. Because payments on loans secured by multi-family
properties are often dependent on successful operation or management of the
properties, repayment of such loans may be subject to a greater extent to the
then prevailing conditions in the real estate market or the economy. The Bank
seeks to minimize these risks through its underwriting policies.
Construction and Land Lending. The Bank originates construction and
-----------------------------
land loans primarily for the development of single-family residences. Such loans
are made principally to individuals building their primary residence and, to a
lesser extent, to licensed and experienced developers known to the Bank in its
primary market area for the construction of single-family developments. The Bank
generally does not originate loans secured by raw land. In the case of
construction and land mortgage loans to individuals building their primary
residence, such loans are originated in amounts up to 90% of the appraised value
of the property, as improved. Construction and land loans to commercial
developers are originated in amounts up to 70% of the lesser of the appraised
value of the property, as improved, or the sales price. Proceeds of construction
and land loans are dispersed as phases of the construction are completed.
72
<PAGE>
Generally, if the borrower is a corporation, partnership or other business
entity, personal guarantees by the principals are required. The Bank's largest
construction and land loan at June 30, 1996 was a performing loan with a
$480,000 carrying balance secured by a single-family residence located in
Harvard, Massachusetts. At June 30, 1996, the Bank had $26.8 million of
construction and land loans which amounted to 3.6% of the Bank's total loans
receivable.
Construction and land financing is generally considered to involve a
higher degree of credit risk than long-term financing on improved,
owner-occupied real estate. Risk of loss on a construction loan is dependent
largely upon the accuracy of the initial estimate of the property's value at
completion of construction or development compared to the estimated cost
(including interest) of construction. If the estimate of value proves to be
inaccurate, the Bank may be confronted with a project, when completed, having a
value which is insufficient to assure full repayment.
Consumer Lending. Consumer loans at June 30, 1996 amounted to $57.4
----------------
million, or 7.7% of the Bank's total loans receivable, and consisted primarily
of home equity lines of credit and second mortgage loans, and, to a
significantly lesser extent, secured and unsecured personal loans and new and
used automobile loans. Such loans are generally originated in the Bank's primary
market area and generally are secured by real estate, deposit accounts, personal
property and automobiles. These loans are typically shorter term and generally
have higher interest rates than one- to four-family mortgage loans.
The Bank offers "open-end line of credit" and "second mortgage" home
equity loans. Substantially all of the Bank's home equity loans are primarily
secured by second mortgages on one- to four-family residences located in the
Bank's primary market area. At June 30, 1996, these loans totalled $51.3
million, or 6.9% of the Bank's total loans and 89.4% of consumer loans. Home
equity lines of credit generally have adjustable-rates of interest which adjust
on a monthly basis. The adjustable-rate of interest charged on such loans is
indexed to the prime rate as reported in the Wall Street Journal.
-------------------
Adjustable-rate home equity loans generally have an 18% lifetime limit on
interest rates. Generally, the maximum combined loans-to-value ratio ("LTV") on
home equity loans is 80%; however, with respect to second mortgage loans up to
$25,000, the Bank will allow an LTV of up to 100% if the Bank holds the first
mortgage lien on the property and other underwriting criteria are satisfied. At
June 30, 1996, the Bank had $51.1 million of home equity lines of credit of
which $26.5 million was drawn upon such loans at such date. Second mortgage
loans are generally offered with terms of up to 15 years and only with
fixed-rates of interest which rates will vary depending on the amortization
period chosen by the borrower. At June 30, 1996, second mortgage loans totalled
$24.7 million, or 3.3% of the Bank's total loans receivable and 43.1% of
consumer loans. The underwriting standards employed by the Bank for home equity
lines and second mortgage loans include a determination of the applicant's
credit history and an assessment of the applicant's ability to meet existing
obligations and payments on the proposed loan and the value of the collateral
securing the loan. The stability of the applicant's monthly income may be
determined by verification of gross monthly income from primary employment and,
additionally, from any verifiable secondary income. Creditworthiness of the
applicant is of primary consideration.
The Bank also originates other types of consumer loans consisting of
secured and unsecured personal loans and new and used automobile loans. Secured
personal loans are generally secured by deposit accounts, stocks or bonds.
Personal loans are secured by deposits or readily marketable collateral.
Unsecured personal loans generally have a maximum borrowing limitation of $5,000
and generally require a debt ratio (the ratio of debt service to net earnings)
of 40%. Automobile loans have a maximum borrowing limitation of 90% of the sale
price of a new automobile and 80% of the fair market value of a used automobile.
At June 30, 1996, personal loans totalled $3.7 million, or 0.5% of the Bank's
total loans receivable and 6.4% of consumer loans; and automobile loans totalled
$2.4 million, or 0.3% of total loans receivable and 4.2% of consumer loans.
73
<PAGE>
Loans secured by rapidly depreciable assets such as automobiles or that
are unsecured entail greater risks than one- to four-family residential mortgage
loans. In such cases, repossessed collateral for a defaulted loan may not
provide an adequate source of repayment of the outstanding loan balance, since
there is a greater likelihood of damage, loss or depreciation of the underlying
collateral. Further, consumer loan collections on these loans are dependent on
the borrower's continuing financial stability and, therefore, are more likely to
be adversely affected by job loss, divorce, illness or personal bankruptcy.
Finally, the application of various federal and state laws, including federal
and state bankruptcy and insolvency laws, may limit the amount which can be
recovered on such loans in the event of a default. At June 30, 1996, consumer
loans 90 days or more delinquent totalled $665,000.
Loan Approval Procedures and Authority. The Board of Directors
--------------------------------------
establishes the lending policies and loan approval limits of the Bank. In
connection with one- to four-family mortgage loans, the Board of Directors has
authorized the following persons and committees to approve loans up to the
amounts indicated: owner-occupied mortgage loans that meet the general
underwriting standards of FNMA and FHLMC, with a 75% LTV ratio and which do not
exceed $150,000 may be approved by the Bank's underwriters; all other mortgage
loans which meet the general underwriting standards of FNMA and FHLMC may be
approved by the Bank's Director of Retail Loan Production; loans in amounts up
to $250,000 and which cannot be approved by the Bank's underwriters or Director
of Retail Loan Production must be approved by the Bank's Senior Vice President
of Mortgage Banking Group; mortgage loans in excess of $250,000 and up to
$500,000 require the approval of the Bank's Retail Loan Committee; and loans in
excess of $500,000 require the approval of the Board of Directors' Executive
Committee.
With respect to all other real estate loans, the Board of Directors has
authorized the following persons and committees to approve loans up to the
amounts indicated: mortgage loans in amounts up to $175,000 must be approved by
the Bank's Senior Vice President of Mortgage Banking Group; mortgage loans in
excess of $175,000 and up to $250,000 require the approval of the Bank's Retail
Loan Committee; loans in excess of $250,000 require the approval of the Board of
Directors' Executive Committee.
In connection with consumer loans, the Board of Directors has
authorized the following persons and committees to approve loans up to the
amounts indicated: consumer loans up to $100,000 and which meet certain lending
criteria may be approved by the Bank's Consumer Loan Manager; any consumer loan
up to $150,000 may be approved by either the Bank's Senior Vice President of
Mortgage Banking Group, Senior Vice President of Banking Group or Director of
Retail Loan Production; loans in excess of $150,000 and up to $250,000 must be
approved by the Bank's Retail Loan Committee; and loans in excess of $250,000
must be approved by the Board of Directors' Executive Committee.
With respect to non-real estate commercial loans, the Board of
Directors has authorized the following persons and committees to approve loans
up to the amounts indicated: loans up to $50,000, $150,000 and $250,000 must be
approved by the Bank's Senior Business Development Officer, Director of
Commercial Services and Senior Vice President of Banking Group, respectively;
loans in excess of $250,000 and up to $500,000 must be approved by the Bank's
Commercial Loan Committee; and loans in excess of $500,000 must be approved by
the Board of Directors' Executive Committee. Pursuant to OTS regulations,
loans-to-one borrower cannot, subject to certain exceptions, exceed 15% of the
Bank's unimpaired capital and surplus. At June 30, 1996, the loans-to-one
borrower limit was $7.1 million.
Delinquencies and Classified Assets. Reports listing all delinquent
-----------------------------------
accounts are generated and reviewed by management on a monthly basis and the
Board of Directors performs a monthly review of all loans or lending
relationships delinquent 90 days or more and all REO. The procedures taken by
the Bank with respect to delinquencies vary depending on the nature of the loan,
period and cause of
74
<PAGE>
delinquency and whether the borrower is habitually delinquent. When a borrower
fails to make a required payment on a loan, the Bank takes a number of steps to
have the borrower cure the delinquency and restore the loan to current status.
The Bank generally sends the borrower a written notice of non-payment after the
loan is first past due. The Bank's guidelines provide that telephone, written
correspondence and/or face-to-face contact will be attempted to ascertain the
reasons for delinquency and the prospects of repayment. When contact is made
with the borrower at any time prior to foreclosure, the Bank will attempt to
obtain full payment, offer to provide budget and finance counseling services,
work out a repayment schedule with the borrower to avoid foreclosure or, in some
instances, accept a deed in lieu of foreclosure. In the event payment is not
then received or the loan not otherwise satisfied, additional letters and
telephone calls generally are made. If the loan is still not brought current or
satisfied and it becomes necessary for the Bank to take legal action, which
typically occurs after a loan is 90 days or more delinquent, the Bank will
commence foreclosure proceedings against any real property that secures the
loan. If a foreclosure action is instituted and the loan is not brought current,
paid in full, or refinanced before the foreclosure sale, the property securing
the loan generally is sold at foreclosure and, if purchased by the Bank, becomes
real estate owned.
Federal regulations and the Bank's Asset Classification Policy require
that the Bank utilize an internal asset classification system as a means of
reporting problem and potential problem assets. The Bank has incorporated the
OTS internal asset classifications as a part of its credit monitoring system.
The Bank currently classifies problem and potential problem assets as
"Substandard," "Doubtful" or "Loss" assets. An asset is considered "Substandard"
if it is inadequately protected by the current net worth and paying capacity of
the obligor or of the collateral pledged, if any. "Substandard" assets include
those characterized by the "distinct possibility" that the insured institution
will sustain "some loss" if the deficiencies are not corrected. Assets
classified as "Doubtful" have all of the weaknesses inherent in those classified
"Substandard" with the added characteristic that the weaknesses present make
"collection or liquidation in full," on the basis of currently existing facts,
conditions, and values, "highly questionable and improbable." Assets classified
as "Loss" are those considered "uncollectible" and of such little value that
their continuance as assets without the establishment of a specific loss reserve
is not warranted. Assets which do not currently expose the insured institution
to sufficient risk to warrant classification in one of the aforementioned
categories but possess weaknesses are required to be designated "Special
Mention."
When an insured institution classifies one or more assets, or portions
thereof, as Substandard or Doubtful, it is required to establish a general
valuation allowance for loan losses in an amount deemed prudent by management.
General valuation allowances represent loss allowances which have been
established to recognize the inherent risk associated with lending activities,
but which, unlike specific allowances, have not been allocated to particular
problem assets. When an insured institution classifies one or more assets, or
portions thereof, as "Loss," it is required either to establish a specific
allowance for losses equal to 100% of the amount of the asset so classified or
to charge off such amount.
A savings institution's determination as to the classification of its
assets and the amount of its valuation allowances is subject to review by the
OTS which can order the establishment of additional general or specific loss
allowances. The OTS, in conjunction with the other federal banking agencies, has
adopted an interagency policy statement on the allowance for loan and lease
losses. The policy statement provides guidance for financial institutions on
both the responsibilities of management for the assessment and establishment of
adequate allowances and guidance for banking agency examiners to use in
determining the adequacy of general valuation guidelines. Generally, the policy
statement recommends that institutions have effective systems and controls to
identify, monitor and address asset quality problems; that management has
analyzed all significant factors that affect the collectibility of the portfolio
in a reasonable manner; and that management has established acceptable allowance
evaluation processes
75
<PAGE>
that meet the objectives set forth in the policy statement. Although management
believes that, based on information currently available to it at this time, its
allowance for loan losses is adequate, actual losses are dependent upon future
events and, as such, further additions to the level of allowances for loan
losses may become necessary.
The Bank's Asset Classification Committee reviews and classifies the
Bank's assets on a monthly basis and the Board of Directors reviews the results
of the reports on a quarterly basis. The Bank classifies assets in accordance
with the management guidelines described above. At June 30, 1996, the Bank had
$6.5 million of assets designated as Substandard, and $985,000 of assets
designated as Doubtful which consisted of one commercial real estate loan, which
is discussed below. At that same date the Bank had no loans designated as Loss.
As of June 30, 1996, the Bank had a total of three one- to four-family loans,
totalling $158,000, designated as Special Mention. These loans are designated as
Special Mention because such loans were originated to facilitate the sale of
REO. At June 30, 1996, the largest loan designated as Special Mention had a
carrying balance of $66,000, and was secured by a one- to four-family property.
At June 30, 1996, the Bank had only one loan with a balance of $500,000
or more which had been adversely classified or identified as a problem loan.
Mixed Used - Retail and Office, Fall River, Massachusetts. A $2.1
---------------------------------------------------------
million first mortgage loan was made by the Bank in 1989 and is secured by two
adjacent buildings located in the downtown business district of Fall River,
containing retail space as well as multiple office units with an aggregate of
approximately 43,000 square feet of rentable space. As of June 30, 1996 the
outstanding carrying balance of this loan was $985,000. Vacancy rates have
negatively impacted the property's cash flow and, accordingly, have affected the
borrower's ability to make debt service payments. In late 1995, the original
loan was restructured whereby the loan was bifurcated and $969,000, representing
one portion of the bifurcated loan, was charged-off. However, the terms of the
restructuring agreement enable the Bank to retain its rights to collect the
charged-off portion of the loan under certain circumstances. The remaining
portion of the loan, with a then principal balance of $1.0 million remained
classified as substandard. Terms of the restructured debt required the Borrower
to make principal and interest payments so that the carrying balance is
amortized over a twenty year period. The Borrower is current with respect to
payments. Based on an internal Bank appraisal performed in July 1996, the Bank
reclassified the loan as Doubtful as of June 30, 1996.
76
<PAGE>
The following table sets forth delinquencies in the Bank's loan portfolio
as of the dates indicated:
<TABLE>
<CAPTION>
At June 30, 1996 At March 31, 1996
------------------------------------------------------------ -----------------------------
60-89 Days 90 Days or More 60-89 Days
---------------------------- ---------------------------- -----------------------------
Principal Principal Principal
Number Balance Number Balance Number Balance
of Loans of Loans of Loans of Loans of Loans of Loans
------------- ---------- ------------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Mortgage Loans: (Dollars in thousands)
One- to four-family....... 8 $269 33 $2,493 24 $1,589
Multi-family.............. 1 206 3 289 - -
Commercial real estate.... 2 480 1 228 1 231
Construction and land..... - - - - 1 37
--- --- --- --- --- ----
Total mortgage loans.... 11 955 37 3,010 26 1,857
--- ---- --- ------ --- ------
Commercial Loans............. - - 2 26 - -
--- --- --- ---- --- ---
Consumer Loans:
Home equity lines......... 6 174 15 495 16 231
Second mortgages.......... 1 1 5 157 - -
Other consumer loans...... 1 1 8 14 4 12
--- --- --- ----- --- ----
Total consumer loans: 8 176 28 666 20 243
--- ---- --- ----- --- -----
Total loans.................. 19 $1,131 67 $3,702 46 $2,100
=== ====== === ====== === ======
Delinquent loans to loans
receivable, net........... 0.16% 0.51% 0.33%
<CAPTION>
At March 31, 1996
---------------------------
90 Days or More
---------------------------
Principal
Number Balance
of Loans of Loans
------------- ---------
<S> <C> <C>
Mortgage Loans:
One- to four-family....... 31 $2,469
Multi-family.............. 3 334
Commercial real estate.... - -
Construction and land..... - -
--- ---
Total mortgage loans.... 34 2,803
--- ------
Commercial Loans............. 1 87
--- ----
Consumer Loans:
Home equity lines......... 12 956
Second mortgages.......... 12 196
Other consumer loans...... 4 3
--- -----
Total consumer loans: 28 1,155
--- ------
Total loans.................. 63 $4,045
=== ======
Delinquent loans to loans
receivable, net........... 0.63%
</TABLE>
77
<PAGE>
<TABLE>
<CAPTION>
At March 31, 1995 At March 31, 1994
------------------------------------------------------------ --------------------------------
60-89 Days 90 Days or More 60-89 Days
---------------------------- ----------------------------
Principal Principal Principal
Number Balance Number Balance Number Balance
of Loans of Loans of Loans of Loans of Loans of Loans
------------- ---------- ------------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Mortgage Loans: (Dollars in thousands)
One- to four-family....... 20 $1,044 29 $2,501 18 $768
Multi-family.............. 1 76 1 51 - -
Commercial real estate.... - - 1 85 - -
Construction and land..... - - - - - -
- - - - - -
Total mortgage loans.... 21 1,120 31 2,637 18 768
-- ----- -- ----- -- -----
Commercial Loans............. 1 3 - - 2 20
--- ----- --- --- --- -----
Consumer Loans:
Home equity lines......... 11 354 12 386 15 637
Second mortgages.......... 2 46 - - - -
Other consumer loans...... 4 12 5 10 2 14
-- -- -- ----- -- ------
Total consumer loans.... 17 412 17 396 17 651
-- --- -- ----- -- ------
Total loans.................. 39 $1,535 48 $3,033 37 $1,439
== ====== == ====== == ======
Delinquent loans to loans,
receivable, net........... 0.31% 0.61% 0.35%
<CAPTION>
At March 31, 1994
---------------------------
90 Days or More
---------------------------
Principal
Number Balance
of Loans of Loans
------------- ---------
<S> <C> <C>
Mortgage Loans:
One- to four-family....... 43 $3,649
Multi-family.............. - -
Commercial real estate.... - -
Construction and land..... 1 26
- --
Total mortgage loans.... 44 3,675
-- -----
Commercial Loans............. 2 15
--- ------
Consumer Loans:
Home equity lines......... 14 483
Second mortgages.......... 3 34
Other consumer loans...... 6 14
-- ------
Total consumer loans.... 23 531
-- -----
Total loans.................. 69 $4,221
== ======
Delinquent loans to loans,
receivable, net........... 1.03%
</TABLE>
78
<PAGE>
Non-Performing Assets and Impaired Loans. The following table sets forth
information regarding non-accrual loans and REO. At June 30, 1996, restructured
loans totalled $985,000, consisting of 1 loan, and REO totalled $439,000
consisting of seven one- to four-family properties. It is the policy of the Bank
to cease accruing interest on loans 90 days or more past due and to charge off
all accrued interest. For the three months ended June 30, 1996 and the year
ended March 31, 1996, the amount of additional interest income that would have
been recognized on non-accrual loans if such loans had continued to perform in
accordance with their contractual terms was $59,000 and $124,000, respectively.
For the same periods, the difference between the amount of interest income which
would have been recognized on restructured loans if such loans were performing
in accordance with their regular terms and amounts recognized was $63,000 and
$67,000, respectively.
<TABLE>
<CAPTION>
At June 30, At March 31,
--------------------- ---------------------------------------------------------
1996 1995 1996 1995 1994 1993 1992
--------- --------- --------- ---------- -------- ---------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Non-accrual loans:
Mortgage loans:
One- to four-family............... $2,493 $2,484 $2,469 $2,501 $3,649 $4,345 $4,633
Multi-family...................... 289 125 334 51 - - -
Commercial real estate............ 228 74 - 85 - 277 -
Construction and land............. - - - - 26 - -
----- ----- ----- ----- ----- ----- -----
Total mortgage loans............ 3,010 2,683 2,803 2,637 3,675 4,622 4,633
------ ------ ------ ------ ------ ------ ------
Commercial loans.................... 26 - 87 - 15 1 298
----- ----- ----- ----- ----- ----- -----
Consumer loans:
Home equity lines................. 495 448 956 386 483 262 156
Second mortgages.................. 157 10 196 - 34 120 28
Other consumer loans.............. 14 6 3 10 14 - -
---- ----- ---- ----- ----- ----- -----
Total consumer loans............ 666 464 1,155 396 531 382 184
---- ----- ------ ---- ---- ----- -----
Total nonaccrual loans.......... 3,702 3,147 4,045 3,033 4,221 5,005 5,115
Real estate owned, net(1)............. 439 264 643 296 939 464 585
---- ---- ---- ---- ---- ---- ----
Total non-performing assets(2).... 4,141 3,411 4,688 3,329 5,160 5,469 5,700
====== ===== ====== ====== ====== ===== =====
Allowance for loan losses as a
percent of loans(3)................. 0.88% 0.92% 0.87% 0.84% 0.95% 1.03% 0.47%
Allowance for loan losses as a
percent of non-performing loans(4).. 174.14% 148.05% 138.62% 139.76% 93.91% 70.41% 35.09%
Non-performing loans as a
percent of loans(3)(4).............. 0.50% 0.62% 0.63% 0.60% 1.02% 1.46% 1.33%
Non-performing assets as
a percent of total assets(5)........ 0.52% 0.60% 0.65% 0.59% 1.10% 1.37% 1.29%
</TABLE>
__________________________
(1) REO balances are shown net of related valuation allowances.
(2) Does not include a restructured commercial real estate loan with a balance
of $985,000 as of June 30, 1996.
(3) Loans includes loans receivable, net, excluding allowance for loan losses.
(4) Non-performing loans consist of all 90 days or more past due and other
loans which have been identified by the Bank as presenting uncertainty with
respect to the collectability of interest or principal.
(5) Non-performing assets consist of non-performing loans and REO.
79
<PAGE>
The Bank adopted a new accounting method for measuring loan impairment on
April 1, 1995. Adoption of this accounting standard did not have a material
effect on the comparability of the above tables. See Notes 1 and 4 to the
Consolidated Financial Statements included elsewhere herein.
At June 30, 1996 and March 31, 1996, total impaired loans were $985,000 and
$991,000, respectively. At June 30, 1996, impaired loans of $985,000 required an
impairment allowance of $493,000. In the opinion of management, none of these
impaired loans required a specific valuation allowance at March 31, 1996. All
impaired loans are commercial real estate loans which have been measured using
the fair value of the collateral method. During the three months ended June 30,
1996, the average recorded value of impaired loans was $986,000. For these
loans, $30,000 of interest income was recognized while $63,000 of interest
income would have been recognized under the original terms. During the year
ended March 31, 1996, the average recorded value of impaired loans was $580,000.
For these loans, $128,000 of interest income was recognized while $195,000 of
interest income would have been recognized under their original terms.
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the
risks inherent in its loan portfolio and the general economy. The allowance for
loan losses is maintained at an amount management considers adequate to cover
estimated losses in loans receivable which are deemed probable and estimable
based on information currently known to management. The allowance is based upon
a number of factors, including current economic conditions, actual loss
experience and industry trends. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the Bank's
allowance for loan losses. Such agencies may require the Bank to make additional
provisions for estimated loan losses based upon judgments different from those
of management. As of June 30, 1996, the Bank's allowance for loan losses was
0.88% of total loans receivable as compared to 0.87% as of March 31, 1996. The
Bank had non-accrual loans of $3.7 million and $4.0 million at June 30, 1996 and
March 31, 1996, respectively. The Bank will continue to monitor and modify its
allowances for loan losses as conditions dictate. While management believes the
Bank's allowance for loan losses is sufficient to cover losses inherent in its
loan portfolio at this time, no assurances can be given that the Bank's level of
allowance for loan losses will be sufficient to cover future loan losses
incurred by the Bank or that future adjustments to the allowance for loan losses
will not be necessary if economic and other conditions differ substantially from
the economic and other conditions used by management to determine the current
level of the allowance for loan losses.
80
<PAGE>
The following table sets forth activity in the Bank's allowance for
loan losses for the periods set forth in the following table.
<TABLE>
<CAPTION>
At or for the Three
Months Ended
June 30, At or For the Year Ended March 31,
------------------ -----------------------------------------------------
1996 1995 1996 1995 1994 1993 1992
------- -------- -------- -------- ------ --------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of period........ $5,607 $4,239 $4,239 $3,964 $3,524 $1,795 $1,405
Provision for loan losses............. 1,000 475 2,626 653 1,035 2,102 1,222
Charge-offs:
Mortgage loans:
One -to-four-family................ 75 - 218 168 324 240 175
Multi-family....................... - - - - 55 - -
Commercial real estate............. 87 - 967 25 121 18 693
Construction and land.............. - - - - 25 10 -
Commercial loans.................... - - - 15 38 40 -
Consumer loans:
Home equity lines.................. - 48 68 113 20 31 28
Second mortgages................... - - - - - - -
Other consumer loans............... 2 7 35 79 45 69 -
----- ----- ----- ----- ----- ----- -----
Total........................... 164 55 1,288 400 628 408 896
Recoveries............................ 2 - 30 22 33 35 64
----- ----- ----- ----- ----- ----- -----
Balance at end of period.............. $6,445 $4,659 $5,607 $4,239 $3,964 $3,524 $1,795
====== ====== ====== ====== ====== ====== ======
Ratio of net charge-offs during
the period to average loans
outstanding during the period....... 0.09%(1) 0.04%(1) 0.23% 0.08% 0.14% 0.11% 0.25%
==== ==== ==== ==== ==== ==== ====
</TABLE>
- --------------------
(1) Annualized.
81
<PAGE>
The following tables set forth the Bank's percent of allowance for loan
losses to total allowance for loan losses and the percent of loans to total
loans in each of the categories listed at the dates indicated.
<TABLE>
<CAPTION>
At June 30,
------------------------------------------------------------------------------------------------------
1996 1995
------------------------------------------------ -------------------------------------------------
Percent of Percent of Percent of Percent of
Allowance Loans in Allowance Loans in
to Total Each Category to Total Each Category
Amount Allowance to Total Loans Amount Allowance to Total Loans
------------- ------------- ------------- ------------- -------------- --------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
Residential........ $2,445 37.94% 86.82% $1,259 27.02% 84.40%
Commercial......... 1,528 23.71 3.44 1,334 28.63 4.24
----- ----- ----- ----- ----- -----
Total........... 3,973 61.65 90.26 2,593 55.65 88.64
Commercial loans....... 696 10.80 2.03 566 12.15 2.50
Consumer loans......... 1,089 16.89 7.71 739 15.87 8.86
Unallocated............ 687 10.66 - 761 16.33 -
----- ----- ------ ----- ----- -----
Total allowance
for loan losses.. $6,445 100.00% 100.00% $4,659 100.00% 100.00%
====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
At March 31,
------------------------------------------------------------------------------------------------
1996 1995 1994
------------------------------- ---------------------------- --------------------------------
Percent Percent Percent
of Loans of of
Percent of in Each Percent of Loans Percent of Loans
Allowance Category Allowance in Each Allowance in Each
to Total to Total to Total Category to Total Category
Amount Allowance Loans Amount Allowance to Total Amount Allowance to Total
Loans Loans
-------- --------- --------- ------- -------- ------- ------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgages:
Residential...... $2,175 38.79% 86.23% $1,223 28.85% 85.34% $1,144 28.86% 84.81%
Commercial....... 1,195 21.31 3.59 1,265 29.84 3.90 1,063 26.82 3.49
----- ----- ---- ----- ----- ---- ----- ----- ----
Total......... 3,370 60.10 89.82 2,488 58.69 89.24 2,207 55.68 88.30
Commercial .......... 621 11.08 2.22 600 14.16 2.49 426 10.75 2.41
Consumer............. 829 14.79 7.96 473 11.16 8.27 454 11.45 9.29
Unallocated.......... 787 14.03 - 678 15.99 - 877 22.12 -
------ ------ ------ ------ ------ ------ ------ ------ ------
Total allowance
for loan
losses......... $5,607 100.00% 100.00% $4,239 100.00% 100.00% $3,964 100.00% 100.00%
====== ====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
At March 31,
----------------------------------------------------------------
1993 1992
------------------------------ --------------------------------
Percent Percent
of of Loans
Percent of Loans Percent of in Each
Allowance in Each Allowance Category
to Total Category to Total to Total
Amount Allowance to Total Amount Allowance Loans
Loans
------- ---------- -------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Mortgages:
Residential...... 1,149 32.60% 81.35% $ 689 38.38% 83.12%
Commercial....... 941 26.70 3.46 205 11.42 2.41
--- ----- ---- --- ----- ----
Total......... 2,090 59.30 84.81 894 49.80 85.53
Commercial .......... 383 10.87 2.14 218 12.14 1.95
Consumer............. 559 15.86 13.05 402 22.40 12.52
Unallocated.......... 492 13.97 - 281 15.66 -
----- ------ ------ ------ ------- ------
Total allowance
for loan
losses......... $3,524 100.00% 100.00% $1,795 100.00% 100.00%
====== ====== ====== ====== ====== ======
</TABLE>
82
<PAGE>
REAL ESTATE OWNED
At June 30, 1996, the Bank had $439,000 of real estate owned consisting
of seven one- to four-family properties. When the Bank acquires property through
foreclosure or deed in lieu of foreclosure, it is initially recorded at the
lower of the recorded investment in the corresponding loan or the fair value of
the related assets at the date of foreclosure, less costs to sell. Thereafter,
if there is a further deterioration in value, the Bank provides for a specific
valuation allowance and charges operations for the diminution in value. It is
the policy of the Bank to have obtained an appraisal on all real estate subject
to foreclosure proceedings prior to the time of foreclosure. It is the Bank's
policy to require appraisals on a periodic basis on foreclosed properties and
conducts inspections on foreclosed properties.
INVESTMENT ACTIVITIES
Federally-chartered savings institutions have the authority to invest
in various types of liquid assets, including United States Treasury obligations,
securities of various federal agencies, certificates of deposit of insured banks
and savings institutions, bankers' acceptances, 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 and mutual funds whose assets conform to the
investments that a federally-chartered savings institution is otherwise
authorized to make directly. Additionally, the Bank must maintain minimum levels
of investments that qualify as liquid assets under OTS regulations. See
"Regulation - Federal Savings Institution Regulation - Liquidity." Historically,
the Bank has maintained liquid assets above the minimum OTS requirements and at
a level considered to be adequate to meet its normal daily activities.
The investment policy of the Bank, as approved by the Board of
Directors, requires management to maintain adequate liquidity, generate a
favorable return on investments without incurring undue interest rate and credit
risk and to complement the Bank's lending activities. The Bank primarily
utilizes investments in securities for liquidity management and as a method of
deploying excess funding not utilized for loan originations or sales. Generally,
the Bank's investment policy is more restrictive than the OTS regulations allow
and, accordingly, the Bank has invested primarily in U.S. Government and agency
securities, which qualify as liquid assets under the OTS regulations, federal
funds and U.S. government sponsored agency issued mortgage-backed securities. As
required by SFAS 115, the Bank has established an investment portfolio of
securities that are categorized as held to maturity, available for sale or held
for trading. The Bank generally invests in securities as a method of utilizing
funding not utilized for loan origination activity and as a method of
maintaining liquidity at levels deemed appropriate by management. The Bank does
not currently maintain a portfolio of securities categorized as held for
trading. The substantial majority of the Bank's investment and mortgage-backed
securities are purchased for the held to maturity portfolio which such portfolio
totalled $28.6 million, or 3.6% of assets. At June 30, 1996, the available for
sale securities portfolio totalled $773,000. As of June 30, 1996, $21.5 million,
or all of the Bank's investment securities held to maturity consisted of U.S.
Government and related obligations with a weighted average maturity of 11.3
months.
At June 30, 1996, the Bank had invested $7.1 million in mortgage-backed
securities, or 0.9% of total assets, which were insured by either GNMA or FHLMC,
all of which were classified as held to maturity. Of the $7.1 million, $4.9
million were adjustable-rate with maximum interest rate adjustments of 2%
annually or 6% over the life of the security. Investments in mortgage-backed
securities involve a risk that actual prepayments will be greater than estimated
prepayments over the life of the security, which may require adjustments to the
amortization of any premium or accretion of any discount relating to such
instruments thereby changing the net yield on such securities. There is also
reinvestment risk associated with the cash flows from such securities or in the
event such securities are redeemed by the issuer. In addition, the market value
of such securities may be adversely affected by changes in interest rates. All
of the Bank's investment in mortgage-backed securities at June 30, 1996 were
being held to maturity.
83
<PAGE>
The following table sets forth certain information regarding the
amortized cost and fair value of the Bank's investment securities at the dates
indicated:
<TABLE>
<CAPTION>
At June 30, At March 31,
----------------------- -----------------------------------------------------------------------
1996 1996 1995 1994
----------------------- --------------------- --------------------- -----------------------
Amortized Fair Amortized Fair Amortized Fair mortized Fair
Cost Value Cost Value Cost Value Cost Value
------------ --------- ----------- ------- ----------- ------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment securities:
Held to maturity:
U.S. Government and
agency obligations........... $21,486 $21,501 $22,986 $23,061 $19,988 $19,877 $ 8,994 $ 8,909
Federal Home Loan Bank note.... - - 1,000 999 1,000 974 1,000 979
Other investment securities.... 1 1 1 1 - - - -
------ ------- ------- ------- ------- ------ ------ ------
Total held to maturity....... 21,487 21,502 23,987 24,061 20,988 20,851 9,994 9,888
------- ------- ------- ------- ------- ------- ------ ------
Available for sale: (1)........... 55 773 55 725 55 518 55 384
------ ------- ------- ------- ------- ------- ------- -------
Total investment securities.. $21,542 $22,275 $24,042 $24,786 $21,043 $21,369 $10,049 $10,272
======= ======= ======= ======== ======= ======== ======= =======
</TABLE>
- --------------
(1) Consists of marketable equity securities.
84
<PAGE>
The following table sets forth certain information regarding the
amortized cost and fair values of the Bank's mortgage-backed securities at the
dates indicated:
<TABLE>
<CAPTION>
At June 30, At March 31,
------------------------------ -------------------------------
1996 1996
------------------------------ -------------------------------
Percent Percent
of of
Amortized Amortized Fair Amortized Amortized Fair
Cost Cost Value Cost Cost Value
--------- --------- ------ --------- ---------- ------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities:
Fixed-rate:
GNMA................................ $1,833 25.68% $1,917 $1,901 26.23% $1,998
FHLMC(1)............................ 377 5.28 394 401 5.53 423
----- ----- ----- ----- ------ -----
Total fixed-rate................. 2,210 30.96 2,311 2,302 31.76 2,421
------ ------ ------ ------ ------ ------
Adjustable-rate:
FHLMC(1)............................ 4,928 69.04 4,958 4,946 68.24 4,965
------ ------ ------ ------ ------ ------
Total mortgage-backed
securities held to maturity... $7,138 100.00% 7,269 $7,248 100.00% $7,386
======== ======= ====== ======= ====== ======
<CAPTION>
At March 31,
-----------------------------------------------------------------
1995 1994
----------------------------- ----------------------------------
Percent Percent
of of
Amortized Amortized Fair Amortized Amortized Fair
Cost Cost Value Cost Cost Value
-------- --------- ------- ---------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities:
Fixed-rate:
GNMA............................... $2,199 80.82% $2,283 $2,768 80.54% $2,885
FHLMC(1)........................... 522 19.18 535 669 19.46 710
----- ------ ----- ----- ------ -----
Total fixed-rate................ 2,721 100.00 2,818 3,437 100.00 3,595
------ ------ ------ ------ ------ ------
Adjustable-rate:
FHLMC(1)........................... - - - - - -
------ ------ ------ ------- ------ -------
Total mortgage-backed
securities held to maturity.. $2,721 100.00% $2,818 $3,437 100.00% $3,595
======= ======= ====== ====== ======= =======
</TABLE>
- -----------------------
(1) Includes $23,000 of unamortized premiums related to FHLMC securities as of
June 30, 1996 and $24,000, $0 and $0 as of March 31, 1996, 1995 and 1994,
respectively.
The following table sets forth the Bank's mortgage-backed
securities activities for the periods indicated.
<TABLE>
<CAPTION>
For the Three Months For the Year
Ended June 30, Ended March 31,
------------------------- ------------------------------------------
1996 1995 1996 1995 1994
----------- ----------- ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Beginning balance ............................. $ 7,248 $ 2,721 $ 2,721 $ 3,437 $ 4,828
Purchases.................................. - - 4,960 - -
Principal repayments....................... (109) (94) (433) (716) (1,391)
Accretion of premium....................... (1) - - - -
------- ------- ------- ------- -------
Ending balance................................. $ 7,138 $ 2,627 $ 7,248 $ 2,721 $ 3,437
======= ======= ======= ======= =======
</TABLE>
85
<PAGE>
The table below sets forth certain information regarding the carrying
value, weighted average yields and contractual maturities of the Bank's
investment securities and mortgage-backed securities as of June 30, 1996.
<TABLE>
<CAPTION>
At June 30, 1996
------------------------------------------------------------------
More than One More than Five
One Year or Less Year to Five Years Years to Ten Years
-------------------- -------------------- --------------------
Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield
-------- --------- -------- --------- -------- ---------
(Dollars in thousand)
<S> <C> <C> <C> <C> <C> <C>
Investment securities(1):
Held to maturity:
U.S. Government and agency obligations... $11,997 6.52% $9,490 5.64% $ - -%
------- ---- ------- ----- -------- ------
Total investment securities
held to maturity................... $11,997 6.52% $9,490 5.64% $ - -%
======= ==== ======= ===== ======== ======
Mortgage-backed securities:
Held to maturity:
Adjustable-rate:
FHLMC................................. $ - -% $ - -% $ - -%
Fixed-rate:
GNMA.................................. - - 41 8.00 309 8.21
FHLMC................................. - - - - 252 5.64
------- ------- ------- ------- -------- -------
Total mortgage-backed securities
held to maturity.......................... $ - -% $41 8.00% $561 7.06%
======= ==== ======= ===== ======== ======
<CAPTION>
At June 30, 1996
---------------------------------------------
More than Ten Years Total
-------------------- --------------------
Weighted Weighted
Carrying Average Carrying Average
Value Yield Value Yield
-------- --------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Investment securities(1):
Held to maturity:
U.S. Government and agency obligations... $ - -% $21,487 6.13%
------- ------- ------- -------
Total investment securities
held to maturity................... $ - -% $21,487 6.13%
======= ======= ======= =======
Mortgage-backed securities:
Held to maturity:
Adjustable-rate:
FHLMC................................. $4,928 6.30% $4,928 6.30%
Fixed-rate:
GNMA.................................. 1,483 8.79 1,833 8.67
FHLMC................................. 125 5.64 377 5.64
------- ------- ------- -------
Total mortgage-backed securities
held to maturity.......................... $ 6,536 6.85% $ 7,138 6.78%
======= ======= ======= =======
</TABLE>
- ------------------
(1) Does not include $773,000 of marketable equity securities available for
sale at fair value at June 30, 1996.
86
<PAGE>
Sources of Funds
General. Deposits, loan repayments and prepayments, proceeds from sales
-------
of loans, cash flows generated from operations and FHLB advances are the primary
sources of the Bank's funds for use in lending, investing and for other general
purposes.
Deposits. The Bank offers a variety of deposit accounts with a range of
--------
interest rates and terms. The Bank's deposits consist business checking, money
market, savings, NOW and certificate accounts. For the three months ended June
30, 1996, core deposits represented 32.0% of total average deposits. The flow of
deposits is influenced significantly by general economic conditions, changes in
money market rates, prevailing interest rates and competition. The Bank's
deposits are obtained predominantly from the areas in which its branch offices
are located. The Bank has historically relied primarily on customer service and
long-standing relationships with customers to attract and retain these deposits;
however, market interest rates and rates offered by competing financial
institutions significantly affect the Bank's ability to attract and retain
deposits. The Bank uses traditional means of advertising its deposit products,
including radio and print media and generally does not solicit deposits from
outside its market area. While the Bank does not actively solicit certificate
accounts in excess of $100,000 or use brokers to obtain deposits, the Bank will
solicit, from time to time, such deposits or utilize brokered deposits depending
upon market conditions. In recent years, the Bank, in connection with its growth
strategy, has significantly increased its deposit base by establishing new
branch offices in and around its primary market area, primarily in Rhode Island,
and competitively pricing its deposit products to attract and retain deposit
accounts and build its market share of deposits. The majority of the recent
deposit growth has been in shorter-term certificate of deposit accounts which
generally bear yields higher than the Bank's core deposits. As a result, the
Bank's certificate of deposit accounts increased from $186.2 million, or 51.7%
of total deposits, at March 31, 1994 to $409.6 million, or 68.2% of total
deposits, at June 30, 1996. The Bank's cost of interest-bearing liabilities
increased from 3.78% for the fiscal year ended March 31, 1994 to 5.13% for the
three months ended June 30, 1996. At June 30, 1996, the weighted average
remaining maturity of the Bank's certificate of deposit accounts was 10.6
months. Further increases in short-term certificate of deposit accounts, which
tend to be more sensitive to movements in market interest rates than core
deposits, may result in the Bank's deposit base being less stable than if it had
a large amount of core deposits which, in turn, may result in further increases
in the Bank's cost of deposits.
The following table presents the deposit activity of the Bank for the
periods indicated:
<TABLE>
<CAPTION>
For the Three
Months
Ended June 30, For the Year Ended March 31,
---------------------- --------------------------------------
1996 1995 1996 1995 1994
---------- --------- ---------- ------------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net deposits.................................... $10,049 $20,125 $120,527 $66,117 $20,307
Interest credited on deposit accounts........... 6,785 4,938 23,116 13,897 10,368
------- ------- -------- ------- -------
Total increase in deposit accounts.............. $16,834 $25,063 $143,643 $80,014 $30,675
======= ======= ======== ======= =======
</TABLE>
87
<PAGE>
At June 30, 1996, the Bank had $48.2 million in certificate accounts in
amounts of $100,000 or more maturing as follows:
<TABLE>
<CAPTION>
Weighted
Maturity Period Amount Average Rate
- --------------------------------------------------- ----------- ----------------
(Dollars in thousands)
<S> <C> <C>
Three months or less............................... $18,134 5.50%
Over 3 through 6 months............................ 9,485 5.88
Over 6 through 12 months........................... 10,120 5.91
Over 12 months..................................... 10,472 6.37
-------
Total.............................................. $48,211 5.85%
=======
</TABLE>
88
<PAGE>
The following table sets forth the distribution of the Bank's average
deposit accounts for the periods indicated and the weighted average interest
rates on each category of deposits presented. Averages for the periods presented
utilize average month-end balances.
<TABLE>
<CAPTION>
For the Three Months
Ended June 30,
-----------------------------
1996
-----------------------------
Percent
Average of Total Weighted
Balance Average Average
Deposits Rate
-------- ------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Business checking accounts........ $ 42,887 7.25% -%
Money market accounts............. 28,752 4.86 2.82
Savings accounts.................. 80,301 13.58 2.50
NOW accounts...................... 37,363 6.32 1.98
-------- ------
Total....................... 189,303 32.01 1.88
-------- ------
Certificate accounts(1):
Less than six months........... 169,854 28.72 5.61
Over six through 12 months..... 78,202 13.22 5.83
Over 12 through 36 months...... 64,454 10.90 6.19
Over 36 months................. 15,406 2.61 6.72
IRA and KEOGH.................. 74,159 12.54 6.21
-------- ------
Total certificate accounts.. 402,075 67.99 5.90
-------- ------
Total average deposits...... $591,378 100.00% 4.62%
======== ====== ====
<CAPTION>
For the Year Ended March 31,
-----------------------------------------------------------------------------------------------
1996 1995 1994
---------------------------- ----------------------------- ---------------------------------
Percent Percent Percent
Average of Total Weighted Average of Total Weighted Average of Total Weighted
Balance Average Average Balance Average Average Balance Average Average
Deposits Rate Deposits Rate Deposits Rate
-------- ------- --------- -------- -------- --------- -------- -------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Business checking accounts........ $ 35,587 7.08% -% $ 28,783 7.23% -% $ 37,427 10.84% -%
Money market accounts............. 27,194 5.41 2.83 33,011 8.30 2.83 32,728 9.48 2.59
Savings accounts.................. 76,511 15.23 2.50 81,525 20.49 2.50 82,480 23.89 2.50
NOW accounts...................... 30,088 5.99 1.98 24,154 6.07 1.98 21,799 6.32 1.98
-------- ------ -------- ------ -------- ------
Total....................... 169,380 33.71 1.82 167,473 42.09 2.02 174,434 50.53 1.96
-------- ------ -------- ------ -------- ------
Certificate accounts(1):
Less than six months........... 125,491 24.98 5.66 96,932 24.37 5.16 73,030 21.16 3.60
Over six through 12 months..... 64,743 12.89 5.91 40,981 10.30 5.75 26,512 7.68 4.01
Over 12 through 36 months...... 61,698 12.28 6.37 27,622 6.94 6.39 10,739 3.11 4.42
Over 36 months................. 14,558 2.90 6.74 7,850 1.97 6.78 2,166 0.63 5.22
IRA and KEOGH.................. 66,487 13.24 6.17 56,998 14.33 5.12 58,294 16.89 4.14
-------- ------ -------- ------ -------- ------
Total certificate accounts.. 332,977 66.29 5.95 230,383 57.91 5.56 170,741 49.47 3.95
-------- ------ -------- ------ -------- ------
Total average deposits...... $502,357 100.00% 4.59% $397,856 100.00% 4.27% $345,175 100.00% 2.99%
======== ====== ==== ======== ====== ==== ======== ====== ====
</TABLE>
- -------------------------------------------------
(1) Based on remaining maturity of certificates.
89
<PAGE>
The following table presents, by various rate categories, the amount of
certificate accounts outstanding at the dates indicated and the periods to
maturity of the certificate accounts outstanding at June 30, 1996.
<TABLE>
<CAPTION>
Period to Maturity from June 30, 1996
--------------------------------------------------------------------- --------------
Less than One to Two to Three to Four to At June 30,
One Year Two years Three years Four years Five years 1996
--------- --------- ----------- ---------- ---------- --------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Certificate accounts:
0 to 4.00%............... $ - $ 255 $ - $ - $ - $ 255
4.01 to 5.00%............ 17,371 631 50 - - 18,052
5.01 to 6.00%............ 186,097 38,257 4,746 427 2,157 231,684
6.01 to 7.00%............ 76,742 14,569 17,785 4,531 5,701 119,328
7.01 to 8.00%............ 16,718 10,389 1,972 11,194 21 40,294
8.01 to 9.00%............ - - - 3 - 3
Over 9.01%............... - - - - - -
-------- ------- ------- ------- ------ --------
Total................. $296,928 $64,101 $24,553 $16,155 $7,879 $409,616
======== ======= ======= ======= ====== ========
<CAPTION>
At March 31,
-------------------------------------
1996 1995 1994
----------- ---------- --------
<S> <C> <C> <C>
Certificate accounts:
0 to 4.00%............... $ 253 $ 19,822 $136,815
4.01 to 5.00%............ 31,913 74,008 44,589
5.01 to 6.00%............ 178,891 91,477 2,187
6.01 to 7.00%............ 140,863 66,856 969
7.01 to 8.00%............ 40,027 28,198 907
8.01 to 9.00%............ 4 4 511
Over 9.01%............... - 169 223
-------- -------- --------
Total.................
$391,951 $280,534 $186,201
======== ======== ========
</TABLE>
90
<PAGE>
Borrowings. The Bank utilizes advances from the FHLB as an alternative to
retail deposits to fund its operations as part of its operating strategy. During
the quarter ended June 30, 1996, the Bank determined to utilize FHLB borrowings
to a greater extent to fund its asset growth, primarily its origination of
adjustable-rate one- to four-family loans. These FHLB advances are
collateralized primarily by certain of the Bank's mortgage loans and mortgage-
backed securities and secondarily by the Bank's investment in capital stock of
the FHLB. FHLB advances are made pursuant to several different credit programs,
each of which has its own interest rate and range of maturities. The maximum
amount that the FHLB will advance to member institutions, including the Bank,
fluctuates from time to time in accordance with the policies of the OTS and the
FHLB. See "Regulation - Federal Home Loan Bank System." At June 30, 1996, the
Bank had $136.6 million in outstanding advances from the FHLB and had no other
borrowings as compared to $75.1 million at March 31, 1996. The Bank intends to
utilize the net conversion proceeds provided to the Bank to repay FHLB advances
and may repay additional FHLB borrowing with funds deposited by the Company with
the Bank.
The following table sets forth certain information regarding the Bank's
borrowed funds at or for the periods ended on the dates indicated:
<TABLE>
<CAPTION>
At or For the
Three months Ended At or For the Year
June 30, Ended March 31,
-------------------------- ---------------------------------------
1996 1995 1996 1995 1994
------------ ----------- ----------- --------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
FHLB advances:
Average balance outstanding.............. $108,671 $60,520 $50,321 $71,005 $67,994
======== ======= ======= ======= =======
Maximum amount outstanding at
any month-end during the period....... $136,648 $66,663 $75,141 $99,724 $81,133
======== ======= ======= ======= =======
Balance outstanding at end of period..... $136,648 $50,615 $75,141 $66,592 $59,542
======== ======= ======= ======= =======
Weighted average interest rate
during the period..................... 6.01% 6.91% 6.46% 6.26% 5.59%
==== ==== ==== ==== ====
Weighted average interest rate at end
of period............................ 5.77% 6.75% 5.94% 6.96% 5.86%
==== ==== ==== ==== ====
</TABLE>
SUBSIDIARY ACTIVITIES
FIRSTFED MORTGAGE CORPORATION ("FMC") is a wholly-owned subsidiary of the
Bank. FMC does not currently conduct any activities other than holding a parcel
of real estate located in Swansea, Massachusetts (the "Swansea Property"). The
Swansea Property is the primary asset of FMC and is the site of the Bank's
proposed centralized administrative and operations center and branch office,
which is anticipated to open for operations in late 1997. The Bank has budgeted
approximately $10 million for the construction, and furniture, fixtures and
equipment of the facility and the branch office. See "Business of the Bank -
Properties."
PROPERTIES
The Bank currently conducts its business through an administrative and
full service branch office and an operations office located in Fall River and
eleven other full service branch offices and five loan origination centers, most
of which are located in Southeastern Massachusetts and Rhode Island. In
September 1996, the Bank began development of the Swansea Property for the
purpose of constructing a new centralized administrative and operations center
and branch office. The development and
91
<PAGE>
construction costs for the Swansea Property are estimated to be approximately
$10 million. Once this project is completed, in late 1997, the Company believes
that the Bank's facilities will be adequate to meet the then present and
immediately foreseeable needs of the Bank and the Company. See "Business of the
Bank - Subsidiary Activity."
<TABLE>
<CAPTION>
Net Book Value
Original of Property or
Year Leasehold
Leased Leased Date of Improvements
or or Lease at
Location Owned Acquired Expiration June 30, 1996
- --------------------------------------- ---------- ------------ ----------------------- ------------------
(In thousands)
<S> <C> <C> <C> <C>
Administrative/Corporate/
Branch Office:
1 North Main Street Owned 1956 - $ 551
Fall River, MA 02720
Operations Center:
186 South Main Street Leased 1987 August 1997(1) 21
Fall River, MA 02721
Route 118 (Swansea Mall Drive)(2) Owned 1994 - 567
Swansea, MA 02777
Branch Offices: (3)
27 Park Street Owned 1990 - 1,789
Attleboro, MA 02703
33 Sullivan Drive Owned 1979 - 382
Fall River, MA 02721
1450 Plymouth Avenue Owned 1972 - 368
Fall River, MA 02721
278 Union Street Owned 1972 - 553
New Bedford, MA 02740
254 Rockdale Avenue Owned 1983 - 10
New Bedford, MA 02740
265 Newport Avenue Owned 1996 - 774
Pawtucket, RI 02860
741 Willett Avenue Owned 1995 - 700
East Providence, RI 02915
1519 Newman Avenue Owned 1994 - 514
Seekonk, MA 02771
149 Grand Army Highway Owned 1963 - 94
Somerset, MA 02725
2 Washington Street Owned 1976 - 333
Taunton, MA 02780
2100 Warwick Avenue(4) Owned 1996 - 328
Warwick, RI 02889
</TABLE>
92
<PAGE>
<TABLE>
<CAPTION>
Net Book Value
Original of Property or
Year Leasehold
Leased Leased Date of Improvements
or or Lease at
Location Owned Acquired Expiration June 30,1996
- --------------------------------------- ---------- ------------ ----------------------- ------------------
(In thousands)
<S> <C> <C> <C> <C>
Loan Origination Centers:
12 White's Path, Unit 7 Leased 1992 October 1996 (1) -
Yarmouth, MA 02664
62 Auburn Street Leased 1990 June 1997 -
Auburn, MA 01501
1325 Springfield Street Leased 1992 June 1997 (1) -
Agawam, MA 01089
10 Wall Street Leased 1994 December 1997 (1) -
Burlington, MA 01803
333 Main Street Leased 1990 September 1998 (1) -
East Greenwich, RI 02818 ------
Total................................................................................... $6,984
======
</TABLE>
- -----------------------------
(1) The Bank has options to renew this lease which range from 1 to 10 years.
(2) The Bank's current expansion plans include the development of a new
centralized administrative and operations center and branch office on this
property which is expected to become operational in late 1997. Total
development and construction costs for the property are estimated to be
approximately $10 million.
(3) Does not reflect a lease agreement entered into by the Bank for vacant land
located in New Bedford, Massachusetts which such lease has a commencement
date of November 1, 1996 and a term of 20 years. The Bank intends to
utilize this property to construct a de novo branch office, which is
currently scheduled to open in early 1997.
(4) Reflects branch office which opened in August 1996. The net book value of
such branch represents expenditures for construction in progress as of June
30, 1996.
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LEGAL PROCEEDINGS
The Bank is not involved in any pending legal proceedings other than
routine legal proceedings occurring in the ordinary course of business. Such
routine legal proceedings, in the aggregate, are believed by management to be
immaterial to the Company's financial condition or results of operations.
PERSONNEL
As of June 30, 1996, the Bank had 239 authorized full-time employee
positions and 48 authorized part-time employee positions. The employees are not
represented by a collective bargaining unit and the Bank considers its
relationship with its employees to be good. See "Management of the Bank -
Benefits" for a description of certain compensation and benefit programs offered
to the Bank's employees.
FEDERAL AND STATE TAXATION
FEDERAL TAXATION
General. The Company and the Bank will report their income on a calendar
year basis using the accrual method of accounting and will be subject to federal
income taxation in the same manner as other corporations with some exceptions,
including particularly the Bank's reserve for bad debts discussed below. The
following discussion of tax matters is intended only as a summary and does not
purport to be a comprehensive description of the tax rules applicable to the
Bank or the Company. The Bank was last audited by the Internal Revenue Service
("IRS") in 1983 and has never been audited by the Massachusetts Department of
Revenue ("DOR").
Bad Debt Reserve. Historically, savings institutions such as the Bank
which met certain definitional tests primarily related to their assets and the
nature of their business ("qualifying thrifts") were permitted to establish a
reserve for bad debts and to make annual additions thereto, which may have been
deducted in arriving at their taxable income. The Bank's deductions with respect
to "qualifying real property loans," which are generally loans secured by
certain interest in real property, were computed using an amount based on the
Bank's actual loss experience, or a percentage equal to 8% of the Bank's taxable
income, computed with certain modifications and reduced by the amount of any
permitted addition to the non-qualifying reserve. Due to the Bank's loss
experience, the Bank generally recognized a bad debt deduction equal to 8% of
taxable income.
In August, 1996, the provisions repealing the current thrift bad debt
rules were passed by Congress as part of "The Small Business Job Protection Act
of 1996." The new rules eliminate the 8% of taxable income method for deducting
additions to the tax bad debt reserves for all thrifts for tax years beginning
after December 31, 1995. These rules also require that all thrift institutions
recapture all or a portion of their bad debt reserves added since the base year
(last taxable year beginning before January 1, 1988). The Bank has previously
recorded a deferred tax liability equal to the bad debt recapture and as such,
the new rules will have no effect on net income or federal income tax expense.
For taxable years beginning after December 31, 1995, the Bank's bad debt
deduction will be equal to net charge-offs. The new rules allow an institution
to suspend the bad debt reserve recapture for the 1996 and 1997 tax years if the
institution's lending activity for those years is equal to or greater than the
institutions average mortgage lending activity for the six taxable years
preceding 1996 adjusted for inflation. For this purpose, only home purchase and
home improvement loans are included and the institution can elect to have the
tax years with the highest and lowest lending activity removed from the average
calculation. If an institution
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is permitted to postpone the reserve recapture, it must begin its six year
recapture no later than the 1998 tax year. The unrecaptured base year reserves
will not be subject to recapture as long as the institution continues to carry
on the business of banking. In addition, the balance of the pre-1988 bad debt
reserves continue to be subject to provision of present law referred to below
that require recapture in the case of certain excess distributions to
shareholders.
Distributions. To the extent that the Bank makes "non-dividend
distributions" to the Company that are considered as made (i) from the reserve
for losses on qualifying real property loans, to the extent the reserve for such
losses exceeds the amount that would have been allowed under the experience
method, or (ii) from the supplemental reserve for losses on loans ("Excess
Distributions"), then an amount based on the amount distributed will be included
in the Bank's taxable income. Non-dividend distributions include distributions
in excess of the Bank's current and accumulated earnings and profits,
distributions in redemption of stock, and distributions in partial or complete
liquidation. However, dividends paid out of the Bank's current or accumulated
earnings and profits, as calculated for federal income tax purposes, will not be
considered to result in a distribution from the Bank's bad debt reserve. Thus,
any dividends to the Company that would reduce amounts appropriated to the
Bank's bad debt reserve and deducted for federal income tax purposes would
create a tax liability for the Bank. The amount of additional taxable income
created from an Excess Distribution is an amount that, when reduced by the tax
attributable to the income, is equal to the amount of the distribution. Thus,
if, after the Conversion, the Bank makes a "non-dividend distribution," then
approximately one and one-half times the amount so used would be includable in
gross income for federal income tax purposes, assuming a 34% corporate income
tax rate (exclusive of state and local taxes). See "Regulation" and "Dividend
Policy" for limits on the payment of dividends of the Bank. The Bank does not
intend to pay dividends that would result in a recapture of any portion of its
bad debt reserve.
Corporate Alternative Minimum Tax. The Internal Revenue Code of 1986,
as amended (the "Code") imposes a tax on alternative minimum taxable income
("AMTI") at a rate of 20%. The excess of the bad debt reserve deduction using
the percentage of taxable income method over the deduction that would have been
allowable under the experience method is treated as a preference item for
purposes of computing the AMTI. Only 90% of AMTI can be offset by net operating
loss carryovers of which the Bank currently has none. AMTI is increased by an
amount equal to 75% of the amount by which the Bank's adjusted current earnings
exceeds its AMTI (determined without regard to this preference and prior to
reduction for net operating losses). In addition, for taxable years beginning
after March 31, 1986 and before January 1, 1996, an environmental tax of .12% of
the excess of AMTI (with certain modifications) over $2.0 million is imposed on
corporations, including the Bank, whether or not an Alternative Minimum Tax
("AMT") is paid. The Bank does not expect to be subject to the AMT, but may be
subject to the environmental tax liability.
Dividends Received Deduction and Other Matters. The Company may exclude
from its income 100% of dividends received from the Bank as a member of the same
affiliated group of corporations. The corporate dividends received deduction is
generally 70% in the case of dividends received from unaffiliated corporations
with which the Company and the Bank will not file a consolidated tax return,
except that if the Company or the Bank own more than 20% of the stock of a
corporation distributing a dividend then 80% of any dividends received may be
deducted.
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STATE AND LOCAL TAXATION
Commonwealth of Massachusetts. On July 27, 1995, the Governor of
Massachusetts approved legislation to reduce the tax rate applicable to
financial institutions, including savings banks, from 12.54% on their net income
to 10.50% on their net income apportioned to Massachusetts. The reduced rate is
to be phased-in over a five year period whereby the rate was 12.13% for 1995,
and will be 11.72% for 1996, 11.32% for 1997, 10.91% for 1998 and 10.50% for
1999. Net income for years beginning before January 1, 1999 includes gross
income as defined under the provisions of the Internal Revenue Code, plus
interest from bonds, notes and evidences of indebtedness of any state, including
Massachusetts, less the deductions, excluding the deductions for dividends
received, state taxes, and net operating losses, as defined under the provisions
of the Internal Revenue Code. For taxable years beginning on or after January 1,
1999, the definition of state taxable income is modified to allow a deduction
for ninety-five percent of dividends received from stock where the Bank owns
fifteen percent or more of the voting stock of the institution paying the
dividend and to allow deductions from certain expenses allocated to federally
tax exempt obligations. Subsidiary corporations of the Bank conducting business
in Massachusetts must file separate Massachusetts state tax returns and are
taxed as financial institutions, with certain modifications and grandfathering
for taxable years before 1996. The net worth or tangible property of such
subsidiaries is taxed at a rate of 0.26%. Such subsidiaries may file
consolidated tax returns on the net earnings portion of the corporate tax.
Corporations which qualify as "securities corporations," as defined by
the Massachusetts tax code, are taxed at a special rate of 0.33% of their gross
income if they qualify as a "bank-holding company" under the Massachusetts tax
code. The Company is expected to qualify for this reduced tax rate provided that
it is exclusively engaged in activities of a "securities corporation." The Bank
has received an opinion from KPMG Peat Marwick LLP that the Company will qualify
as a securities corporation, provided that if called upon by the Bank to make a
loan to the ESOP, the Company will create a separate subsidiary for that purpose
and provided that all of the Company's other activities qualify as activities
permissible for a securities corporation. If the Company fails to so qualify,
however, it will be taxed as a financial institution at a rate of 10.50%
beginning in 1996 rather than at the phased-in rates.
Delaware Taxation. As a Delaware holding company not earning income in
Delaware, the Company is exempt from Delaware corporate income tax but is
required to file an annual report with and pay an annual franchise tax to the
State of Delaware.
REGULATION
GENERAL
The Bank is subject to extensive regulation, examination and
supervision by the OTS, as its chartering agency, and the FDIC, as the deposit
insurer. The Bank is a member of the FHLB System. The Bank's deposit accounts
are insured up to applicable limits by the SAIF managed by the FDIC. The Bank
must file reports with the OTS and the FDIC concerning its activities and
financial condition in addition to obtaining regulatory approvals prior to
entering into certain transactions such as mergers with, or acquisitions of,
other financial institutions. There are periodic examinations by the OTS and the
FDIC to test the Bank's compliance with various regulatory requirements. This
regulation and supervision establishes a comprehensive framework of activities
in which an institution can engage and is intended primarily for the protection
of the insurance fund and depositors. The regulatory structure also gives the
regulatory authorities extensive discretion in connection with their supervisory
and enforcement activities and examination policies, including policies with
respect to the classification of assets and the establishment of adequate loan
loss reserves for regulatory purposes. Any change in such policies,
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whether by the OTS, the FDIC or the Congress, could have a material adverse
impact on the Company, the Bank and their operations. Assuming that the holding
company form of organization is utilized, the Company, as a savings and loan
holding company, will also be required to file certain reports with, and
otherwise comply with the rules and regulations of the OTS and of the Securities
and Exchange Commission (the "SEC") under the federal securities laws.
Any change in the regulatory structure or the applicable statutes or
regulations, whether by the OTS, the FDIC or the Congress, could have a material
impact on the Company, the Bank, their operations or the Bank's Conversion.
Congress currently has under consideration various proposals to eliminate the
federal thrift charter and abolish the OTS. The outcome of such legislation is
uncertain. Therefore, the Bank is unable to determine the extent to which
legislation, if enacted, would affect its business. See "Risk Factors -
Financial Institution Regulation and Possible Legislation."
Certain of the regulatory requirements applicable to the Bank and to
the Company are referred to below or elsewhere herein. The description of
statutory provisions and regulations applicable to savings associations set
forth in this Prospectus do not purport to be complete descriptions of such
statutes and regulations and their effects on the Bank and the Company and is
qualified in its entirety by reference to such statutes and regulations.
FEDERAL SAVINGS INSTITUTION REGULATION
Business Activities. The activities of federal savings institutions are
governed by the Home Owners' Loan Act, as amended (the "HOLA") and, in certain
respects, the Federal Deposit Insurance Act ("FDI Act") and the regulations
issued by the agencies to implement these statutes. These laws and regulations
delineate the nature and extent of the activities in which federal associations
may engage. In particular, many types of lending authority for federal
associations, e.g., commercial, non-residential real property loans and consumer
loans, are limited to a specified percentage of the institution's capital or
assets.
Loans-to-One Borrower. Under the HOLA, savings institutions are
generally subject to the national bank limit on loans-to-one borrower.
Generally, this limit is 15% of the Bank's unimpaired capital and surplus, plus
an additional 10% of unimpaired capital and surplus, if such loan is secured by
readily-marketable collateral, which is defined to include certain financial
instruments and bullion. At June 30, 1996, the Bank's general limit on
loans-to-one borrower was $7.1 million. At June 30, 1996, the Bank's largest
aggregate amount of loans-to-one borrower consisted of an unadvanced $2.1
million commercial line of credit.
QTL Test. The HOLA requires savings institutions to meet a QTL test.
Under the QTL test, a savings association is required to maintain at least 65%
of its "portfolio assets" (total assets less: (i) specified liquid assets up to
20% of total assets; (ii) intangibles, including goodwill; and (iii) the value
of property used to conduct business) in certain "qualified thrift investments"
(primarily residential mortgages and related investments, including certain
mortgage-backed and related securities) in at least 9 months out of each 12
month period. A savings association that fails the QTL test must either convert
to a bank charter or operate under certain restrictions. As of June 30, 1996,
the Bank maintained 92.5% of its portfolio assets in qualified thrift
investments and, therefore, met the QTL test. For a discussion of the impact of
certain proposed legislation, See "Risk Factors -- Financial Institution
Regulation and Possible Legislation."
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Limitation on Capital Distributions. OTS regulations impose limitations
upon all capital distributions by a savings institution, such as cash dividends,
payments to repurchase or otherwise acquire its shares, payments to shareholders
of another institution in a cash-out merger and other distributions charged
against capital. The rule establishes three tiers of institutions, which are
based primarily on an institution's capital level. An institution that exceeds
all fully phased-in regulatory capital requirements before and after a proposed
capital distribution ("Tier 1 Bank") and has not been advised by the OTS that it
is in need of more than normal supervision, could, after prior notice to, but
without the approval of the OTS, make capital distributions during a calendar
year equal to the greater of: (i) 100% of its net earnings to date during the
calendar year plus the amount that would reduce by one-half its "surplus capital
ratio" (the excess capital over its fully phased-in capital requirements) at the
beginning of the calendar year; or (ii) 75% of its net earnings for the previous
four quarters. Any additional capital distributions would require prior OTS
approval. In the event the Bank's capital fell below its capital requirements or
the OTS notified it that it was in need of more than normal supervision, the
Bank's ability to make capital distributions could be restricted. In addition,
the OTS could prohibit a proposed capital distribution by any institution, which
would otherwise be permitted by the regulation, if the OTS determines that such
distribution would constitute an unsafe or unsound practice.
Liquidity. The Bank is required to maintain an average daily balance of
specified liquid assets equal to a monthly average of not less than a specified
percentage (currently 5%) of its net withdrawable deposit accounts plus
short-term borrowings. OTS regulations also require each savings institution to
maintain an average daily balance of short-term liquid assets at a specified
percentage (currently 1%) of the total of its net withdrawable deposit accounts
and borrowings payable in one year or less. Monetary penalties may be imposed
for failure to meet these liquidity requirements. The Bank's average liquidity
ratio for the three months ended June 30, 1996 was 5.37%, which exceeded the
applicable requirements. The Bank has never been subject to monetary penalties
for failure to meet its liquidity requirements. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Asset/Liability
Management" and "- Liquidity and Capital Reserves."
Assessments. Savings institutions are required by regulation to pay
assessments to the OTS to fund the agency's operations. The general assessment,
paid on a semi-annual basis, is based upon the savings institution's total
assets, including consolidated subsidiaries, as reported in the Bank's latest
quarterly Thrift Financial Report. The assessments paid by the Bank for the year
ended March 31, 1996 totalled $125,000.
Branching. OTS regulations permit federally chartered savings
associations to branch nationwide under certain conditions. Generally, federal
savings associations may establish interstate networks and geographically
diversify their loan portfolios and lines of business. The OTS authority
preempts any state law purporting to regulate branching by federal savings
associations. For a discussion of the impact of proposed legislation, see "Risk
Factors - Financial Institution Regulation and Possible Legislation."
Transactions with Related Parties. The Bank's authority to engage in
transactions with related parties or "affiliates" (i.e., any company that
controls or is under common control with an institution, including the Company
and any non-savings institution subsidiaries that the Company may establish) is
limited by Sections 23A and 23B of the Federal Reserve Act ("FRA"). Section 23A
restricts the aggregate amount of covered transactions with any individual
affiliate to 10% of the capital and surplus of the savings institution and also
limits the aggregate amount of transactions with all affiliates to 20% of the
savings institution's capital and surplus. Certain transactions with affiliates
are required to be secured by collateral in an amount and of a type described in
Section 23A and the purchase of low quality assets from affiliates is generally
prohibited. Section 23B generally requires that certain transactions with
affiliates, including loans and asset purchases, must be on terms and under
circumstances, including credit standards,
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that are substantially the same or at least as favorable to the institution as
those prevailing at the time for comparable transactions with non-affiliated
companies.
Enforcement. Under the FDI Act, the OTS has primary enforcement
responsibility over savings institutions and has the authority to bring action
against all "institution-affiliated parties," including stockholders, and any
attorneys, appraisers and accountants who knowingly or recklessly participate in
wrongful action likely to have an adverse effect on an insured institution.
Formal enforcement action may range from the issuance of a capital directive or
cease and desist order to removal of officers or directors, receivership,
conservatorship or termination of deposit insurance. Civil penalties cover a
wide range of violations and can amount to $25,000 per day, or $1 million per
day in especially egregious cases. Under the FDI Act, the FDIC has the authority
to recommend to the Director of the OTS that enforcement action be taken with
respect to a particular savings institution. If action is not taken by the
Director, the FDIC has authority to take such action under certain
circumstances. Federal and state law also establishes criminal penalties for
certain violations.
Standards for Safety and Soundness. The FDI Act requires each federal
banking agency to prescribe for all insured depository institutions standards
relating to, among other things, internal controls, information systems and
audit systems, loan documentation, credit underwriting, interest rate risk
exposure, asset growth, and compensation, fees and benefits and such other
operational and managerial standards as the agency deems appropriate. The
federal banking agencies have adopted final regulations and Interagency
Guidelines Establishing Standards for Safety and Soundness ("Guidelines") to
implement these safety and soundness standards. The Guidelines set forth the
safety and soundness standards that the federal banking agencies use to identify
and address problems at insured depository institutions before capital becomes
impaired. The Guidelines address internal controls and information systems;
internal audit system; credit underwriting; loan documentation; interest rate
risk exposure; asset growth; asset quality; earnings; and compensation, fees and
benefits. If the appropriate federal banking agency determines that an
institution fails to meet any standard prescribed by the Guidelines, the agency
may require the institution to submit to the agency an acceptable plan to
achieve compliance with the standard, as required by the FDI Act. The final
regulations establish deadlines for the submission and review of such safety and
soundness compliance plans.
Capital Requirements. The OTS capital regulations require savings
institutions to meet three capital standards: a 1.5% tangible capital standard,
a 3% leverage (core capital) ratio and an 8% risk based capital standard. Core
capital is defined as common stockholder's equity (including retained earnings),
certain non-cumulative perpetual preferred stock and related surplus, minority
interests in equity accounts of consolidated subsidiaries less intangibles other
than certain mortgage servicing rights ("MSRs") and credit card relationships.
The OTS regulations require that, in meeting the leverage ratio, tangible and
risk-based capital standards institutions generally must deduct investments in
and loans to subsidiaries engaged in activities not permissible for a national
bank. In addition, the OTS prompt corrective action regulation provides that a
savings institution that has a leverage capital ratio of less than 4% (3% for
institutions receiving the highest CAMEL examination rating) will be deemed to
be "undercapitalized" and may be subject to certain restrictions. See "- Prompt
Corrective Regulatory Action."
The risk-based capital standard for savings institutions requires the
maintenance of total capital (which is defined as core capital and supplementary
capital) to risk-weighted assets of 8%. In determining the amount of
risk-weighted assets, all assets, including certain off-balance sheet assets,
are multiplied by a risk-weight of 0% to 100%, as assigned by the OTS capital
regulation based on the risks OTS believes are inherent in the type of asset.
The components of core capital are equivalent to those discussed earlier under
the 3% leverage standard. The components of supplementary capital currently
include cumulative preferred stock, long-term perpetual preferred stock,
mandatory convertible securities, subordinated debt
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and intermediate preferred stock and, within specified limits, the allowance for
loan and lease losses. Overall, the amount of supplementary capital included as
part of total capital cannot exceed 100% of core capital.
The OTS has incorporated an interest rate risk component into its
regulatory capital rule. The final interest rate risk rule also adjusts the
risk-weighting for certain mortgage derivative securities. Under the rule,
savings associations with "above normal" interest rate risk exposure would be
subject to a deduction from total capital for purposes of calculating their
risk-based capital requirements. A savings association's interest rate risk is
measured by the decline in the net portfolio value of its assets (i.e., the
difference between incoming and outgoing discounted cash flows from assets,
liabilities and off-balance sheet contracts) that would result from a
hypothetical 200-basis point increase or decrease in market interest rates
divided by the estimated economic value of the association's assets, as
calculated in accordance with guidelines set forth by the OTS. A savings
association whose measured interest rate risk exposure exceeds 2% must deduct an
interest rate component in calculating its total capital under the risk-based
capital rule. The interest rate risk component is an amount equal to one-half of
the difference between the institution's measured interest rate risk and 2%,
multiplied by the estimated economic value of the association's assets. That
dollar amount is deducted from an association's total capital in calculating
compliance with its risk-based capital requirement. Under the rule, there is a
two quarter lag between the reporting date of an institution's financial data
and the effective date for the new capital requirement based on that data. A
savings association with assets of less than $300 million and risk-based capital
ratios in excess of 12% is not subject to the interest rate risk component,
unless the OTS determines otherwise. The rule also provides that the Director of
the OTS may waive or defer an association's interest rate risk component on a
case-by-case basis. The OTS has postponed the date that the component will first
be deducted from an institution's total capital to provide it with an
opportunity to review the interest rate risk approaches taken by the other
federal banking agencies.
At June 30, 1996, the Bank met each of its capital requirements, in
each case on a fully phased-in basis. See "Regulatory Capital Compliance" for a
table which sets forth in terms of dollars and percentages the OTS tangible,
leverage and risk-based capital requirements, the Bank's historical amounts and
percentages at June 30, 1996, and pro forma amounts and percentages based upon
the issuance of the shares within the Estimated Price Range and assuming that a
portion of the net proceeds are retained by the Company.
PROMPT CORRECTIVE REGULATORY ACTION
Under the OTS prompt corrective action regulations, the OTS is required
to take certain supervisory actions against undercapitalized institutions, the
severity of which depends upon the institution's degree of capitalization.
Generally, a savings institution that has a total risk-based capital of less
than 8.0% or a leverage ratio or a Tier 1 capital ratio that is less than 4.0%
is considered to be undercapitalized. A savings institution that has a total
risk-based capital less than 6.0%, a Tier 1 risk-based capital ratio of less
than 3.0% or a leverage ratio that is less than 3.0% is considered to be
"significantly undercapitalized" and a savings institution that has a tangible
capital to assets ratio equal to or less than 2.0% is deemed to be "critically
undercapitalized." Subject to a narrow exception, the banking regulator is
required to appoint a receiver or conservator for an institution that is
critically undercapitalized. The regulation also provides that a capital
restoration plan must be filed with the OTS within 45 days of the date an
association receives notice that it is "undercapitalized," "significantly
undercapitalized" or "critically undercapitalized." Compliance with the plan
must be guaranteed by any parent holding company. In addition, numerous
mandatory supervisory actions may become immediately applicable to the
institution depending upon its category, including, but not limited to,
increased monitoring by regulators, restrictions on growth, and capital
distributions and limitations on expansion.
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The OTS could also take any one of a number of discretionary supervisory
actions, including the issuance of a capital directive and the replacement of
senior executive officers and directors.
INSURANCE OF DEPOSIT ACCOUNTS
The FDIC has adopted a risk-based insurance assessment system. The FDIC
assigns an institution to one of three capital categories based on the
institution's financial information, as of the reporting period ending seven
months before the assessment period, consisting of (1) well capitalized, (2)
adequately capitalized or (3) undercapitalized, and one of three supervisory
subcategories within each capital group. The supervisory subgroup to which an
institution is assigned is based on a supervisory evaluation provided to the
FDIC by the institution's primary federal regulator and information which the
FDIC determines to be relevant to the institution's financial condition and the
risk posed to the deposit insurance funds. An institution's assessment rate
depends on the capital category and supervisory category to which it is
assigned. Assessment rates for SAIF member institutions currently range from 23
basis points to 31 basis points. The FDIC is authorized to raise the assessment
rates in certain circumstances. The FDIC has exercised this authority several
times in the past and may raise insurance premiums in the future. If such action
is taken by the FDIC, it could have an adverse effect on the earnings of the
Bank. The Bank's assessment rate for the years ended March 31, 1996, 1995 and
1994 was .23% of assessable deposits. See "Risk Factors - Recapitalization of
SAIF and Its Impact on SAIF Premiums."
Under the FDI Act, insurance of deposits may be terminated by the FDIC
upon a finding that the institution has engaged in unsafe or unsound practices,
is in an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC or the
OTS. The management of the Bank does not know of any practice, condition or
violation that might lead to termination of deposit insurance.
FEDERAL HOME LOAN BANK SYSTEM
The Bank is a member of the FHLB System, which consists of 12 regional
FHLBs. The FHLB provides a central credit facility primarily for member
institutions. The Bank, as a member of the FHLB, is required to acquire and hold
shares of capital stock in the FHLB in an amount at least equal to 1% of the
aggregate principal amount of its unpaid residential mortgage loans and similar
obligations at the beginning of each year, or 1/20 of its advances (borrowings)
from the FHLB, whichever is greater. The Bank was in compliance with this
requirement with an investment in FHLB stock at June 30, 1996 of $7.0 million.
FHLB advances must be secured by specified types of collateral and all long-term
advances may only be obtained for the purpose of providing funds for residential
housing finance. At June 30, 1996, the Bank had $136.6 million in FHLB advances.
The FHLBs are required to provide funds for the resolution of insolvent
thrifts and to contribute funds for affordable housing programs. These
requirements could reduce the amount of dividends that the FHLBs pay to their
members and could also result in the FHLBs imposing a higher rate of interest on
advances to their members. For the years ended March 31, 1996, 1995 and 1994,
dividends from the FHLB to the Bank amounted to approximately $447,000, $518,000
and $439,000, respectively. If dividends were reduced, the Bank's net interest
income would likely also be reduced. Further, there can be no assurance that the
impact of recent or future legislation on the FHLBs will not also cause a
decrease in the value of the FHLB stock held by the Bank.
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FEDERAL RESERVE SYSTEM
The Federal Reserve Board regulations require savings institutions to
maintain non-interest-earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The Federal Reserve Board
regulations generally require that reserves be maintained against aggregate
transaction accounts as follows: for accounts aggregating $52.0 million or less
(subject to adjustment by the Federal Reserve Board) the reserve requirement is
3%; and for accounts greater than $52.0 million, the reserve requirement is $1.6
million plus 10% (subject to adjustment by the Federal Reserve Board between 8%
and 14%) against that portion of total transaction accounts in excess of $52.0
million. The first $4.3 million of otherwise reservable balances (subject to
adjustment by the Federal Reserve Board) are exempted from the reserve
requirements. The Bank is in compliance with the foregoing requirements. Because
required reserves must be maintained in the form of either vault cash, a
non-interest-bearing account at a Federal Reserve Bank or a pass-through account
as defined by the Federal Reserve Board, the effect of this reserve requirement
is to reduce the Bank's interest-earning assets. FHLB System members are also
authorized to borrow from the Federal Reserve "discount window," but Federal
Reserve Board regulations require institutions to exhaust all FHLB sources
before borrowing from a Federal Reserve Bank.
HOLDING COMPANY REGULATION
The Company, if utilized, will be a non-diversified unitary savings and
loan holding company within the meaning of the HOLA. As such, the Company will
be required to register with the OTS and will be subject to OTS regulations,
examinations, supervision and reporting requirements. In addition, the OTS has
enforcement authority over the Company and its non-savings institution
subsidiaries. Among other things, this authority permits the OTS to restrict or
prohibit activities that are determined to be a serious risk to the subsidiary
savings institution. The Bank must notify the OTS 30 days before declaring any
dividend to the Company.
As a unitary savings and loan holding company, the Company generally
will not be restricted under existing laws as to the types of business
activities in which it may engage, provided that the Bank continues to be a QTL.
See "- Federal Savings Institution Regulation - QTL Test" for a discussion of
the QTL requirements. Upon any non-supervisory acquisition by the Company of
another savings association, the Company would become a multiple savings and
loan holding company (if the acquired institution is held as a separate
subsidiary) and would be subject to extensive limitations on the types of
business activities in which it could engage. The HOLA limits the activities of
a multiple savings and loan holding company and its non-insured institution
subsidiaries primarily to activities permissible for bank holding companies
under Section 4(c)(8) of the BHC Act, subject to the prior approval of the OTS,
and to other activities authorized by OTS regulation. Recently proposed
legislation would treat all savings and loan holding companies as bank holding
companies and limit the activities of such companies to those permissible for
bank holding companies. See "Risk Factors - Financial Institution Regulation and
Possible Legislation."
The HOLA prohibits a savings and loan holding company, directly or
indirectly, or through one or more subsidiaries, from acquiring more than 5% of
the voting stock of another savings institution, or holding company thereof,
without prior written approval of the OTS; and from acquiring or retaining, with
certain exceptions, more than 5% of a non-subsidiary holding company or savings
association, or of a company engaged in activities other than those permitted by
the HOLA; or acquiring or retaining control of a depository institution that is
not insured by the FDIC. In evaluating applications by holding companies to
acquire savings institutions, the OTS must consider the financial and managerial
resources
102
<PAGE>
and future prospects of the company and institution involved, the effect of the
acquisition on the risk to the insurance funds, the convenience and needs of the
community and competitive factors.
The OTS is prohibited from approving any acquisition that would result
in a multiple savings and loan holding company controlling savings institutions
in more than one state, except: (i) the approval of interstate supervisory
acquisitions by savings and loan holding companies, and (ii) the acquisition of
a savings institution in another state if the laws of the state of the target
savings institution specifically permit such acquisitions. The states vary in
the extent to which they permit interstate savings and loan holding company
acquisitions.
FEDERAL SECURITIES LAWS
The Company has filed with the SEC a registration statement under the
Securities Act for the registration of the Common Stock to be issued pursuant to
the Conversion. Upon completion of the Conversion, the Company's Common Stock
will be registered with the SEC under the Exchange Act. The Company will then be
subject to the information, proxy solicitation, insider trading restrictions and
other requirements under the Exchange Act.
The registration under the Securities Act of shares of the Common Stock
to be issued in the Conversion does not cover the resale of such shares. Shares
of the Common Stock purchased by persons who are not affiliates of the Company
may be resold without registration. Shares purchased by an affiliate of the
Company will be subject to the resale restrictions of Rule 144 under the
Securities Act. If the Company meets the current public information requirements
of Rule 144 under the Securities Act, each affiliate of the Company who complies
with the other conditions of Rule 144 (including those that require the
affiliate's sale to be aggregated with those of certain other persons) would be
able to sell in the public market, without registration, a number of shares not
to exceed, in any three-month period, the greater of (i) 1% of the outstanding
shares of the Company or (ii) the average weekly volume of trading in such
shares during the preceding four calendar weeks. Provision may be made in the
future by the Company to permit affiliates to have their shares registered for
sale under the Securities Act under certain circumstances.
MANAGEMENT OF THE COMPANY
The Board of Directors' of the Company is divided into three classes,
each of which contains approximately one-third of the Board. The directors shall
be elected by the stockholders of the Company for staggered three year terms, or
until their successors are elected and qualified. One class of directors,
consisting of Messrs. Thomas A. Rodgers, Jr. and Anthony L. Sylvia, has a term
of office expiring at the first annual meeting of stockholders, a second class,
consisting of Messrs. Robert F. Stoico and John S. Holden, Jr., has a term of
office expiring at the second annual meeting of stockholders, and a third class,
consisting of Messrs. Gilbert C. Oliveira, Richard W. Cederberg and Paul A.
Raymond, has a term of office expiring at the third annual meeting of
stockholders. Their names and biographical information are set forth under
"Management of the Bank - Directors."
103
<PAGE>
The following individuals are the executive officers of the Company and
hold the offices set forth below opposite their names.
<TABLE>
<CAPTION>
Name Position(s) Held With Company
- ------------------------------ -------------------------------------------
<S> <C>
Robert F. Stoico President, Chief Executive Officer and
Chairman of the Board
Kevin J. McGillicuddy Senior Vice President
Frederick R. Sullivan Senior Vice President
Terrence M. Tyrrell Senior Vice President, Treasurer and
Chief Financial Officer
Cecilia R. Viveiros Corporate Secretary
</TABLE>
The executive officers of the Company are elected annually and hold
office until their respective successors have been elected and qualified or
until death, resignation or removal at the discretion of the Board of Directors.
Except for directors' meeting fees, since the formation of the Company,
none of the executive officers, directors or other personnel has received
remuneration from the Company. Information concerning the principal occupations,
employment and other information concerning the directors and officers of the
Company during the past five years is set forth under "Management of the Bank
Biographical Information."
MANAGEMENT OF THE BANK
DIRECTORS
The following table sets forth certain information regarding the Board
of Directors of the Bank.
<TABLE>
<CAPTION>
Position(s) Held With the Director Term
Name Age(1) Bank(2) Since Expires
- ------------------------------ -------- -------------------------------------------- ---------- -------------------
<S> <C> <C> <C> <C>
Robert F. Stoico 56 Director, President and Chief Executive 1980 1998
Officer
Gilbert C. Oliveira 71 Director and Chairman of the Board 1960 1999
Thomas A. Rodgers, Jr. 82 Director and Vice Chairman of the Board 1963 1997
Stanley A. Baker 89 Director 1965 1998
Richard W. Cederberg 68 Director 1982 1999
John S. Holden, Jr. 66 Director 1982 1998
Gerhard S. Lowenstein 79 Director 1968 1997
Willard E. Olmsted 78 Director 1982 1997
Paul A. Raymond, DDS 52 Director 1981 1999
Roger K. Richardson 86 Director 1982 1999
Anthony L. Sylvia 64 Director 1984 1997
</TABLE>
- ----------------------
(1) As of June 30, 1996.
(2) Messrs. Stoico, Oliveira, Rodgers, Cederberg, Holden, Raymond and Sylvia
are also directors of the Company.
104
<PAGE>
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
The following table sets forth certain information regarding the
executive officers of the Bank who are not also directors.
<TABLE>
<CAPTION>
Name Age(1) Position(s) Held with the Bank
- ---------------------------- -------- -------------------------------------------------------------------------
<S> <C> <C>
Kevin J. McGillicuddy 56 Senior Vice President, Director of Mortgage Banking Group
Frederick R. Sullivan 54 Senior Vice President, Director of Banking Group
Terrence M. Tyrrell 46 Senior Vice President and Treasurer, Director of Administrative
Services
</TABLE>
- ----------------------
(1) As of June 30, 1996.
Each of the executive officers of the Bank will retain his/her office
in the converted Bank until their re-election at the annual meeting of the Board
of Directors of the Bank, held immediately after the first annual meeting of
stockholders subsequent to Conversion, and until their successors are elected
and qualified or until they are removed or replaced. Officers are subject to
re-election by the Board of Directors annually.
BIOGRAPHICAL INFORMATION
DIRECTORS
Robert F. Stoico joined the Bank in 1972 as Vice President and
----------------
Treasurer and was elected Executive Vice President in 1974 and President and
Chief Executive Officer in 1977. He has been a member of the Board of Directors
since 1980. Mr. Stoico serves in a number of leadership roles in the thrift
industry and in local civic and charitable organizations. Prior to joining the
Bank, Mr. Stoico, a Certified Public Accountant, was employed by KPMG Peat
Marwick, LLP and specialized in the banking industry.
Gilbert C. Oliveira is the Chairman, President and Treasurer of Gilbert
-------------------
C. Oliveira Insurance Agency, Inc. and a partner in Oliveira Associates
Realtors. He has been a member of the Bank's Board of Directors since 1960 and
Chairman of the Board since 1989.
Thomas A. Rodgers, Jr. is founder, Chairman and Chief Executive Officer
---------------------
of Globe Manufacturing Co., Inc., a manufacturer of extruded latex thread and
spandex fibers. He has been a member of the Bank's Board of Directors since 1963
and Vice Chairman of the Board since 1989.
Stanley A. Baker has served on the Bank's Board of Directors since
----------------
1965. He is the former President of Baker Tractor, Corp. Mr. Baker is now
retired.
Richard W. Cederberg prior to his retirement was Chairman of Larson
--------------------
Tool and Stamping Company. He has served on the Bank's Board of Directors since
1982 and was on the Board of Directors of First Federal Savings and Loan
Association of Attleboro, prior to its merger with First Federal Savings Bank of
America.
105
<PAGE>
John S. Holden, Jr. is President and Treasurer of Automatic Machine
-------------------
Products Co. He has served on the Bank's Board of Directors since 1982 and was
on the Board of Directors of First Federal Savings and Loan Association of
Attleboro, prior to its merger with First Federal Savings Bank of America.
Gerhard S. Lowenstein prior to his retirement was President and
---------------------
Treasurer of Lowenstein Dress Corp. He has served on the Bank's Board of
Directors since 1968 and is the current Chairman of the Bank's Audit Committee.
Willard E. Olmsted has served on the Bank's Board of Directors since
------------------
1982. Mr. Olmsted was on the Board of Directors and served as Chief Executive
Officer of First Federal Savings and Loan Association of Attleboro, prior to its
merger with First Federal Savings Bank of America.
Paul A. Raymond, DDS was appointed to the Bank's Board of Directors in
--------------------
1981. He is a dentist in the town of Swansea, Massachusetts.
Roger K. Richardson has served on the Bank's Board of Directors since
-------------------
1982. Mr. Richardson was on the Board of Directors of First Federal Savings and
Loan Association of Attleboro, prior to its merger with First Federal Savings
Bank of America. He is the Chairman of Richardson/Cuddy Insurance Agency, Inc.
Anthony L. Sylvia has served on the Bank's Board of Directors since
-----------------
1984. Mr. Sylvia is President and Treasurer of The Baker Manufacturing Co.,
Inc., a commercial printing company.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
Kevin J. McGillicuddy has served as Senior Vice President, Director of
---------------------
Mortgage Banking Group, since 1995. Mr. McGillicuddy is responsible for the
mortgage banking operations of the Bank. Previously, Mr. McGillicuddy served in
the capacity of president of a mortgage company as well as chief operating and
financial officer at two financial institutions. Mr. McGillicuddy is a Certified
Public Accountant.
Frederick R. Sullivan has been with the Bank since 1988. He is the
---------------------
Senior Vice President, Director of Banking Group. In this position, Mr. Sullivan
is responsible for the banking operations of the Bank. Mr. Sullivan has been in
the financial services industry for 29 years and prior to 1988 he served as a
vice president at a large regional financial institution.
Terrence M. Tyrrell, Senior Vice President and Treasurer, Director of
-------------------
Administrative Services Group, has been with the Bank since 1980. Mr. Tyrrell is
responsible for the administrative services and financial reporting of the Bank.
Prior to joining the Bank, Mr. Tyrrell was the manager of accounting for a large
manufacturer and served for a time as president of the company's credit union.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS OF THE BANK AND COMPANY
The Bank's Board of Directors meets once per month and may have
additional special meetings called in the manner specified in the By-laws.
During fiscal year 1995, no current Director attended less than 75% of the
aggregate of the total number of Board meetings and the total number of
committee meetings of the Board of Directors on which they served.
106
<PAGE>
The Board of Directors of the Bank has established the following
committees:
The Audit Committee consists of Messrs. Lowenstein, Holden and Sylvia.
The Bank's Internal Auditor reports to this committee. The purposes of this
committee are to review audit reports and management's actions regarding the
implementation of audit findings and to review compliance with all relevant laws
and regulations. The committee meets on a quarterly basis.
The Management and Personnel Committee consists of Messrs. Oliveira,
Stoico, Olmsted and Rodgers. This Committee is responsible for all matters
regarding compensation and fringe benefits. The committee meets on an as needed
basis.
The Executive Committee consists of Messrs. Oliveira, Stoico, Rodgers,
Olmsted and Cederberg. The purposes of this Committee are to review and
establish the Bank's loan policies, approve large loans, evaluate issues of
major importance to the Bank and to review recommendations for internal policy
changes prior to presentation to the full Board for approval. The committee
meets on a bi-monthly basis.
Additionally, the Bank has a number of other management committees
including the Asset Classification Committee, Asset/Liability Management
Committee, Commercial Loan Committee, Compliance Committee, Retail Loan
Committee and Fair Lending Committee.
The Board of Directors of the Company has established the following
committees: the Audit and Compliance Committee consisting of Messrs. Holden,
Raymond and Sylvia; the Pricing Committee consisting of Messrs. Stoico,
Oliveira, Rodgers and Cederberg; and the Compensation Committee consisting of
Messrs. Stoico, Oliveira and Rodgers.
DIRECTOR COMPENSATION
The Chairman of the Board currently receives a fee of $1,200 for each
board meeting attended and a fee of $750 - $850 (depending on the Committee) for
each Committee meeting attended. All other directors of the Bank currently
receive a fee of $750 for each Board meeting they attend and a fee of $450 -
$600 (depending on the Committee) for each Committee meeting they attend.
107
<PAGE>
EXECUTIVE COMPENSATION
CASH COMPENSATION. The following table sets forth the cash compensation
paid by the Bank for services rendered in all capacities during the fiscal year
ended March 31, 1996, to the Chief Executive Officer and the three highest paid
executive officers of the Bank who received cash compensation in excess of
$100,000.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Annual Compensation(1)
---------------------------------------------------
Other
Annual
Name and Principal Fiscal Compensation
Positions (2) Year Salary($) Bonus($) ($)(2)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert F. Stoico 1996 $282,045 $75,000 -
President and Chief Executive Officer
Kevin J. McGillicuddy 1996 96,846 8,000 -
Senior Vice President
Frederick R. Sullivan 1996 99,923 8,000 -
Senior Vice President
Terrence M. Tyrrell 1996 91,846 8,000 -
Senior Vice President and Treasurer
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Long-Term Compensation
------------------------------------------------------------
Awards Payouts
------------------------------------------------------------
(i)
Securities
Restricted Underlying LTIP All Other
Name and Principal Stock Awards Options/SARs Payouts Compensation
Positions (2) ($)(3) (#)(4) ($)(5) ($)(6)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert F. Stoico - - - $149,364
President and Chief Executive Officer
Kevin J. McGillicuddy - - - 771
Senior Vice President
Frederick R. Sullivan - - - 16,167
Senior Vice President
Terrence M. Tyrrell - - - 11,625
Senior Vice President and Treasurer
</TABLE>
- ---------------------------------------
(1) Under Annual Compensation, the column titled "Salary" includes directors'
fees for the named President and Chief Executive Officer.
(2) For fiscal year 1996, there were no (a) perquisites over the lesser of
$50,000 or 10% of the individual's total salary and bonus for the year; (b)
payments of above-market preferential earnings on deferred compensation;
(c) payments of earnings with respect to long-term incentive plans prior to
settlement or maturation; (d) tax payment reimbursements; or (e)
preferential discounts on stock. For fiscal year 1996, the Bank had no
restricted stock or stock related plans in existence.
(3) Does not include awards pursuant to the Stock Programs, which may be
granted in conjunction with a meeting of stockholders of the Company,
subject to OTS and stockholder approval, as such awards were not earned,
vested or granted in fiscal year 1996. For a discussion of the terms of the
Stock Programs, see "- Benefits - Stock Programs." For fiscal year 1996,
the Bank had no restricted stock plans in existence.
(4) Does not include options, which may be granted in conjunction with a
meeting of stockholders of the Company, subject to OTS and stockholder
approval, because such options were not earned or granted in fiscal year
1996. For a discussion of the terms of grants and vesting of options, see
"- Benefits - Stock Option Plans."
(5) For fiscal year 1996, there were no payouts or awards under any long-term
incentive plan.
(6) Includes employer contributions of $5,293, $771, $2,967 and $2,625 and
$11,800, $0, $13,000 and $9,000 to the Bank's Thrift and Retirement Plans
for Messrs. Stoico, McGillicuddy, Sullivan and Tyrrell, respectively. Also
includes employer contributions of $129,119 and $3,152 to Mr. Stoico's
Supplemental Retirement Plan and Supplemental Thrift Plan, respectively,
for fiscal year 1996. See "- Benefits - Thrift Plan," "- Retirement Plan"
and "- Supplemental Retirement Plan."
108
<PAGE>
EMPLOYMENT AGREEMENTS
Upon the Conversion, the Bank and the Company intend to enter into
employment agreements with Messrs. Stoico, McGillicuddy, Sullivan and Tyrrell,
(individually, the "Executive"). These agreements are subject to the review and
approval of the OTS and may be amended as a result of such OTS review. These
employment agreements are intended to ensure that the Bank and the Company will
be able to maintain a stable and competent management base after the Conversion.
The continued success of the Bank and the Company depends to a significant
degree on the skills and competence of Messrs. Stoico, McGillicuddy, Sullivan
and Tyrrell.
The proposed employment agreements provide for a three-year term for
Mr. Stoico and a two-year term for Messrs. McGillicuddy, Sullivan and Tyrrell.
The Bank employment agreements provide that, commencing on the first anniversary
date and continuing each anniversary date thereafter, the Board of Directors may
extend the agreement for an additional year so that the remaining term shall be
three years, in the case of Mr Stoico, and two years, in the case of Messrs.
McGillicuddy, Sullivan and Tyrrell, unless written notice of non-renewal is
given by the Board of Directors after conducting a performance evaluation of the
Executive. The terms of the Company employment agreements shall be extended on a
daily basis unless written notice of non-renewal is given by the Board of the
Company. The Bank and Company employment agreements provide that the Executive's
base salary will be reviewed annually. The base salaries which will be effective
for such employment agreements for Messrs. Stoico, McGillicuddy, Sullivan and
Tyrrell will be $_______, $_______, $_______, and $_______, respectively. In
addition to the base salary, the employment agreements provide for, among other
things, participation in stock benefits plans and other fringe benefits
applicable to similarly situated executive personnel. The employment agreements
provide for termination by the Bank or the Company for cause as defined in the
agreements at any time. In the event the Bank or the Company chooses to
terminate the Executive's employment for reasons other than for cause, or in the
event of the Executive's resignation from the Bank and the Company upon: (i)
failure to re-elect the Executive to his current offices; (ii) a material change
in the Executive's functions, duties or responsibilities; (iii) a relocation of
the Executive's principal place of employment by more than 25 miles; (iv)
liquidation or dissolution of the Bank or the Company; or (v) a breach of the
employment agreement by the Bank or the Company, the Executive or, in the event
of death, his beneficiary would be entitled to receive an amount equal to the
remaining base salary payments due to the Executive and the contributions that
would have been made on the Executive's behalf to any employee benefit plans of
the Bank or the Company during the remaining term of the employment agreement.
The Bank and the Company would also continue and pay for the Executive's life,
health and disability coverage for the remaining term of the employment
agreement. Upon any termination of the Executive, the Executive is subject to a
covenant not to compete with the Company or the Bank for one year.
Under the agreements, if voluntary or involuntary termination follows a
change in control of the Bank or the Company, the Executive or, in the event of
the Executive's death, his beneficiary, would be entitled to a severance payment
equal to the greater of: (i) the payments due for the remaining terms of the
agreement; or (ii) three times the average of the five preceding taxable years'
annual compensation. The Bank and the Company would also continue the
Executive's life, health, and disability coverage for thirty-six months in the
case of Mr. Stoico and twenty-four months in the cases of Messrs. McGillicuddy,
Sullivan and Tyrrell. Notwithstanding that both agreements provide for a
severance payment in the event of a change in control, the Executive would only
be entitled to receive a severance payment under one agreement.
109
<PAGE>
Payments to the Executive under the Bank employment agreement will be
guaranteed by the Company in the event that payments or benefits are not paid by
the Bank. Payment under the Company employment agreement would be made by the
Company. All reasonable costs and legal fees paid or incurred by the Executive
pursuant to any dispute or question of interpretation relating to the Agreements
shall be paid by the Bank or Company, respectively, if the Executive is
successful on the merits pursuant to a legal judgment, arbitration or
settlement. The employment agreements also provide that the Bank and Company
shall indemnify the Executive to the fullest extent allowable under federal and
Delaware law, respectively. In the event of a change in control of the Bank or
Company, the total amount of payments due under the Agreements, based solely on
the current annual cash compensation paid to Messrs. Stoico, McGillicuddy,
Sullivan and Tyrrell and excluding any benefits under any employee benefit plan
which may be payable, would be approximately $2.1 million.
CHANGE IN CONTROL AGREEMENTS
Upon Conversion, the Company and the Bank intend to enter into two-year
Change in Control Agreements (the "CIC Agreements") with eight of the Bank's
officers. The terms of the Company CIC Agreements shall be extended on a daily
basis unless written notice of non-renewal is given by the Board of Directors of
the Company. Commencing on the first anniversary date and continuing on each
anniversary thereafter, the Bank CIC Agreements may be renewed by the Board of
Directors of the Bank for an additional year. The Company CIC Agreements will
provide that in the event voluntary or involuntary termination follows a change
in control of the Bank or the Company, the officer would be entitled to receive
a severance payment equal to two times the officer's compensation for the twelve
months preceding termination. The Bank's CIC Agreement has a similar change in
control provision; however, the officer would only be entitled to receive a
severance payment under one agreement. The Company and Bank would also continue
and pay for the officer's life, health and disability coverage for 24 months
following termination. Payments to the officer under the Bank's CIC Agreements
will be guaranteed by the Company in the event that payments or benefits are not
paid by the Bank. In the event of a change in control of the Bank or Company,
the total payments that would be due under the CIC Agreement, based solely on
the current annual compensation paid to the eight officers covered by the CIC
Agreement and excluding any benefits under any employee benefit plan which may
be payable, would be approximately $1.1 million.
EMPLOYEE SEVERANCE COMPENSATION PLAN
The Bank's Board of Directors intends to, upon Conversion, establish
the First Federal Savings Bank of America Employee Severance Compensation Plan
("Severance Plan") which will provide eligible employees with severance pay
benefits in the event of a change in control of the Bank or the Company
following Conversion. Management personnel with employment or CIC agreements are
not eligible to participate in the Severance Plan. Generally, employees are
eligible to participate in the Severance Plan if they have completed at least
one year of service with the Bank. The Severance Plan vests in each participant
a contractual right to the benefits such participant is entitled to thereunder.
Under the Severance Plan, in the event of a change in control of the Bank or the
Company, eligible employees who are terminated from or terminate their
employment within one year (for reasons specified under the Severance Plan),
will be entitled to receive a severance payment. If the participant, whose
employment has terminated, has completed at least one year of service, the
participant will be entitled to a cash severance payment equal to one-twelfth of
annual compensation for each year of service up to a maximum of 199% of annual
compensation. Such payments may tend to discourage takeover attempts by
increasing costs to be incurred by the Bank in the event of a takeover. In the
event the provisions of the Severance Plan were triggered, the total amount of
payments that would be due thereunder, based solely upon current salary levels,
would be approximately $2.8 million. However, it is management's belief that
substantially
110
<PAGE>
all of the Bank's employees would be retained in their current positions in the
event of a change in control, and that any amount payable under the Severance
Plan would be considerably less than the total amount that could possibly be
paid under the Severance Plan.
INSURANCE PLANS
All full-time employees of the Bank, upon completion of the applicable
introductory period, are covered as a group for comprehensive hospitalization,
including major medical and long-term disability insurance.
BENEFITS
THRIFT PLAN. The Bank maintains the Financial Institutions Thrift Plan
(the "Thrift Plan") to encourage eligible employees to save and invest on a
regular, long term basis. The Thrift Plan permits eligible employees to make
monthly contributions of 2% - 15% of their basic monthly salary on an after-tax
basis to the Thrift Plan. The Bank makes monthly contributions to each
participant's account in the Thrift Plan equal to 50% of the participant's
contribution up to 6%. Participants are 100% vested in the amounts credited to
their Thrift Plan accounts.
Employees are eligible to participate in the Thrift Plan after the
completion of a 12 consecutive month period of employment with the Bank in which
they complete at least 1,000 hours of employment.
Participants may direct their Thrift Plan accounts in five different
investment fund alternatives. In connection with the Conversion, a sixth
investment fund, which will consist of the Common Stock, will be added to permit
participants to invest some or all of their account in Common Stock.
The Thrift Plan is a tax qualified plan. Participants in the Thrift
Plan do not recognize taxable income on Bank contributions or investment income
credited to their accounts under the Thrift Plan until such amounts are
distributed to them.
RETIREMENT PLAN. The Bank maintains the Financial Institutions
Retirement Fund (the "Retirement Plan") to provide retirement benefits for
eligible employees. Employees are eligible to participate in the Retirement Plan
after the completion of 12 consecutive months of employment with the Bank and
the attainment of age 21. Hourly paid employees are excluded from participation
in the Retirement Plan. Benefits payable to a participant under the Retirement
Plan are based on the participant's years of service and salary. The formula for
normal retirement benefits payable annually under the Retirement Plan is 2%
multiplied by years of benefit service multiplied by the average of the
participant's highest three years of salary paid by the Bank. A participant may
elect early retirement as early as age 45. However, such participant's normal
retirement benefits will be reduced by an early retirement factor based on age
at early retirement. The Bank may, in the future, amend the Retirement Plan to
reduce or eliminate the early retirement benefit reduction in the event of a
change in control of the Company or the Bank.
Participants generally have no vested interest in Retirement Plan
benefits prior to the completion of five years of service with the Bank.
Following the completion of five years of vesting service, or in the event of a
participant's attainment of age 65, death or termination of employment due to
disability, a participant will become 100% vested in the accrued benefit under
the Retirement Plan. The table below reflects the pension benefit payable to a
participant assuming various levels of earnings and years of service. The
amounts of benefits paid under the Retirement Plan are not reduced for any
social security
111
<PAGE>
benefit payable to participants. As of January 1, 1996, Messrs. Stoico,
McGillicuddy, Sullivan and Tyrrell had credited years of service of 24 years,
six months, 9 years and 16 years, respectively.
<TABLE>
<CAPTION>
Years of Benefit Service
--------------------------------------------------------------------------------------------
Final Average
Earnings 15 20 25 30 35
- ----------------- --------------- -------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
$50,000 $15,000 $20,000 $25,000 $30,000 $35,000
$75,000 $22,500 $30,000 $37,500 $45,000 $52,500
$100,000 $30,000 $40,000 $50,000 $60,000 $70,000
$125,000 $37,500 $50,000 $62,500 $75,000 $87,500
$150,000 $45,000 $60,000 $75,000 $90,000 $105,000
$200,000(1) $60,000 $80,000 $100,000 $120,000 $140,000
$250,000(1) $75,000 $100,000 $125,000 $150,000 $175,000
$300,000(1) $90,000 $120,000 $150,000 $180,000 $210,000
$350,000(1) $105,000 $140,000 $175,000 $210,000 $245,000
$400,000(1) $120,000 $160,000 $200,000 $240,000 $280,000
</TABLE>
- -------------------------
(1) The maximum amount of annual compensation which can be considered in
computing benefits under Section 401(a)(17) of the Internal Revenue
Code is $150,000.
SUPPLEMENTAL RETIREMENT PLAN. The Bank currently maintains a
Supplemental Retirement Plan under which a specified amount of money is annually
credited to the account of plan participants to be paid following the
participants' termination of employment. In addition, participants may direct
that a percentage of their annual pay be deferred into a subaccount under the
Supplemental Retirement Plan. The benefits provided under the Supplemental
Retirement Plan are intended to make the Participants whole for reductions in
benefits payable under the terms of the tax qualified thrift plan and pension
plan maintained by the Bank due to limitations imposed by the Internal Revenue
Code, and to provide additional retirement benefits for the participants (see
---
discussion under Supplemental Executive Retirement Plan, below). The amounts
- --------------------------------------------------------------
credited to the Participants' accounts are credited with interest annually at a
rate. Participants vest in the amounts credited to the Supplemental Retirement
Plan after completing five years of employment with the Bank. Participants will
also vest immediately should the Participant incur a disability or die. In
connection with the Conversion, the Supplemental Retirement Plan will be amended
to permit Participants to direct that all or a portion of the amounts currently
(and/or future amounts) credited to their accounts be converted into stock units
that are based on the value of the Common Stock. The Bank currently maintains an
irrevocable grantor's trust (also known as a "rabbi trust") to hold assets of
the Bank for the exclusive purpose of paying benefits under the Supplemental
Retirement Plan, provided that in the event of the insolvency of the Bank, the
assets of the trust are subject to the claims of the Bank's creditors. The
assets of this trust may be used to acquire shares of Common Stock to be used to
satisfy the obligations of the Bank for the payment of benefits under the
Supplemental Retirement Plan.
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SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. The Internal Revenue Code
limits the amount of compensation that may be considered when determining
benefits that are payable under tax-qualified plans, such as the ESOP, (the
"Code Limit"), and further limits the amount that can be contributed on behalf
of any employee in any year with respect to tax-qualified deferred contribution
plans, such as the ESOP and Thrift Plan. To provide benefits to make up for the
reduction in benefits flowing from these limits. the Bank intends to implement a
Supplemental Executive Retirement Plan ("SERP"). The SERP is an "unfunded" plan
which is subject to the creditors of the employer. Accordingly, many employers
use an irrevocable grantor trust (also known as a "rabbi trust") to hold Bank
assets to satisfy the obligations of the plan to participants and allows the
rabbi trust to invest in employer stock. The Bank intends to amend the trust
established for the Supplemental Retirement Plan to hold assets to satisfy the
Bank's SERP obligations.
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST. The Bank has established for
eligible employees an ESOP and related trust to become effective upon
Conversion. Employees employed with the Bank as of January 1, 1996 and employees
of the Company or the Bank employed after such date, who have been credited with
at least 1,000 hours during a twelve month period and who have attained the age
of 21 will become participants. The ESOP intends to purchase 8% of the Common
Stock issued in the Conversion, including the issuance of shares to the
Foundation. As part of the Conversion and in order to fund the ESOP's purchase
of the Common Stock to be issued in the Conversion, the ESOP intends to borrow
funds either from ESOP Loan Subsidiary or a third party lender, equal to 100% of
the aggregate purchase price of the Common Stock. In either case, the loan will
be repaid principally from the Company's or the Bank's contribution's to the
ESOP over a period of nine years and the collateral for the loan will be the
Common Stock purchased by the ESOP. Subject to receipt of any necessary
regulatory approvals or opinions, the Bank may make contributions to the ESOP
for repayment of the loan since the participants are all employees of the Bank
or to reimburse the Company for contributions made by it. Contributions to the
ESOP will be discretionary, however, the Company or the Bank intend to make
annual contributions to the ESOP in an aggregate amount at least equal to the
principal and interest requirement on the debt. The interest rate for the loan
is expected to be the prime rate. There can be no assurance that the OTS will
permit the Company to make the loan to the ESOP, or guarantee and provide
additional collateral in the event the ESOP loan is obtained from a third party.
Shares purchased by the ESOP will initially be pledged as collateral
for the loan, and will be held in a suspense account until released for
allocation among participants as the loan is repaid. The pledged shares will be
released annually from the suspense account in an amount proportional to the
repayment of the ESOP loan for each plan year. The released shares will be
allocated among the accounts of participants on the basis of the participant's
compensation for the year of allocation. Participants will vest in their ESOP
account at a rate of 20% annually commencing after the completion of one year of
credited service or completely if their service was terminated due to death,
early retirement, permanent disability or a change in control. Prior to the
completion of one year of credited service, a participant who terminates
employment for reasons other than death, retirement, disability, or change in
control of the Bank or Company will not receive any benefit. Forfeitures will be
reallocated among remaining participating employees, in the same proportion as
contributions. Benefits may be payable upon death, retirement, early retirement,
disability or separation from service. The contributions to the ESOP are not
fixed, so benefits payable under the ESOP cannot be estimated.
In connection with the establishment of the ESOP, a Committee of the
Board of Directors was appointed to administer the ESOP (the "ESOP Committee").
An unrelated corporate trustee for the ESOP will be appointed prior to the
Conversion and continuing thereafter. The ESOP Committee may instruct the
trustee regarding investment of funds contributed to the ESOP. The ESOP trustee,
subject to its fiduciary duty, must vote all allocated shares held in the ESOP
in accordance with the instructions of the
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<PAGE>
participating employees. Under the ESOP, unallocated shares and allocated shares
for which no instructions are given will be voted by the trustee in a manner
calculated to most accurately reflect the instructions it has received from
participants regarding the allocated stock provided that such vote is in
accordance with the provisions of the Employee Retirement Income Security Act of
1974, as amended ("ERISA").
STOCK OPTION PLANS. Following the conversion, the Board of Directors of
the Company intends to adopt stock-based benefit plans which would provide for
the granting of stock options to eligible officers, employees and directors of
the Company and Bank. Stock options are intended to be granted under either a
separate stock option plan for officers and employees (the "Incentive Option
Plan") and a separate option plan for outside directors (the "Directors' Option
Plan") (collectively, the "Option Plans") or under a single Master Stock-Based
Benefit Plan which would incorporate the benefits and features of the Incentive
Option Plan and Directors' Option Plan. At a meeting of stockholders of the
Company following the Conversion, which under applicable OTS regulations may be
held no earlier than six months after the completion of the Conversion, the
Board of Directors intends to present the Option Plans or the Master Stock-Based
Benefit Plan to stockholders for approval and has reserved an amount equal to
10% of the shares of Common Stock issued in the Conversion, including shares
issued to the Foundation, or 757,620 shares (based upon the issuance of
7,576,200 shares), for issuance under the Option Plans or Master Stock-Based
Benefit Plan. OTS regulations provide that no individual officer or employee of
the Bank may receive more than 25% of the options granted under the Option Plans
or Master Stock-Based Benefit Plan and non-employee directors may not receive
more than 5% individually, or 30% in the aggregate of the options granted under
the Option Plans.
The stock option benefits provided under the Incentive Option Plan or
Master Stock-Based Benefit Plan will be designed to attract and retain qualified
personnel in key positions, provide officers and key employees with a propriety
interest in the Company as an incentive to contribute to the success of the
Company and reward key employees for outstanding performance. All employees of
the Company and its subsidiaries will be eligible to participate in the
Incentive Option Plan. The Incentive Option Plan or Master Stock-Based Benefit
Plan will provide for the grant of: (i) options to purchase the Company's Common
Stock intended to qualify as incentive stock options under Section 422 of the
Code ("Incentive Stock Options"); (ii) options that do not so qualify
("Non-Statutory Stock Options"); and (iii) Limited Rights. Limited Rights are
exercisable only upon a change in control of the Bank or the Company. Upon
exercise of "Limited Rights" in the event of a change in control, the employee
will be entitled to receive a lump sum cash payment equal to the difference
between the exercise price of the related option and the fair market value of
the shares of common stock subject to the option on the date of exercise of the
right in lieu of purchasing the stock underlying the option. It is anticipated
that all options granted contemporaneously with stockholder approval of the
Incentive Option Plan will be intended to be Incentive Stock Options to the
extent permitted under Section 422 of the Code. Unless sooner terminated, the
Incentive Option Plan or Master Stock-Based Benefit Plan will be in effect for a
period of ten years from the earlier of adoption by the Board of Directors or
approval by the Company's Stockholders. Subject to stockholder approval, the
Company intends to grant options with Limited Rights under the Incentive Option
Plan or Master Stock-Based Benefit Plan at an exercise price equal to the fair
market value of the underlying Common Stock on the date of grant.
Under the Incentive Option Plan or Master Stock-Based Benefit Plan, it
is expected that the Management and Personnel Committee will determine which
officers and employees will be granted options and Limited Rights, whether such
options will be incentive or non-statutory stock options, the number of shares
subject to each option, the exercise price of each non-statutory stock option,
whether such options may be exercised by delivering other shares of Common Stock
and when such options become exercisable. It is expected that the per share
exercise price of an incentive stock option will be
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<PAGE>
required to be at least equal to the fair market value of a share of Common
Stock on the date the option is granted.
If the Incentive Option Plan or Master Stock-Based Benefit Plan is
adopted in the form described above, an employee will not be deemed to have
received taxable income upon grant or exercise of any Incentive Stock Option,
provided that such shares received through the exercise of such option are not
disposed of by the employee for at least one year after the date the stock is
received in connection with the option exercise and two years after the date of
grant of the option. No compensation deduction would be able to be taken by the
Company as a result of the grant or exercise of Incentive Stock Options,
provided such shares are not disposed of before the expiration of the period
described above (a "disqualifying disposition"). In the case of a Non-Statutory
Stock Option and in the case of a disqualifying disposition of an Incentive
Stock Option, an employee will be deemed to receive ordinary income upon
exercise of the stock option in an amount equal to the amount by which the
exercise price is exceeded by the fair market value of the Common Stock
purchased by exercising the option on the date of exercise. The amount of any
ordinary income deemed to be received by an optionee upon the exercise of a
Non-Statutory Stock Option or due to a disqualifying disposition of an Incentive
Stock Option would be a deductible expense for tax purposes for the Company. In
the case of Limited Rights, upon exercise, the option holder would have to
include the amount paid to him or her upon exercise in his gross income for
federal income tax purposes in the year in which the payment is made and the
Company would be entitled to a deduction for federal income tax purposes of the
amount paid.
If the Incentive Option Plan or Master Stock-Based Benefit Plan is
adopted in the form described above, stock options would become vested and
exercisable in the manner specified by the Company, subject to applicable OTS
regulations, which require that options begin vesting no earlier than one year
from the date of shareholder approval of the Incentive Option Plan or Master
Stock-Based Benefit Plan and thereafter vest at a rate of no more than 20% per
year. Options granted in connection with the Incentive Option Plan or Master
Stock-Based Benefit Plan could be exercisable for three months following the
date on which the employee ceases to perform services for the Bank or the
Company, except that in the event of death or disability, options accelerate and
become fully vested and could be exercisable for up to one year thereafter or
such longer period as determined by the Company. However, any Incentive Stock
Options exercised more than three months following the date the employee ceases
to perform services as an employee would be treated as a Non-Statutory Stock
Option as described above. In the event of retirement, if the optionee continues
to perform services as a director or consultant on behalf of the Bank, the
Company or an affiliate, unvested options would continue to vest in accordance
with their original vesting schedule until the optionee ceases to serve as a
consultant or director. If the Incentive Stock Option Plan or Master Stock-Based
Benefit Plan is adopted in the form described above, in the event of death,
disability or normal retirement, the Company, if requested by the optionee,
could elect, in exchange for vested options, to pay the optionee, or beneficiary
in the event of death, the amount by which the fair market value of the Common
Stock exceeds the exercise price of the options on the date of the employee's
termination of employment.
Under the Directors' Option Plan or Master Stock-Based Benefit Plan
contemplated, the exercise price per share of each option granted may be equal
to the fair market value of the shares of Common Stock on the date the option is
granted. All Options granted to outside directors under the Directors' Option
Plan or Master Stock-Based Benefit Plan would be Non-Statutory Stock Options
and, pursuant to applicable OTS regulations, would vest and become exercisable
commencing one year after the date of shareholder approval of the Directors
Option Plan or Master Stock-Based Benefit Plan at the rate of 20% per year, and
would expire upon the earlier of ten years following the date of grant or one
year following the date the optionee ceases to be a director or consulting
director. In the event of the death or disability of a participant, all
previously granted options would immediately vest and become fully exercisable.
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Applicable OTS regulations currently do not permit accelerated vesting
in the event of a change in control of stock options granted under a plan
adopted within one year after conversion. If permitted by OTS regulations in
effect at the time a change in control occurs, the Incentive Option Plan and the
Directors Option Plan or Master Stock-Based Benefit Plan described above provide
for accelerated vesting of previously granted options in the event of a change
in control of the Company or the Bank. A change in control would be defined in
the contemplated Incentive Option Plan, Master Stock-Based Benefit Plan or the
Directors Option Plan generally to occur when a person or group of persons
acting in concert acquires beneficial ownership of 20% or more of any class of
equity security of the Company or the Bank or in the event of a tender or
exchange offer, merger or other form of business combination, sale of all or
substantially all of the assets of the Company or the Bank or contested election
of directors which resulted in the replacement of a majority of the Board of
Directors by persons not nominated by the directors in office prior to the
contested election.
STOCK PROGRAMS. Following the Conversion, the Bank intends to establish
performance based Stock Programs as a method of providing officers, employees
and non-employee directors of the Bank and Company with a proprietary interest
in the Company in a manner designed to encourage such persons to remain with the
Bank. The benefits intended to be granted under the Stock Programs may be
provided for under either a separate plan for officers and employees and a
separate plan for outside directors or under the Master Stock-Based Benefit Plan
which would incorporate the benefits and features of such separate Stock Program
plans. The Company intends to present the Stock Programs or Master Stock-Based
Benefit Plan for stockholder approval at a meeting of stockholders, which
pursuant to applicable OTS regulations, may be held no earlier than six months
after the completion of the Conversion.
Subject to stockholder approval, the Bank expects to contribute funds
to the Stock Programs or Master Stock-Based Benefit Plan to enable the plans to
acquire, in the aggregate, an amount equal to 4% of the shares of Common Stock
issued in the Conversion, including shares issued to the Foundation, or 303,048
shares (based upon the issuance of 7,576,200 shares). These shares would be
acquired through open market purchases, if permitted, or from authorized but
unissued shares. Although no specific award determinations have been made, the
Company anticipates that, if stockholder approval is obtained, it would provide
awards to its directors and employees to the extent permitted by applicable
regulations. OTS regulations provide that no individual employee may receive
more than 25% of the shares of any plan and non-employee directors may not
receive more than 5% of any plan individually or 30% in the aggregate for all
directors.
The Management and Personnel Committee of the Bank's Board of Directors
would administer the Stock Programs or Master Stock-Based Benefit Plan described
above. The Stock Programs or Master Stock-Based Benefit Plan are expected to be
self-administered for grants or allocations made to non-employee directors,
which would not be performance-based. Under the Stock Programs or Master
Stock-Based Benefit Plan, awards would be granted in the form of shares of
Common Stock held by the plans. Awards will be non-transferable and
non-assignable. The Board intends to appoint an independent fiduciary to serve
as trustee of the trust to be established pursuant to the Stock Programs or
Master Stock-Based Benefit Plan. Allocations and grants to officers and
employees under the Stock Programs or Master Stock-Based Benefit Plan may be
made in the form of base grants and allocations based on performance goals
established by the Management and Personnel Committee. In establishing such
goals, the Committee may utilize the annual financial results of the Bank,
actual performance of the Bank as compared to targeted goals such as the ratio
of the Bank's net worth to total assets, the Bank's return on average assets, or
such other performance standards as determined by the Committee with the
approval of the Board of Directors. Performance allocations would be granted
upon the achievement of performance goals and base grants and performance
allocations would vest in annual installments established by the Committee.
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<PAGE>
Pursuant to applicable OTS regulations, base grants and allocations will
commence vesting one year after the date of shareholder approval of the plan and
thereafter at the rate of 20% per year.
In the event of death, grants would be 100% vested. In the event of
disability, grants would be 100% vested upon termination of employment of an
officer or employee, or upon termination of service as a director. In the event
of retirement, if the participant continues to perform services as a Director or
consultant on behalf of the Bank, the Company or an affiliate or, in the case of
a retiring Director, as a consulting director, unvested grants would continue to
vest in accordance with their original vesting schedule until the recipient
ceases to perform such services at which time any unvested grants would lapse.
Applicable OTS regulations currently do not permit accelerated vesting
in the event of a change in control of shares granted under the Stock Programs
or Master Stock-Based Benefit Plan described above. If permitted by OTS
regulations at the time a change in control occurs, the Stock Programs or Master
Stock-Based Benefit Plan would provide for accelerated vesting in the event of a
change in control of shares granted under the Stock Programs or Master
Stock-Based Benefit Plan. A change in control is expected to be defined in the
Stock Programs or Master Stock-Based Benefit Plan generally to occur when a
person or group of persons acting in concert acquires beneficial ownership of
20% or more of a class of equity securities of the Company or the Bank or in the
event of a tender or exchange offer, merger or other form of business
combination, sale of all or substantially all of the assets of the Company or
the Bank or contested election of directors which results in the replacement of
a majority of the Board of Directors by persons not nominated by the directors
in office prior to the contested election.
When shares become vested in accordance with the Stock Programs or
Master Stock-Based Benefit Plan described above, the participants would
recognize income equal to the fair market value of the Common Stock at that
time. The amount of income recognized by the participants would be a deductible
expense for tax purposes for the Bank. When shares become vested and are
actually distributed in accordance with the Stock Programs or Master Stock-Based
Benefit Plan, the participants would receive amounts equal to any accrued
dividends with respect thereto. Prior to vesting, recipients of grants could
direct the voting of the shares awarded to them. Shares not subject to grants
and shares allocated subject to the achievement of performance and high
performance goals will be voted by the trustee of the Stock Programs or Master
Stock-Based Benefit Plan in proportion to the directions provided with respect
to shares subject to grants. Vested shares are distributed to recipients as soon
as practicable following the day on which they are vested.
In the event that additional authorized but unissued shares are
acquired by the Stock Programs or Master Stock-Based Benefit Plan after the
Conversion, the interests of existing shareholders would be diluted. See "Pro
Forma Data."
TRANSACTIONS WITH CERTAIN RELATED PERSONS
The FIRREA requires that all loans or extensions of credit to executive
officers and directors must be made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with the general public and must not involve more than the normal
risk of repayment or present other unfavorable features. In addition, loans made
to a director or executive officer in excess of the greater of $25,000 or 5% of
the Bank's capital and surplus (up to a maximum of $500,000) must be approved in
advance by a majority of the disinterested members of the Board of Directors.
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The Bank currently makes loans to its executive officers, directors and
employees on the same terms and conditions offered to the general public. The
Bank's policy provides that all loans made by the Bank to its executive officers
and directors be made in the ordinary course of business, on substantially the
same terms, including collateral, as those prevailing at the time for comparable
transactions with other persons and may not involve more than the normal risk of
collectibility or present other unfavorable features. As of June 30, 1996, 9 of
the Bank's executive officers or directors had loans with outstanding balances
totalling $617,000 in the aggregate. All such loans were made by the Bank in the
ordinary course of business, with no favorable terms and such loans do not
involve more than the normal risk of collectibility or present unfavorable
features.
The Company intends that all transactions in the future between the
Company and its executive officers, directors, holders of 10% or more of the
shares of any class of its Common Stock and affiliates thereof, will contain
terms no less favorable to the Company than could have been obtained by it in
arm's-length negotiations with unaffiliated persons and will be approved by a
majority of independent outside directors of the Company not having any interest
in the transaction.
SUBSCRIPTIONS BY EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the number of shares of Common Stock the
Bank's executive officers and directors propose to purchase, assuming shares of
Common Stock are issued at the minimum and maximum of the Estimated Price Range,
including the effect of shares issued to the Foundation, and that sufficient
shares will be available to satisfy their subscriptions. The table also sets
forth the total expected beneficial ownership of Common Stock as to all
directors and executive officers as a group.
<TABLE>
<CAPTION>
At the Minimum At the Maximum
of the Estimated Price of the Estimated Price
Range(1) Range(1)
-------------------------------- ---------------------------------
As a Percent As a Percent
Number of Shares Number of Shares
Name Amount of Shares Issued of Shares Issued
- ---------------------------- ---------- ------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Robert F. Stoico $300,000 30,000 0.54% 30,000 0.40%
Gilbert C. Oliveira 250,000 25,000 0.45 25,000 0.33
Thomas A. Rodgers, Jr. 150,000 15,000 0.27 15,000 0.20
Stanley A. Baker 250,000 25,000 0.45 25,000 0.33
Richard W. Cederberg 80,000 8,000 0.14 8,000 0.11
John S. Holden, Jr. 50,000 5,000 0.09 5,000 0.07
Gerhard S. Lowenstein 20,000 2,000 0.04 2,000 0.03
Willard E. Olmsted 8,000 800 0.01 800 0.01
Paul A. Raymond, DDS 50,000 5,000 0.09 5,000 0.07
Roger K. Richardson 50,000 5,000 0.09 5,000 0.07
Anthony L. Sylvia 75,000 7,500 0.13 7,500 0.10
Kevin J. McGillicuddy 75,000 7,500 0.13 7,500 0.10
Frederick R. Sullivan 75,000 7,500 0.13 7,500 0.10
Terrence M. Tyrrell 100,000 10,000 0.18 10,000 0.13
Cecilia R. Viveiros 5,000 500 0.01 500 0.01
-------- ------ ---- ------ ----
All Directors and
Executive Officers as a
group (15 persons)....... $1,538,000 153,800 2.75% 153,800 2.06%
========== ======= ==== ======= ====
</TABLE>
- --------------------
(1) Includes proposed subscriptions, if any, by associates. Also includes funds
from the Bank's Thrift Plan which may be used to purchase shares of Common
Stock under such plan's new employer stock fund investment option. See "-
Benefits - Profit Sharing and Thrift Plan." Does not include subscription
orders by the ESOP. Intended purchases by the ESOP are expected to be 8% of
the shares issued in the Conversion, including shares issued to the
Foundation.
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THE CONVERSION
THE BOARD OF DIRECTORS OF THE BANK AND THE OTS HAVE APPROVED THE PLAN
OF CONVERSION, SUBJECT TO APPROVAL BY THE MEMBERS OF THE BANK ENTITLED TO VOTE
ON THE MATTER AND THE SATISFACTION OF CERTAIN OTHER CONDITIONS. SUCH OTS
APPROVAL, HOWEVER, DOES NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE
PLAN BY SUCH AGENCY.
GENERAL
On August 2, 1996 the Bank's Board of Directors unanimously adopted,
and subsequently amended, subject to approval by the OTS, the Plan pursuant to
which the Bank will be converted from a federally-chartered mutual savings bank
to a federally-chartered capital stock savings bank. It is currently intended
that all of the outstanding capital stock of the Bank will be held by the
Company, which is incorporated under Delaware law. The Plan was approved by the
OTS, subject to, among other things, approval of the Plan by the Bank's members.
A special meeting of members has been called for this purpose to be held on
_______________, 1996.
The Company filed an application with the OTS to become a savings and
loan holding company and to acquire all of the Common Stock of the Bank to be
issued in the Conversion. The Company plans to purchase the shares of issued and
outstanding capital stock of the Bank in exchange for the greater of that
portion of the net proceeds from the sale of the Common Stock which would
increase the Bank's tangible capital to 10% of its adjusted assets or up to 50%
of the net proceeds and retain the remaining net proceeds. The Conversion will
be effected only upon completion of the sale of all of the shares of Common
Stock of the Company or the Bank, if the Company's form of organization is not
utilized, to be issued pursuant to the Plan.
The Plan provides that the Board of Directors of the Bank may, at any
time prior to the issuance of the Common Stock and for any reason, decide not to
use a holding company form. Such reasons may include possible delays resulting
from overlapping regulatory processing or policies which could adversely affect
the Bank's or the Company's ability to consummate the Conversion and transact
its business as contemplated herein and in accordance with the Bank's operating
policies. In the event such a decision is made, the Bank will withdraw the
Company's registration statement from the SEC and take steps necessary to
complete the Conversion without the Company, including filing any necessary
documents with the OTS. In such event, and provided there is no regulatory
action, directive or other consideration upon which basis the Bank determines
not to complete the Conversion, if permitted by the OTS, the Bank will issue and
sell the Common Stock of the Bank and subscribers will be notified of the
elimination of a holding company and resolicited (i.e., be permitted to affirm
their orders, in which case they will need to affirmatively reconfirm their
subscriptions prior to the expiration of the resolicitation offering or their
funds will be promptly refunded with interest at the Bank's passbook rate of
interest; or be permitted to modify or rescind their subscriptions), and
notified of the time period within which the subscriber must affirmatively
notify the Bank of his intention to affirm, modify or rescind his subscription.
The following description of the Plan assumes that a holding company form of
organization will be used in the Conversion. In the event that a holding company
form of organization is not used, all other pertinent terms of the Plan as
described below will apply to the conversion of the Bank from the mutual to
stock form of organization and the sale of the Bank's common stock.
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The Plan provides generally that (i) the Bank will convert from a mutual
savings bank to a capital stock savings bank and (ii) the Company will offer
shares of Common Stock for sale in the Subscription Offering to the Bank's
Eligible Account Holders, with a preference given to Local Eligible Account
Holders, the ESOP, Supplemental Eligible Account Holders, with a preference
given to Local Supplemental Eligible Account Holders, and Other Members, with a
preference given to Local Other Members. Concurrently, shares will be offered in
a Community Offering with preference given to natural persons residing in the
Bank's Local Community. It is anticipated that all shares not subscribed for in
the Subscription and Community Offerings will be offered for sale by the Company
to the general public in a Syndicated Community Offering. The Bank has the right
to accept or reject, in whole or in part, any orders to purchase shares of the
Common Stock received in the Community Offering or in the Syndicated Community
Offering. See "- Community Offering" and "- Syndicated Community Offering."
The aggregate price of the shares of Common Stock to be issued in the
Conversion within the Estimated Price Range, currently estimated to be between
$51.9 million and $70.2 million, will be determined based upon an independent
appraisal, prepared by Keller & Company, Inc. of the estimated pro forma market
value of the Common Stock of the Company. All shares of Common Stock to be
issued and sold in the Conversion will be sold at the same price. The
independent appraisal will be affirmed or, if necessary, updated at the
completion of the Subscription and Community Offerings, if all shares are
subscribed for, or at the completion of the Syndicated Community Offering. The
appraisal has been performed by Keller, a consulting firm experienced in the
valuation and appraisal of savings institutions. See "- Stock Pricing" for
additional information as to the determination of the estimated pro forma market
value of the Common Stock.
The following is a brief summary of pertinent aspects of the Conversion.
The summary is qualified in its entirety by reference to the provisions of the
Plan. A copy of the Plan is available for inspection at each branch of the Bank
and at the Northeast Region and Washington, D.C. offices of the OTS. The Plan is
also filed as an Exhibit to the Registration Statement of which this Prospectus
is a part, copies of which may be obtained from the SEC. See "Additional
Information."
ESTABLISHMENT OF CHARITABLE FOUNDATION
General. In furtherance of the Bank's long-standing commitment to its
local community, the Bank's Plan of Conversion provides for the establishment of
a charitable foundation in connection with the Bank's Conversion. The Plan
provides that the Bank and the Company will establish the Foundation, which will
be incorporated under Delaware law as a non-stock corporation, and will be
funded with Common Stock of the Company, as further described below. The Company
and the Bank believe that the funding of the Foundation with Common Stock of the
Company is a means of establishing a common bond between the Bank and its
community and thereby enables the Bank's community to share in the growth and
success of the Company over the long term. By further enhancing the Bank's
visibility and reputation in its local community, the Bank believes that the
Foundation will enhance the long-term value of the Bank's community banking
franchise.
The Foundation would be dedicated to the promotion of charitable purposes
within the Bank's local community, including, but not limited to, grants or
donations to support housing assistance, scholarships, local education, not-for-
profit medical facilities, not for profit to community groups and other types of
organizations or civic minded projects. Establishment of the Foundation is
subject to the approval of a majority of the total outstanding votes of the
Bank's members eligible to be cast at the special meeting being held to consider
the Conversion. The Foundation will be considered as a separate matter from
approval of the Plan of Conversion. If the Bank's members approve the Plan of
Conversion, but
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not the Foundation, the Bank intends to complete the Conversion without the
establishment of the Foundation. Failure to approve the establishment of the
Foundation may materially affect the pro forma market value of the Common Stock.
In such an event, the Bank may establish a new Estimated Price Range and
commence a resolicitation of subscribers. In the event of a resolicitation,
unless an affirmative response is received within a specified period of time,
all funds will be promptly returned to investors, as described elsewhere herein.
See " -- Stock Pricing."
Purpose of the Foundation. The purpose of the Foundation is to provide
funding to support charitable causes within the Bank's local community. The Bank
has long emphasized community lending and community development activities and
currently has an outstanding Community Reinvestment Act ("CRA") rating. The
Foundation is being formed as a complement to the Bank's existing community
activities, not as a replacement for such activities. Indeed, the Bank intends
to continue to emphasize community lending and community development activities
following the Conversion. However, such activities are not the Bank's sole
corporate purpose. The Foundation, conversely, will be completely dedicated to
community activities and the promotion of charitable causes, and may be able to
support such activities in ways that are not presently available to the Bank.
Since the Bank has an outstanding record of serving its community under the CRA
and already engages in community development activities, the Bank believes that
the Foundation will enable the Company and the Bank to assist their local
community in areas beyond community development and lending. In this regard, the
Board of Directors believes the establishment of a charitable foundation is
consistent with the Bank's commitment to community service. The Board also
believes that the funding of the Foundation with Common Stock of the Company is
a means of enabling the Bank's community to share in the potential growth and
success of the Company long after completion of the Conversion. The Foundation
accomplishes that goal by providing for continued ties between the Foundation
and Bank, thereby forming a partnership with the Bank's community. The
establishment of the Foundation would also enable the Company and the Bank to
develop a unified charitable donation strategy and would centralize the
responsibility for administration and allocation of corporate charitable funds.
The Bank, however, does not expect the contribution to the Foundation to take
the place of the Bank's traditional community lending and charitable activities.
The Bank expects in future periods to continue making its ordinary charitable
contributions within its communities. Such ordinary contributions typically
range between $20,000 and $30,000 per year.
Structure of the Foundation. The Foundation will be incorporated under
Delaware law as a non-stock corporation. Pursuant to the Foundation's bylaws,
the Foundation's board of directors will be comprised of nine members, at least
seven of whom must be civic and community leaders in the Bank's local community,
who are unaffiliated with either the Bank or the Company, or their officers and
directors ("Disinterested Directors"). The remaining two members of the board of
directors will be comprised of directors of the Company or the Bank. A
Nominating Committee of the Board, which is to be comprised of a minimum of any
three members of the board, will nominate individuals eligible for election to
the board of directors. The board of directors will elect the directors at the
annual meeting of the Foundation from those nominated by the Nominating
Committee. Directors will be divided into three classes with each class
appointed for three-year terms. While the Disinterested Directors have not been
selected as of this time, all directors will be appointed prior to the
contribution to the Foundation of the Common Stock of the Company pursuant to
the qualifications required by the Foundation's bylaws. The certificate of
incorporation of the Foundation provides that the corporation is organized
exclusively for charitable and educational purposes as set forth in Section
501(c)(3) of the Code. The Foundation's certificate of incorporation further
provides that no part of the net earnings of the Foundation will inure to the
benefit of, or be distributable to its directors, officers or members.
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The authority for the affairs of the Foundation will be vested in the
board of directors of the Foundation. The directors of the Foundation will be
responsible for establishing the policies of the Foundation with respect to
grants or donations by the Foundation, consistent with the stated purposes for
which the Foundation was established. Although no formal policy governing
Foundation grants exists at this time, the Foundation's board of directors will
adopt such a policy upon establishment of the Foundation. The directors will
also be responsible for directing the assets of the Foundation. Pursuant to the
Foundation's bylaws, only a Special Committee of the board of directors,
comprised solely of Disinterested Directors, will be permitted to direct the
timing of any sales of Common Stock held by the Foundation. Further, pursuant to
the terms of the contribution as mandated by the OTS, all shares of Common Stock
held by the Foundation must be voted in the same ratio as all other shares of
the Company's Common Stock on all proposals considered by stockholders of the
Company; provided, however, that the OTS will waive this voting restriction
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under certain circumstances if compliance with the restriction would: (i) cause
a violation of the law of the State of Delaware and the OTS determines that
federal law would not preempt the application of the laws of the State of
Delaware to the Foundation; (ii) would cause the Foundation to lose its
tax-exempt status or otherwise have a material and adverse tax consequence on
the Foundation; or (iii) would cause the Foundation to be subject to an excise
tax under Section 4941 of the Code. In order for the OTS to waive such voting
restriction, the Company's or the Foundation's legal counsel must render an
opinion satisfactory to OTS that compliance with the voting restriction would
have the effect described in clauses (i), (ii) or (iii) above. Under those
circumstances, the OTS will grant a waiver of the voting restriction upon
submission of such legal opinion(s) by the Company or the Foundation. In the
event that the OTS waived the voting restriction, the directors would direct the
voting of the Common Stock held by the Foundation. However, there will be no
agreements or understandings with directors of the Foundation regarding the
exercise of control, directly or indirectly, over the management or policies of
the Company or the Bank, including agreements related to voting, acquisition or
disposition of the Company's stock. As a result, the Company and the Bank cannot
exercise control over the actions and decisions of the Foundation's board of
directors. As directors of a nonprofit corporation, directors of the Foundation
will at all times be bound by their fiduciary duty to advance the Foundation's
charitable goals, to protect the assets of the Foundation and to act in a manner
consistent with the charitable purpose for which the Foundation is established.
The Foundation's place of business will be located at the Bank's administrative
offices and initially the Foundation is expected to have no employees but will
utilize the members of the Bank's staff to provide administrative support
services which are ministerial in nature. The board of directors will appoint
such officers as may be necessary to manage the operations of the Foundation. It
is anticipated that initially such officers will be selected from the board of
directors of the Foundation.
The Company proposes to capitalize the Foundation with Company Common
Stock in an amount equal to 8.0% of the total amount of Common Stock to be sold
in connection with the Conversion. At the minimum, midpoint and maximum of the
Estimated Price Range, the contribution to the Foundation would equal 414,800,
488,000 and 561,200 shares, which would have a market value of $4.1 million,
$4.9 million and $5.6 million, respectively, assuming the Purchase Price of
$10.00 per share. Such contribution, once made, will not be recoverable by the
Company or the Bank. The Company and the Bank determined to fund the Foundation
with Common Stock rather than cash because it desired to form a bond with its
community in a manner that would allow the community to share in the potential
growth and success of the Company and the Bank over the long term. The funding
of the Foundation with stock also provides the Foundation with a potentially
larger endowment than if the Company contributed cash to the Foundation since,
as a shareholder, the Foundation will share in the potential growth and success
of the Company. As such, the contribution of stock to the Foundation has the
potential to provide a self-sustaining funding mechanism which reduces the
amount of cash that the Company, if it were not making
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the stock donation, would have to contribute to the Foundation in future years
in order to maintain a level amount of charitable grants and donations.
The Foundation would receive working capital from any dividends that may be
paid on the Company's Common Stock in the future, and subject to applicable
federal and state laws, loans collateralized by the Common Stock or from the
proceeds of the sale of any of the Common Stock in the open market from time to
time as may be permitted to provide the Foundation with additional liquidity. As
a private foundation under Section 501(c)(3) of the Code, the Foundation will be
required to distribute annually in grants or donations, a minimum of 5% of the
average fair market value of its net investment assets. One of the conditions
imposed on the gift of Common Stock by the Company is that the amount of Common
Stock that may be sold by the Foundation in any one year shall not exceed 5% of
the average market value of the assets held by the Foundation, except where the
board of directors of the Foundation, by three-fourths vote, determines that the
failure to sell an amount of common stock greater than such amount would result
in a long-term reduction of the value of the Foundation's assets and as such
would jeopardize the Foundation's capacity to carry out its charitable and
educational purposes. While there may be greater risk associated with a one-
stock portfolio in comparison to a diversified portfolio, the Company believes
any such risk is mitigated by the ability of the Foundation's directors to sell
more than 5% of its stock in such circumstances. Upon completion of the
Conversion and the contribution of shares to the Foundation immediately
following the Conversion, the Company would have 5,599,800, 6,588,000 and
7,576,200 shares issued and outstanding at the minimum, midpoint and maximum of
the Estimated Price Range. Because the Company will have an increased number of
shares outstanding, the voting and ownership interests of shareholders in the
Company's common stock would be diluted by 7.4%, as compared to their interests
in the Company if the Foundation was not established. For additional discussion
of the dilutive effect, see "Pro Forma Data."
Tax Considerations. The Company and the Bank have been advised by their
independent accountants that an organization created for the above purposes
would qualify as a 501(c)(3) exempt organization under the Code, and would
likely be classified as a private foundation rather than a public charity. A
private foundation typically receives its support from one person or one
corporation whereas a public charity receives its support from the public. The
Foundation will submit a request to the IRS to be recognized as an exempt
organization after approval of the Foundation by the Bank's members at the
Special Meeting being held to consider the Conversion. As long as the Foundation
files its application for tax-exempt status within 15 months from the date of
its organization, and provided the IRS approves the application, the effective
date of the Foundation's status as a Section 501(c)(3) organization will be the
date of its organization. The Company's independent accountants, however, have
not rendered any advice on the condition to the gift which requires that all
shares held by the Foundation must be voted in the same ratio as all other
outstanding shares of Common Stock. In the event that the Company or the
Foundation receives an opinion of their tax counsel satisfactory to the OTS that
compliance with the voting restriction would cause the Foundation to lose its
tax-exempt status, otherwise have a material adverse tax consequence on the
Foundation or subject the Foundation to an excise tax under Section 4941 of the
Code, the OTS will waive such condition upon submission of such opinion(s) by
the Company or the Foundation. See "- Regulatory Conditions Imposed on the
Foundation."
A legal opinion of the OTS which addresses the establishment of charitable
foundations by savings associations opines that as a general rule funds
contributed to a charitable foundation should not exceed the deductible
limitations set forth in the Code, and if an association's contributions exceed
the deductible limit, such action must be justified by the board of directors.
In addition, under Delaware law, the Company is authorized by statute to make
charitable contributions and case law has recognized the benefits of such
contributions to a Delaware corporation. In this regard, Delaware case law
provides that
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a charitable gift must merely be within reasonable limits as to amount and
purpose to be valid. Under the Code, the Company may deduct up to 10% of its
taxable income in any one year and any contributions made by the Company in
excess of the deductible amount will be deductible over each of the five
succeeding taxable years. The Company and the Bank believe that the Conversion
presents a unique opportunity to establish and fund a charitable foundation
given the substantial amount of additional capital being raised in the
Conversion. In making such a determination, the Company and the Bank considered
the dilutive impact of the Foundation on the amount of Common Stock available to
be offered for sale in the Conversion. See "Comparison of Valuation and Pro
Forma Information with No Foundation." Based on such consideration, the Company
and Bank believe that the contribution to the Foundation in excess of the 10%
annual limitation is justified given the Bank's capital position and its
earnings, the substantial additional capital being raised in the Conversion and
the potential benefits of the Foundation to the Bank's community. In this
regard, assuming the sale of the Common Stock at the midpoint of the Estimated
Price Range, the Company would have pro forma consolidated capital of $100.3
million, or 11.73% of consolidated assets and the Bank's pro forma tangible,
core and risk-based capital ratios would be 10.00%, 10.00% and 18.90%,
respectively. See "Regulatory Capital Compliance," "Capitalization," and
"Comparison of Valuation and Pro Forma Information with No Foundation." Thus,
the amount of the contribution will not adversely impact the financial condition
of the Company and the Bank and the Company and the Bank therefore believe that
the amount of the charitable contribution is reasonable given the Company and
the Bank's pro forma capital positions. As such, the Company and the Bank
believe that the contribution does not raise safety and soundness concerns.
The Company and the Bank have received an opinion of their independent
accountants that the Company's contribution of its own stock to the Foundation
would not constitute an act of self-dealing, and that the Company would be
entitled to a deduction in the amount of the fair market value of the stock at
the time of the contribution, subject to a limitation based on 10% of the
Company's annual taxable income. The Company, however, would be able to
carryforward any unused portion of the deduction for five years following the
year in which the contribution is made. Thus, while the Company expects to
receive a charitable contribution deduction of approximately $500,000 in
calendar year 1996, the Company is permitted under the Code to carryover the
excess contribution over a five-year period for federal income tax purposes. The
Company would not be able to utilize such carryover for state income tax
purposes. Assuming the close of the Offerings at the midpoint of the Estimated
Price Range, the Company estimates that substantially all of the deduction
should be deductible over the combined six-year period. However, no assurances
can be made that the Company will have sufficient pre-tax income over the five
year period to fully utilized the carryover related to the excess contribution.
Neither the Company nor the Bank expect to make any further contributions to the
Foundation within the first five years following the initial contribution. After
that time, the Company and the Bank may consider future contributions to the
Foundation. Any such decisions would be based on an assessment of, among other
factors, the financial condition of the Company and the Bank at that time, the
interests of shareholders and depositors of the Company and the Bank, and the
financial condition and operations of the Foundation.
Although the Company and the Bank have received an opinion of their
independent accountants that the Company is entitled to a deduction for the
charitable contribution, there can be no assurances that the IRS will recognize
the Foundation as a Section 501(c)(3) exempt organization or that the deduction
will be permitted. In such event, the Company's contribution to the Foundation
would be expensed without tax benefit, resulting in a reduction in earnings in
the year in which the IRS makes such a determination. See "Risk Factors -
Establishment of Charitable Foundation." In cases of willful, flagrant or
repeated acts or failures to act which result in violations of the IRS rules
governing private foundations, a private foundation's status as a private
foundation may be involuntarily terminated by the IRS. In such event, the
managers of a private foundation could be liable for excise taxes based on such
violations and
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the private foundation could be liable for a termination tax under the Code. The
Foundation's certificate of incorporation provides that it shall have a
perpetual existence. In the event, however, the Foundation were subsequently
dissolved as a result of a loss of its tax exempt status, the Foundation would
be required under the Code and its certificate of incorporation to distribute
any assets remaining in the Foundation at that time for one or more exempt
purposes within the meaning of Section 501(c)(3) of the Code, or to distribute
such assets to the federal government, or to a state or local government, for a
public purpose.
As a private foundation, earnings and gains, if any, from the sale of
Common Stock or other assets are exempt from federal and state corporate
taxation. However, investment income, such as interest, dividends and capital
gains, will be subject to a federal excise tax of 2.0%. The Foundation will be
required to make an annual filing with the IRS within four and one-half months
after the close of the Foundation's fiscal year to maintain its tax-exempt
status. The Foundation will be required to publish a notice that the annual
information return will be available for public inspection for a period of 180
days after the date of such public notice. The information return for a private
foundation must include, among other things, an itemized list of all grants made
or approved, showing the amount of each grant, the recipient, any relationship
between a grant recipient and the Foundation's managers and a concise statement
of the purpose of each grant.
Regulatory Conditions Imposed on the Foundation. Establishment of the
Foundation is subject to the following conditions imposed by the OTS: (i) the
Foundation will be subject to examination by the OTS, at the Foundation's own
expense; (ii) the Foundation must comply with supervisory directives imposed by
the OTS; (iii) the Foundation will provide annual reports to the OTS describing
grants made and grant recipients; (iv) the Foundation will operate in accordance
with written policies adopted by the board of directors, including a conflict of
interest policy; (v) the Foundation will not engage in self-dealing and will
comply with all laws necessary to maintain its tax-exempt status; (vi)
directors, officers, employees and/or affiliates of the Company and the Bank
together must comprise less than 25% of the Foundation's board of directors; and
(vii) any shares of Common Stock held by the Foundation must be voted in the
same ratio as all other outstanding shares of Common Stock on all proposals
considered by stockholders of the Company; provided, however, that the OTS will
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waive this voting restriction under certain circumstances if compliance with the
voting restriction would: (a) cause a violation of the law of the State of
Delaware and the OTS determines the federal law does not preempt the application
of the laws of the State of Delaware to the Foundation; (b) cause the Foundation
to lose its tax-exempt status or otherwise have a material and adverse tax
consequence on the Foundation; or (c) cause the Foundation to be subject to an
excise tax under Section 4941 of the Code. In order for the OTS to waive such
voting restriction, the Company's or the Foundation's legal counsel must render
an opinion satisfactory to OTS that compliance with the voting restriction would
have the effect described in clauses (a), (b) or (c) above. Under those
circumstances, the OTS will grant a waiver of the voting restriction upon
submission of such opinion(s) by the Company or the Foundation. There can be no
assurances that either a legal or tax opinion addressing these issues will be
rendered, or if rendered, that the OTS will grant an unconditional waiver of the
voting restriction. In no event will the voting restriction survive the sale of
shares of the Common Stock held by the Foundation.
In addition, establishment of the Foundation is subject to the approval
of a majority of the total outstanding votes of the Bank's members eligible to
be cast at the special meeting being held to consider the Conversion. The
Foundation will be considered as a separate matter from approval of the Plan of
Conversion. If the Bank's members approve the Plan of Conversion, but not the
Foundation, the Bank intends to complete the Conversion without the
establishment of the Foundation. Failure to approve the Foundation may
materially increase the pro forma market value of the Common Stock being offered
for
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sale in the Offering since the Valuation Range, as set forth herein, takes into
account the dilutive impact of the issuance of shares to the Foundation. If the
pro forma market value of the Company without the Foundation is either greater
than $80.7 million or less than $51.9 million, the Bank will establish a new
Estimated Price Range and commence a resolicitation of subscribers (i.e.,
subscribers will be permitted to continue their orders, in which case they will
need to affirmatively reconfirm their subscriptions prior to the expiration of
the resolicitation offering or their subscription funds will be promptly
refunded with interest at the Bank's passbook rate of interest, or be permitted
to decrease, increase or cancel their subscriptions). Any change in the
Estimated Price Range must be approved by the OTS. See " The Conversion - Stock
Pricing." A resolicitation, if any, following the conclusion of the Subscription
and Community Offerings would not exceed 45 days unless further extended by the
OTS for periods of up to 90 days not to extend beyond _______________, 1998.
PURPOSES OF CONVERSION
The Bank, as a federally-chartered mutual savings bank, does not have
shareholders and has no authority to issue capital stock. By converting to the
capital stock form of organization, the Bank will be structured in the form used
by commercial banks, other business entities and a growing number of savings
institutions. The Conversion will enhance the Bank's ability to access capital
markets, expand its current operations, acquire other financial institutions or
branch offices, provide affordable home financing opportunities to the
communities it serves or diversify into other financial services to the extent
allowable by applicable law and regulation. The Conversion would also position
the Bank for a conversion to a commercial bank charter if the Board of the Bank
chooses to do so in the future. In determining whether to convert to a
commercial bank charter, the Bank may consider, among other things, the
differences in the regulatory and supervisory structure applicable to the Bank
as a commercial lending institution as opposed to a thrift lending institution.
In particular, a conversion to a commercial bank charter would provide the Bank
with added lending flexibility in that the Bank would not be restricted in the
types of commercial loans in which it may not currently be able to invest due to
regulations applicable to federal savings institutions. However, the Bank does
not expect to convert to a commercial bank charter at this time.
The holding company form of organization, if used, would provide
additional flexibility to diversify the Bank's business activities through
existing or newly formed subsidiaries, or through acquisitions of or mergers
with both mutual and stock institutions, as well as other companies. Although
there are no current arrangements, understandings or agreements regarding any
such opportunities, the Company will be in a position after the Conversion,
subject to regulatory limitations and the Company's financial position, to take
advantage of any such opportunities that may arise.
The potential impact of the Conversion upon the Bank's capital base is
significant. Due to the Bank's capital position, it has sought to limit its
asset growth to a level sustainable by its capital position. Accordingly, the
Bank has not pursued lending or investment activities and has controlled its
asset growth, in part, as a result of its being unable to engage in such
activities or growth and retain its status as a "well capitalized" institution
pursuant to OTS regulatory capital requirements. The Conversion will
significantly increase the Bank's capital position to a level whereby the Bank
will be better positioned to take advantage of business opportunities and engage
in activities which, prior to Conversion, would have been more difficult for the
Bank to engage in and still continue to meet its status as a "well capitalized"
institution. At June 30, 1996, the Bank had retained earnings, determined in
accordance with GAAP, of $47.5 million, or 5.9% of total assets, which
corresponds to the Bank's regulatory tangible capital requirement which it must
satisfy in order to be classified as a "well-capitalized" institution. An
institution with a ratio of tangible capital to total assets of greater than or
equal to 5.0% is considered to be "well-
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capitalized" pursuant to OTS regulations. Assuming that the Company uses 50% of
the net proceeds at the maximum of the Estimated Price Range or that portion of
net proceeds to purchase the stock of the Bank which would be sufficient to
increase the Bank's tangible capital to 10% of its adjusted assets, the Bank's
GAAP capital will increase to $84.3 million or a ratio of GAAP capital to
adjusted assets, on a pro forma basis, of 10.04% after the Conversion. In the
event that the holding company form of organization is not utilized and all of
the net Conversion proceeds, at the midpoint of the Estimated Price Range, are
retained by the Bank, the Bank's ratios of tangible and core capital to adjusted
assets, on a pro forma basis, will both increase to 12.32% after Conversion. The
investment of the net proceeds from the sale of the Common Stock is expected to
provide the Bank with additional income to increase further its capital
position. The additional capital may also assist the Bank in offering new
programs and expanded services to its customers. See "Use of Proceeds."
After completion of the Conversion, the unissued common and preferred
stock authorized by the Company's Certificate of Incorporation will permit the
Company, subject to market conditions and regulatory approval of an offering, to
raise additional equity capital through further sales of securities, and to
issue securities in connection with possible acquisitions. At the present time,
the Company has no plans with respect to additional offerings of securities,
other than the issuance of additional shares upon exercise of stock options
under the Stock Option Plans or Master Stock-Based Benefit Plan or the possible
issuance of authorized but unissued shares to the Stock Programs under the Stock
Option Plans or Master Stock-Based Benefit Plan. Following the Conversion, the
Company will also be able to use stock-related incentive programs to attract and
retain executive and other personnel for itself and its subsidiaries. See
"Management of the Bank - Executive Compensation."
EFFECTS OF CONVERSION
General. Each depositor in a mutual savings institution has both a
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deposit account in the institution and a pro rata ownership interest in the net
worth of the institution based upon the balance in his or her account, which
interest may only be realized in the event of a liquidation of the institution.
However, this ownership interest is tied to the depositor's account and has no
tangible market value separate from such deposit account. Any depositor who
opens a deposit account obtains a pro rata ownership interest in the net worth
of the institution without any additional payment beyond the amount of the
deposit. A depositor who reduces or closes his account receives a portion or all
of the balance in the account but nothing for his ownership interest in the net
worth of the institution, which is lost to the extent that the balance in the
account is reduced.
Consequently, mutual savings institution depositors normally have no
way to realize the value of their ownership interest, which has realizable value
only in the unlikely event that the mutual savings institution is liquidated. In
such event, the depositors of record at that time, as owners, would share pro
rata in any residual surplus and reserves after other claims, including claims
of depositors to the amounts of their deposits, are paid.
When a mutual savings institution converts to stock form, permanent
nonwithdrawable capital stock is created to represent the ownership of the
institution's net worth. THE COMMON STOCK IS SEPARATE AND APART FROM DEPOSIT
ACCOUNTS AND CANNOT BE AND IS NOT INSURED BY THE FDIC OR ANY OTHER GOVERNMENTAL
AGENCY. Certificates are issued to evidence ownership of the capital stock. The
stock certificates are transferable and, therefore, the stock may be sold or
traded if a purchaser is available with no effect on any account the seller may
hold in the institution.
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Continuity. While the Conversion is being accomplished, the normal
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business of the Bank of accepting deposits and making loans will continue
without interruption. The Bank will continue to be subject to regulation by the
OTS and the FDIC. After the Conversion, the Bank will continue to provide
services for depositors and borrowers under current policies by its present
management and staff.
The Directors serving the Bank at the time of Conversion will serve
initially as Directors of the Bank after the Conversion. The Directors of the
Company will consist initially of individuals currently serving on the Board of
Directors of the Bank. All officers of the Bank at the time of Conversion will
retain their positions immediately after Conversion.
Effect on Deposit Accounts. Under the Plan, each depositor in the Bank
--------------------------
at the time of Conversion will automatically continue as a depositor after the
Conversion, and each such deposit account will remain the same with respect to
deposit balance, interest rate and other terms. Each such account will be
insured by the FDIC to the same extent as before the Conversion (i.e., up to
$100,000 per depositor). Depositors will continue to hold their existing
certificates, passbooks and other evidences of their accounts.
Effect on Loans. No loan outstanding from the Bank will be affected by
---------------
the Conversion, and the amount, interest rate, maturity and security for each
loan will remain as they were contractually fixed prior to the Conversion.
Effect on Voting Rights of Members. At present, all depositors and
----------------------------------
certain borrowers of the Bank are members of, and have voting rights in, the
Bank as to all matters requiring membership action. Upon Conversion, depositors
and borrowers will cease to be members and will no longer be entitled to vote at
meetings of the Bank. Upon Conversion, all voting rights in the Bank will be
vested in the Company as the sole stockholder of the Bank. Exclusive voting
rights with respect to the Company will be vested in the holders of Common
Stock. Depositors and borrowers of the Bank will not have voting rights after
the Conversion except to the extent that they become stockholders of the Company
through the purchase of Common Stock.
Tax Effects. The Bank has received an opinion of counsel with regard to
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federal income taxation and an opinion from KPMG Peat Marwick LLP with regard to
Massachusetts taxation which provide that the adoption and implementation of the
Plan of Conversion set forth herein will not be taxable for federal or
Massachusetts tax purposes to the Bank, its Eligible Account Holders, or its
Supplemental Eligible Account Holders or the Company, except as discussed below.
See "- Tax Aspects."
Effect on Liquidation Rights. If a mutual savings institution were to
----------------------------
liquidate, all claims of creditors (including those of depositors, to the extent
of deposit balances) would be paid first. Thereafter, if there were any assets
remaining, depositors would be entitled to such remaining assets, pro rata,
based upon the deposit balances in their deposit accounts immediately prior to
liquidation. In the unlikely event that the Bank were to liquidate after
Conversion, all claims of creditors (including those of depositors, to the
extent of their deposit balances) would also be paid first, followed by
distribution of the "liquidation account" to certain depositors (see "-
Liquidation Rights"), with any assets remaining thereafter distributed to the
Company as the holder of the Bank's capital stock. Pursuant to the rules and
regulations of the OTS, a post-Conversion merger, consolidation, sale of bulk
assets or similar combination or transaction with another insured savings
institution would not be considered a liquidation and, in such a transaction,
the liquidation account would be assumed by the surviving institution.
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Stock Pricing
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The Plan of Conversion requires that the Aggregate Purchase Price of
the Common Stock must be based on the appraised pro forma market value of the
Common Stock, as determined on the basis of an independent valuation. The Bank
and the Company have retained Keller to make such valuation. For its services in
making such appraisal, Keller will receive a fee of $23,000, plus reasonable
expenses not to exceed $1,000. The Bank and the Company have agreed to indemnify
Keller and its employees and affiliates against certain losses (including any
losses in connection with claims under the federal securities laws) arising out
of its services as appraiser, except where Keller's liability results from its
negligence, willful misconduct or bad faith.
An appraisal has been made by Keller in reliance upon the information
contained in this Prospectus, including the Consolidated Financial Statements.
Keller also considered the following factors, among others: the present and
projected operating results and financial condition of the Company and the Bank
and the economic and demographic conditions in the Bank's existing marketing
area; certain historical, financial and other information relating to the Bank;
a comparative evaluation of the operating and financial statistics of the Bank
with those of other similarly situated publicly-traded savings banks and savings
institutions located in the Bank's primary market area and northeastern United
States; the aggregate size of the offering of the Common Stock; the impact of
Conversion on the Bank's net worth and earnings potential; the proposed dividend
policy of the Company and the Bank; and the trading market for securities of
comparable institutions and general conditions in the market for such
securities.
On the basis of the foregoing, Keller has advised the Company and the
Bank that, in its opinion, dated September 6, 1996, the estimated pro forma
market value of the Common Stock ranged from a minimum of $51.9 million to a
maximum of $70.2 million with a midpoint of $61.0 million. Based upon the
Valuation Range and the Purchase Price of $10.00 per share for the Common Stock
established by the Board of Directors, the Board of Directors has established
the Estimated Price Range of $51.9 million to $70.2 million, with a midpoint of
$61.0 million, and the Company expects to issue between 5,185,000 and 7,015,000
shares of Common Stock. The Board of Directors of the Company and the Bank have
reviewed the appraisal of Keller and in determining the reasonableness and
adequacy of such appraisal consistent with OTS regulations and policies, have
reviewed the methodology and reasonableness of the assumptions utilized by
Keller in the preparation of such appraisal. The Estimated Price Range may be
amended with the approval of the OTS (if required), if necessitated by
subsequent developments in the financial condition of the Company or the Bank or
market conditions generally.
Such valuation, however, is not intended, and must not be construed, as
a recommendation of any kind as to the advisability of purchasing such shares.
Keller did not independently verify the Consolidated Financial Statements and
other information provided by the Bank, nor did Keller value independently the
assets or liabilities of the Bank. The valuation considers the Bank as a going
concern and should not be considered as an indication of the liquidation value
of the Bank. Moreover, because such valuation is necessarily based upon
estimates and projections of a number of matters, all of which are subject to
change from time to time, no assurance can be given that persons purchasing such
shares in the Conversion will thereafter be able to sell such shares at prices
at or above the Purchase Price or in the range of the foregoing valuation of the
pro forma market value thereof. See "Risk Factors - Absence of Market for Common
Stock."
Following commencement of the Subscription and Community Offerings, the
maximum of the Estimated Price Range may be increased up to 15% and the number
of shares of Common Stock to be issued in the Conversion may be increased to
8,067,250 shares due to regulatory considerations, changes
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in the market and general financial and economic conditions, without the
resolicitation of subscribers. See "- Limitations on Common Stock Purchases" as
to the method of distribution and allocation of additional shares that may be
issued in the event of an increase in the Estimated Price Range to fill unfilled
orders in the Subscription and Community Offerings.
No sale of shares of Common Stock may be consummated unless, prior to
such consummation, Keller confirms to the Bank and the OTS that, to the best of
its knowledge, nothing of a material nature has occurred which, taking into
account all relevant factors, would cause Keller to conclude that the value of
the Common Stock at the price so determined is incompatible with its estimate of
the pro forma market value of the Common Stock at the conclusion of the
Subscription and Community Offerings.
If the pro forma market value of the Common Stock is either more than
15% above the maximum of the Estimated Price Range or less than the minimum of
the Estimated Price Range, the Bank and the Company, after consulting with the
OTS, may terminate the Plan and return all funds promptly with interest at the
Bank's passbook rate of interest on payments made by check, bank draft or money
order, extend or hold a new Subscription and Community Offering, establish a new
Estimated Price Range, commence a resolicitation of subscribers or take such
other actions as permitted by the OTS in order to complete the Conversion. In
the event that a resolicitation is commenced, unless an affirmative response is
received within a reasonable period of time, all funds will be promptly returned
to investors as described above. A resolicitation, if any, following the
conclusion of the Subscription and Community Offerings would not exceed 45 days
unless further extended by the OTS for periods of up to 90 days not to extend
beyond _______________, 1998.
If all shares of Common Stock are not sold through the Subscription and
Community Offerings, then the Bank and the Company expect to offer the remaining
shares in a Syndicated Community Offering which would occur as soon as
practicable following the close of the Subscription and Community Offerings but
may commence during the Subscription and Community Offerings subject to prior
rights of subscribers. All shares of Common Stock will be sold at the same price
per share in the Syndicated Community Offering as in the Subscription and
Community Offerings. See "- Syndicated Community Offering."
No sale of shares of Common Stock may be consummated unless, prior to
such consummation, Keller confirms to the Bank, the Company and the OTS that, to
the best of its knowledge, nothing of a material nature has occurred which,
taking into account all relevant factors, including those which would be
involved in a cancellation of the Syndicated Community Offering, would cause
Keller to conclude that the aggregate value of the Common Stock at the Purchase
Price is incompatible with its estimate of the pro forma market value of the
Common Stock of the Company at the time of the Syndicated Community Offering.
Any change which would result in an aggregate purchase price which is below or
more than 15% above the Estimated Price Range would be subject to OTS approval.
If such confirmation is not received, the Bank may extend the Conversion,
extend, reopen or commence new Subscription and Community Offerings or
Syndicated Community Offering, establish a new Estimated Price Range and
commence a resolicitation of all subscribers with the approval of the OTS or
take such other actions as permitted by the OTS in order to complete the
Conversion, or terminate the Plan and cancel the Subscription and Community
Offerings and/or the Syndicated Community Offering. In the event market or
financial conditions change so as to cause the aggregate purchase price of the
shares to be below the minimum of the Estimated Price Range or more than 15%
above the maximum of such range, and the Company and the Bank determine to
continue the Conversion, subscribers will be resolicited (i.e., be permitted to
continue their orders, in which case they will need to affirmatively reconfirm
their subscriptions prior to the expiration of the resolicitation offering or
their subscription funds will be
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promptly refunded with interest at the Bank's passbook rate of interest, or be
permitted to decrease or cancel their subscriptions). Any change in the
Estimated Price Range must be approved by the OTS. A resolicitation, if any,
following the conclusion of the Subscription and Community Offerings would not
exceed 45 days, or if following the Syndicated Community Offering, 90 days,
unless further extended by the OTS for periods up to 90 days not to extend
beyond _______________, 1998. If such resolicitation is not effected, the Bank
will return all funds promptly with interest at the Bank's passbook rate of
interest on payments made by check, bank draft or money order.
Copies of the appraisal report of Keller, including any amendments
thereto, and the detailed memorandum of the appraiser setting forth the method
and assumptions for such appraisal are available for inspection at the main
office of the Bank and the other locations specified under "Additional
Information."
NUMBER OF SHARES TO BE ISSUED
Depending upon market or financial conditions following the
commencement of the Subscription and Community Offerings, the total number of
shares to be issued in the Conversion may be increased or decreased without a
resolicitation of subscribers, provided that the product of the total number of
shares times the price per share is not below the minimum of the Estimated Price
Range or more than 15% above the maximum of the Estimated Price Range. Based on
a fixed purchase price of $10.00 per share and Keller's estimate of the pro
forma market value of the Common Stock ranging from a minimum of $51,850,000 to
a maximum, as increased by 15%, of $80,672,500, the number of shares of Common
Stock expected to be issued in the Conversion is between a minimum of 5,185,000
shares and a maximum, as adjusted by 15%, of 8,067,250 shares. The actual number
of shares issued between this range will depend on a number of factors and shall
be determined by the Bank and Company subject to OTS approval, if necessary.
In the event market or financial conditions change so as to cause the
aggregate purchase price of the shares to be below the minimum of the Estimated
Price Range or more than 15% above the maximum of the Estimated Price Range, if
the Plan is not terminated by the Company and the Bank after consultation with
the OTS, purchasers will be resolicited (i.e., permitted to continue their
orders, in which case they will need to affirmatively reconfirm their
subscriptions prior to the expiration of the resolicitation offering or their
subscription funds will be promptly refunded, or be permitted to modify or
rescind their subscriptions). Any change in the Estimated Price Range must be
approved by the OTS. If the number of shares issued in the Conversion is
increased due to an increase of up to 15% in the Estimated Price Range to
reflect changes in market or financial condition, persons who subscribed for the
maximum number of shares will not be given the opportunity to subscribe for an
adjusted maximum number of shares, except for the ESOP which will be able to
subscribe for such adjusted amount. See "- Limitations on Common Stock
Purchases."
The number of shares to be issued and outstanding following the
Conversion may be increased by a number of shares equal to 8.0% of the Common
Stock issued in the Conversion to fund the Foundation. Assuming the sale of
shares in the Offerings at the maximum of the Estimated Price Range, the Company
will issue 561,200 shares of its Common Stock from authorized but unissued
shares to the Foundation immediately following the completion of the Conversion.
In that event, the Company will have total shares of Common Stock outstanding of
7,576,200 shares. Of that amount, the Foundation will own 7.4%. Funding the
Foundation with authorized but unissued shares will have the effect of diluting
the ownership and voting interests of persons purchasing shares in the
Conversion by 7.4% since a greater
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number of shares will be outstanding upon completion of the Conversion than
would be if the Foundation were not established. See "Pro Forma Data."
An increase in the number of shares to be issued in the Conversion as a
result of an increase in the estimated pro forma market value would decrease
both a subscriber's ownership interest and the Company's pro forma net earnings
and stockholders' equity on a per share basis while increasing pro forma net
earnings and stockholders' equity on an aggregate basis. A decrease in the
number of shares to be issued in the Conversion would increase both a
subscriber's ownership interest and the Company's pro forma net earnings and
stockholders' equity on a per share basis while decreasing pro forma net
earnings and stockholder's equity on an aggregate basis. For a presentation of
the effects of such changes, see "Pro Forma Data."
SUBSCRIPTION OFFERING AND SUBSCRIPTION RIGHTS
In accordance with the Plan of Conversion, rights to subscribe for the
purchase of Common Stock have been granted under the Plan of Conversion to the
following persons in the following order of descending priority: (1) holders of
deposit accounts with a balance of $50 or more as of June 30, 1995 ("Eligible
Account Holders") with a preference given to Eligible Account Holders residing
in the Bank's Local Community ("Local Eligible Account Holders"); (2) the ESOP;
(3) holders of deposit accounts with a balance of $50 or more as of September
30, 1996 ("Supplemental Eligible Account Holders") with a preference given to
Supplemental Eligible Account Holders residing in Bank's Local Community ("Local
Supplemental Eligible Account Holders"); and (4) members of the Bank, consisting
of depositors of the Bank as of __________, 1996, the Voting Record Date, and
borrowers with loans outstanding as of ________________, which continue to be
outstanding as of the Voting Record Date other than Eligible Account Holders and
Supplemental Eligible Account Holders ("Other Members") with a preference given
to Other Members residing in Bank's Local Community ("Local Other Members"). All
subscriptions received will be subject to the availability of Common Stock after
satisfaction of all subscriptions of all persons having prior rights in the
Subscription Offering and to the maximum and minimum purchase limitations set
forth in the Plan of Conversion and as described below under "- Limitations on
Common Stock Purchases." The residence of a depositor for the purposes of
assessing whether a depositor or community member resides in the Bank's Local
Community will be based on the account records of the Bank as of the eligibility
record date and voting record date (whichever may be applicable). Only to the
extent a depositor's mailing address or primary place of employment as of the
eligibility record date or voting record date (whichever may be applicable) is
located within the Bank's Local Community, will such depositor be presumed to
reside in the Bank's Local Community. However, the Company and Bank reserve the
sole right to consider a depositor with a mailing address or primary place of
employment located in the Bank's Local Community to be a nonresident of the
Bank's Local Community to the extent other information has come to the attention
of the Company and Bank which indicates such depositor is not a bona fide
---- ----
resident of the Bank's Local Community.
Priority 1: Eligible Account Holders. Each Eligible Account Holder will
------------------------------------
receive, without payment therefor, first priority, nontransferable subscription
rights to subscribe for in the Subscription Offering up to the greater of the
amount permitted to be purchased in the Community Offering, currently $300,000
of the Common Stock offered, one-tenth of one percent (.10%) of the total
offering of shares of Common Stock or fifteen times the product (rounded down to
the next whole number) obtained by multiplying the total number of shares of
Common Stock to be issued by a fraction of which the numerator is the amount of
the Eligible Account Holder's Qualifying Deposit (defined by the Plan as any
deposit account in the Bank with a balance of $50 or more as of June 30, 1995)
and the denominator is the total amount of Qualifying Deposits of all Eligible
Account Holders, in each case on the Eligibility
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Record Date, subject to the overall purchase limitation and exclusive of an
increase in the shares issued pursuant to an increase in the Estimated Price
Range of up to 15%. See "- Limitations on Common Stock Purchases." A preference
will be provided to Local Eligible Account Holders whereby the subscription of
such Local Eligible Account Holders shall, to the extent possible, be filled in
full before filling the subscriptions of remaining Eligible Account Holders.
In the event that Local Eligible Account Holders exercise subscription
rights for a number of shares of Conversion Stock in excess of the total number
of such shares eligible for subscription, the shares of Conversion Stock shall
be allocated among the subscribing Local Eligible Account Holders so as to
permit each subscribing Local Eligible Account Holder, to the extent possible,
to purchase a number of shares sufficient to make his or her total allocation of
Conversion Stock equal to the lesser of 100 shares or the number of shares
subscribed for by the Local Eligible Account Holder. Any shares remaining after
that allocation will be allocated among the subscribing Local Eligible Account
Holders whose subscriptions remain unsatisfied in the proportion that the amount
of the Qualifying Deposit of each Local Eligible Account Holder whose
subscription remains unsatisfied bears to the total amount of the Qualifying
Deposits of all Local Eligible Account Holders whose subscriptions remain
unsatisfied. If the amount so allocated exceeds the amount subscribed for by any
one or more Local Eligible Account Holders, the excess shall be reallocated (one
or more times as necessary) among those Local Eligible Account Holders whose
subscriptions are still not fully satisfied on the same principle until all
available shares have been allocated or all subscriptions satisfied.
In the event that shares remain available for subscriptions after all
subscriptions by Local Eligible Account Holders have been filled in full and
remaining Eligible Account Holders exercise subscription rights for a number of
shares in excess of the total number of shares eligible for subscription, the
shares will be allocated so as to permit each subscribing Eligible Account
Holder to purchase a number of shares sufficient to make his total allocation
equal to the lesser of 100 shares or the number of shares subscribed for.
Thereafter, unallocated shares will be allocated among the remaining subscribing
Eligible Account Holders whose subscriptions remain unfilled in the proportion
that the amounts of their respective eligible deposits bear to the total amount
of eligible deposits of all remaining Eligible Account Holders whose
subscriptions remain unfilled, exclusive of any increase in the shares issued
pursuant to an increase in the Estimated Price Range of up to 15%.
To ensure proper allocation of stock, each Eligible Account Holder must
list on his subscription order form all accounts in which he has an ownership
interest. Failure to list an account could result in less shares being allocated
than if all accounts had been disclosed. The subscription rights of Eligible
Account Holders who are also Directors or Officers of the Bank or their
associates will be subordinated to the subscription rights of other Eligible
Account Holders to the extent attributable to increased deposits in the year
preceding December 31, 1993.
Priority 2: Employee Stock Ownership Plan. To the extent that there are
sufficient shares remaining after satisfaction of the subscriptions by Eligible
Account Holders, the ESOP will receive, without payment therefor, second
priority, nontransferable subscription rights to purchase, in the aggregate, up
to 10% of Common Stock issued in the Conversion, including any increase in the
number of shares of Common Stock to be issued in the Conversion after the date
hereof as a result of an increase of up to 15% in the maximum of the Estimated
Price Range. The ESOP intends to purchase 8% of the shares to be issued in the
Conversion, including shares issued to the Foundation, or 447,984 shares and
606,096 shares, based on the issuance of 5,599,800 shares and 7,576,200 shares,
respectively. Subscriptions by the ESOP will not be aggregated with shares of
Common Stock purchased directly by or which are otherwise attributable to any
other participants in the Subscription and Community Offerings, including
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subscriptions of any of the Bank's directors, officers, employees or associates
thereof. See "Management of the Bank - Benefits - Employee Stock Ownership Plan
and Trust."
Priority 3: Supplemental Eligible Account Holders. Each Supplemental
Eligible Account Holder will receive, without payment therefor, third priority,
nontransferable subscription rights to subscribe for in the Subscription
Offering up to the greater of the amount permitted to be purchased in the
Community Offering, currently $300,000 of the Common Stock offered, one-tenth of
one percent (.10%) of the total offering of shares of Common Stock or fifteen
times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Common Stock to be issued by a
fraction of which the numerator is the amount of the Supplemental Eligible
Account Holder's Qualifying Deposit and the denominator is the total amount of
Qualifying Deposits of all Supplemental Eligible Account Holders, in each case
on the Supplemental Eligibility Record Date, subject to the overall purchase
limitation and exclusive of an increase in the shares issued pursuant to an
increase in the Estimated Price Range of up to 15%. See "- Limitations on Common
Stock Purchases." A preference will be given to Local Supplemental Eligible
Account Holders whereby the subscriptions of Local Supplemental Eligible Account
Holders shall be filled in full first before filling subscriptions of remaining
Supplemental Eligible Account Holders.
In the event that Local Supplemental Eligible Account Holders exercise
subscription rights for a number of shares of Conversion Stock in excess of the
total number of such shares eligible for subscription, the shares of Conversion
Stock shall be allocated among the subscribing Local Supplemental Eligible
Account Holders so as to permit each subscribing Local Supplemental Eligible
Account Holder, to the extent possible, to purchase a number of shares
sufficient to make his or her total allocation of Conversion Stock equal to the
lesser of 100 shares or the number of shares subscribed for by the Local
Supplemental Eligible Account Holder. Any shares remaining after that allocation
will be allocated among the subscribing Local Supplemental Eligible Account
Holders whose subscriptions remain unsatisfied in the proportion that the amount
of the Qualifying Deposit of each Local Supplemental Eligible Account Holder
whose subscription remains unsatisfied bears to the total amount of the
Qualifying Deposits of all Local Supplemental Eligible Account Holders whose
subscriptions remain unsatisfied. If the amount so allocated exceeds the amount
subscribed for by any one or more Local Supplemental Eligible Account Holders,
the excess shall be reallocated (one or more times as necessary) among those
Local Supplemental Eligible Account Holders whose subscriptions are still not
fully satisfied on the same principle until all available shares have been
allocated or all subscriptions satisfied.
In the event that shares remain available for subscription after all
subscriptions by Local Supplemental Eligible Account Holders have been filled
and remaining Supplemental Eligible Account Holders exercise subscription rights
for a number of shares in excess of the total number of shares eligible for
subscription, the shares will be allocated so as to permit each subscribing
Supplemental Eligible Account Holder, to the extent possible, to purchase a
number of shares sufficient to make his total allocation equal to the lesser of
100 shares or the number of shares subscribed for. Thereafter, unallocated
shares will be allocated among the remaining subscribing Supplemental Eligible
Account Holders whose subscriptions remain unfilled in the proportion that the
amounts of their respective eligible deposits bear to the total amount of
eligible deposits of all remaining Supplemental Eligible Account Holders whose
subscriptions remain unfilled, exclusive of any increase in the shares issued
pursuant to an increase in the Estimated Price Range of up to 15%.
To ensure proper allocation of stock, each Supplemental Eligible
Account Holder must list on his subscription order form all accounts in which he
has an ownership interest. Failure to list an account could result in less
shares being allocated than if all accounts had been disclosed. The subscription
rights
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received by Eligible Account Holders will be applied in partial satisfaction to
the subscription rights to be received as a Supplemental Eligible Account
Holder.
Priority 4: Other Members. To the extent that there are sufficient
shares remaining after satisfaction of subscriptions by the Eligible Account
Holders, the ESOP and the Supplemental Eligible Account Holders, each Other
Member will receive, without payment therefor, fourth priority nontransferable
subscription rights to subscribe for Common Stock in the Subscription Offering
up to the greater of the amount permitted to be purchased in the Community
Offering, currently $300,000 of the Common Stock offered, or one-tenth of one
percent (.10%) of the total offering of shares of Common Stock, subject to the
overall purchase limitation and exclusive of an increase in shares issued
pursuant to an increase in the Estimated Price Range of up to 15%. A preference
will be given to Local Other Members whereby the subscriptions of Local Other
Members shall be filled in full first before filling the subscriptions of
remaining Other Members.
In the event that Local Other Members subscribe for a number of shares
of Conversion Stock which, when added to the shares of Conversion Stock
subscribed for by the Eligible Account Holders, the Employee Plans and the
Supplemental Eligible Account Holders is in excess of the total number of shares
of Conversion Stock being issued, the subscriptions of such Local Other Members
will be allocated among the subscribing Local Other Members so as to permit each
subscribing Local Other Member, to the extent possible, to purchase a number of
shares sufficient to make his or her total allocation of Conversion Stock equal
to the lesser of 100 shares or the number of shares subscribed for by the Local
Other Member. Any shares remaining after that allocation will be allocated among
the subscribing Local Other Members whose subscriptions remain unsatisfied pro
rata in the same proportion that the number of votes of a subscribing Local
Other Member on the Voting Record Date bears to the total votes on the Voting
Record Date of all subscribing Local Other Members whose subscriptions remain
unsatisfied. If the amount so allocated exceeds the amount subscribed for by any
one or more remaining Local Other Members, the excess shall be reallocated (one
or more times as necessary) among those remaining Local Other Members whose
subscriptions are still not fully satisfied on the same principle until all
available shares have been allocated or all subscriptions satisfied.
In the event that shares remain available for subscription after all
subscriptions by Local Other Members have been filled in full and remaining
Other Members exercise subscription rights for a number of shares in excess of
the total number of shares eligible for subscription, the shares will be
allocated so as to permit each subscribing Other Member, to the extent possible,
to purchase a number of shares sufficient to make his total allocation equal to
the lesser of 100 shares or the number of shares subscribed for. Thereafter,
unallocated shares will be allocated among the remaining subscribing Other
Members whose subscriptions remain unfilled on a pro rata basis in the same
proportion as a subscribing Other Member's total votes on the Voting Record Date
for the Special Meeting bears to the total votes of all subscribing Other
Members on such date.
Expiration Date for the Subscription Offering. The Subscription
Offering will expire on _______________, 1996, unless extended for up to 45 days
by the Bank or such additional periods with the approval of the OTS.
Subscription rights which have not been exercised prior to the Expiration Date
will become void.
The Bank will not execute orders until all shares of Common Stock have
been subscribed for or otherwise sold. If all shares have not been subscribed
for or sold within 45 days after the Expiration Date, unless such period is
extended with the consent of the OTS, all funds delivered to the Bank pursuant
to the Subscription Offering will be returned promptly to the subscribers with
interest and all withdrawal
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authorizations will be cancelled. If an extension beyond the 45 day period
following the Expiration Date is granted, the Bank will notify subscribers of
the extension of time and of any rights of subscribers to modify or rescind
their subscriptions and have their funds returned promptly with interest, and of
the time period within which subscribers must affirmatively notify the Bank of
their intention to confirm, modify, or rescind their subscription. If an
affirmative response to any resolicitation is not received by the Company from a
subscriber, such order will be rescinded and all subscription funds will be
promptly returned with interest. Such extensions may not go beyond
_______________, 1998.
Community Offering
- ------------------
To the extent that shares remain available for purchase after
satisfaction of all subscriptions of the Eligible Account Holders, the ESOP, the
Supplemental Eligible Account Holders and Other Members, the Bank has determined
to offer shares pursuant to the Plan to certain members of the general public
and may reserve a number of shares equal to the lesser of 25% of the Common
Stock offered or the Common Stock not subscribed for in the Subscription
Offering for institutional investors who need not be residents of any county in
which the Bank maintains an office. Any excess of shares available will be
available for purchase by the general public, with preference given to natural
persons (such natural persons referred to as "Preferred Subscribers") residing
in the counties in which the Bank maintains an office, subject to the right of
the Company to accept or reject any such orders, in whole or in part, in their
sole discretion. Such persons, together with associates of and persons acting in
concert with such persons, may purchase up to $300,000 of the Common Stock
offered subject to the maximum purchase limitation and exclusive of shares
issued pursuant to an increase in the Estimated Price Range by up to 15%. See "-
Limitations on Common Stock Purchases." This amount may be increased to up to a
maximum of 5% or decreased to less than $300,000 at the sole discretion of the
Company and the Bank. THE OPPORTUNITY TO SUBSCRIBE FOR SHARES OF COMMON STOCK IN
THE COMMUNITY OFFERING CATEGORY IS SUBJECT TO THE RIGHT OF THE BANK AND THE
COMPANY, IN ITS SOLE DISCRETION, TO ACCEPT OR REJECT ANY SUCH ORDERS IN WHOLE OR
IN PART EITHER AT THE TIME OF RECEIPT OF AN ORDER OR AS SOON AS PRACTICABLE
FOLLOWING THE EXPIRATION DATE.
Subject to the foregoing, if the amount of stock remaining is
insufficient to fill the orders of Preferred Subscribers after completion of the
Subscription and Community Offerings and the filling of institutional orders,
such stock will be allocated first to each Preferred Subscriber whose order is
accepted by the Bank, in an amount equal to the lesser of 100 shares or the
number of shares subscribed for by each such Preferred Subscriber, if possible.
Thereafter, unallocated shares will be allocated among the Preferred Subscribers
whose order remains unsatisfied on a 100 shares per order basis until all such
orders have been filled or the remaining shares have been allocated. If there
are any shares remaining, shares will be allocated to other persons of the
general public who purchase in the Community Offering applying the same
allocation described above for Preferred Subscribers.
Persons in Nonqualified States or Foreign Countries. The 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 stock
pursuant to the Plan reside. However, the Plan provides that the Bank and the
Company are not required to offer stock in the Subscription Offering to any
person who resides in a foreign country or resides in a state of the United
States with respect to which both of the following apply: (i) a small number of
persons otherwise eligible to subscribe for shares of Common Stock reside in
such state; and (ii) the Company or the Bank determines that compliance with the
securities laws of such state would be impracticable for reasons of cost or
otherwise, including but not limited to a request that the Company and the Bank
or their officers, directors or trustees register as a broker, dealer, salesman
or selling agent, under the securities laws of such state, or a request to
register or otherwise qualify the subscription rights or Common Stock for sale
or submit any filing with respect thereto in such state.
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Where the number of persons eligible to subscribe for shares in one state is
small, the Bank and the Company will base their decision as to whether or not to
offer the Common Stock in such state on a number of factors, including the size
of accounts held by account holders in the state, the cost of registering or
qualifying the shares or the need to register the Company, its officers,
directors or employees as brokers, dealers or salesmen.
MARKETING AND UNDERWRITING ARRANGEMENTS
The Bank and the Company have engaged Sandler O'Neill as a consultant
and financial advisor in connection with the offering of the Common Stock, and
Sandler O'Neill has agreed to use its best efforts to solicit subscriptions and
purchase orders for shares of Common Stock in the Offerings. Based upon
negotiations between the Bank and the Company concerning fee structure, Sandler
O'Neill will receive a fee equal to 1.56% of the aggregate Purchase Price of the
shares sold in the Subscription and Community Offerings, excluding shares
purchased by directors, officers, employees, and any immediate family member
thereof, and any employee benefit plan of the Company or Bank, including the
ESOP for which Sandler O'Neill will not receive a fee. In the event that a
selected dealers agreement is entered into in connection with a Syndicated
Community Offering, the Bank will pay a fee (to be negotiated at such time under
such agreement) to such selected dealers, any sponsoring dealers fees, and a
management fee to Sandler O'Neill of 1.5% for shares sold by a National
Association of Securities Dealers, Inc. ("NASD") member firms pursuant to a
selected dealers agreement; provided, however, that any fees payable to Sandler
O'Neill for Common Stock sold by them pursuant to such a selected dealers
agreement shall not exceed 1.56% of the Purchase Price and provided, further,
however, that the aggregate fees payable to Sandler O'Neill and the Selected
Dealers will not exceed 7.0% of the aggregate purchase price of the Common Stock
sold by Selected Dealers. Fees to Sandler O'Neill and to any other broker-dealer
may be deemed to be underwriting fees, and Sandler O'Neill and such
broker-dealers may be deemed to be underwriters. Sandler O'Neill will also be
reimbursed for its reasonable out-of-pocket expenses, including legal fees, in
an amount not to exceed $75,000. Notwithstanding the foregoing, in the event the
Offerings are not consummated or Sandler O'Neill ceases, under certain
circumstances after the subscription solicitation activities are commenced, to
provide assistance to the Company, Sandler O'Neill will be entitled to a fee for
its management advisory services in an amount to be agreed upon by the Bank and
Sandler O'Neill, and based upon the amount of services performed by Sandler
O'Neill and will also be reimbursed for its reasonable out-of-pocket expenses as
described above. The Company and the Bank have agreed to indemnify Sandler
O'Neill for reasonable costs and expenses in connection with certain claims or
liabilities, including certain liabilities under the Securities Act. Sandler
O'Neill has received advances towards its fees totalling $50,000. Total
marketing fees to Sandler O'Neill are expected to be $715,000 and $975,000 at
the minimum and the maximum of the Estimated Price Range, respectively. See "Pro
Forma Data" for the assumptions used to arrive at these estimates.
Sandler O'Neill will perform proxy solicitation services, conversion
agent services and records management services for the Bank in the Conversion
and will receive a fee for these services of $35,000, plus reimbursement of
reasonable out-of-pocket expenses which, when combined with its reimbursable
expenses as financial and marketing advisor, shall not exceed an aggregate of
$10,000.
Directors and executive officers of the Company and Bank may
participate in the solicitation of offers to purchase Common Stock. Other
employees of the Bank may participate in the Offering in ministerial capacities
or providing clerical work in effecting a sales transaction. Other questions of
prospective purchasers will be directed to executive officers or registered
representatives. Such other employees have been instructed not to solicit offers
to purchase Common Stock or provide advice regarding the purchase of Common
Stock. The Company will rely on Rule 3a4-1 under the Exchange
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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 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.
PROCEDURE FOR PURCHASING SHARES IN SUBSCRIPTION AND COMMUNITY OFFERINGS
To ensure that each purchaser receives a prospectus at least 48 hours
before the Expiration Date in accordance with Rule 15c2-8 of the Exchange Act,
no prospectus will be mailed any later than five days prior to such date or hand
delivered any later than two days prior to such date. Execution of the stock
order form and certification form will confirm receipt or delivery in accordance
with Rule 15c2-8. Stock order and certification forms will only be distributed
with a prospectus.
To purchase shares in the Subscription and Community Offerings, an
executed stock 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 stock order form), must be received by the Bank at any of its
offices by 5:00 p.m., Fall River Time, on the Expiration Date. Stock order forms
which are not received by such time or are executed defectively or are received
without full payment (or appropriate withdrawal instructions) are not required
to be accepted. In addition, the Bank and Company are not obligated to accept
orders submitted on photocopied or facsimilied stock order forms and will not
accept stock order forms unaccompanied by an executed certification form.
Notwithstanding the foregoing, the Company shall have the right, in its sole
discretion, to permit institutional investors to submit irrevocable orders
together with a legally binding commitment for payment and to thereafter pay for
the shares of Common Stock for which they subscribe in the Community Offering at
any time prior to 48 hours before the completion of the Conversion. The 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 stock order form may not be modified, amended or rescinded
without the consent of the Bank unless the Conversion has not been completed
within 45 days after the end of the Subscription and Community Offerings, unless
such period has been extended.
In order to ensure that Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members are properly identified as to their stock
purchase priorities, depositors as of the Eligibility Record Date (June 30,
1995) and/or the Supplemental Eligibility Record Date (September 30, 1996)
and/or the Voting Record Date (_______, 1996) must list all accounts on the
stock order form giving all names in each account and the account number.
Payment for subscriptions may be made (i) in cash if delivered in
person at any branch office of the Bank, (ii) by check, bank draft or money
order, or (iii) by authorization of withdrawal from deposit accounts maintained
with the Bank. No wire transfers will be accepted. Interest will be paid on
payments made by cash, check, bank draft or money order at the Bank's passbook
rate of interest from the date payment is received until the completion or
termination of the Conversion. If payment is made by authorization of withdrawal
from deposit accounts, the funds authorized to be withdrawn from a deposit
account will continue to accrue interest at the contractual rates until
completion or termination of the Conversion, but a hold will be placed on such
funds, thereby making them unavailable to the depositor until completion or
termination of the Conversion.
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If a subscriber authorizes the Bank to withdraw the amount of the
purchase price from his deposit account, the Bank will do so as of the effective
date of the Conversion. The Bank will waive any applicable penalties for early
withdrawal from certificate accounts. If the remaining balance in a certificate
account is reduced below the applicable minimum balance requirement at the time
that the funds actually are transferred under the authorization, the certificate
will be cancelled at the time of the withdrawal, without penalty, and the
remaining balance will earn interest at the Bank's passbook rate.
If the ESOP subscribes for shares during the Subscription Offering, the
ESOP will not be required to pay for the shares subscribed for at the time it
subscribes, but rather, may pay for such shares of Common Stock subscribed for
at the Purchase Price upon consummation of the Subscription and Community
Offering, if all shares are sold, or upon consummation of the Syndicated
Community Offering if shares remain to be sold in such offering; provided, that
there is in force from the time of its subscription until such time, a loan
commitment from an unrelated financial institution or the Company to lend to the
ESOP, at such time, the aggregate Purchase Price of the shares for which it
subscribed.
Owners of self-directed Individual Retirement Accounts ("IRAs") may use
the assets of such IRAs to purchase shares of Common Stock in the Subscription
and Community Offerings, provided that such IRAs are not maintained at the Bank.
Persons with self-directed IRAs maintained at the Bank must have their accounts
transferred to an unaffiliated institution or broker to purchase shares of
Common Stock in the Subscription and Community Offerings. In addition, the
provisions of ERISA and IRS regulations require that officers, directors and ten
percent shareholders who use self-directed IRA funds to purchase shares of
Common Stock in the Subscription and Community Offerings, make such purchases
for the exclusive benefit of the IRAs.
Certificates representing shares of Common Stock purchased will be
mailed to purchasers at the address specified in properly completed stock order
forms, as soon as practicable following consummation of the sale of all shares
of Common Stock. Any certificates returned as undeliverable will be disposed of
in accordance with applicable law.
RESTRICTIONS ON TRANSFER OF SUBSCRIPTION RIGHTS AND SHARES
Prior to the completion of the Conversion, the OTS conversion
regulations prohibit any person with subscription rights, including the Eligible
Account Holders, the ESOP, the Supplemental Eligible Account Holders and Other
Members of the Bank, from transferring or entering into any agreement or
understanding to transfer the legal or beneficial ownership of the subscription
rights issued under the Plan or the shares of Common Stock to be issued upon
their exercise. Such rights may be exercised only by the person to whom they are
granted and only for his account. Each person exercising such subscription
rights will be required to certify that he is purchasing shares solely for his
own account and that he has no agreement or understanding regarding the sale or
transfer of such shares. The regulations also prohibit any person from offering
or making an announcement of an offer or intent to make an offer to purchase
such subscription rights or shares of Common Stock prior to the completion of
the Conversion.
THE BANK AND THE COMPANY WILL PURSUE ANY AND ALL LEGAL AND EQUITABLE
REMEDIES (INCLUDING FORFEITURE) IN THE EVENT THEY BECOME AWARE OF THE TRANSFER
OF SUBSCRIPTION RIGHTS AND WILL NOT HONOR ORDERS KNOWN BY THEM TO INVOLVE THE
TRANSFER OF SUCH RIGHTS.
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SYNDICATED COMMUNITY OFFERING
As a final step in the Conversion, the Plan provides that, if feasible,
all shares of Common Stock not purchased in the Subscription and Community
Offerings, if any, will be offered for sale to the general public in a
Syndicated Community Offering through a syndicate of registered broker-dealers
to be formed and managed by Sandler O'Neill acting as agent of the Company to
assist the Company and the Bank in the sale of the Common Stock. The Company and
the Bank have the right to reject orders in whole or in part in their sole
discretion in the Syndicated Community Offering. Neither Sandler O'Neill nor any
registered broker-dealer shall have any obligation to take or purchase any
shares of the Common Stock in the Syndicated Community Offering, however,
Sandler O'Neill has agreed to use its best efforts in the sale of shares in the
Syndicated Community Offering.
The price at which Common Stock is sold in the Syndicated Community
Offering will be determined as described above under "- Stock Pricing." Subject
to overall purchase limitations, no person, together with any associate or group
of persons acting in concert, will be permitted to subscribe in the Syndicated
Community Offering for more than $300,0000 of the total number of shares offered
in the Conversion, exclusive of an increase in shares issued pursuant to an
increase in the Estimated Price Range of up to 15%; provided, however, that
shares of Common Stock purchased in the Community Offering by any persons,
together with associates of or persons acting in concert with such persons, will
be aggregated with purchases in the Syndicated Community Offering and be subject
to an overall maximum purchase limitation of 1.0% of the shares offered,
exclusive of an increase in shares issued pursuant to an increase in the
Estimated Price Range by up to 15%.
Payments made in the form of a check, bank draft, money order or in
cash will earn interest at the Bank's passbook rate of interest from the date
such payment is actually received by the Bank until completion or termination of
the Conversion.
In addition to the foregoing, if a syndicate of broker-dealers
("selected dealers") is formed to assist in the Syndicated Community Offering, a
purchaser may pay for his shares with funds held by or deposited with a selected
dealer. If an order form is executed and forwarded to the selected dealer or if
the selected dealer is authorized to execute the order form on behalf of a
purchaser, the selected dealer is required to forward the order form and funds
to the 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 to place orders for shares. Such selected
dealers shall subsequently contact their customers who indicated an interest and
seek their confirmation as to their intent to purchase. Those indicating an
intent to purchase shall execute order forms and forward them to their selected
dealer or authorize the selected dealer to execute such forms. The selected
dealer will acknowledge receipt of the order to its customer in writing on the
following business day and will debit such customer's account on the third
business day after the customer has confirmed his intent to purchase (the "debit
date") and on or before noon of the next business day following the debit date
will send order forms and funds to the Bank for deposit in a segregated account.
Although purchasers' funds are not required to be in their accounts with
selected dealers until the debit date in the event that such alternative
procedure is employed once a confirmation of an intent to purchase has been
received by the selected dealer, the purchaser has no right to rescind his
order.
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Certificates representing shares of Common Stock purchased, together
with any refund due, will be mailed to purchasers at the address specified in
the order form, as soon as practicable following consummation of the sale of the
Common Stock. Any certificates returned as undeliverable will be disposed of in
accordance with applicable law.
The Syndicated Community Offering will terminate no more than 45 days
following the Subscription Expiration Date, unless extended by the Company with
the approval of the OTS. Such extensions may not be beyond _______________,
1998. See "- Stock Pricing" above for a discussion of rights of subscribers, if
any, in the event an extension is granted.
LIMITATIONS ON COMMON STOCK PURCHASES
The Plan includes the following limitations on the number of shares of
Common Stock which may be purchased during the Conversion:
(1) No less than 25 shares;
(2) Each Eligible Account Holder may subscribe for and purchase in
the Subscription Offering up to the greater of the amount
permitted to be purchased in the Community Offering, currently
$300,000 of the Common Stock offered, one-tenth of one percent
(.10%) of the total offering of shares of Common Stock or
fifteen times the product (rounded down to the next whole
number) obtained by multiplying the total number of shares of
Common Stock to be issued by a fraction of which the numerator
is the amount of the Qualifying Deposit of the Eligible
Account Holder and the denominator is the total amount of
Qualifying Deposits of all Eligible Account Holders in each
case on the Eligibility Record Date subject to the overall
maximum purchase limitation in (8) below and exclusive of an
increase in the total number of shares issued due to an
increase in the Estimated Price Range of up to 15%;
(3) The ESOP is permitted to purchase in the aggregate up to 10%
of the shares of Common Stock issued in the Conversion,
including shares issued in the event of an increase in the
Estimated Price Range of 15% and intends to purchase 8% of the
shares of Common Stock issued in the Conversion, including
shares issued to the Foundation;
(4) Each Supplemental Eligible Account Holder may subscribe for
and purchase in the Subscription Offering up to the greater of
the amount permitted to be purchased in the Community
Offering, currently $300,000 of the Common Stock offered,
one-tenth of one percent (.10%) of the total offering of
shares of Common Stock or fifteen times the product (rounded
down to the next whole number) obtained by multiplying the
total number of shares of Common Stock to be issued by a
fraction of which the numerator is the amount of the
Qualifying Deposit of the Supplemental Eligible Account Holder
and the denominator is the total amount of Qualifying Deposits
of all Supplemental Eligible Account Holders in such case on
the Supplemental Eligibility Record Date subject to the
overall maximum purchase limitation in (8) below and exclusive
of an increase in the total number of shares issued due to an
increase in the Estimated Price Range of up to 15%;
(5) Each Other Member may subscribe for and purchase in the
Subscription Offering up to the greater of the amount
permitted to be purchased in the Community Offering, currently
$300,000 of the Common Stock offered, or one-tenth of one
percent (.10%) of the total
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offering of shares of Common Stock subject to the overall
maximum purchase limitation in (8) below and exclusive of an
increase in the total number of shares issued due to an
increase in the Estimated Price Range of up to 15%;
(6) Persons purchasing shares of Common Stock in the Community
Offering, together with associates of and groups of persons
acting in concert with such persons, may purchase in the
Community Offering up to $300,000 of the Common Stock offered
in the Conversion subject to the overall maximum purchase
limitation in (8) below and exclusive of an increase in the
total number of shares issued due to an increase in the
Estimated Price Range of up to 15%;
(7) Persons purchasing shares of Common Stock in the Syndicated
Community Offering, together with associates of and persons
acting in concert with such persons, may purchase in the
Syndicated Offering up to $300,000 of the shares of Common
Stock offered in the Conversion subject to the overall maximum
purchase limitation in (8) below and exclusive of an increase
in the total number of shares issued due to an increase in the
Estimated Price Range of up to 15% and, provided further that
shares of Common Stock purchased in the Community Offering by
any persons, together with associates of and persons acting in
concert with such persons, will be aggregated with purchases
in the Syndicated Community Offering in applying the $300,000
purchase limitation;
(8) Eligible Account Holders, Supplemental Eligible Account
Holders and Other Members may purchase stock in the Community
Offering and Syndicated Community Offering subject to the
purchase limitations described in (6) and (7) above, provided
that, except for the ESOP, the overall maximum number of
shares of Common Stock subscribed for or purchased in all
categories of the Conversion by any person, together with
associates of and groups of persons acting in concert with
such persons, shall not exceed 1.0% of the shares of Common
Stock offered in the Conversion and exclusive of an increase
in the total number of shares issued due to an increase in the
Estimated Price Range of up to 15%; and
(9) No more than 25% of the total number of shares offered for
sale in the Conversion may be purchased by directors and
officers of the Bank and their associates in the aggregate,
excluding purchases by the ESOP.
Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of the members of
the Bank, both the individual amount permitted to be subscribed for and the
overall maximum purchase limitation may be increased to up to a maximum of 5% at
the sole discretion of the Company and the Bank. If such amount is increased,
subscribers for the maximum amount will be, and certain other large subscribers
in the sole discretion of the Bank may be, given the opportunity to increase
their subscriptions up to the then applicable limit. In addition, the Boards of
Directors of the Company and the Bank may, in their sole discretion, increase
the maximum purchase limitation referred to above up to 9.99%, provided that
orders for shares exceeding 5% of the shares being offering in the Subscription
and Community Offerings shall not exceed, in the aggregate, 10% of the shares
being offered in the Subscription and Community Offerings. Requests to purchase
additional shares of Common Stock under this provision will be determined by the
Boards of Directors and, if approved, allocated on a pro rata basis giving
priority in accordance with the priority rights set forth herein.
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The overall maximum purchase limitation may not be reduced to less than
1% but the individual amount permitted to be subscribed for may be reduced by
the Bank to less than 1%, subject to paragraphs (3) and (4) above without the
further approval of members or resolicitation of subscribers. An individual
Eligible Account Holder, Supplemental Eligible Account Holder or Other Member
may not purchase individually in the Subscription Offering the overall maximum
purchase limit of 1.0% of the shares offered, but may make such purchase,
together with associates of and persons acting in concert with such person, by
also purchasing in other available categories of the Conversion, subject to
availability of shares and the overall maximum purchase limit for purchases in
the Conversion.
In the event of an increase in the total number of shares offered in
the Conversion due to an increase in the Estimated Price Range of up to 15% (the
"Adjusted Maximum"), the additional shares will be allocated in the following
order or priority in accordance with the Plan: (i) to fill the ESOP's
subscription of 8% of the Adjusted Maximum number of shares; (ii) in the event
that there is an oversubscription by Eligible Account Holders, to fill
unsatisfied subscriptions of Eligible Account Holders, exclusive of the Adjusted
Maximum and with a preference to Local Eligible Account Holders; (iii) in the
event that there is an oversubscription by Supplemental Eligible Account
Holders, to fill unsatisfied subscriptions of Supplemental Eligible Account
Holders, exclusive of the Adjusted Maximum and with a preference to Local
Supplemental Eligible Account Holders; (iv) in the event that there is an
oversubscription by Other Members, to fill unsatisfied subscriptions of Other
Members exclusive of the Adjusted Maximum and with a preference to Local Other
Members; and (v) to fill unsatisfied subscriptions in the Community Offering to
the extent possible, exclusive of the Adjusted Maximum and with preference to
institutional investors then a preference to Preferred Subscribers.
The term "associate" of a person is defined to mean: (i) any
corporation (other than the Bank or a majority-owned subsidiary of the Bank) of
which such person is an officer, partner or 10% stockholder; (ii) any trust or
other estate in which such person has a substantial beneficial interest or
serves as a trustee or in a similar fiduciary capacity; provided, however, such
term shall not include any employee stock benefit plan of the Bank in which such
person has a substantial beneficial interest or serves as a trustee or in a
similar fiduciary capacity; and (iii) any relative or spouse of such person, or
any relative of such spouse, who either has the same home as such person or who
is a director or officer of the Bank. Directors are not treated as associates of
each other solely because of their Board membership. For a further discussion of
limitations on purchases of a converting institution's stock at the time of
Conversion and subsequent to Conversion, see "Management of the Bank -
Subscriptions by Executive Officers and Directors," "- Certain Restrictions on
Purchase or Transfer of Shares After Conversion" and "Restrictions on
Acquisition of the Company and the Bank."
LIQUIDATION RIGHTS
In the unlikely event of a complete liquidation of the Bank in its
present mutual form, each depositor would receive his pro rata share of any
assets of the Bank remaining after payment of claims of all creditors (including
the claims of all depositors to the withdrawal value of their accounts). Each
depositor's pro rata share of such remaining assets would be in the same
proportion as the value of his deposit account was to the total value of all
deposit accounts in the Bank at the time of liquidation. After the Conversion,
each depositor, in the event of a complete liquidation, would have a claim as a
creditor of the same general priority as the claims of all other general
creditors of the Bank. However, except as described below, his claim would be
solely in the amount of the balance in his deposit account plus accrued
interest. He would not have an interest in the value or assets of the Bank above
that amount.
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The Plan provides for the establishment, upon the completion of the
Conversion, of a special "liquidation account" for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders in an amount equal to
the surplus and reserves of the Bank as of the date of its latest balance sheet
contained in the final Prospectus used in connection with the Conversion. Each
Eligible Account Holder and Supplemental Eligible Account Holder, if he were to
continue to maintain his deposit account at the Bank, would be entitled, on a
complete liquidation of the Bank after the Conversion, to an interest in the
liquidation account prior to any payment to the stockholders of the Bank. Each
Eligible Account Holder and Supplemental Eligible Account Holder would have an
initial interest in such liquidation account for each deposit account, including
regular accounts, transaction accounts such as NOW accounts, money market
deposit accounts, and certificates of deposit, with a balance of $50 or more
held in the Bank on June 30, 1995 and _____________, respectively. Each Eligible
Account Holder and Supplemental Eligible Account Holder will have a pro rata
interest in the total liquidation account based on the proportion that the
balance of his Qualifying Deposits on the Eligibility Record Date or
Supplemental Eligibility Record Date, respectively, bore to the total amount of
all Qualifying Deposits of all Eligible Account Holders and Supplemental
Eligible Account Holders 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 respective record dates.
If, however, on any annual closing date subsequent to the Eligibility
Record Date or Supplemental Eligibility Record Date, the amount of the
Qualifying Deposit of an Eligible Account Holder or Supplemental Eligible
Account Holder is less than the amount of the Qualifying Deposit of such
Eligible Account Holder or Supplemental Eligible Account Holder as of the
Eligibility Record Date or Supplemental Eligibility Record Date, respectively,
or less than the amount of the Qualifying Deposits as of the previous annual
closing date, then the interest in the liquidation account relating to such
Qualifying Deposit would be reduced from time to time by the proportion of any
such reduction, and such interest will cease to exist if such Qualifying Deposit
accounts are closed. In addition, no interest in the liquidation account would
ever be increased despite any subsequent increase in the related Qualifying
Deposit. Any assets remaining after the above liquidation rights of Eligible
Account Holders and Supplemental Eligible Account Holders are satisfied would be
distributed to the Company as the sole stockholder of the Bank.
TAX ASPECTS
Consummation of the Conversion is expressly conditioned upon the
receipt by the Bank of either a favorable ruling from the IRS or an opinion of
counsel with respect to federal income taxation, and an opinion of an
independent accountant with respect to Massachusetts, to the effect that the
Conversion will not be a taxable transaction to the Company, the Bank, Eligible
Account Holders, or Supplemental Eligible Account Holders except as noted below.
The federal and Massachusetts tax consequences will remain unchanged in the
event that a holding company form of organization is not utilized.
No private ruling will be received from the IRS with respect to the
proposed Conversion. Instead, the Bank has received an opinion of its counsel,
Muldoon, Murphy & Faucette, to the effect that for federal income tax purposes,
among other matters: (i) the Bank's change in form from mutual to stock
ownership will constitute a reorganization under section 368(a)(1)(F) of the
Code and neither the Bank nor the Company will recognize any gain or loss as a
result of the Conversion; (ii) no gain or loss will be recognized to the Bank or
the Company upon the purchase of the Bank's capital stock by the Company or to
the Company upon the purchase of its Common Stock in the Conversion; (iii) no
gain or loss will be recognized by Eligible Account Holders or Supplemental
Eligible Account Holders upon the issuance to them of Deposit Accounts in the
Bank in its stock form plus their interests in the liquidation account
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in exchange for their deposit accounts in the Bank; (iv) the tax basis of the
depositors' accounts in the Bank immediately after the Conversion will be the
same as the basis of their deposit accounts immediately prior to the Conversion;
(v) the tax basis of each Eligible Account Holder's and Supplemental Eligible
Account Holder's interest in the liquidation account will be zero; (vi) no gain
or loss will be recognized by Eligible Account Holders or Supplemental Eligible
Account Holders upon the distribution to them of nontransferable subscription
rights to purchase shares of the Common Stock, provided that the amount to be
paid for the Common Stock is equal to the fair market value of such stock; and
(vii) the tax basis to the stockholders of the Common Stock of the Company
purchased in the Conversion will be the amount paid therefore and the holding
period for the shares of Common Stock purchased by such persons will begin on
the date on which their subscription rights are exercised. KPMG Peat Marwick LLP
has opined that the Conversion will not be a taxable transaction to the Company,
the Bank, Eligible Account Holders or Supplemental Eligible Account Holders for
Massachusetts income and/or franchise tax purposes. Certain portions of both the
federal and the state and local tax opinions are based upon the assumption that
the subscription rights issued in connection with the Conversion will have no
value. The Company and Bank have received an opinion issued by Keller stating
that, pursuant to Keller's valuation, Keller is of the opinion that the
subscription rights issued in connection with the Conversion will have no value.
Unlike private rulings, an opinion of counsel or an opinion of an
independent accountant is not binding on the IRS or DOR and the IRS or DOR could
disagree with conclusions reached therein. In the event of such disagreement,
there can be no assurance that the IRS or DOR would not prevail in a judicial or
administrative proceeding.
Keller has issued an opinion stating that, pursuant to its valuation,
Keller is of the opinion that the subscription rights do not have any value,
based on the fact that such rights are acquired by the recipients without cost,
are nontransferable and of short duration, and afford the recipients the right
only to purchase the Common Stock at a price equal to its estimated fair market
value, which will be the same price as the Purchase Price for the unsubscribed
shares of Common Stock. Such valuation is not binding on the IRS or DOR. If the
subscription rights granted to Eligible Account Holders or Supplemental Eligible
Account Holders are deemed to have an ascertainable value, receipt of such
rights could be taxable to those Eligible Account Holders or Supplemental
Eligible Account Holders who receive and/or exercise the subscription rights in
an amount equal to such value and the Bank could recognize gain on such
distribution. Eligible Account Holders and Supplemental Eligible Account Holders
are encouraged to consult with their own tax advisor as to the tax consequences
in the event that such subscription rights are deemed to have an ascertainable
value.
CERTAIN RESTRICTIONS ON PURCHASE OR TRANSFER OF SHARES AFTER CONVERSION
All shares of Common Stock purchased in connection with the Conversion
by a director or an executive officer of the Bank will be subject to a
restriction that the shares not be sold for a period of one year following the
Conversion, except in the event of the death of such director or executive
officer. Each certificate for restricted shares will bear a legend giving notice
of this restriction on transfer, and instructions will be issued to the effect
that any transfer within such time period of any certificate or record ownership
of such shares other than as provided above is a violation of the restriction.
Any shares of Common Stock issued at a later date as a stock dividend, stock
split, or otherwise, with respect to such restricted stock will be subject to
the same restrictions. The directors and executive officers of the Bank will
also be subject to the insider trading rules promulgated pursuant to the
Exchange Act and any other applicable requirements of the federal securities
laws.
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Purchases of outstanding shares of Common Stock of the Company by
directors, executive officers (or any person who was an executive officer or
director of the Bank after adoption of the Plan of Conversion) and their
associates during the three-year period following Conversion may be made only
through a broker or dealer registered with the SEC, except with the prior
written approval of the OTS. This restriction does not apply, however, to
negotiated transactions involving more than 1.0% of the Company's outstanding
Common Stock or to the purchase of stock pursuant to any stock option plan to be
established after the Conversion.
Unless approved by the OTS, the Company, pursuant to OTS regulations,
will be prohibited from repurchasing any shares of the Common Stock for three
years except: (i) for an offer to all stockholders on a pro rata basis; or (ii)
for the repurchase of qualifying shares of a director. Notwithstanding the
foregoing, beginning one year following completion of the Conversion the Company
may repurchase its Common Stock so long as: (i) the repurchases within the
following two years are part of an open-market program not involving greater
than 5% of its outstanding capital stock during a twelve-month period; (ii) the
repurchases do not cause the Company to become undercapitalized; and (iii) the
Company provides to the Regional Director of the OTS no later than 10 days prior
to the commencement of a repurchase program written notice containing a full
description of the program to be undertaken and such program is not disapproved
by the Regional Director. During the second and third years following the
Conversion, the Regional Director may permit stock repurchases in amounts
greater than 5% during a twelve-month period.
RESTRICTIONS ON ACQUISITION OF THE COMPANY
AND THE BANK
GENERAL
The Bank's Plan of Conversion provides for the Conversion of the Bank
from the mutual to the stock form of organization and, in connection therewith,
a new Federal Stock Charter and Bylaws to be adopted by members of the Bank. The
Plan also provides for the concurrent formation of a holding company, which form
of organization may or may not be utilized at the option of the Board of
Directors of the Bank. See "The Conversion - General." In the event that the
holding company form of organization is utilized, as described below, certain
provisions in the Company's Certificate of Incorporation and Bylaws and in its
management remuneration entered into in connection with the Conversion, together
with provisions of Delaware corporate law, may have anti-takeover effects. In
the event that the holding company form of organization is not utilized, the
Bank's Stock Charter and Bylaws and management remuneration entered into in
connection with the Conversion may have anti-takeover effects as described
below. In addition, regulatory restrictions may make it difficult for persons or
companies to acquire control of either the Company or the Bank.
RESTRICTIONS IN THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS
A number of provisions of the Company's Certificate of Incorporation
and Bylaws deal with matters of corporate governance and certain rights of
stockholders. The following discussion is a general summary of certain
provisions of the Company's Certificate of Incorporation and Bylaws and certain
other statutory and regulatory provisions relating to stock ownership and
transfers, the Board of Directors and business combinations, which might be
deemed to have a potential "anti-takeover" effect. These provisions may have the
effect of discouraging a future takeover attempt which is not approved by the
Board of Directors but which individual Company stockholders may deem to be in
their best interests or in which shareholders may receive a substantial premium
for their shares over then current market prices.
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As a result, stockholders who might desire to participate in such a transaction
may not have an opportunity to do so. Such provisions will also render the
removal of the current Board of Directors or management of the Company more
difficult. The following description of certain of the provisions of the
Certificate of Incorporation and Bylaws of the Company is necessarily general
and reference should be made in each case to such Certificate of Incorporation
and Bylaws, which are incorporated herein by reference. See "Additional
Information" as to how to obtain a copy of these documents.
Limitation on Voting Rights. The Certificate of Incorporation of the
Company provides that in no event shall any record owner of any outstanding
Common Stock which is beneficially owned, directly or indirectly, by a person
who beneficially owns in excess of 10% of the then outstanding shares of Common
Stock (the "Limit") be entitled or permitted to any vote in respect of the
shares held in excess of the Limit. Beneficial ownership is determined pursuant
to Rule 13d-3 of the General Rules and Regulations promulgated pursuant to the
Exchange Act, and includes shares beneficially owned by such person or any of
his affiliates (as defined in the Certificate of Incorporation), shares which
such person or his affiliates have the right to acquire upon the exercise of
conversion rights or options and shares as to which such person and his
affiliates have or share investment or voting power, but shall not include
shares beneficially owned by the ESOP or directors, officers and employees of
the Bank or Company or shares that are subject to a revocable proxy and that are
not otherwise beneficially owned, or deemed by the Company to be beneficially
owned, by such person and his affiliates. The Certificate of Incorporation of
the Company further provides that this provision limiting voting rights may only
be amended upon the vote of 80% of the outstanding shares of voting stock (after
giving effect to the limitation on voting rights).
Board of Directors. The Board of Directors of the Company is divided
into three classes, each of which shall contain approximately one-third of the
whole number of members of the Board. Each class shall serve a staggered term,
with approximately one-third of the total number of directors being elected each
year. The Company's Certificate of Incorporation and Bylaws provide that the
size of the Board shall be determined by a majority of the directors. The
Certificate of Incorporation and the Bylaws provide that any vacancy occurring
in the Board, including a vacancy created by an increase in the number of
directors or resulting from death, resignation, retirement, disqualification,
removal from office or other cause, shall be filled for the remainder of the
unexpired term exclusively by a majority vote of the directors then in office.
The classified Board is intended to provide for continuity of the Board of
Directors and to make it more difficult and time consuming for a stockholder
group to fully use its voting power to gain control of the Board of Directors
without the consent of the incumbent Board of Directors of the Company. The
Certificate of Incorporation of the Company provides that a director may be
removed from the Board of Directors prior to the expiration of his term only for
cause, upon the vote of 80% of the outstanding shares of voting stock.
In the absence of these provisions, the vote of the holders of a
majority of the shares could remove the entire Board, with or without cause, and
replace it with persons of such holders' choice.
Cumulative Voting, Special Meetings and Action by Written Consent. The
Certificate of Incorporation does not provide for cumulative voting for any
purpose. Moreover, special meetings of stockholders of the Company may be called
only by the Board of Directors of the Company. The Certificate of Incorporation
also provides that any action required or permitted to be taken by the
stockholders of the Company may be taken only at an annual or special meeting
and prohibits stockholder action by written consent in lieu of a meeting.
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Authorized Shares. The Certificate of Incorporation authorizes the
issuance of 25,000,000 shares of Common Stock and 1,000,000 shares of Preferred
Stock. The shares of Common Stock and Preferred Stock were authorized in an
amount greater than that to be issued in the Conversion to provide the Company's
Board of Directors with as much flexibility as possible to effect, among other
transactions, financings, acquisitions, stock dividends, stock splits and
employee stock options. However, these additional authorized shares may also be
used by the Board of Directors consistent with its fiduciary duty to deter
future attempts to gain control of the Company. The Board of Directors also has
sole authority to determine the terms of any one or more series of Preferred
Stock, including voting rights, conversion rates, and liquidation preferences.
As a result of the ability to fix voting rights for a series of Preferred Stock,
the Board has the power, to the extent consistent with its fiduciary duty, to
issue a series of Preferred Stock to persons friendly to management in order to
attempt to block a post-tender offer merger or other transaction by which a
third party seeks control, and thereby assist management to retain its position.
The Company's Board of Directors currently has no plans for the issuance of
additional shares, other than the issuance of additional shares pursuant to the
terms of the Stock Programs and upon exercise of stock options to be issued
pursuant to the terms of the Stock Option Plans or Master Stock-Based Benefit
Plan, all of which are to be established and presented to stockholders at the
first annual meeting after the Conversion.
Stockholder Vote Required to Approve Business Combinations with
Principal Stockholders. The Certificate of Incorporation requires the approval
of the holders of at least 80% of the Company's outstanding shares of voting
stock to approve certain "Business Combinations," as defined therein, and
related transactions. Under Delaware law, absent this provision, Business
Combinations, including mergers, consolidations and sales of all or
substantially all of the assets of a corporation must, subject to certain
exceptions, be approved by the vote of the holders of only a majority of the
outstanding shares of Common Stock of the Company and any other affected class
of stock. Under the Certificate of Incorporation, at least 80% approval of
shareholders is required in connection with any transaction involving an
Interested Stockholder (as defined below) except (i) in cases where the proposed
transaction has been approved in advance by a majority of those members of the
Company's Board of Directors who are unaffiliated with the Interested
Stockholder and were directors prior to the time when the Interested Stockholder
became an Interested Stockholder or (ii) if the proposed transaction meets
certain conditions set forth therein which are designed to afford the
shareholders a fair price in consideration for their shares in which case, if a
stockholder vote is required, approval of only a majority of the outstanding
shares of voting stock would be sufficient. The term "Interested Stockholder" is
defined to include any individual, corporation, partnership or other entity
(other than the Company or its subsidiary) which owns beneficially or controls,
directly or indirectly, 10% or more of the outstanding shares of voting stock of
the Company. This provision of the Certificate of Incorporation applies to any
"Business Combination," which is defined to include (i) any merger or
consolidation of the Company or any of its subsidiaries with or into any
Interested Stockholder or Affiliate (as defined in the Certificate of
Incorporation) of an Interested Stockholder; (ii) any sale, lease, exchange,
mortgage, pledge, transfer, or other disposition to or with any Interested
Stockholder or Affiliate of 25% or more of the assets of the Company or combined
assets of the Company and its subsidiary; (iii) the issuance or transfer to any
Interested Stockholder or its Affiliate by the Company (or any subsidiary) of
any securities of the Company in exchange for any assets, cash or securities the
value of which equals or exceeds 25% of the fair market value of the Common
Stock of the Company; (iv) the adoption of any plan for the liquidation or
dissolution of the Company proposed by or on behalf of any Interested
Stockholder or Affiliate thereof; and (v) any reclassification of securities,
recapitalization, merger or consolidation of the Company which has the effect of
increasing the proportionate share of Common Stock or any class of equity or
convertible securities of the Company owned directly or indirectly by an
Interested Stockholder or Affiliate thereof. The directors and executive
officers of the Bank are purchasing in the aggregate approximately 2.1% of the
shares of the Common
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Stock at the maximum of the Estimated Price Range. In addition, the ESOP intends
to purchase 8% of the Common Stock issued in connection with the Conversion,
including shares issued to the Foundation. Additionally, if at a meeting of
stockholders following the Conversion stockholder approval of the proposed Stock
Programs and Stock Option Plans or Master Stock-Based Benefit Plan is received,
the Company expects to acquire 4% of the Common Stock issued in connection with
the Conversion on behalf of the Stock Programs or Master Stock-Based Benefit
Plan and expects to issue an amount equal to 10% of the Common Stock issued in
connection with the Conversion, including shares issued to the Foundation, under
the Stock Option Plans or Master Stock-Based Benefit Plan to directors and
executive officers. As a result, assuming the Master Stock-Based Benefit Plan or
Stock Programs and Stock Option Plans are approved by Stockholders, directors,
executive officers and employees have the potential to control the voting of
approximately 24% of the Company's Common Stock, thereby enabling them to
prevent the approval of the transactions requiring the approval of at least 80%
of the Company's outstanding shares of voting stock described hereinabove.
Evaluation of Offers. The Certificate of Incorporation of the Company
further provides that the Board of Directors of the Company, when evaluating any
offer of another "Person" (as defined therein) to (i) make a tender or exchange
offer for any equity security of the Company, (ii) merge or consolidate the
Company with another corporation or entity, or (iii) purchase or otherwise
acquire all or substantially all of the properties and assets of the Company,
may, in connection with the exercise of its judgment in determining what is in
the best interest of the Company, the Bank and the stockholders of the Company,
give due consideration to all relevant factors, including, without limitation,
the social and economic effects of acceptance of such offer on the Company's
customers and the Bank's present and future account holders, borrowers and
employees; on the communities in which the Company and the Bank operate or are
located; and on the ability of the Company to fulfill its corporate objectives
as a savings and loan holding company and on the ability of the Bank to fulfill
the objectives of a federally-chartered stock savings bank under applicable
statutes and regulations. By having these standards in the Certificate of
Incorporation of the Company, the Board of Directors may be in a stronger
position to oppose such a transaction if the Board concludes that the
transaction would not be in the best interest of the Company, even if the price
offered is significantly greater than the then market price of any equity
security of the Company.
Amendment of Certificate of Incorporation and Bylaws. Amendments to the
Company's Certificate of Incorporation must be approved by a majority vote of
its Board of Directors and also by a majority of the outstanding shares of its
voting stock; provided, however, that an affirmative vote of at least 80% of the
outstanding voting stock entitled to vote (after giving effect to the provision
limiting voting rights) is required to amend or repeal certain provisions of the
Certificate of Incorporation, including the provision limiting voting rights,
the provisions relating to approval of certain business combinations, calling
special meetings, the number and classification of directors, director and
officer indemnification by the Company and amendment of the Company's Bylaws and
Certificate of Incorporation. The Company's Bylaws may be amended by its Board
of Directors, or by a vote of 80% of the total votes eligible to be voted at a
duly constituted meeting of stockholders.
Certain Bylaw Provisions. The Bylaws of the Company also require a
stockholder who intends to nominate a candidate for election to the Board of
Directors, or to raise new business at a stockholder meeting to give at least 90
days advance notice to the Secretary of the Company. The notice provision
requires a stockholder who desires to raise new business to provide certain
information to the Company concerning the nature of the new business, the
stockholder and the stockholder's interest in the business matter. Similarly, a
stockholder wishing to nominate any person for election as a director must
provide the Company with certain information concerning the nominee and the
proposing stockholder.
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ANTI-TAKEOVER EFFECTS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS
AND MANAGEMENT REMUNERATION ADOPTED IN CONVERSION
The provisions described above are intended to reduce the Company's
vulnerability to takeover attempts and certain other transactions which have not
been negotiated with and approved by members of its Board of Directors. The
provisions of the Employment Agreements, CIC Agreements, Employee Severance
Compensation Plan, Stock Programs, Stock Option Plans or Master Stock-Based
Benefit Plan to be established may also discourage takeover attempts by
increasing the costs to be incurred by the Bank and the Company in the event of
a takeover. See "Management of the Bank - Employment Agreements" and "- Benefits
- - Stock Option Plans."
The Company's Board of Directors believes that the provisions of the
Certificate of Incorporation, Bylaws and management remuneration plans to be
established are in the best interest of the Company and its stockholders. An
unsolicited non-negotiated proposal can seriously disrupt the business and
management of a corporation and cause it great expense. Accordingly, the Board
of Directors believes it is in the best interests of the Company and its
stockholders to encourage potential acquirors to negotiate directly with
management and that these provisions will encourage such negotiations and
discourage non-negotiated takeover attempts. It is also the Board of Directors'
view that these provisions should not discourage persons from proposing a merger
or other transaction at a price that reflects the true value of the Company and
that otherwise is in the best interest of all stockholders.
DELAWARE CORPORATE LAW
The state of Delaware has a statute designed to provide Delaware
corporations with additional protection against hostile takeovers. The takeover
statute, which is codified in Section 203 of the Delaware General Corporate Law
("Section 203"), is intended to discourage certain takeover practices by
impeding the ability of a hostile acquiror to engage in certain transactions
with the target company.
In general, Section 203 provides that a "Person" (as defined therein)
who owns 15% or more of the outstanding voting stock of a Delaware corporation
(an "Interested Stockholder") may not consummate a merger or other business
combination transaction with such corporation at any time during the three-year
period following the date such "Person" became an Interested Stockholder. The
term "business combination" is defined broadly to cover a wide range of
corporate transactions including mergers, sales of assets, issuances of stock,
transactions with subsidiaries and the receipt of disproportionate financial
benefits.
The statute exempts the following transactions from the requirements of
Section 203: (i) any business combination if, prior to the date a person became
an Interested Stockholder, the Board of Directors approved either the business
combination or the transaction which resulted in the stockholder becoming an
Interested Stockholder; (ii) any business combination involving a person who
acquired at least 85% of the outstanding voting stock in the transaction in
which he became an Interested Stockholder, with the number of shares outstanding
calculated without regard to those shares owned by the corporation's directors
who are also officers and by certain employee stock plans; (iii) any business
combination with an Interested Stockholder that is approved by the Board of
Directors and by a two-thirds vote of the outstanding voting stock not owned by
the Interested Stockholder; and (iv) certain business combinations that are
proposed after the corporation had received other acquisition proposals and
which are approved or not opposed by a majority of certain continuing members of
the Board of Directors. A corporation may exempt itself from the requirements of
the statute by adopting an amendment to its
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Certificate of Incorporation or Bylaws electing not to be governed by Section
203. At the present time, the Board of Directors does not intend to propose any
such amendment.
RESTRICTIONS IN THE BANK'S NEW CHARTER AND BYLAWS
Although the Board of Directors of the Bank is not aware of any effort
that might be made to obtain control of the Bank after the Conversion, the Board
of Directors believes that it is appropriate to adopt certain provisions
permitted by federal regulations to protect the interests of the converted Bank
and its stockholders from any hostile takeover. Such provisions may, indirectly,
inhibit a change in control of the Company, as the Bank's sole stockholder. See
"Risk Factors - Certain Anti-Takeover Provisions."
The Bank's Federal Stock Charter will contain a provision whereby the
acquisition of or offer to acquire beneficial ownership of more than 10% of the
issued and outstanding shares of any class of equity securities of the Bank by
any person (i.e., any individual, corporation, group acting in concert, trust,
partnership, joint stock company or similar organization), either directly or
through an affiliate thereof, will be prohibited for a period of five years
following the date of completion of the Conversion. Any stock in excess of 10%
acquired in violation of the Federal Stock Charter provision will not be counted
as outstanding for voting purposes. This limitation shall not apply to any
transaction in which the Bank forms a holding company without a change in the
respective beneficial ownership interests of its stockholders other than
pursuant to the exercise of any dissenter or appraisal rights. In the event that
holders of revocable proxies for more than 10% of the shares of the Common Stock
of the Company seek, among other things, to elect one-third or more of the
Company's Board of Directors, to cause the Company's stockholders to approve the
acquisition or corporate reorganization of the Company or to exert a continuing
influence on a material aspect of the business operations of the Company, which
actions could indirectly result in a change in control of the Bank, the Board of
Directors of the Bank will be able to assert this provision of the Bank's
Federal Stock Charter against such holders. Although the Board of Directors of
the Bank is not currently able to determine when and if it would assert this
provision of the Bank's Federal Stock Charter, the Board of Directors, in
exercising its fiduciary duty, may assert this provision if it were deemed to be
in the best interests of the Bank, the Company and its stockholders. It is
unclear, however, whether this provision, if asserted, would be successful
against such persons in a proxy contest which could result in a change in
control of the Bank indirectly through a change in control of the Company.
Finally, for five years, stockholders will not be permitted to call a special
meeting of stockholders relating to a change of control of the Bank or a charter
amendment or to cumulate their votes in the election of directors. Furthermore,
the staggered terms of the Board of Directors could have an anti-takeover effect
by making it more difficult for a majority of shares to force an immediate
change in the Board of Directors since only one-third of the Board is elected
each year. The purpose of these provisions is to assure stability and continuity
of management of the Bank in the years immediately following the Conversion.
Although the Bank has no arrangements, understandings or plans at the
present time, except as described in "Description of Capital Stock - Preferred
Stock," for the issuance or use of the shares of undesignated preferred stock
(the "Preferred Stock") proposed to be authorized, the Board of Directors
believes that the availability of such shares will provide the Bank with
increased flexibility in structuring possible future financings and acquisitions
and in meeting other corporate needs which may arise. In the event of a proposed
merger, tender offer or other attempt to gain control of the Bank of which
management does not approve, it might be possible for the Board of Directors to
authorize the issuance of one or more series of Preferred Stock with rights and
preferences which could impede the completion of such a transaction. An effect
of the possible issuance of such Preferred Stock, therefore, may be to deter a
future takeover attempt. The Board of Directors does not intend to issue any
Preferred Stock
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except on terms which the Board deems to be in the best interest of the Bank and
its then existing stockholders.
REGULATORY RESTRICTIONS
The Plan of Conversion prohibits any person, prior to the completion of
the Conversion, from transferring, or from entering into any agreement or
understanding to transfer, to the account of another, legal or beneficial
ownership of the subscription rights issued under the Plan or the Common Stock
to be issued upon their exercise. The Plan also prohibits any person, prior to
the completion of the Conversion, from offering, or making an announcement of an
offer or intent to make an offer, to purchase such subscription rights or Common
Stock.
For three years following the Conversion, OTS regulations prohibit any
person from acquiring or making an offer to acquire more than 10% of the stock
of any converted savings institution, except for: (i) offers that, if
consummated, would not result in the acquisition by such person during the
preceding 12-month period of more than 1% of such stock; (ii) offers for up to
25% in the aggregate by the ESOP or other tax qualified plans of the Bank or the
Company; or (iii) offers which are not opposed by the Board of Directors of the
Bank and which receive the prior approval of the OTS. Such prohibition is also
applicable to the acquisition of the stock of the Company. Such acquisition may
be disapproved by the OTS if it is found, among other things, that the proposed
acquisition (a) would frustrate the purposes of the provisions of the
regulations regarding conversions; (b) would be manipulative or deceptive; (c)
would subvert the fairness of the conversion; (d) would be likely to result in
injury to the savings institution; (e) would not be consistent with economical
home financing; (f) would otherwise violate law or regulation; or (g) would not
contribute to the prudent deployment of the savings institution's conversion
proceeds. In the event that any person, directly or indirectly, violates this
regulation, the securities beneficially owned by such person in excess of 10%
shall not be counted as shares entitled to vote and shall not be voted by any
person or counted as voting shares in connection with any matters submitted to a
vote of stockholders. The definition of beneficial ownership for this regulation
extends to persons holding revocable or irrevocable proxies for the Company's
stock under circumstances that give rise to a conclusive or rebuttable
determination of control under the OTS regulations.
In addition, any proposal to acquire 10% of any class of equity
security of the Company generally would be subject to approval by the OTS under
the Change in Bank Control Act. The OTS requires all persons seeking control of
a savings institution and, therefore, indirectly its holding company, to obtain
regulatory approval prior to offering to obtain control. Federal law generally
provides that no "person," acting directly or indirectly or through or in
concert with one or more other persons, may acquire directly or indirectly
"control," as that term is defined in OTS regulations, of a federally-insured
savings institution without giving at least 60 days' written notice to the OTS
and providing the OTS an opportunity to disapprove the proposed acquisition.
Such acquisitions of control may be disapproved if it is determined, among other
things, that (i) the acquisition would substantially lessen competition; (ii)
the financial condition of the acquiring person might jeopardize the financial
stability of the savings institution or prejudice the interests of its
depositors; or (iii) the competency, experience or integrity of the acquiring
person or the proposed management personnel indicates that it would not be in
the interest of the depositors or the public to permit the acquisition of
control by such person. Such change in control restrictions on the acquisition
of holding company stock are not limited to three years after conversion but
will apply for as long as the regulations are in effect. Persons holding
revocable or irrevocable proxies may be deemed to be beneficial owners of such
securities under OTS regulations and therefore prohibited from voting all or the
portion of such proxies in excess of the 10% aggregate beneficial ownership
limit.
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Such regulatory restrictions may prevent or inhibit proxy contests for control
of the Company or the Bank which have not received prior regulatory approval.
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
GENERAL
The Company is authorized to issue 25,000,000 shares of Common Stock
having a par value of $.01 per share and 1,000,000 shares of preferred stock
having a par value of $.01 per share (the "Preferred Stock"). Based on the sale
of Common Stock in connection with the Conversion and issuance of authorized but
unissued Common Stock in an amount equal to 8% of the Common stock sold in the
Conversion to the Foundation, the Company currently expects to issue up to
7,576,200 shares of Common Stock (or 8,712,630 in the event of an increase of
15% in the Estimated Price Range) and no shares of Preferred Stock in the
Conversion. Except as discussed above in "Restriction on Acquisition of the
Company and the Bank." Each share of the Company's Common Stock will have the
same relative rights as, and will be identical in all respects with, each other
share of Common Stock. Upon payment of the Purchase Price for the common stock,
in accordance with the Plan, all such stock will be duly authorized, fully paid
and non-assessable.
THE COMMON STOCK OF THE COMPANY WILL REPRESENT NON-WITHDRAWABLE CAPITAL,
WILL NOT BE AN ACCOUNT OF AN INSURABLE TYPE, AND WILL NOT BE INSURED BY THE
FDIC.
COMMON STOCK
Dividends. The Company can pay dividends out of statutory surplus or
from certain net profits if, as and when declared by its Board of Directors. The
payment of dividends by the Company is subject to limitations which are imposed
by law and applicable regulation. See "Dividend Policy" and "Regulation." The
holders of Common Stock of the Company will be entitled to receive and share
equally in such dividends as may be declared by the Board of Directors of the
Company out of funds legally available therefor. If the Company issues Preferred
Stock, the holders thereof may have a priority over the holders of the Common
Stock with respect to dividends.
Voting Rights. Upon Conversion, the holders of Common Stock of the
Company will possess exclusive voting rights in the Company. They will elect the
Company's Board of Directors and act on such other matters as are required to be
presented to them under Delaware law or the Company's Certificate of
Incorporation or as are otherwise presented to them by the Board of Directors.
Except as discussed in "Restrictions on Acquisition of the Company and the
Bank," each holder of Common Stock will be entitled to one vote per share and
will not have any right to cumulate votes in the election of directors. If the
Company issues Preferred Stock, holders of the Preferred Stock may also possess
voting rights. Certain matters require an 80% shareholder vote. See
"Restrictions on Acquisition of the Company and the Bank."
As a federal mutual savings bank, corporate powers and control of the
Bank are vested in its Board of Directors, who elect the officers of the Bank
and who fill any vacancies on the Board of Directors as it exists upon
Conversion. Subsequent to Conversion, voting rights will be vested exclusively
in the owners of the shares of capital stock of the Bank, which will be the
Company, and voted at the direction of the Company's Board of Directors.
Consequently, the holders of the Common Stock will not have direct control of
the Bank.
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Liquidation. In the event of any liquidation, dissolution or winding up
of the Bank, the Company, as 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 Account Holders and Supplemental Eligible Account Holders
(see "The Conversion - Liquidation Rights"), all assets of the Bank available
for distribution. In the event of liquidation, dissolution or winding up of the
Company, the holders of its Common Stock would be entitled to receive, after
payment or provision for payment of all its debts and liabilities, all of the
assets of the Company available for distribution. If Preferred Stock is issued,
the holders thereof may have a priority over the holders of the Common Stock in
the event of liquidation or dissolution.
Preemptive Rights. Holders of the Common Stock of the Company will not be
entitled to preemptive rights with respect to any shares which may be issued.
The Common Stock is not subject to redemption.
PREFERRED STOCK
None of the shares of the Company's authorized Preferred Stock will be
issued in the Conversion. Such stock may be issued with such preferences and
designations as the Board of Directors may from time to time determine. The
Board of Directors can, without stockholder approval, issue preferred stock with
voting, dividend, liquidation and conversion rights which could dilute the
voting strength of the holders of the Common Stock and may assist management in
impeding an unfriendly takeover or attempted change in control.
DESCRIPTION OF CAPITAL STOCK OF THE BANK
GENERAL
The Federal Stock Charter of the Bank, to be effective upon the Conversion,
authorizes the issuance of capital stock consisting of 25,000,000 shares of
common stock, par value $1.00 per share, and 1,000,000 shares of preferred
stock, par value $1.00 per share, which preferred stock may be issued in series
and classes having such rights, preferences, privileges and restrictions as the
Board of Directors may determine. Each share of Common Stock of the Bank will
have the same relative rights as, and will be identical in all respects with,
each other share of common stock. After the Conversion, the Board of Directors
will be authorized to approve the issuance of Common Stock up to the amount
authorized by the Federal Stock Charter without the approval of the Bank's
stockholders. Assuming that the holding company form of organization is
utilized, all of the issued and outstanding common stock of the Bank will be
held by the Company as the Bank's sole stockholder. THE CAPITAL STOCK OF THE
BANK WILL REPRESENT NON-WITHDRAWABLE CAPITAL, WILL NOT BE AN ACCOUNT OF AN
INSURABLE TYPE, AND WILL NOT BE INSURED BY THE FDIC.
COMMON STOCK
Dividends. The holders of the Bank's common stock will be entitled to
receive and to share equally in such dividends as may be declared by the Board
of Directors of the Bank out of funds legally available therefor. See "Dividend
Policy" for certain restrictions on the payment of dividends and "Federal and
State Taxation - Federal Taxation" for a discussion of the consequences of the
payment of cash dividends from income appropriated to bad debt reserves.
154
<PAGE>
Voting Rights. Immediately after the Conversion, the holders of the
Bank's common stock will possess exclusive voting rights in the Bank. Each
holder of shares of common stock will be entitled to one vote for each share
held, subject to the right of shareholders to cumulate their votes for the
election of directors. During the five-year period after the effective date of
the Conversion, cumulation of votes will not be permitted. See "Restrictions on
Acquisition of the Company and the Bank - Anti-Takeover Effects of the Company's
Certificate of Incorporation and Bylaws and Management Remuneration Adopted in
Conversion."
Liquidation. In the event of any liquidation, dissolution, or winding
up of the Bank, the holders of common stock will be entitled to receive, after
payment of all debts and liabilities of the Bank (including all deposit accounts
and accrued interest thereon), and distribution of the balance in the special
liquidation account to Eligible Account Holders and Supplemental Eligible
Account Holders, all assets of the Bank available for distribution in cash or in
kind. If additional preferred stock is issued subsequent to the Conversion, the
holders thereof may also have priority over the holders of common stock in the
event of liquidation or dissolution.
Preemptive Rights; Redemption. Holders of the common stock of the Bank
will not be entitled to preemptive rights with respect to any shares of the Bank
which may be issued. The common stock will not be subject to redemption. Upon
receipt by the Bank of the full specified purchase price therefor, the common
stock will be fully paid and non-assessable.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is The First
National Bank of Boston.
EXPERTS
The consolidated financial statements of the Bank and its subsidiaries
as of March 31, 1996 and 1995 and for each of the three years in the period
ended March 31, 1996, have been included in this Prospectus, in reliance upon
the report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
Keller & Company, Inc. has consented to the publication herein of the
summary of its report to the Bank and Company setting forth its opinion as to
the estimated pro forma market value of the Common Stock upon Conversion and its
valuation with respect to subscription rights.
LEGAL AND TAX OPINIONS
The legality of the Common Stock and the federal income tax consequences of
the Conversion will be passed upon for the Bank and the Company by Muldoon,
Murphy & Faucette, Washington, D.C., special counsel to the Bank and the
Company. Muldoon, Murphy & Faucette will rely as to certain matters of Delaware
law on the opinion of Morris, Nichols, Arsht & Tunnell. The Commonwealth of
Massachusetts tax consequences of the Conversion and certain matters related to
the Foundation will be passed upon for the Bank and the Company by KPMG Peat
Marwick LLP. Certain legal matters will be passed upon for Sandler O'Neill by
Breyer & Aguggia, Washington, D.C.
155
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the SEC a registration statement under the
Securities Act with respect to the Common Stock offered hereby. As permitted by
the rules and regulations of the SEC, this Prospectus does not contain all the
information set forth in the registration statement. Such information can be
examined without charge at the public reference facilities of the SEC located at
450 Fifth Street, N.W., Washington, D.C. 20549, and copies of such material can
be obtained from the SEC at prescribed rates. This Prospectus contains a
description of the material terms and features of all material contracts,
reports or exhibits to the Registration Statement required to be described,
however, the statements contained in this Prospectus as to the contents of any
contract or other document filed as an exhibit to the registration statement
are, of necessity, brief descriptions thereof and are not necessarily complete;
each such statement is qualified by reference to such contract or document.
The 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 office of the OTS, 1700 G Street,
N.W., Washington, D.C. 20552 and at the Office of the Regional Director of the
OTS located at 10 Exchange Place, 18th Floor, Jersey City, New Jersey 07302.
In connection with the Conversion, the Company will register its Common
Stock with the SEC under Section 12(b) of the Exchange Act and, upon such
registration, the Company and the holders of its stock will become subject to
the proxy solicitation rules, reporting requirements and restrictions on stock
purchases and sales by directors, officers and greater than 10% stockholders,
the annual and periodic reporting and certain other requirements of the Exchange
Act. Under the Plan, the Company has undertaken that it will not terminate such
registration for a period of at least three years following the Conversion. In
the event that the Bank amends the Plan to eliminate the concurrent formation of
the Company as part of the Conversion, the Bank will register its stock with the
OTS under Section 12(b) of the Exchange Act and, upon such registration, the
Bank and the holders of its stock will become subject to the same obligations
and restrictions.
A copy of the Certificate of Incorporation and the Bylaws of the
Company and the Federal Stock Charter and Bylaws of the Bank are available
without charge from the Bank.
156
<PAGE>
FIRST FEDERAL SAVINGS BANK OF AMERICA
AND SUBSIDIARY (1)
Fall River, Massachusetts
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS (2)
Independent Auditors' Report...........................................F-2
Consolidated Balance Sheets as of June 30, 1995 (unaudited) and
March 31, 1996 and 1995..............................................F-3
Consolidated Statements of Income for the three months ended June
30, 1996 and 1995 (unaudited) and the years ended March 31, 1996,
1995 and 1994..........................................................41
Consolidated Statements of Retained Earnings for the three months
ended June 30, 1996 (unaudited) and the years ended March 31, 1996,
1995 and 1994........................................................F-4
Consolidated Statements of Cash flows for the three months ended
June 30, 1996 and 1995 (unaudited) and the years ended
March 31, 1996, 1995 and 1994........................................F-5
Notes to Consolidated Financial Statements.............................F-7
___________
(1) The financial statements for FIRSTFED AMERICA BANCORP, INC. have been
omitted because FIRSTFED AMERICA BANCORP, INC. has not yet issued any
stock, has no liabilities, and has not conducted any business other than
of an organizational nature.
(2) All schedules have been omitted either because they are not required, not
applicable, or are included in the Notes to Consolidated Financial
Statements
F-1
<PAGE>
Independent Auditors' Report
The Board of Directors
First Federal Savings Bank of America:
We have audited the accompanying consolidated balance sheets of First Federal
Savings Bank of America and subsidiary (the "Bank") as of March 31, 1996 and
1995, and the related consolidated statements of income, retained earnings and
cash flows for each of the years in the three-year period ended March 31, 1996.
These consolidated financial statements are the responsibility of the Bank's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of First Federal
Savings Bank of America and subsidiary at March 31, 1996 and 1995, and the
results of their operations and cash flows for each of the years in the three-
year period ended March 31, 1996 in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
June 25, 1996
F-2
<PAGE>
FIRST FEDERAL SAVINGS BANK OF AMERICA
AND SUBSIDIARY
Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
June 30, March 31,
----------------
Assets 1996 1996 1995
------ ---- ---- ----
(unaudited)
<S> <C> <C> <C>
Cash on hand and due from banks $ 13,885 13,277 9,891
Mortgage loans held for sale 6,530 17,747 6,816
Investment securities available for sale
(amortized cost of $55,
$55 and $55) (notes 3 and 8) 773 725 518
Investment securities held to maturity
(fair value of $21,502,
$24,061 and $20,851) (notes 3 and 8) 21,487 23,987 20,988
Mortgage-backed securities held to
maturity (fair value of $7,269,
$7,386 and $2,818) (notes 3 and 8) 7,138 7,248 2,721
Stock in Federal Home Loan Bank of
Boston, at cost (notes 3 and 8) 6,967 6,630 6,630
Loans receivable, net of allowance for
loan losses of $6,445,
$5,607 and $4,239 (notes 4 and 8) 727,401 637,592 499,977
Accrued interest receivable 4,182 3,711 2,864
Office properties and equipment, net
(note 6) 9,166 8,329 6,440
Real estate owned, net 439 643 296
Deferred income tax asset, net (note 11) 2,128 1,960 1,339
Income tax receivable (note 11) 215 206 61
Mortgage servicing rights 258 - -
Prepaid expenses and other assets 2,242 1,723 1,497
------- ------- -------
Total assets $ 802,811 723,778 560,038
======= ======= =======
Liabilities and Retained Earnings
---------------------------------
Liabilities:
Deposits (note 7) $ 600,584 583,750 440,107
FHLB advances (note 8) 136,648 75,141 66,592
Advance payments by borrowers for
taxes and insurance 4,544 4,167 3,415
Accrued interest payable 649 304 401
Accrued income taxes (note 11) 374 897 1,013
Other liabilities 12,491 13,101 6,813
------- ------- -------
Total liabilities 755,290 677,360 518,341
------- ------- -------
Commitments and contingencies
(notes 2, 4, 6, 9 and 10)
Retained earnings (notes 2 and 11) 47,104 46,033 41,430
Unrealized gain on investment securities
available for sale, net of tax (note 3) 417 385 267
------- ------- -------
47,521 46,418 41,697
Total retained earnings ------- ------- -------
Total liabilities and retained
earnings $ 802,811 723,778 560,038
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
FIRST FEDERAL SAVINGS BANK OF AMERICA
AND SUBSIDIARY
Consolidated Statements of Retained Earnings
(in thousands)
<TABLE>
<CAPTION>
Unrealized
gain on
investment
securities
available
Retained for sale,
earnings net of tax Total
-------- ---------- ------
<S> <C> <C> <C>
Balance at March 31, 1994 $ 36,469 - 36,469
Change in accounting for investment
securities as of April 1, 1994 - 198 198
Net income 4,961 - 4,961
Change in unrealized gain on investment
securities available for sale, net - 69 69
------ --- ------
Balance at March 31, 1995 41,430 267 41,697
Net income 4,603 - 4,603
Change in unrealized gain on investment
securities available for sale, net - 118 118
------ --- ------
Balance at March 31, 1996 46,033 385 46,418
Net income (unaudited) 1,071 - 1,071
Change in unrealized gain on investment
securities available for sale, net (unaudited) - 32 32
------ --- ------
Balance at June 30, 1996 (unaudited) $ 47,104 417 47,521
====== === ======
</TABLE>
See accompanying notes to consolidated financial statements.
F - 4
<PAGE>
FIRST FEDERAL SAVINGS BANK OF AMERICA
AND SUBSIDIARY
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
For the three months For the years
ended June 30, ended March 31,
---------------------- --------------------------------------
1996 1995 1996 1995 1994
---- ---- ---- ----- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,071 1,295 4,603 4,961 6,915
Adjustments to reconcile net income
to net cash provided by operating activities:
Amortization (accretion) of:
Premium on investment and
mortgage-backed securities
held to maturity 1 - 2 (6) 3
Premium on sale of loans - - - - 651
Deferred loan origination fees (94) (179) (626) (639) (223)
Mortgage servicing rights 3 - - - -
Provisions for:
Loan losses 1,000 475 2,626 653 1,035
Deferred income taxes (184) - (710) 1,134 (609)
Accelerated prepayment on loans
sold - - - - 1,006
(Gains) losses on sales of:
Real estate owned (22) - (1) (142) 6
Mortgage loans (44) 196 841 1,879 (1,636)
Office properties and equipment - - - - (1)
Cumulative effect of change in
accounting for income taxes - - - - (1,495)
Net proceeds from sales of
mortgage loans 44,691 24,300 183,366 139,164 546,146
Payments received on
mortgage-backed securities 109 94 433 716 1,391
Origination of loans held for sale (33,430) (28,742) (195,138) (132,080) (540,003)
Real estate owned valuation write-downs 90 32 65 45 180
Loan sale premium resulting from
interest rate differential - - - (2) (366)
Capitalized mortgage servicing
rights (261) - - - -
Depreciation of office properties
and equipment 147 157 671 344 606
Increase or decrease in:
Accrued interest receivable (471) (148) (847) (217) (174)
Income tax receivable (9) 61 (145) (61) -
Prepaid expenses and other assets (519) (501) (226) (208) (346)
Accrued interest payable 345 (76) (97) 110 38
Advance payments by borrowers
for taxes and insurance 377 (166) 752 (623) 1,007
Accrued income taxes and
other liabilities (1,133) 271 6,172 (1,172) 5,386
------- ------- -------- -------- --------
Net cash provided by
(used in) operating
activities 11,667 (2,931) 1,741 13,856 19,517
------- ------- -------- -------- --------
</TABLE>
(Continued)
F-5
<PAGE>
FIRST FEDERAL SAVINGS BANK OF AMERICA
AND SUBSIDIARY
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
For the three months For the years
ended June 30, ended March 31,
---------------------- --------------------------------------
1996 1995 1996 1995 1994
---- ---- ---- ----- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from investing activities:
Purchase of Federal Home Loan Bank stock (337) - - - (2,590)
Proceeds from redemption of Federal Home
Loan Bank stock - - - - 1,529
Purchases of investment securities held
to maturity (2,500) (3,000) (10,001) (10,988) (8,995)
Purchases of mortgage-backed securities
held to maturity - - (4,960) - -
Maturities of investment securities held to
maturity 5,000 3,000 7,000 - 11,094
Net decrease in loans (90,882) (726) (140,430) (90,320) (76,027)
Proceeds from sales of real estate owned 303 - 404 2,205 944
Purchases of office properties and equipment (984) (482) (2,560) (992) (646)
---------- ---------- --------- ---------- ----------
Net cash used in investing
activities (89,400) (1,208) (150,547) (100,095) (74,691)
---------- ---------- --------- ---------- ----------
Cash flows from financing activities:
Net increase in deposits $ 16,834 25,063 143,643 80,014 30,675
FHLB advances 205,910 109,119 297,905 650,958 1,155,448
Repayments on FHLB advances (144,403) (125,096) (289,356) (643,908) (1,129,788)
---------- ---------- --------- ---------- ----------
Net cash provided by
financing activities 78,341 9,086 152,192 87,064 56,335
---------- ---------- --------- ---------- ----------
Net increase in cash and cash equivalents 608 4,947 3,386 825 1,161
Cash and cash equivalents at beginning of
period 13,277 9,891 9,891 9,066 7,905
---------- ---------- --------- ---------- ----------
Cash and cash equivalents at end of period $ 13,885 14,838 13,277 9,891 9,066
========== ========== ========= ========== ==========
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest $ 7,134 4,848 26,505 18,323 14,158
========== ========== ========= ========== ==========
Income taxes $ 1,500 1,350 4,325 4,219 5,345
========== ========== ========= ========== ==========
Supplemental disclosures of noncash investing
activities:
Property acquired in settlement of loans $ 167 - 815 1,465 1,605
========== ========== ========= ========== ==========
Transfer of investment securities to
investment securities available for
sale $ - - - 55 -
========== ========== ========= ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
FIRST FEDERAL SAVINGS BANK OF AMERICA
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) Basis of Financial Statement Presentation and Summary of Significant
Accounting Policies
First Federal Savings Bank of America (the "Bank") is a federally chartered
mutual savings bank with its headquarters located in Fall River,
Massachusetts. The Bank provides a full range of banking services to
individual and business customers in Massachusetts, Rhode Island, and
to a lesser degree in Connecticut. The Bank is subject to competition
from other financial institutions, mortgage banking companies and other
financial service providers doing business in this area. The Bank is
subject to regulations of, and periodic examination by, the Office of
Thrift Supervision ("OTS") and the Federal Deposit Insurance
Corporation ("FDIC"). The Bank's deposits are insured by the Savings
Association Insurance Fund of the FDIC up to $100,000. To provide
protection for customers' retirement account balances in excess of FDIC
coverage, the Bank participates in the "Deposit Collateralization
Bailee Program" of the Federal Home Loan Bank of Boston. To
participate, the Bank must pledge investment securities and mortgage
loans as collateral with the Federal Home Loan Bank of Boston.
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the financial
statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the
date of the balance sheet and revenues and expenses for the period.
Actual results could differ from those estimates.
Material estimates that are particularly susceptible to change relate to the
determination of the allowance for loan losses. In connection with the
determination of the allowance for loan losses, management obtains
independent appraisals for significant properties and assesses other
factors associated with these assets.
Substantially all of the Bank's loans are secured by residential real estate
located in Massachusetts, Rhode Island and Connecticut. Accordingly,
the ultimate collectibility of a substantial portion of the Bank's loan
portfolio is susceptible to changes in market conditions in this area.
The information at June 30, 1996 and for the three months ended June 30,
1996 and 1995 is unaudited but in the opinion of management of the
Bank, reflects all adjustments (which are comprised of only normal
recurring accruals) necessary for a fair presentation of the financial
position and results of operations at the dates and for the periods
then ended.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
First Federal Savings Bank of America and its wholly owned subsidiary,
FIRSTFED MORTGAGE CORPORATION. Currently, the principal activity of
FIRSTFED MORTGAGE CORPORATION is to retain a parcel of undeveloped
commercial land to accommodate the Bank's future expansion plans. All
material intercompany balances and transactions have been eliminated in
consolidation. Certain amounts in the prior years' financial
statements have been reclassified to conform with the current period's
presentation.
(Continued)
F-7
<PAGE>
FIRST FEDERAL SAVINGS BANK OF AMERICA
AND SUBSIDIARY
Notes to Consolidated Financial Statements
Investment and Mortgage-backed Securities
Effective April 1, 1994, the Bank adopted Statement of Financial Accounting
Standards ("SFAS") No. 115, Accounting for Certain Investments in Debt
and Equity Securities. Under SFAS No. 115, securities are classified
at the time of purchase, based on management's intention, as securities
available for sale or held to maturity. Securities available for sale
are reported at fair value with any unrealized gains and losses
excluded from earnings and reported as a separate component of retained
earnings, net of tax, until realized. Securities held to maturity are
stated at amortized cost. Any decline in fair value below the
amortized cost basis of an individual security deemed to be other than
temporary is recognized as a realized loss in the accounting period in
which the determination is made. The fair value of the security at the
time of the write-down becomes the new cost basis of the security.
Gains and losses on sales of securities are accounted for when realized on a
specific identification basis.
Loans
Loans are reported at the principal amount outstanding, reduced by net
deferred loan origination fees. Mortgage loans held for sale are
carried at the lower of aggregate cost or market value considering loan
production, sales commitments and deferred fees. Generally, all longer
term (typically mortgage loans with terms in excess of fifteen years)
fixed-rate residential single-family mortgage loans are originated for
sale and adjustable-rate loans are originated both for portfolio and
for sale. Occasionally, the Bank generates fixed-rate loans which are
designated for portfolio at the time of origination.
Loan origination fees are offset with related direct incremental loan
origination costs and the resulting net amount is deferred and
amortized over the contractual life of the related loans using the
interest method. When loans are sold in the secondary market, the
remaining balance of the amount deferred is included in the
determination of gain or loss on sale.
On April 1, 1995, the Bank adopted SFAS No. 114, Accounting by Creditors for
Impairment of a Loan, and SFAS No. 118, Accounting by Creditors for
Impairment of a Loan -- Income Recognition and Disclosure. These
statements require changes in both the disclosure and impairment
measurement of certain loans. Adoption of these statements had no
material impact on the Bank's financial position or results of
operations.
Impaired loans are commercial and commercial real estate loans for which it
is probable that the Bank will not be able to collect all amounts due
according to the contractual terms of the loan agreement. The
definition of "impaired loans" is not the same as the definition of
"nonaccrual loans," although the two categories overlap. Nonaccrual
loans include impaired loans and are those on which the accrual of
interest is discontinued when collectibility of principal or interest
is uncertain or payments of principal of interest have been
contractually past due 90 days. The Bank may choose to place a loan on
nonaccrual status due to payment delinquency or uncertain
collectibility, while not classifying the loans as impaired, if (i) it
is not probable that the Bank will not collect all amounts due in
accordance with the contractual terms of the loan or (ii) the loan is
not a commercial or a commercial real estate loan. Factors
(Continued)
F - 8
<PAGE>
FIRST FEDERAL SAVINGS BANK OF AMERICA
AND SUBSIDIARY
Notes to Consolidated Financial Statements
considered by management in determining impairment include payment
status and collateral value. The amount of impairment for these types
of impaired loans is determined by the difference between the present
value of the expected cash flows related to the loan, using the
original contractual interest rate, and its recorded value, or, as a
practical expedient in the case of collateralized loans, the difference
between the fair value of the collateral and the recorded amount of the
loans. When foreclosure is probable, impairment is measured based on
the fair value of the collateral. Residential mortgage and consumer
loans are measured for impairment collectively. Loans that experience
insignificant payment delays and insignificant shortfalls in payment
amounts generally are not classified as impaired. Management determines
the significance of payment delays and payment shortfalls on a case-by-
case basis, taking into consideration all of the circumstances
surrounding the loan and the borrower, including the length of the
delay, the reasons for the delay, the borrower's prior payment record,
and the amount of the shortfall in relation to the principal and
interest owed.
Restructured, accruing loans entered into prior to the adoption of these
statements are not required to be reported as impaired unless such
loans are not performing according to the restructured terms upon
adoption of SFAS No. 114. Loan restructuring entered into after
adoption of SFAS No. 114 are reported as impaired loans, and impairment
is measured as described above using the loan's premodification rate of
interest.
SFAS No. 114 also changes the criteria for classification of a loan as an
in-substance foreclosure. Beginning April 1, 1995, loans are classified
as in-substance foreclosures only when the Bank is in possession of the
collateral.
Provision and Allowance for Loan Losses
The allowance for loan losses is available for future credit losses inherent
in the portfolio. The level of the allowance is based on management's
ongoing review of the composition and growth of the loan portfolio, net
charge-off experience, current and expected economic conditions, and
other pertinent factors. Loans (or portions thereof) deemed to be
uncollectible are charged against the allowance and recoveries of
amounts previously charged-off are added to the allowance. The
provisions for loan losses charged to earnings are added to the
allowance to bring it to the desired level.
While management believes that the allowance for loan losses is adequate to
absorb probable loan losses, future additions to the allowance may be
necessary based on changes in the above factors. In addition, various
regulatory agencies periodically review the Bank's allowance for loan
losses. Such agencies may require the recognition of additions to the
allowance based on their judgments about information available to them
at the time of their examination.
Gain or Loss on Sale of Mortgage Loans
Gain or loss on sale of mortgage loans is recognized at the time of sale.
Such gain or loss results from the combination of (1) the difference
between the net cash paid by the investor for the loan and the loan's
carrying value; (2) the calculated present value of the difference
between the interest rate paid to the Bank by the borrower on the loan
sold and the interest rate guaranteed to the investor, adjusted for
normal servicing fees and considering estimated loan prepayments
(deferred premium on sale of loans); and (3) any origination fees, net
of
(Continued)
F - 9
<PAGE>
FIRST FEDERAL SAVINGS BANK OF AMERICA
AND SUBSIDIARY
Notes to Consolidated Financial Statements
applicable origination costs, retained by the Bank. Premiums on sale of
loans are amortized using the interest method over the life of the
related loans, adjusted for actual and estimated future prepayments.
Actual prepayment experience is reviewed periodically and the deferred
premium is adjusted, if necessary.
On April 1, 1996, the Bank adopted SFAS No. 122, Accounting for Mortgage
Servicing Rights, which amended SFAS No. 65, Accounting for Certain
Mortgage Banking Activities. This Statement requires that a mortgage
banking enterprise recognize as separate assets rights to service
mortgage loans for others, regardless of how those servicing rights are
acquired. Additionally, the Statement requires that the capitalized
mortgage servicing rights be assessed for impairment based on the fair
value of those rights, and that impairment be recognized through a
valuation allowance. The impact of adoption depends upon the volume of
loans sold and will result in increased income recognized upon sale of
loans and may result in greater earnings volatility in future periods
as mortgage servicing rights are amortized. The effect of adoption
increased pre-tax gain on the sale of loans by $261,000 (unaudited) for
the quarter ended June 30, 1996. Fair values of mortgage servicing
rights are based on quoted market prices. The fair value of mortgage
servicing rights at June 30, 1996 approximates the carrying value.
Capitalized mortgage servicing rights are amortized in proportion to,
and over the period of estimated net servicing income. The Bank
stratifies the capitalized mortgage servicing rights based upon
original maturity and interest rates of the underlying loans. There is
no valuation allowance on mortgage servicing rights at June 30, 1996.
Office Properties and Equipment
Land is carried at cost. Office properties and equipment are recorded at
cost less accumulated depreciation. Depreciation of office properties
and equipment is determined on the straight-line basis over the
estimated useful lives of the related assets. Expenditures for major
additions and improvements are capitalized while the costs of current
maintenance and repairs are charged to operating expenses.
Real Estate Owned
Real estate owned is acquired through foreclosure or by accepting a deed in
lieu of foreclosure. Real estate acquired in settlement of loans is
recorded at the lower of the carrying value of the loan or the fair
value, less disposal costs, of the property constructively or actually
received, thereby establishing a new cost basis. Subsequent write-downs
are recorded if the cost basis exceeds current net fair value. Related
operating costs, net of rental income, are reflected in operations when
incurred. Realized gains upon disposition are recognized in income.
Management believes that the net carrying value of real estate acquired
through foreclosure reflects the lower of its cost basis or estimated
net fair value. Factors similar to those considered in the evaluation
of the allowance for loan losses, including regulatory agency
requirements, are considered in the evaluation of the net fair value of
real estate acquired through foreclosure.
Pension
Pension cost is recognized over the employees' approximate service period.
(Continued)
F - 10
<PAGE>
FIRST FEDERAL SAVINGS BANK OF AMERICA
AND SUBSIDIARY
Notes to Consolidated Financial Statements
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the accounting basis
and the tax basis of the Bank's assets and liabilities. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be realized or settled. The Bank's
deferred tax asset is reviewed periodically and adjustments to such
asset are recognized as deferred income tax expense or benefit based
upon management's judgments relating to the realizability of such
asset.
Statements of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents consist of
cash on hand and due from banks.
(2) Capital Requirements
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory--and possibly additional
discretionary--actions by regulators that, if undertaken, could have a
direct material effect on the Bank's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets, liabilities, and
certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification
are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of tangible to
average assets (as defined), core (leverage) and total capital to risk-
weighted assets (as defined). Management believes, as of June 30, 1996,
that the Bank meets all capital adequacy requirements to which it is
subject.
As of March 11, 1996, the most recent notification from the OTS categorized
the Bank as well capitalized under the regulatory framework for prompt
corrective action. There are no conditions or events since that
notification that management believes have changed the institution's
category.
The Bank's deposits are insured by the Savings Association Insurance Fund
("SAIF") of the FDIC. Congress has discussed various legislative
proposals regarding a special assessment that would be charged to SAIF-
insured institutions to recapitalize the SAIF fund. One such proposal
would require an assessment of 85 basis points on total deposits, or
approximately $5.1 million (unaudited) before income taxes for the Bank
at June 30, 1996. Upon enactment of the legislation, the special
assessment would be recorded as an operating expense.
(Continued)
F - 11
<PAGE>
FIRST FEDERAL SAVINGS BANK OF AMERICA
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(3) Investment and Mortgage-backed Securities (In Thousands)
A summary of investment securities available for sale follows:
<TABLE>
<CAPTION>
June 30, 1996
-----------------------------------------
Amortized Unrealized Unrealized Fair
cost gains losses value
---- ----- ------ -----
(unaudited)
<S> <C> <C> <C> <C>
Marketable equity securities $ 55 718 - 773
-- --- --- ---
Total investment securities available
for sale $ 55 718 - 773
== === === ===
<CAPTION>
March 31, 1996
-----------------------------------------
Amortized Unrealized Unrealized Fair
cost gains losses value
---- ----- ------ -----
(unaudited)
<S> <C> <C> <C> <C>
Marketable equity securities $ 55 670 - 725
-- --- --- ---
Total investment securities available
for sale $ 55 670 - 725
== === === ===
<CAPTION>
March 31, 1995
-----------------------------------------
Amortized Unrealized Unrealized Fair
cost gains losses value
---- ----- ------ -----
(unaudited)
<S> <C> <C> <C> <C>
Marketable equity securities $ 55 463 - 518
-- --- --- ---
Total investment securities available
for sale $ 55 463 - 518
== === === ===
</TABLE>
(Continued)
F - 12
<PAGE>
FIRST FEDERAL SAVINGS BANK OF AMERICA
AND SUBSIDIARY
Notes to Consolidated Financial Statements
A summary of investment securities held to maturity follows:
<TABLE>
<CAPTION>
June 30, 1996
-----------------------------------------
Amortized Unrealized Unrealized Fair
cost gains losses value
---- ----- ------ -----
(unaudited)
<S> <C> <C> <C> <C>
United States Government and
related obligations due:
Within one year $ 11,996 56 (1) 12,051
After one year but within
five years 9,490 4 (44) 9,450
------- ---- --- ------
21,486 60 (45) 21,501
------- ---- --- ------
Other investment securities 1 - - 1
------- ---- --- ------
Total investment securities
held to maturity $ 21,487 60 (45) 21,502
======= ==== === ======
<CAPTION>
March 31, 1996
-----------------------------------------
Amortized Unrealized Unrealized Fair
cost gains losses value
---- ----- ------ -----
(unaudited)
<S> <C> <C> <C> <C>
United States Government and
related obligations due:
Within one year $ 12,996 77 (2) 13,071
After one year but within
five years 9,990 29 (29) 9,990
------- ---- --- ------
22,986 106 (31) 23,061
------- ---- --- ------
Federal Home Loan Bank note
due April 1996 1,000 - (1) 999
Other investment securities 1 - - 1
------- ---- --- ------
Total investment securities
held to maturity $ 23,987 106 (32) 24,061
======= === === ======
<CAPTION>
March 31, 1995
-----------------------------------------
Amortized Unrealized Unrealized Fair
cost gains losses value
---- ----- ------ -----
(unaudited)
<S> <C> <C> <C> <C>
United States Government and
related obligations due:
Within one year $ 7,998 - (79) 7,919
After one year but within
five years 11,990 33 (65) 11,958
------- --- --- ------
19,988 33 (144) 19,877
------- --- --- ------
Federal Home Loan Bank note
due April 1996 1,000 - (26) 974
------- --- --- ------
Total investment securities
held to maturity $ 20,988 33 (170) 20,851
======= === === ======
</TABLE>
(Continued)
F - 13
<PAGE>
FIRST FEDERAL SAVINGS BANK OF AMERICA
AND SUBSIDIARY
Notes to Consolidated Financial Statements
Adjustable-rate mortgage-backed securities totalled $4,928 (unaudited) and
$4,946 at June 30, 1996 and March 31, 1996, respectively. There were
no adjustable-rate mortgage-backed securities at March 31, 1995. A
summary of mortgage-backed securities held to maturity follows:
<TABLE>
<CAPTION>
June 30, 1996
-----------------------------------------
Amortized Unrealized Unrealized Fair
cost gains losses value
---- ----- ------ -----
(unaudited)
<S> <C> <C> <C> <C>
FHLMC:
After five years but within
ten years $ 130 5 (1) 134
After ten years 5,175 44 - 5,219
------ --- --- -----
5,305 49 (1) 5,353
------ --- --- -----
GNMA:
Less than five years 41 - - 41
After five years but within
ten years 309 6 - 315
After ten years 1,483 77 - 1,560
------ --- --- -----
1,833 83 - 1,916
------ --- --- -----
Total mortgage-backed securities
held to maturity $ 7,138 132 (1) 7,269
====== === === =====
<CAPTION>
March 31, 1996
-----------------------------------------
Amortized Unrealized Unrealized Fair
cost gains losses value
---- ----- ------ -----
(unaudited)
<S> <C> <C> <C> <C>
FHLMC:
After five years but within
ten years $ 141 6 - 147
After ten years 5,206 35 - 5,241
------ --- --- -----
5,347 41 - 5,388
------ --- --- -----
GNMA:
Less than five years 46 1 - 47
After five years but within
ten years 61 1 - 62
After ten years 1,794 95 - 1,889
------ --- --- -----
1,901 97 - 1,998
------ --- --- -----
Total mortgage-backed
securities
held to maturity $ 7,248 138 - 7,386
====== === === =====
<CAPTION>
March 31, 1995
-----------------------------------------
Amortized Unrealized Unrealized Fair
cost gains losses value
---- ----- ------ -----
(unaudited)
<S> <C> <C> <C> <C>
FHLMC:
After five years but within
ten years $ 149 3 (1) 151
After ten years 373 12 (1) 384
------ --- --- -----
522 15 (2) 535
------ --- --- -----
GNMA:
Less than five years
After five years but within
ten years 122 3 (2) 123
After ten years 2,077 83 - 2,160
------ --- --- -----
2,199 86 (2) 2,283
------ --- --- -----
Total mortgage-backed securities
held to maturity $ 2,721 101 (4) 2,818
====== === === =====
</TABLE>
(Continued)
F - 14
<PAGE>
FIRST FEDERAL SAVINGS BANK OF AMERICA
AND SUBSIDIARY
Notes to Consolidated Financial Statements
Maturities of mortgage-backed securities are based on contractual maturities
with scheduled amortization. Actual maturities will differ from
contractual maturities due to prepayments.
There were no sales of investment and mortgage-backed securities in the
three months ended June 30, 1996 and 1995 (unaudited). There were no
sales of investment and mortgage-backed securities in the years ended
March 31, 1996, 1995 and 1994.
GNMA mortgage-backed securities with a book value of approximately $1,586
(unaudited), $1,736 and $2,024 were pledged as collateral for certain
deposits and the "Deposit Collateralization Bailee Program" at the
Federal Home Loan Bank of Boston at June 30, 1996 and March 31, 1996
and 1995, respectively.
As a member of the Federal Home Loan Bank ("FHLB") system, the Bank is
required to maintain a minimum investment in FHLB stock. The current
investment exceeds (unaudited) the required level at June 30, 1996.
Any excess may be redeemed by the Bank or called by the FHLB at par.
At its discretion, the FHLB may declare dividends on this stock.
(4) Loans Receivable (Dollars in Thousands)
The Bank's lending activities are conducted principally in Massachusetts and
Rhode Island, and to a lesser degree in Connecticut. The Bank grants
single and multifamily residential loans, commercial real estate loans,
commercial loans and a variety of consumer loans. In addition, the
Bank grants loans for the construction of residential homes,
multifamily properties and for commercial real estate properties. The
ability and willingness of single and multifamily residential and
consumer borrowers to honor their repayment commitments is generally
dependent on real estate values and the level of overall economic
activity within the borrowers' geographic areas. The ability and
willingness of commercial, commercial real estate and construction loan
borrowers to honor their repayment commitments is generally dependent
on the health of the real estate economic sector in the borrowers'
geographic areas and the general economy.
(Continued)
F - 15
<PAGE>
FIRST FEDERAL SAVINGS BANK OF AMERICA
AND SUBSIDIARY
Notes to Consolidated Financial Statements
The following is a comparative summary of loans receivable classified by type:
<TABLE>
<CAPTION>
June 30, March 31,
-------------------
1996 1996 1995
---- ---- ----
(unaudited)
<S> <C> <C> <C>
Mortgage loans:
Residential real estate:
One- to four-family $ 613,860 531,849 405,747
Multi-family 4,798 4,703 5,157
Commercial real estate 25,567 23,368 19,968
Construction and land 26,792 25,297 26,337
-------- ------- -------
Total mortgage loans 671,017 585,217 457,209
-------- ------- -------
Commercial loans 15,051 14,473 12,756
-------- ------- -------
Consumer loans:
Home equity lines 26,542 27,995 29,373
Second mortgages 24,732 18,064 9,111
Other consumer loans 6,080 5,813 3,874
-------- ------- -------
Total consumer loans 57,354 51,872 42,358
-------- ------- -------
Total loans receivable 743,422 651,562 512,323
-------- ------- -------
Less:
Allowance for loan losses (6,445) (5,607) (4,239)
Undisbursed proceeds of construction
mortgages in process (7,986) (6,568) (5,511)
Deferred loan origination fees, net (1,590) (1,795) (2,596)
-------- ------- -------
(16,021) (13,970) (12,346)
-------- ------- -------
Loans receivable, net $ 727,401 637,592 499,977
======== ======= =======
</TABLE>
At June 30, 1996, March 31, 1996 and March 31, 1995 there were $304,013
(unaudited), $267,073 and $254,690, respectively, in variable-rate
loans included in residential mortgage loans and construction and
land loans.
The weighted average interest rate on the mortgage loan portfolio was
approximately 7.41% (unaudited), 7.43% and 7.47% at June 30, 1996,
March 31, 1996 and 1995, respectively.
Loans serviced for others approximated $1,096,000 (unaudited),
$1,086,000 and $1,011,000 at June 30, 1996 and March 31, 1996 and
1995, respectively.
The following table summarizes information regarding nonaccrual loans:
<TABLE>
<CAPTION>
June 30, March 31,
------------------
1996 1996 1995
---- ---- ----
(unaudited)
<S> <C> <C> <C>
Nonaccrual loans 3,702 4,045 3,033
======= ======= =======
</TABLE>
(Continued)
F - 16
<PAGE>
FIRST FEDERAL SAVINGS BANK OF AMERICA
AND SUBSIDIARY
Notes to Consolidated Financial Statements
The following table summarizes information regarding the reduction of
interest income on nonaccrual loans:
<TABLE>
<CAPTION>
For the For the
three months years ended
ended June 30, March 31,
---------------- ---------------------
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Income in accordance with
original terms $ 89 71 358 272 368
Income recognized 25 6 234 95 121
--- --- ---- ---- ----
Foregone interest income during
year $ 64 65 124 177 247
=== === ==== ==== ====
</TABLE>
At June 30, 1996, there were no commitments to lend additional funds to
those borrowers whose loans were classified as impaired or nonaccrual.
At June 30, 1996 and March 31, 1996, total impaired loans were $985
(unaudited) and $991, respectively. At June 30, 1996, impaired loans
of $985 (unaudited) required an impairment allowance of $493. In
opinion of management, none of these impaired loans required a
impairment allowance at March 31, 1996. There were no (unaudited)
impaired loans at June 30, 1995. All impaired loans have been measured
using the fair value of the collateral method. During the three months
ended June 30, 1996, the average recorded value of impaired loans was
$986 (unaudited). For these loans, $30 (unaudited) of interest income
was recognized while $63 (unaudited) of interest income would have been
recognized under their original terms. During the year ended March 31,
1996, the average recorded value of impaired loans was $580. For these
loans, $128 of interest income was recognized while $195 of interest
income would have been recognized under their original terms. The Bank
follows the same policy for recognition of income on impaired loans as
it does for all other loans.
An analysis of the allowance for loan losses follows:
<TABLE>
<CAPTION>
For the For the
three months years ended
ended June 30, March 31,
---------------- ----------------------
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $ 5,607 4,239 4,239 3,964 3,524
Provision for loan losses 1,000 475 2,626 653 1,035
Charge-offs (164) (55) (1,288) (400) (628)
Recoveries 2 - 30 22 33
----- ----- ------ ----- -----
Balance at end of period $ 6,445 4,659 5,607 4,239 3,964
===== ====== ===== ===== =====
</TABLE>
(Continued)
F - 17
<PAGE>
FIRST FEDERAL SAVINGS BANK OF AMERICA
AND SUBSIDIARY
Notes to Consolidated Financial Statements
In the ordinary course of business, the Bank makes loans to its directors,
executive officers, and their related interests, generally at the same
prevailing terms as those of other borrowers. The following is a
summary of related party loan activity:
<TABLE>
<CAPTION>
For the For the
three months years ended
ended June 30, March 31,
------------------ ----------------------
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Balance, beginning of period $ 778 796 796 693 831
Originations - - 182 163 371
Payments (161) (5) (200) (60) (509)
----- ---- ---- ---- ----
Balance, end of period $ 617 791 778 796 693
===== ==== ==== ==== ====
</TABLE>
Not included in the amounts stated above are unused portions of lines of
credit. These amounted to $181 (unaudited), $196, $183 and $162 at
June 30, 1996 and March 31, 1996, 1995 and 1994, respectively.
Loans with a book value of $6,617 (unaudited) and $5,959 were pledged as
collateral for the "Deposit Collateralization Bailee Program" with the
Federal Home Loan Bank of Boston at June 30, 1996 and March 31, 1996.
(5) Sale of Mortgage Loans (In Thousands)
The following summarizes mortgage loan sales, the components of gain (loss)
on sale of mortgage loans and changes in the premium on sale of
mortgage loans:
<TABLE>
<CAPTION>
For the For the
three months years ended
ended June 30, March 31,
------------------ -----------------------
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Gain on sale of mortgage loans:
Cash proceeds from sales of loans $ 44,715 24,322 183,323 139,583 547,035
Buy-up (buy-down) fees paid (received), net (24) (22) 43 (419) (889)
-------- ------- -------- -------- --------
Net cash proceeds from sales of loans 44,691 24,300 183,366 139,164 546,146
Principal balance of loans sold (45,207) (24,438) (183,571) (141,169) (546,651)
Capitalized mortgage servicing rights 261 - - - -
Net Deferred origination (costs) fees
recognized at time of sale 85 (58) (422) 124 1,775
Recovery (provision) for realized loss on
mortgage loans held for sale 214 - (214) - -
Premium resulting from interest
rate differential - - - 2 366
-------- ------- -------- -------- --------
Gain (loss) on sales of mortgage
loans, net $ 44 (196) (841) (1,879) 1,636
======== ======= ======== ======== ========
</TABLE>
(Continued)
F - 18
<PAGE>
FIRST FEDERAL SAVINGS BANK OF AMERICA
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(6) Office Properties and Equipment (In Thousands)
Office properties and equipment consist of the following:
<TABLE>
<CAPTION>
June 30, March 31,
-----------------------
1996 1996 1995
---- ---- ----
(unaudited)
<S> <C> <C> <C>
Land $ 1,234 1,234 1,159
Office building and improvements 5,688 5,688 5,051
Furniture, fixtures and equipment 4,879 4,768 4,135
Construction in progress 2,062 1,189 -
------- ------ ------
13,863 12,879 10,345
Less accumulated depreciation (4,697) (4,550) (3,905)
------- ------ ------
$ 9,166 8,329 6,440
======= ====== ======
</TABLE>
Construction in progress at June 30, 1996 and March 31, 1996 primarily
represents costs incurred for the purchase and renovation of the
Pawtucket and Warwick banking offices, as well as renovations to the
Bank's existing Union Street and South End banking facilities.
The Bank leases certain office space under various noncancellable operating
leases. A summary of future minimum rental payments under such leases
follows:
<TABLE>
<CAPTION>
June 30, 1996 March 31, 1996
Year ending March 31, --------------------- ---------------
--------------------- (unaudited)
<S> <C> <C>
1997 $135 161
1998 90 76
1999 6 6
</TABLE>
Rent expense was $46,000 and $45,000 for the three months ended June 30,
1996 and 1995 (unaudited), respectively. Rent expense was $182,000,
$172,000 and $143,000 for the years ended March 31, 1996, 1995 and
1994, respectively.
(Continued)
F - 19
<PAGE>
FIRST FEDERAL SAVINGS BANK OF AMERICA
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(7) Deposits (Dollars in Thousands)
A summary of deposits are as follows:
<TABLE>
<CAPTION>
June 30, 1996 March 31,
--------------------------------- ------------------------------------------------------------
Weighted Weighted 1996 1995
Average Average ---------------- ----------------
rates Amount % rates Amount % Amount %
----- ------ - ----- ------ - ------ -
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Money market (2.82)% $ 27,286 4.5% (2.83; 2.83)% $ 28,614 4.9% $ 27,969 6.4%
Business checking (-) 43,134 7.2 (---- ;----) 48,517 8.3 28,950 6.6
Savings (2.50) 81,723 13.6 (2.50; 2.50) 78,420 13.4 76,103 17.3
NOW (1.98) 38,825 6.5 (1.98;1.98) 36,248 6.2 26,551 6.0
------- ----- ------- ----- ------- -----
190,968 31.8 191,799 32.8 159,573 36.3
------- ----- ------- ----- ------- -----
Certificates:
Six months to
one year (5.52) 171,141 28.5 (5.63; 5.28) 153,082 26.2 100,893 22.9
Over one year (6.32) 137,052 22.8 (6.39; 6.12) 133,480 22.9 68,331 15.5
Jumbo (5.63) 11,521 1.9 (5.68; 5.89) 11,196 2.0 38,959 8.9
IRA & Keogh (6.22) 75,335 12.5 (6.24; 5.30) 72,530 12.4 60,266 13.7
Business statement (4.79) 1,701 0.3 (4.62; 5.54) 11,335 1.9 4,389 1.0
7-91 day (4.92) 12,866 2.2 (4.75; 4.68) 10,328 1.8 7,696 1.7
------- ----- ------- ----- ------- -----
Total certifi-
cate accounts 409,616 68.2 391,951 67.2 280,534 63.7
------- ----- ------- ----- ------- -----
$ 600,584 100.0 $ 583,750 100.0% $ 440,107 100.0%
======= ===== ======= ===== ======= =====
Weighted average stated interest
rate of deposits 4.62% 4.59% 4.28%
======= ======= =======
(Continued)
</TABLE>
F - 20
<PAGE>
FIRST FEDERAL SAVINGS BANK OF AMERICA
AND SUBSIDIARY
Notes to Consolidated Financial Statements
The remaining contractual maturities of certificate accounts are summarized
as follows:
<TABLE>
<CAPTION>
For the
three months For the
ended years ended March 31,
June 30, ----------------------------------------
1996 1996 1995
--------------- -------------- ---------------
Amount % Amount % Amount %
------ - ------ - ------ -
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Within twelve months $ 296,928 72.5% $ 287,579 73.4 $ 192,115 68.5
Thirteen months to
thirty-six months 88,654 21.6 80,301 20.5 71,587 25.5
Beyond thirty-six months 24,034 5.9 24,071 6.1 16,832 6.0
------- ----- ------- ----- ------- -----
$ 409,616 100.0% $ 391,951 100.0% $ 280,534 100.0%
======= ===== ======= ===== ======= =====
</TABLE>
Certificates of deposit in denominations of $100 or more totaled
approximately $48,211 (unaudited) at June 30, 1996. Certificates of
deposit in denominations of $100 or more totaled approximately $53,600
and $31,144 at March 31, 1996 and 1995, respectively.
In the ordinary course of business, the Bank accepts deposits from brokerage
companies on behalf of their clients. These monies are invested in
certificates of deposit. Brokered deposits amounted to $2,752
(unaudited), $2,350 and $21,514 at June 30, 1996 and at March 31, 1996
and 1995, respectively.
Interest expense on deposits consisted of the following:
<TABLE>
<CAPTION>
For the For the
three months ended years ended
June 30, March 31,
----------------- --------------------------
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Money market $ 206 192 783 885 749
Savings 499 472 1,915 2,037 2,898
NOW 181 133 599 479 370
Certificates 5,903 4,148 19,834 10,489 6,377
------ ----- ------ ------ ------
$6,789 4,945 23,131 13,890 10,394
====== ===== ====== ====== ======
</TABLE>
(Continued)
F - 21
<PAGE>
FIRST FEDERAL SAVINGS BANK OF AMERICA
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(8) Federal Home Loan Bank Advances (Dollars in Thousands)
At June 30, 1996 and at March 31, 1996 and 1995, advances from the Federal
Home Loan Bank of Boston with a weighted average interest rate of
5.77% (unaudited), 5.94% and 6.96%, respectively, mature as follows:
<TABLE>
<CAPTION>
Year ending June 30, March 31,
--------------
March 31, 1996 1996 1995
--------- ---- ---- ----
(unaudited)
<S> <C> <C> <C>
1996 $ - - 51,592
1997 79,516 48,092 8,000
1998 19,000 9,000 7,000
1999 21,700 10,000 -
2000 15,383 7,000 -
2001 and thereafter 1,049 1,049 -
-------- ------ ------
$136,648 75,141 66,592
======== ====== ======
</TABLE>
In accordance with the Federal Home Loan Bank of Boston's collateral
requirements, a portion of first mortgage loans on residential property
and all deposits and securities issued, insured or guaranteed by the
United States government or an agency thereof, are pledged as
collateral to secure such advances.
The Bank has a $7,420 (unaudited) secured line of credit available through
the Federal Home Loan Bank of Boston at June 30, 1996. The line of
credit balance available at March 31, 1996 was $11,710.
(9) Litigation
Various legal proceedings are pending against the Bank which have arisen out
of the normal course of business. In the opinion of management, the
ultimate disposition of these matters is not expected to have a
material adverse effect on the consolidated financial position, the
annual results of operations, or liquidity of the Bank.
(10) Financial Instruments with Off-balance Sheet Risk (In Thousands)
The Bank is party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its These
financial instruments primarily include commitments to originate and
sell loans and unadvanced lines of credit. The instruments involve, to
varying degrees, elements of credit and interest rate risk in excess of
the amounts recognized in the consolidated balance sheet. The contract
amounts of those instruments reflect the extent of the Bank's
involvement in these particular classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for loan commitments and
unadvanced lines of credit is represented by the contractual amount of
those instruments. The Bank uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet
instruments.
(Continued)
F - 22
<PAGE>
FIRST FEDERAL SAVINGS BANK OF AMERICA
AND SUBSIDIARY
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
June 30, March 31,
-------------------
1996 1996 1995
Amount Amount Amount
-------- ------ ------
(unaudited)
<S> <C> <C> <C>
Financial instruments whose contract amount
represents credit risk:
Commitments to originate loans to be sold $ 12,197 15,977 10,128
Commitment to originate loans to be
held in portfolio 58,972 70,215 24,895
Unadvanced home equity lines of credit 24,512 23,986 22,552
Unadvanced commercial lines of credit 7,758 8,107 7,089
Undisbursed proceeds of construction
mortgages 7,986 6,568 5,511
Financial instruments whose contractual amount
exceeds the amount of credit risk:
Commitments to sell residential mortgage loans 13,433 23,635 16,000
</TABLE>
Commitments to originate loans, unadvanced commercial lines of credit,
unadvanced home equity lines of credit and unadvanced residential
construction loans are agreements to lend to a customer provided there
is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments
are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The Bank
evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the Bank upon
extension of credit, is based on management's credit evaluation of the
borrower.
In addition, the Bank enters into contracts to sell mortgage loans in the
secondary market. Risks arise from the possible inability of the Bank
to originate loans to fulfill these contracts, in which case the Bank
would normally purchase loans or securities in the open market to
deliver against the contract. All loans are sold without recourse.
(11) Income Taxes (Dollars in Thousands)
<TABLE>
<CAPTION>
Income tax expense is summarized as follows:
For the For the
three months ended years ended
June 30, March 31,
------------------ -----------------------
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Current income tax expense:
Federal $ 684 784 2,861 1,963 3,419
State 281 312 1,202 755 1,425
------ ----- ----- ----- -----
965 1,096 4,063 2,718 4,844
------ ----- ----- ----- -----
Deferred income tax
(benefit) expense:
Federal (135) (109) (586) 810 (406)
State (49) (44) (124) 324 (203)
------ ----- ----- ----- -----
(184) (153) (710) 1,134 (609)
------ ----- ----- ----- -----
$ 781 943 3,353 3,852 4,235
====== ===== ===== ===== =====
</TABLE>
(Continued)
F - 23
<PAGE>
FIRST FEDERAL SAVINGS BANK OF AMERICA
AND SUBSIDIARY
Notes to Consolidated Financial Statements
The reasons for the differences between the effective tax rates and the
statutory federal income tax rate were as follows:
<TABLE>
<CAPTION>
For the For the
three months ended years ended
June 30, March 31,
--------------------- ----------------------------
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Statutory federal income tax rate 34.0% 34.0% 34.0% 34.0% 34.0%
Items affecting federal income tax rate:
State tax, net of federal benefit 8.3 7.9 8.9 8.1 8.4
Other, net (.1) .2 (.8) 1.6 1.5
----- ----- ----- ----- -----
Effective income tax rate 42.2% 42.1% 42.1% 43.7% 43.9%
===== ===== ===== ===== =====
The following is an analysis of accrued income taxes:
<CAPTION>
June 30, March 31,
-------------------
1996 1996 1995
---- ---- ----
(unaudited)
<S> <C> <C> <C>
Federal income taxes payable $ 374 897 1,013
State income taxes receivable (215) (206) (61)
----- ----- -----
Total current income tax payable, net $ 159 691 952
===== ===== =====
Deferred income tax asset, net $ 2,128 1,960 1,339
===== ===== =====
</TABLE>
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities,
are presented below:
<TABLE>
<CAPTION>
June 30, March 31,
-------------------
1996 1996 1995
---- ---- ----
(unaudited)
<S> <C> <C> <C>
Deferred tax assets:
Accrued interest income $ 121 118 143
Write-down of equity investments 63 63 45
Deferred loan fees, net 497 536 512
Deferred compensation and pension cost 255 245 92
Allowance for loan losses 2,269 1,919 1,187
----- ----- -----
Gross deferred income tax asset 3,205 2,881 1,979
----- ----- -----
Deferred tax liabilities:
Mortgage servicing rights 106 - -
Depreciation 658 621 246
Premium on sale of loans - - 179
Other 12 15 19
Unrealized gain on investments available for sale 301 285 196
----- ----- -----
Gross deferred tax liability 1,077 921 640
----- ----- -----
Deferred income tax asset, net $ 2,128 1,960 1,339
===== ===== =====
</TABLE>
(Continued)
F - 24
<PAGE>
FIRST FEDERAL SAVINGS BANK OF AMERICA
AND SUBSIDIARY
Notes to Consolidated Financial Statements
Based on the Bank's historical and current pretax earnings, management
believes it is more likely than not that the Bank will realize the net
deferred tax asset existing at June 30, 1996 and March 31, 1996. The
primary sources of recovery of the net federal deferred tax asset of
$1,575 (unaudited) and $1,464 at June 30, 1996 and March 31, 1996 are
federal income taxes paid in the previous three years that are
available for carryback and the expectation that the existing net
deductible temporary differences will reverse during periods in which
the Bank generates net taxable income. Deferred state tax assets, net
of related federal tax, totaled $553 (unaudited) and $496 at June 30,
1996 and March 31, 1996, respectively. Since there is no carryback
provision for state income tax purposes, the Bank needs to generate
approximately $4,718 (unaudited) and $4,232 at June 30, 1996 and March
31, 1996 of future net taxable income to realize the state deferred tax
asset.
It should be noted, however, that factors beyond management's control, such
as the general economy and real estate values, can affect future levels
of taxable income, and no assurance can be given that sufficient
taxable income will be generated to fully absorb gross deductible
temporary differences.
Under the Internal Revenue Code (the "Code"), the Bank is allowed a special
bad debt deduction related to additions to tax bad debt reserves
established for the purpose of absorbing losses. The provisions of the
Code permit the Bank to deduct from taxable income an addition to the
tax bad debt reserves based on a percentage (currently 8%) of taxable
income before such deduction or on certain experience formulas. At
March 31, 1996, retained earnings included approximately $7,398
representing the accumulated amount of such statutory bad debt
deductions for which no federal income taxes have been provided. If
this amount is used for purposes other than for loan losses, it may be
subject to federal income tax of approximately $2,515. The Bank does
not anticipate that retained earnings will be used in any way which
would result in the payment of taxes, accordingly a deferred tax
liability has not been recorded for the statutory bad debt deduction
amount.
(12) Pension Plan and Other Benefits (Dollars in Thousands)
Pension Plan
All eligible officers and employees of the Bank, who have reached the age of
twenty-one and completed one year of service, are included in a
noncontributory, defined benefit pension plan ("the Plan") provided by
the Bank. The Plan is administered by Pentegra ("the Fund"). The Fund
does not segregate the assets or liabilities of each participating
employer and, accordingly, disclosure of the Bank's accumulated vested
and nonvested benefits is not possible. Contributions are based on each
individual employers' experience. According to the Fund's
administrators, as of June 30, 1995, the date of the latest actuarial
valuation, the market value of the Fund's net assets exceeded the
actuarial present value of vested and nonvested benefits in the
aggregate.
The Bank's contribution to the pension plan was $82 (unaudited) and $121
(unaudited) for the three months ended June 30, 1996 and 1995,
respectively. The Bank's contribution to the pension plan was $360 and
$289 for the years ended March 31, 1996 and 1995.
(Continued)
F - 25
<PAGE>
FIRST FEDERAL SAVINGS BANK OF AMERICA
AND SUBSIDIARY
Notes to Consolidated Financial Statements
Postretirement Benefits
On April 1, 1995, the Bank adopted SFAS No. 106, Employers' Accounting for
Postretirement Benefits Other than Pensions. Under SFAS No. 106, the
Bank changed its method of accounting for postretirement benefits other
than pensions from the pay-as-you-go method to the method of accruing
these costs over employees' service periods. The effect of adopting
SFAS No. 106 can be charged to expense immediately or spread over no
more than the lesser of twenty years or the average life expectancy of
the participants. The Bank currently provides postretirement benefits
for a limited number of retirees. The Bank is amortizing the cumulative
effect of this change of $177 over the average life expectancy of the
participants, which is 7 years.
Supplemental Executive Retirement Plan
In 1986, the Internal Revenue Service issued regulations which limit the
benefits of certain individuals under qualified retirement plans.
During 1993, the Bank adopted a supplemental executive retirement plan
which provides for certain Bank executives to receive benefits upon
retirement subject to certain limitations as set forth in the plan. The
Bank's expense under this Plan was approximately $35 (unaudited) and
$31 (unaudited) for the three months ended June 30, 1996 and 1995 and
$130, $121 and $115 for the years ended March 31, 1996, 1995 and 1994.
At June 30 1996 and March 31, 1996, the Bank holds restricted assets in
a rabbi trust with a cost basis of $635 (unaudited) and $598,
respectively and a market value of $771 (unaudited) and $699,
respectively which are included in other assets and offset by an
accrued liability of $635 (unaudited) and $598.
Employee Tax Deferred Thrift Plan
The Bank has an employee tax deferred thrift plan ("Plan") under which
employee contributions to the Plan are matched within certain
limitations by the Bank. All employees who meet specified age and
length of service requirements are eligible to participate in the plan.
The amounts matched by the Bank are included in compensation and
benefits expense. The amount matched for the three months ended June
30, 1996 and 1995 was $28 (unaudited) and $27 (unaudited). The amounts
matched for the year ended March 31, 1996 was $104.
(13) Fair Values of Financial Instruments (Dollars in Thousands)
SFAS No. 107, Disclosures about Fair Value of Financial Instruments,
requires disclosure of fair value information about financial
instruments, whether or not recognized in the balance sheet, for which
it is practicable to estimate that value. Fair value estimates are
based on existing on- and off-balance sheet financial instruments
without attempting to estimate the value of anticipated future business
and the value of assets and liabilities that are not considered
financial instruments. Other significant assets and liabilities that
are not considered financial assets or liabilities include real estate
owned, the deferred income tax asset, office properties and equipment,
and core deposit and other intangibles. In addition, the tax
ramifications related to the realization of the unrealized gains and
losses can have a significant effect on fair value estimates and have
not been considered in any of the estimates. Accordingly, the aggregate
fair value amounts presented do not represent the underlying value of
the Bank.
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could
result from offering for sale at one time the Bank's entire holdings of
a particular financial instrument. Because no market exists for some of
the Bank's financial
(Continued)
F - 26
<PAGE>
FIRST FEDERAL SAVINGS BANK OF AMERICA
AND SUBSIDIARY
Notes to Consolidated Financial Statements
instruments, fair value estimates are based on judgments regarding
future expected loss experience, cash flows, current economic
conditions, risk characteristics and other factors. These estimates are
subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision.
Changes in assumptions and changes in the loan, debt and interest rate
markets could significantly affect the estimates. Further, the income
tax ramifications related to the realization of the unrealized gains
and losses can have a significant effect on the fair value estimates
and have not been considered.
The following methods and assumptions were used by the Bank in estimating
the fair values of its financial instruments:
Cash on Hand and Due from Banks
The fair values for cash on hand and due from banks approximate those
assets' carrying amounts reported in the balance sheet.
Investment and Mortgage-backed Securities
Fair values for investment and mortgage-backed securities are based on
quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments.
Mortgage Loans Held for Sale
Fair values for mortgage loans held for sale are based on quoted market
prices. Commitments to originate loans and forward commitments to sell
loans have been considered in the value of mortgage loans held for
sale.
Loans
The fair values of loans are estimated using discounted cash flow analyses
and interest rates currently being offered for loans with similar terms
to borrowers of similar credit quality. The incremental credit risk for
nonperforming loans has been considered in the determination of the
fair value of loans.
Accrued Interest Receivable
The fair value of accrued interest receivable approximates its carrying
amount because of the short-term nature of these financial instruments.
Stock in FHLB of Boston
The fair value of FHLB stock approximates the amount reported in the balance
sheet. If redeemed, the Bank will receive an amount equal to the par
value of the stock.
Deposits and Advance Payments by Borrowers for Taxes and Insurance
The fair values of demand deposits (e.g., N.O.W., business checking, regular
and club accounts, certain types of money market accounts and advance
payments by borrowers for taxes and insurance) are, by definition,
equal to the amount payable on demand at the reporting date (i.e.,
their carrying amounts). Fair values for fixed-rate certificates of
deposit are estimated using a discounted cash flow technique that
applies interest rates currently being offered on certificates to a
schedule of aggregated expected monthly maturities of such
certificates.
(Continued)
F - 27
<PAGE>
FIRST FEDERAL SAVINGS BANK OF AMERICA
AND SUBSIDIARY
Notes to Consolidated Financial Statements
FHLB Advances
The fair value of Federal Home Loan Bank overnight advances approximates
their carrying value due to their short term nature. All other advances
are estimated using a discounted cash flow technique that applies
interest rates currently being offered on advances to a schedule of
aggregated expected monthly maturities of FHLB advances.
Accrued Interest Payable
The fair value of accrued interest payable approximates its carrying amount
because of the short-term nature of these financial instruments.
Off-balance Sheet Instruments
Fair values for the Bank's off-balance-sheet instruments are based on fees
currently charged to enter into similar agreements, taking into account
the remaining terms of the agreements and the counterparties' credit
standing. The difference between the fair value of commitments to
originate loans and their contract value is considered to be immaterial
based on a comparison to current offering rates for similar loan
products. The contract value of commitments to sell loans was
considered in determining the fair value of loans held for sale. The
Bank's commitments for unused lines and outstanding standby letters of
credit and unadvanced portions of loans are at floating rates, and
therefore, there is no fair value adjustment.
The carrying amount and fair values of the Bank's financial instruments are
as follows:
<TABLE>
<CAPTION>
March 31,
June 30, --------------------------------------
1996 1996 1995
----------------- ------------------- -----------------
Carrying Fair Carrying Fair Carrying Fair
amount value amount value amount value
------ ----- ------ ----- ------ -----
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Financial assets:
Cash on hand and due
from banks $ 13,885 13,885 13,277 13,277 9,891 9,891
Mortgage loans held
for sale 6,530 6,530 17,747 17,747 6,816 6,816
Investment securities
available for sale 773 773 725 725 518 518
Investment securities
held to maturity 21,487 21,502 23,987 24,061 20,988 20,851
Mortgage-backed securi-
ties held to maturity 7,138 7,269 7,248 7,386 2,721 2,818
Stock in FHLB of Boston 6,967 6,967 6,630 6,630 6,630 6,630
Loans receivable, net 727,401 697,122 637,592 631,952 499,977 502,074
Accrued interest receivable 4,182 4,182 3,711 3,711 2,864 2,864
Financial liabilities:
Deposits 600,584 602,093 583,750 586,239 440,107 439,440
FHLB advances 136,648 136,560 75,141 74,997 66,592 66,440
Advance payments by
borrowers for taxes
and insurance 4,544 4,544 4,167 4,167 3,415 3,415
Accrued interest payable 649 649 304 304 401 401
</TABLE>
(Continued)
F - 28
<PAGE>
FIRST FEDERAL SAVINGS BANK OF AMERICA
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(14) Subsequent Event -- Plan of Conversion (Unaudited)
On August 2, 1996, the Board of Directors of the Bank adopted the Plan of
Conversion ("Plan") pursuant to which the Bank will convert from a
federally chartered mutual savings bank to a federally chartered stock
savings bank, all of the outstanding common stock of which will be
acquired by FIRSTFED AMERICA BANCORP, INC. (the "Company"), a holding
company formed expressly for such purpose, in exchange for a portion of
the net Conversion proceeds. All of the stock to be issued in the
Conversion is being offered to eligible account holders as of June 30,
1995.
The Bank plans to establish an ESOP for the benefit of eligible employees,
to become effective upon the Conversion. The ESOP intends to purchase
up to 8% of the Common Stock issued in the Conversion utilizing
proceeds of a loan from a wholly-owned subsidiary of the Company or a
third party lender. The loan will be repaid over a period of nine years
and the collateral for the loan will be the common stock purchased by
the ESOP.
Pursuant to the Plan, the Company intends to establish a Charitable
Foundation ("Foundation") in connection with the conversion. The Plan
provides that the Bank and the Company will create the Foundation and
donate an amount of the Company's common stock equal to 8.0% of the
common stock to be issued in the conversion. The Foundation will be
dedicated to charitable purposes within Fall River, Massachusetts and
its neighboring communities and to complement the Bank's existing
community activities.
The Foundation will submit a request to the Internal Revenue Service to be
recognized as a tax-exempt organization and would likely be classified
as a private foundation. A contribution of common stock to the
Foundation by the Company would be tax deductible, subject to a
limitation based on 10 percent of the Company's annual taxable income.
The Company, however, would be able to carry forward any unused portion
of the deduction for five years following the contribution. Upon
funding the Foundation, the Company will recognize an expense in the
full amount of the contribution, offset in part by the corresponding
tax deduction, during the quarter in which the contribution is made.
The Bank may provide support services to the Foundation including, but not
limited to, employee time, office space and accounting support. The
Bank expects to provide these services without compensation, however,
expenses incurred on behalf of the Foundation are not expected to be
significant to the operations of the Bank.
At the time of the conversion, the Bank will establish a liquidation account
in an amount equal to its equity as reflected in the latest balance
sheet used in the final conversion prospectus. The liquidation account
will be maintained for the benefit of eligible account holders and
supplemental eligible account holders who continue to maintain their
accounts at the Bank after the conversion. The liquidation account will
be reduced annually to the extent that eligible account holders and
supplemental eligible account holders have reduced their qualifying
deposits as of each anniversary date. Subsequent increases will not
restore an eligible account holder's or supplemental eligible account
holder's interest in the liquidation account. In the event of a
complete liquidation of the Bank, each eligible account holder and
supplemental eligible account holder 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.
(Continued)
F - 29
<PAGE>
FIRST FEDERAL SAVINGS BANK OF AMERICA
AND SUBSIDIARY
Notes to Consolidated Financial Statements
The costs associated with Conversion will be deferred and will be deducted
from the proceeds upon the sale and issuance of stock. In the event the
Conversion is not consummated, costs incurred will be charged to
expense. At June 30, 1996, there were no (unaudited) deferred
conversion costs.
After the conversion, the Bank may not declare or pay dividends on its stock
if such declaration and payment would violate statutory or regulatory
requirements.
F - 30
<PAGE>
================================================================================
No dealer, salesman or any other person has been authorized to give any
information or to make any representation other than as contained in this
Prospectus in connection with the offering made hereby, and, if given or made,
such other information or representation must not be relied upon as having been
authorized by FIRSTFED AMERICA BANCORP, INC., the Bank or Sandler O'Neill &
Partners, L.P. 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 FIRSTFED AMERICA BANCORP, INC. or the Bank
since any of the dates as of which information is furnished herein or since the
date hereof.
------------------------------
TABLE OF CONTENTS
Page
----
Summary...............................................................
Selected Consolidated Financial and
Other Data of the Bank............................................
Recent Developments...................................................
Risk Factors..........................................................
FIRSTFED AMERICA BANCORP, INC.........................................
First Federal Savings Bank of America.................................
Regulatory Capital Compliance.........................................
Use of Proceeds.......................................................
Dividend Policy.......................................................
Market for the Common Stock...........................................
Capitalization........................................................
Pro Forma Data........................................................
First Federal Savings Bank of America and its Subsidiary Consolidated
Statements of Income..............................................
Management's Discussion and Analysis of Financial
Condition and Results of Operations...............................
Business of the Bank..................................................
Federal and State Taxation............................................
Regulation............................................................
Management of the Company.............................................
Management of the Bank................................................
The Conversion........................................................
Restrictions on Acquisition of the Company
and the Bank......................................................
Description of Capital Stock of the Company...........................
Description of Capital Stock of the Bank..............................
Transfer Agent and Registrar..........................................
Experts...............................................................
Legal and Tax Opinions................................................
Additional Information................................................
Index of Consolidated Financial Statements............................
------------------------------
Until __________, 1996 or 25 days after commencement of the Syndicated
Community Offering, if any, whichever is later, all dealers effecting
transactions in the registered securities, whether or not participating in this
distribution, may be required to deliver Prospectus. This is in addition to the
obligation of dealers to deliver a Prospectus when acting as underwriters and
with respect to their unsold allotments or subscriptions.
7,015,000 Shares
FIRSTFED AMERICA BANCORP, INC.
(Proposed Holding Company for
First Federal Savings Bank of America)
COMMON STOCK
----------
PROSPECTUS
----------
_______________, 1996
Sandler O'Neill & Partners, L.P.
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.(1)
<TABLE>
<CAPTION>
<S> <C>
OTS filing fee.................................. $ 14,400
SEC filing fee(1)............................... 30,044
NASD filing fee(1).............................. 9,213
Exchange listing fee(1)......................... 37,500
Printing, postage and mailing................... 235,000
Legal fees and expenses......................... 320,000
Accounting fees and expenses.................... 250,000
Appraiser's fees and expenses (including
business plan)................................ 31,000
Marketing fees and selling commissions(1)....... 1,125,800
Underwriter's expenses (including underwriters
counsel fees)(1)............................. 75,000
Proxy solicitation and record management
fees and expenses............................. 45,000
Transfer agent fees and expenses................ 15,000
Certificate printing............................ 5,000
Telephone, temporary help and other
equipment..................................... 20,000
Blue Sky fees and expenses...................... 15,000
Miscellaneous................................... 41,843
----------
TOTAL........................................... $2,269,800
==========
</TABLE>
- --------------------
(1) Actual expenses based upon the registration of 8,712,630 shares at $10.00
per share, including shares issued to the First Federal Savings Bank of
America Foundation. All other expenses are estimated.
Item 14. Indemnification of Directors and Officers.
In accordance with the General Corporation Law of the State of Delaware (being
Chapter 1 of Title 8 of the Delaware Code), Articles 10 and 11 of the
Registrant's Certificate of Incorporation provide as follows:
TENTH:
A. Each person who was or is made a party or is threatened to be made a party
to or is otherwise involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she is or was a Director or an Officer of the
Corporation or is or was serving at the request of the Corporation as a
Director, Officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a Director, Officer,
employee or agent, or in any other capacity while serving as a Director,
Officer, employee or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the Corporation
to provide broader indemnification rights than such law permitted the
Corporation to provide prior to such amendment), against all expense, liability
and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid in settlement) reasonably incurred or suffered by
such indemnitee in connection therewith; provided, however, that, except as
provided in Section C hereof with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof)
<PAGE>
initiated by such indemnitee only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation.
B. The right to indemnification conferred in Section A of this Article TENTH
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition (hereinafter
an "advancement of expenses"); provided, however, that, if the Delaware General
Corporation Law requires, an advancement of expenses incurred by an indemnitee
in his or her capacity as a Director or Officer (and not in any other capacity
in which service was or is rendered by such indemnitee, including, without
limitation, services to an employee benefit plan) shall be made only upon
delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by
or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under this
Section or otherwise. The rights to indemnification and to the advancement of
expenses conferred in Sections A and B of this Article TENTH shall be contract
rights and such rights shall continue as to an indemnitee who has ceased to be a
Director, Officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators.
C. If a claim under Section A or B of this Article TENTH is not paid in full by
the Corporation within sixty days after a written claim has been received by the
Corporation, except in the case of a claim for an advancement of expenses, in
which case the applicable period shall be twenty days, the indemnitee may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim. If successful in whole or in part in any such suit, or in a suit
brought by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the indemnitee shall be entitled to be paid also the
expenses of prosecuting or defending such suit. In (i) any suit brought by the
indemnitee to enforce a right to indemnification hereunder (but not in a suit
brought by the indemnitee to enforce a right to an advancement of expenses) it
shall be a defense that, and (ii) in any suit by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking the Corporation
shall be entitled to recover such expenses upon a final adjudication that, the
indemnitee has not met any applicable standard for indemnification set forth in
the Delaware General Corporation Law. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses under this
Article TENTH, or otherwise shall be on the Corporation.
D. The rights to indemnification and to the advancement of expenses conferred
in this Article TENTH shall not be exclusive of any other right which any person
may have or hereafter acquire under any statute, the Corporation's Certificate
of Incorporation, Bylaws, agreement, vote of stockholders or Disinterested
Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to protect itself
and any Director, Officer, employee or agent of the Corporation or subsidiary or
Affiliate or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
F. The Corporation may, to the extent authorized from time to time by the Board
of Directors, grant rights to indemnification and to the advancement of expenses
to any employee or agent of the Corporation to the fullest extent of the
provisions of this Article TENTH with respect to the indemnification and
advancement of expenses of Directors and Officers of the Corporation.
<PAGE>
ELEVENTH:
- --------
A Director of this Corporation shall not be personally liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
Director, except for liability: (i) for any breach of the Director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the Director derived an improper personal
benefit. If the Delaware General Corporation Law is amended to authorize
corporate action further eliminating or limiting the personal liability of
Directors, then the liability of a Director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders of the
Corporation shall not adversely affect any right or protection of a Director of
the Corporation existing at the time of such repeal or modification.
Item 15. Recent Sales of Unregistered Securities
Not applicable.
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
The exhibits and financial statement schedules filed as a part of this
Registration Statement are as follows:
(a) List of Exhibits (Filed herewith unless otherwise noted)
1.1 Engagement Letter between First Federal Savings Bank of America and
Sandler O'Neill & Partners, L.P.
1.2 Draft Form of Agency Agreement*
2.1 Amended Plan of Conversion (including the Federal Stock Charter and
Bylaws of First Federal Savings Bank of America)
3.1 Certificate of Incorporation of FIRSTFED AMERICA BANCORP, INC.
3.2 Bylaws of FIRSTFED AMERICA BANCORP, INC.
3.3 Federal Stock Charter and Bylaws of First
Federal Savings Bank of America (See Exhibit 2.1 hereto)
4.0 Draft Stock Certificate of FIRSTFED AMERICA BANCORP, INC.
5.0 Draft Opinion of Muldoon, Murphy & Faucette re: legality
5.1 Draft Opinion of Morris, Nichols, Arsht & Tunnell re: legality
8.0 Draft Opinion of Muldoon, Murphy & Faucette re: Federal Tax Matters
8.1 Draft Opinion of KPMG Peat Marwick, LLP re: State Tax Matters
10.1 Form of First Federal Savings Bank of America Employee Stock Ownership
Plan
10.2 Draft ESOP Loan Commitment Letter and ESOP Loan Documents
10.3 First Federal Savings Bank of America 1996 Supplemental Executive
Retirement Plan
10.4 Form of Employment Agreement between First Federal Savings Bank of
America and certain executive officers
10.5 Form of Employment Agreement between FIRSTFED AMERICA BANCORP, INC.
and certain executive officers
10.6 Form of Change in Control Agreement between First Federal Savings Bank of
America and certain executive officers
10.7 Form of Change in Control Agreement between FIRSTFED AMERICA BANCORP,
INC. and certain executive officers
10.8 Form of First Federal Savings Bank of America Employee Severance
Compensation Plan
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Muldoon, Murphy & Faucette
23.3 Consent of Morris, Nichols, Arsht & Tunnell
23.4 Consent and Subscription Rights Opinion of Keller & Company, Inc.
24.1 Powers of Attorney
27.0 Financial Data Schedule
99.1 Form of First Federal Savings Bank of America Foundation Gift Instrument*
99.2 Agreement Regarding Listing on a Securities Exchange*
- --------------------------------
*To be filed by amendment
<PAGE>
(b) Financial Statement Schedules
All schedules have been omitted as not applicable or not required under the
rules of Regulation S-X.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any Prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price represent
no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the Offering.
The undersigned Registrant hereby undertakes to furnish stock certificates
to or in accordance with the instructions of the respective purchasers of the
Common Stock, so as to make delivery to each purchaser promptly following the
closing under the Plan of Conversion.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act will be governed by the final adjudication of
such issue.
<PAGE>
CONFORMED
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the County of Bristol, Commonwealth
of Massachusetts, on September 27, 1996.
FIRSTFED AMERICA BANCORP, INC.
By: /s/ Robert F. Stoico
----------------------------------------
Robert F. Stoico
Director, Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Name Date
---- ----
/s/ Robert F. Stoico September 27, 1996
- ------------------------------------------
Robert F. Stoico
Director, Chairman of the Board, President
and Chief Executive Officer
(principal executive officer)
/s/ Terrence M. Tyrrell September 27, 1996
- ------------------------------------------
Terrence M. Tyrrell
Senior Vice President, Chief Financial Officer
and Treasurer
(principal accounting and financial officer)
/s/ Gilbert C. Oliveira September 27, 1996
- --------------------------------------------
Gilbert C. Oliveira
Director
/s/ Thomas A. Rodgers, Jr. September 27, 1996
- -----------------------------------------
Thomas A. Rodgers, Jr.
Director
/s/ Richard W. Cederberg September 27, 1996
- ----------------------------------------
Richard W. Cederberg
Director
/s/ John S. Holden, Jr. September 27, 1996
- -------------------------------------------
John S. Holden, Jr.
Director
<PAGE>
/s/ Dr. Paul A. Raymond September 27, 1996
- -------------------------------------------
Dr. Paul A. Raymond
Director
/s/ Anthony L. Sylvia September 27, 1996
- -------------------------------------------
Anthony L. Sylvia
Director
<PAGE>
TABLE OF CONTENTS
LIST OF EXHIBITS (FILED HEREWITH UNLESS OTHERWISE NOTED)
1.1 Engagement Letter between First Federal Savings Bank of America and
Sandler O'Neill & Partners, L.P.
1.2 Draft Form of Agency Agreement*
2.1 Amended Plan of Conversion (including the Federal Stock Charter and
Bylaws of First Federal Savings Bank of America)
3.1 Certificate of Incorporation of FIRSTFED AMERICA BANCORP, INC.
3.2 Bylaws of FIRSTFED AMERICA BANCORP, INC.
3.3 Federal Stock Charter and Bylaws of First Federal Savings Bank of America
(See Exhibit 2.1 hereto)
4.0 Draft Stock Certificate of FIRSTFED AMERICA BANCORP, INC.
5.0 Draft Opinion of Muldoon, Murphy & Faucette re: legality
5.1 Draft Opinion of Morris, Nichols, Arsht & Tunnell re: legality
8.0 Draft Opinion of Muldoon, Murphy & Faucette re: Federal Tax Matters
8.1 Draft Opinion of KPMG Peat Marwick, LLP re: State Tax Matters
10.1 Form of First Federal Savings Bank of America Employee Stock Ownership
Plan
10.2 Draft ESOP Loan Commitment Letter and ESOP Loan Documents
10.3 First Federal Savings Bank of America 1996 Supplemental Executive
Retirement Plan
10.4 Form of Employment Agreement between First Federal Savings Bank of
America and certain executive officers
10.5 Form of Employment Agreement between FIRSTFED AMERICA BANCORP, INC. and
certain executive officers
10.6 Form of Change in Control Agreement between First Federal Savings Bank
of America and certain executive officers
10.7 Form of Change in Control Agreement between FIRSTFED AMERICA BANCORP,
INC. and certain executive officers
10.8 Form of First Federal Savings Bank of America Employee Severance
Compensation Plan
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Muldoon, Murphy & Faucette
23.3 Consent of Morris, Nichols Arsht & Tunnell
23.4 Consent and Subscription Rights Opinion of Keller & Company, Inc.
24.1 Powers of Attorney
27.0 Financial Data Schedule
99.1 Form of First Federal Savings Bank of America Foundation Gift Instrument*
99.2 Agreement Regarding Listing on a Securities Exchange*
__________________________________
*To be filed by amendment
<PAGE>
[LETTERHEAD OF SANDLER O'NEILL APPEARS HERE]
August 12, 1996
Mr. Robert F. Stoico
President and Chief Executive Officer
First Federal Savings Bank of America
1 North Main Street
Fall River, Massachusetts 02722
Dear Mr. Stoico:
Sandler O'Neill Corporate Strategies, a division of Sandler O'Neill &
Partners, L.P. ("Sandler O'Neill"), is pleased to act as an independent
financial advisor to First Federal Savings Bank of America (the "Bank") in
connection with the Bank's proposed conversion from mutual to stock form (the
"Conversion"), including the offer and sale of certain shares of the common
stock of the proposed new holding company for the Bank (the "Holding Company")
to the Bank's eligible account holders in a Subscription Offering, to members of
the Bank's community in a Direct Community Offering and, under certain
circumstances, to the general public in a Syndicated Community Offering
(collectively, the "Offerings"). For purposes of this letter, the term "Actual
Purchase Price" shall mean the price at which the shares of the Holding
Company's common stock are sold in the Conversion. This letter is to confirm
the terms and conditions of our engagement.
ADVISORY SERVICES
- -----------------
Sandler O'Neill will act as a consultant and advisor to the Bank and the
Holding Company and will work with the Bank's management, counsel, accountants
and other advisors in connection with the Conversion and the Offerings. We
anticipate that our services will include the following, each as may be
necessary and as the Bank may reasonably request:
1. Consulting as to the securities marketing implications of any aspect
of the Plan of Conversion or related corporate documents;
2. Reviewing with the Board of Directors the independent appraiser's
appraisal of the common stock, particularly with regard to aspects of
the appraisal involving the methodology employed;
<PAGE>
First Federal Savings Bank of America
August 12, 1996 Sandler O'Neill
Page 2
3. Reviewing all offering documents, including the Prospectus, stock
order forms and related offering materials (it being understood that
preparation and filing of such documents will be the responsibility of
the Bank and the Holding Company and their counsel);
4. Assisting in the design and implementation of a marketing strategy for
the Offerings;
5. Assisting in obtaining all requisite regulatory approvals;
6. Assisting Bank management in scheduling and preparing for meetings
with potential investors and broker-dealers; and
7. Providing such other general advice and assistance as may be requested
to promote the successful completion of the Conversion.
SYNDICATED COMMUNITY OFFERING
- -----------------------------
If any shares of the Holding Company's common stock remain available after
the expiration of the Subscription Offering and the Direct Community Offering,
at the request of the Bank and subject to the continued satisfaction of the
conditions set forth in the second paragraph under the caption "Definitive
Agreement" below, Sandler O'Neill will seek to form a syndicate of registered
dealers to assist in the sale of such common stock in a Syndicated Community
Offering on a best efforts basis, subject to the terms and conditions set forth
in a selected dealers agreement. Sandler O'Neill will endeavor to limit the
aggregate fees to be paid by the Bank under any such selected dealers agreement
to an amount competitive with gross underwriting discounts charged at such time
for underwritings of comparable amounts of stock sold at a comparable price per
share in a similar market environment, which shall not exceed 7% of the
aggregate Actual Purchase Price of the shares sold under such agreements.
Sandler O'Neill will endeavor to distribute the common stock among dealers in a
fashion which best meets the distribution objectives of the Bank and the
requirements of the Plan of Conversion, which may result in limiting the
allocation of stock to certain selected dealers. It is understood that in no
event shall Sandler O'Neill be obligated to act as a selected dealer or to take
or purchase any shares of the Holding Company's common stock.
<PAGE>
First Federal Savings Bank of America
August 12, 1996 Sandler O'Neill
Page 3
FEES
- ----
If the Conversion is consummated, the Bank agrees to pay Sandler O'Neill
for its services hereunder the fees set forth below:
1. a fee of 1.56% of the aggregate Actual Purchase Price of the shares of
common stock sold in the Subscription Offering and in the Direct
Community Offering, excluding in each case shares purchased by (i) any
employee benefit plan of the Holding Company or the Bank established
for the benefit of their respective directors, officers and employees,
and (ii) any director, officer or employee of the Holding Company or
the Bank or members of their immediate families; and
2. with respect to any shares of the Holding Company's common stock sold
by an NASD member firm (other than Sandler O'Neill) under any selected
dealers agreement in the Syndicated Community Offering, (a) the sales
commission payable to the selected dealer under such agreement, (b)
any sponsoring dealer's fees, and (c) a management fee to Sandler
O'Neill of one and one-half percent (1.5%). Any fees payable to
Sandler O'Neill for common stock sold by Sandler O'Neill under any
such agreement shall be limited to an aggregate of 1.56% of the Actual
Purchase Price of such shares.
If (i) Sandler O'Neill's engagement hereunder is terminated for any of the
reasons provided for under the second paragraph of the section of this letter
captioned "Definitive Agreement," or (ii) the Conversion is terminated by the
Bank, no fees shall be payable by the Bank to Sandler O'Neill hereunder;
however, the Bank shall reimburse Sandler O'Neill for its reasonable out-of-
pocket expenses incurred in connection with its engagement hereunder.
All fees payable to Sandler O'Neill hereunder shall be payable in cash at
the time of the closing of the Conversion. In recognition of the long lead
times involved in the conversion process, the Bank agrees to make advance
payments to Sandler O'Neill in the aggregate amount of $50,000, $25,000 of which
shall be payable upon execution of this letter and the remaining $25,000 of
which shall be payable upon commencement of the Subscription Offering, which
shall be credited against any fees or reimbursement of expenses payable
hereunder.
COSTS AND EXPENSES
- ------------------
<PAGE>
First Federal Savings Bank of America
August 12, 1996 Sandler O'Neill
Page 4
In addition to any fees that may be payable to Sandler O'Neill hereunder
and the expenses to be borne by the Bank pursuant to the following paragraph,
the Bank agrees to reimburse Sandler O'Neill, upon request made from time to
time, for its reasonable out-of-pocket expenses incurred in connection with its
engagement hereunder, regardless of whether the Conversion is consummated,
including, without limitation, legal fees, advertising, promotional,
syndication, and travel expenses; provided, however, that Sandler O'Neill shall
-------- -------
document such expenses to the reasonable satisfaction of the Bank. The Bank's
obligation to reimburse such expenses shall be limited to an aggregate of
$75,000 in total. The provisions of this paragraph are not intended to apply to
or in any way impair the indemnification provisions of this letter.
As is customary, the Bank will bear all other expenses incurred in
connection with the Conversion and the Offerings, including, without limitation,
(i) the cost of obtaining all securities and bank regulatory approvals,
including any required NASD filing fees; (ii) the cost of printing and
distributing the offering materials; (iii) the costs of blue sky qualification
(including fees and expenses of blue sky counsel) of the shares in the various
states; (iv) listing fees; and (v) all fees and disbursements of the Bank's and
the Holding Company's counsel, accountants, conversion agent and other advisors.
In the event Sandler O'Neill incurs any such fees and expenses on behalf of the
Bank or the Holding Company, the Bank will reimburse Sandler O'Neill for such
fees and expenses whether or not the Conversion is consummated; provided,
--------
however, that Sandler O'Neill shall not incur any substantial expenses on behalf
- -------
of the Bank or the Holding Company pursuant to this paragraph without the prior
approval of the Bank.
DUE DILIGENCE REVIEW
- --------------------
Sandler O'Neill's obligation to perform the services contemplated by this
letter shall be subject to the satisfactory completion of such investigation and
inquiries relating to the Bank and the Holding Company, and their respective
directors, officers, agents and employees, as Sandler O'Neill and its counsel in
their sole discretion may deem appropriate under the circumstances. In this
regard, the Bank agrees that, at its expense, it will make available to Sandler
O'Neill all information which Sandler O'Neill requests, and will allow Sandler
O'Neill the opportunity to discuss with the Bank's and the Holding Company's
management the financial condition, business and operations of the Bank and the
Holding Company. The Bank and the Holding Company acknowledge that Sandler
O'Neill will rely upon the accuracy and completeness of all information received
from the Bank and the Holding Company and their directors, trustees, officers,
employees, agents, independent accountants and counsel.
<PAGE>
First Federal Savings Bank of America
August 12, 1996 Sandler O'Neill
Page 5
BLUE SKY MATTERS
- ----------------
The Bank agrees that if Sandler O'Neill's counsel does not serve as counsel
with respect to blue sky matters in connection with the Offerings, the Bank will
cause the counsel performing such services to prepare a Blue Sky Memorandum
related to the Offerings including Sandler O'Neill's participation therein and
shall furnish Sandler O'Neill a copy thereof addressed to Sandler O'Neill or
upon which such counsel shall state Sandler O'Neill may rely.
CONFIDENTIALITY
- ---------------
Other than disclosure to other firms made part of any syndicate of selected
dealers or as required by law or regulation, Sandler O'Neill agrees that it will
not disclose any Confidential Information relating to the Bank obtained in
connection with its engagement hereunder (whether or not the Conversion is
consummated). As used in this paragraph, the term "Confidential Information"
shall not include information which (i) is or becomes generally available to the
public other than as a result of a disclosure by Sandler O'Neill, (ii) was
available to Sandler O'Neill on a non-confidential basis prior to its disclosure
to Sandler O'Neill by the Bank, or (iii) becomes available to Sandler O'Neill on
a non-confidential basis from a person other than the Bank who is not otherwise
known to Sandler O'Neill to be bound not to disclose such information pursuant
to a contractual, legal or fiduciary obligation.
INDEMNIFICATION
- ---------------
(a) Since Sandler O'Neill will be acting on behalf of the Bank and the
Holding Company in connection with the Conversion, the Holding Company and the
Bank agree to indemnify and hold Sandler O'Neill and its affiliates and their
respective partners, directors, officers, employees, agents and controlling
persons within the meaning of Section 15 of the Securities Act of 1933 or
Section 20 of the Securities Exchange Act of 1934 (Sandler O'Neill and each such
person being an "Indemnified Party") harmless from and against any and all
losses, claims, damages and liabilities, joint or several, to which such
Indemnified Party may become subject under applicable federal or state law, or
otherwise, related to or arising out of the Conversion or the engagement of
Sandler O'Neill pursuant to, or the performance by Sandler O'Neill of the
services contemplated by, this letter, and will reimburse any Indemnified Party
for all expenses (including reasonable legal fees and expenses) as they are
incurred, including expenses incurred in connection with the investigation of,
preparation for or defense of any pending or threatened claim or any action or
proceeding arising therefrom, whether or not such Indemnified Party is a party;
provided, however, that the Bank and the Holding Company will not be liable in
- -------- -------
any such case to the extent that any such loss, claim, damage, liability or
expense (i) arises out of or is based upon any untrue statement of a material
fact or the omission of a material fact required to be stated therein or
necessary to make not misleading any statements contained in any prospectus, or
any
<PAGE>
First Federal Savings Bank of America
August 12, 1996 Sandler O'Neill
Page 6
amendment or supplement thereto, made in reliance on and in conformity with
written information furnished to the Bank by Sandler O'Neill expressly for use
therein (the "Agent Information"), or (ii) is primarily attributable to the
gross negligence, willful misconduct or bad faith of Sandler O'Neill. If the
foregoing indemnification is unavailable for any reason, the Bank and the
Holding Company agree to contribute to such losses, claims, damages, liabilities
and expenses in the proportion that its financial interest in the Conversion
bears to that of Sandler O'Neill.
(b) Sandler O'Neill agrees to indemnify and hold harmless the Holding
Company, the Bank, their directors and trustees, each of their officers who
signed the Registration Statement, and each person, if any, who controls the
Holding Company within the meaning of Section 15 of the Securities Act of 1933
or Section 20 of the Securities and Exchange Act of 1934 against any and all
loss, liability, claim, damage and expense described in the indemnity contained
in subsection (a) of this Section, as incurred, but only to the extent that such
loss, liability, claim, damage or expense is found in a final judgment by a
court of competent jurisdiction to have resulted solely from (i) the bad faith,
willful misconduct or gross negligence of Sandler O'Neill, or (ii) an untrue
statement or alleged untrue statement of a material fact or omission or alleged
omission of a material fact contained in any final prospectus, or any amendment
or supplement thereto, made in reliance upon and in conformity with the Agent
Information.
DEFINITIVE AGREEMENT
- --------------------
Sandler O'Neill and the Bank agree that (a) except as set forth in clause
(b), the foregoing represents the general intention of the Bank and Sandler
O'Neill with respect to the services to be provided by Sandler O'Neill in
connection with the Offerings, which will serve as a basis for Sandler O'Neill
commencing activities, and (b) the only legal and binding obligations of the
Bank, the Holding Company and Sandler O'Neill with respect to the subject matter
hereof shall be (1) the Bank's obligation to reimburse costs and expenses
pursuant to the section captioned "Costs and Expenses," (2) those set forth
under the captions "Confidentiality" and "Indemnification," and (3) as set forth
in a duly negotiated and executed definitive Agency Agreement to be entered into
prior to the commencement of the Subscription Offering relating to the services
of Sandler O'Neill in connection with the Offerings. Such Agency Agreement
shall be in form and content satisfactory to Sandler O'Neill, the Bank and the
Holding Company and their respective counsel and shall contain standard
indemnification provisions consistent herewith.
Sandler O'Neill's execution of such Agency Agreement shall also be subject
to (i) Sandler O'Neill's satisfaction with its investigation of the Bank's
business, financial condition and results of operations, (ii) preparation of
offering materials that are satisfactory to Sandler O'Neill and its counsel,
(iii) compliance with all relevant legal and regulatory requirements to the
reasonable satisfaction of Sandler O'Neill's counsel, (iv) agreement that the
price established by the independent appraiser is reasonable and (v) market
conditions at the time of the proposed offering. Sandler O'Neill may terminate
this agreement if such Agency Agreement is not entered into prior to June 30,
1997.
<PAGE>
First Federal Savings Bank of America
August 12, 1996 Sandler O'Neill
Page 7
ELIMINATION OF HOLDING COMPANY
- ------------------------------
If the Board of Directors of the Bank, for any reason, elects not to
proceed with the formation of the Holding Company but determines to proceed with
the Conversion and substitute the common stock of the Bank for the common stock
of the Holding Company, all of the provisions of this letter relating to the
common stock of the Holding Company will be deemed to pertain to the common
stock of the Bank on the same terms and conditions that such provisions pertain
to the common stock of the Holding Company and all of the references in this
letter to the Holding Company shall be deemed to refer to the Bank or shall have
no effect, as the context of the reference requires.
Please confirm that the foregoing correctly sets forth our agreement by
signing and returning to Sandler O'Neill the duplicate copy of this letter
enclosed herewith.
Very truly yours,
Sandler O'Neill & Partners, L.P.
By: Sandler O'Neill & Partners Corp.,
the sole general partner
By: /s/ Mark B. Cohen
---------------------------
Mark B. Cohen
Principal
Accepted and agreed to as of
the date first above written:
First Federal Savings Bank of America
By: /s/ Robert F. Stoico
--------------------------------------
Robert F. Stoico
President and Chief Executive Officer
<PAGE>
[LETTERHEAD OF SANDLER O'NEILL APPEARS HERE]
August 12, 1996
Mr. Robert F. Stoico
President and Chief Executive Officer
First Federal Savings Bank of America
1 North Main Street
Fall River, Massachusetts 02722
Dear Mr. Stoico:
Sandler O'Neill Corporate Strategies, a division of Sandler O'Neill &
Partners, L.P. ("Sandler O'Neill"), is pleased to act as conversion agent to
First Federal Savings Bank of America (the "Bank") in connection with the Bank's
proposed conversion from mutual to stock form (the "Conversion"). This letter
is to confirm the terms and conditions of our engagement.
SERVICES AND FEES
- -----------------
In our role as Conversion Agent, we anticipate that our services will
include the services outlined below, each as may be necessary and as the Bank
may reasonably request:
I. Consolidation of Accounts and Development of a Central File
II. Preparation of Proxy, Order and/or Request Forms
III. Organization and Supervision of the Conversion Center
IV. Proxy Solicitation and Special Meeting Services
V. Subscription Services
Each of these services is further described in Appendix A to this agreement.
For its services hereunder, the Bank agrees to pay Sandler O'Neill a fee of
$35,000. This fee is based upon a total number of unconsolidated accounts of
approximately 68,000. No change in fees will occur as long as the variance in
the number of accounts does not exceed 5%. In the event the actual number of
accounts exceeds the number specified above by more than 5%, the fee will be
proportionately increased.
<PAGE>
First Federal Savings Bank of America
August 12, 1996 Sandler O'Neill
Page 2
The fee set forth above is based upon the requirements of current
regulations and the Plan of Conversion as currently contemplated. Any unusual
or additional items or duplication of service required as a result of a material
change in the regulations or the Plan of Conversion or a material delay or other
similar events may result in extra charges which will be covered in a separate
agreement if and when they occur.
All fees under this agreement shall be payable in cash, as follows: (a)
$10,000 payable upon execution of this agreement by the Bank, which shall be
non-refundable; and (b) the balance upon the completion of the Conversion.
COSTS AND EXPENSES
- ------------------
In addition to any fees that may be payable to Sandler O'Neill hereunder,
the Bank agrees to reimburse Sandler O'Neill, upon request made from time to
time, for its reasonable out-of-pocket expenses incurred in connection with its
engagement hereunder regardless of whether the Conversion is consummated,
including, without limitation, travel, lodging, food, telephone, postage,
listings, forms and other similar expenses to a maximum of $10,000; provided,
--------
however, that Sandler O'Neill shall document such expenses to the reasonable
- -------
satisfaction of the Bank. The provisions of this paragraph are not intended to
apply to or in any way impair the indemnification provisions of this agreement.
In addition, all taxes however designated, arising from or based upon this
agreement or the payments made to Sandler O'Neill pursuant hereto, including,
but not limited to, any applicable sales, use, excise and similar taxes, shall
be paid by the Bank as the same become due, and the Bank shall, upon request by
Sandler O'Neill, pay the same either to Sandler O'Neill or to the appropriate
taxing authority at any time during, or after the termination of, this
Agreement; provided, however, that the Bank shall not be responsible for the
payment of any state, federal, or local franchise or income taxes based upon the
net income of Sandler O'Neill.
RELIANCE ON INFORMATION PROVIDED
- --------------------------------
The Bank will provide Sandler O'Neill with such information as Sandler
O'Neill may reasonably require to carry out its duties. The Bank recognizes and
confirms that Sandler O'Neill (a) will use and rely on such information in
performing the services contemplated by this agreement without having
independently verified the same, and (b) does not assume
<PAGE>
First Federal Savings Bank of America
August 12, 1996 Sandler O'Neill
Page 3
responsibility for the accuracy or completeness of the information. The Bank
will also inform Sandler O'Neill within a reasonable period of time of any
changes in the Plan which require changes in Sandler O'Neill's services. If a
substantial expense results from any such change, the parties shall negotiate an
equitable adjustment in the fee.
LIMITATIONS
- -----------
Sandler O'Neill, as Conversion Agent hereunder, (a) shall have no duties or
obligations other than those specifically set forth herein; (b) will be regarded
as making no representations and having no responsibilities as to the validity,
sufficiency, value or genuineness of any order form or any stock certificates or
the shares represented thereby, and will not be required to and will make no
representations as to the validity, value or genuineness of the offer; (c) shall
not be liable to any person, firm or corporation including the Bank by reason of
any error of judgment or for any act done by it in good faith, or for any
mistake of law or fact in connection with this agreement and the performance
hereof unless caused by or arising out of its own willful misconduct, bad faith
or gross negligence; (d) will not be obliged to take any legal action hereunder
which might in its judgment involve any expense or liability, unless it shall
have been furnished with reasonable indemnity satisfactory to it; and (e) may
rely on and shall be protected in acting in reliance upon any certificate,
instrument, opinion, notice, letter, telex, telegram, or other document or
security delivered to it and in good faith believed by it to be genuine and to
have been signed by the proper party or parties.
Anything in this agreement to the contrary notwithstanding, in no event
shall Sandler O'Neill be liable for special, indirect or consequential loss or
damage of any kind whatsoever (including but not limited to lost profits), even
if Sandler O'Neill has been advised of the likelihood of such loss or damage and
regardless of form of action.
INDEMNIFICATION
- ---------------
The Bank agrees to indemnify and hold Sandler O'Neill and its affiliates
and their respective partners, directors, officers, employees, agents and
controlling persons (Sandler O'Neill and each such person being an "Indemnified
Party") harmless from and against any and all losses, claims, damages and
liabilities, joint or several, to which such Indemnified Party may become
subject under applicable federal or state law, or otherwise, related to or
arising out of the engagement of Sandler O'Neill pursuant to, and the
performance by Sandler O'Neill of the services contemplated by this letter, and
will reimburse any Indemnified Party
<PAGE>
First Federal Savings Bank of America
August 12, 1996 Sandler O'Neill
Page 4
for all expenses (including reasonable counsel fees and expenses) as they are
incurred, including expenses incurred in connection with the investigation of,
preparation for or defense of any pending or threatened claim or any action or
proceeding arising therefrom, whether or not such Indemnified Party is a party.
The Bank will not be liable under the foregoing indemnification provision to the
extent that any loss, claim, damage, liability or expense is found in a final
judgment by a court of competent jurisdiction to have resulted primarily from
Sandler O'Neill's willful misconduct, bad faith or gross negligence.
MISCELLANEOUS
- -------------
The following addresses shall be sufficient for written notices to each
other:
If to you: First Federal Savings Bank of America
1 North Main Street
Fall River, Massachusetts 02722
Attention: Mr. Robert F. Stoico
If to us: Sandler O'Neill & Partners, L.P.
747 Middle Neck Road
Great Neck, New York 11024
Attention: Mr. Mark B. Cohen
The Agreement and appendix hereto constitute the entire Agreement between
the parties with respect to the subject matter hereof and can be altered only by
written consent signed by the parties. This Agreement is governed by the laws
of the State of New York.
<PAGE>
First Federal Savings Bank of America
August 12, 1996 Sandler O'Neill
Page 5
Please confirm that the foregoing correctly sets forth our agreement by
signing and returning to Sandler O'Neill the duplicate copy of this letter
enclosed herewith.
Very truly yours,
Sandler O'Neill & Partners, L.P.
By: Sandler O'Neill & Partners Corp.,
the sole general partner
By: /s/ Mark B. Cohen
-------------------------
Mark B. Cohen
Principal
Accepted and agreed to as of
the date first above written:
First Federal Savings Bank of America
By: /s/ Mr. Robert F. Stoico
--------------------------------------
Mr. Robert F. Stoico
President and Chief Executive Officer
<PAGE>
Sandler O'Neill
APPENDIX A
----------
OUTLINE OF CONVERSION AGENT SERVICES
------------------------------------
I. Consolidation of Accounts
1. Consolidate files in accordance with regulatory guidelines.
2. Accounts from various files are all linked together. The resulting
central file can then be maintained on a regular basis.
3. Our EDP format will be provided to your data processing people.
II. Proxy/Order Form/Request Card Preparation
1. Vote calculation.
2. Any combination of proxies, request cards and stock order forms for
voting and ordering stock.
3. Target group identification for subscription offering.
III. Organization and Supervision of Conversion Center
1. Advising on and supervising the physical organization of the Conversion
Center, including materials requirements.
2. Assist in the training of all Bank personnel who will be staffing the
conversion center.
3. Establish reporting procedures.
4. On-site supervision of the Conversion Center during the
solicitation/offering period.
IV. Special Meeting Services
1. Direct proxy solicitation.
2. Proxy and ballot tabulation.
3. Act as or support inspector of election.
4. Delete voting record date accounts closed prior to special meeting.
5. Produce final report of vote.
A-1
<PAGE>
Sandler O'Neill
V. Subscription Services
1. Produce list of depositors by state (Blue Sky report).
2. Production of subscription rights and research books.
3. Stock order form processing.
4. Acknowledgement letter to confirm receipt of stock order.
5. Daily reports and analysis.
6. Proration calculation and share allocation in the event of an
oversubscription.
7. Produce charter shareholder list.
8. Interface with Transfer Agent for Stock Certificate issuance.
9. Refund and interest calculations.
10. Confirmation letter to confirm purchase of stock.
11. Notification of full/partial rejection of orders.
12. Production of 1099/Debit tape.
A-2
<PAGE>
EXHIBIT 2.1
AMENDED PLAN OF CONVERSION
FOR
FIRST FEDERAL SAVINGS BANK OF AMERICA
(AS AMENDED ON SEPTEMBER 17, 1996)
<PAGE>
AMENDED PLAN OF CONVERSION
FOR
FIRST FEDERAL SAVINGS BANK OF AMERICA
(AS AMENDED ON SEPTEMBER 17, 1996)
1. INTRODUCTION
This Plan of Conversion, as amended, ("Plan") provides for the conversion
of First Federal Savings Bank of America ("BANK") from a federally-chartered
mutual savings bank to a federally-chartered capital stock savings bank. The
Board of Directors of the BANK currently contemplates that all of the stock of
the BANK shall be held by a Delaware corporation (the "Holding Company"). The
Board of Directors has carefully considered the alternatives available to the
BANK with respect to its corporate structure and has determined that a mutual to
stock conversion as described in this Plan is in the best interests of the BANK,
its depositors and the community served by the BANK. The Board of Directors
believes that the decline in mutuality is placing mutual savings associations,
such as the BANK, at a disadvantage to the increasing base of stock thrift and
commercial bank institutions. The restructuring of the BANK into the capital
stock form of organization will enable the BANK to compete more effectively with
commercial banks and other financial institutions for new business
opportunities, and as a stock institution, to increase its equity capital base
and access the capital markets when needed and to enhance the BANK'S ability to
expand its franchise and the products it offers. The use of the Holding
Company, if so utilized, would also provide greater organizational and operating
flexibility. Shares of capital stock of the BANK will be sold to the Holding
Company and the Holding Company will offer
<PAGE>
the Conversion Stock upon the terms and conditions set forth herein to the
Eligible Account Holders, the Employee Plans established by the BANK or Holding
Company, Supplemental Eligible Account Holders and Other Members in the
respective priorities set forth in this Plan. Any shares of Conversion Stock not
subscribed for by the foregoing classes of persons will be offered for sale to
certain members of the public either directly by the BANK and the Holding
Company through a Community Offering or a Syndicated Community Offering or
through an underwritten firm commitment public offering or through a combination
thereof. In the event that the BANK decides not to utilize the Holding Company
in the conversion, Conversion Stock of the BANK, in lieu of the Holding Company,
will be sold as set forth above and in the respective priorities set forth in
this Plan. In addition to the foregoing, the BANK and the Holding Company, as
part of this Plan, intend to implement stock option plans and other stock
benefit plans and will provide employment or severance agreements to certain
management employees and certain other compensation to the directors, officers
and employees of the BANK as described in the prospectus for the Conversion
Stock.
In furtherance of the BANK's long term commitment to its community, the
BANK has amended this Plan to provide for the establishment of a charitable
foundation as part of the Conversion. The charitable foundation is intended to
complement the BANK's existing community reinvestment activities in a manner
that will allow the communities in which the BANK operates to share in the
potential growth and profitability of the Holding Company and the BANK over the
long term. Consistent with the BANK's goal, the Holding Company intends to
donate to the charitable foundation from its authorized but unissued common
stock 8.0% of the number of shares sold in the Conversion. The establishment of
the charitable foundation is subject to the approval of the Voting Members of
the BANK. In the event the
2
<PAGE>
charitable foundation is not approved, the BANK may determine to complete the
Conversion without the charitable foundation.
This Plan, which has been unanimously approved by the Board of Directors of
the BANK, must also be approved by the affirmative vote of a majority of the
total number of outstanding votes entitled to be cast by Voting Members of the
BANK at a special meeting to be called for that purpose. Prior to the
submission of this Plan to the Voting Members for consideration, the Plan must
be approved by the Office of Thrift Supervision (the "OTS").
2. DEFINITIONS
For the purposes of this Plan, the following terms have the following
meanings:
Account Holder - The term Account Holder means any Person holding a Savings
--------------
Account in the BANK.
Acting in Concert - The term "Acting in Concert" means (i) knowing
-----------------
participation in a joint activity or interdependent conscious parallel action
towards a common goal whether or not pursuant to an express agreement; (ii) a
combination or pooling of voting or other interests in the securities of an
issuer for a common purpose pursuant to any contract, understanding,
relationship, agreement or other arrangement, whether written or otherwise; or
(iii) a person or company which acts in concert with another person or company
("other party") shall also be deemed to be acting in concert with any person or
company who is also acting in concert with that other party, except that any
tax-qualified employee stock benefit plan will not be deemed to be acting in
concert with its trustee or a person who serves in a similar capacity solely for
the purpose of determining whether stock held by the trustee and stock held by
the plan will be aggregated.
3
<PAGE>
Actual Purchase Price - The term Actual Purchase Price means the per share
---------------------
price at which the Conversion Stock is ultimately sold in accordance with the
terms hereof.
Associate - The term Associate when used to indicate a relationship with
---------
any person, means (i) any corporation or organization (other than the BANK or a
majority-owned subsidiary of the BANK) of which such person is an officer or
partner or is, directly or indirectly, the beneficial owner of 10 percent or
more of any class of equity securities, (ii) any trust or other estate in which
such person has a substantial beneficial interest or as to which such person
serves as trustee or in a similar fiduciary capacity except that for the
purposes of Sections 9 and 14 hereof, the term "Associate" does not include any
Non-Tax-Qualified Employee Stock Benefit Plan or any Tax-Qualified Employee
Stock Benefit Plan in which a person has a substantial beneficial interest or
serves as a trustee or in a similar fiduciary capacity, and except that, for
purposes of aggregating total shares that may be held by Officers and Directors
the term "Associate" does not include any Tax-Qualified Employee Stock Benefit
Plan, and (iii) any relative or spouse of such person, or any relative of such
spouse, who has the same home as such person or who is a Director or Officer of
the BANK or the Holding Company, if utilized, or any of its parents or
subsidiaries.
Bank - The term BANK means First Federal Savings Bank of America.
----
Community Offering - The term Community Offering means the offering for
------------------
sale to certain members of the general public directly by the BANK or the
Holding Company, if utilized, of any shares of Conversion Stock not subscribed
for in the Subscription Offering.
Conversion Stock - The term Conversion Stock means the $.01 par value
----------------
common stock offered and issued by the Holding Company or the $1.00 par value
Common Stock
4
<PAGE>
offered and issued by the BANK, if the Holding Company form of organization is
not utilized, upon conversion.
Director - The term Director means a member of the Board of Directors of
--------
the BANK and, where applicable, a member of the Board of Directors of the
Holding Company.
Eligible Account Holder - The term Eligible Account Holder means any person
-----------------------
holding a Qualifying Deposit on the Eligibility Record Date.
Eligibility Record Date - The term Eligibility Record Date means the date
-----------------------
for determining Eligible Account Holders in the BANK and is June 30, 1995.
Employees - The term Employees means all Persons who are employed by the
---------
BANK but does not include an Officer or Director.
Employee Plans - The term Employee Plans means the Tax Qualified Employee
--------------
Stock Benefit Plans approved by the Board of Directors of the BANK.
Estimated Price Range - The term Estimated Price Range means the range of
---------------------
minimum and maximum aggregate values determined by the Board of Directors of the
BANK within which the aggregate amount of Common Stock sold in the Conversion
will fall. The Estimated Price Range will be within the estimated pro forma
market value of the Conversion Stock as determined by the Independent Appraiser
prior to the Subscription Offering and as it may be amended from time to time
thereafter.
FDIC - The term FDIC means the Federal Deposit Insurance Corporation.
----
Holding Company - The term Holding Company means the Delaware corporation
---------------
formed for the purpose of acquiring all of the shares of capital stock of the
BANK to be issued upon its conversion to stock form unless the Holding Company
form of organization is not utilized. Shares of common stock of the Holding
Company will be issued in the
5
<PAGE>
conversion to Participants and others in a Subscription, Community, Syndicated
Community, or underwritten firm commitment public offering, or through a
combination thereof.
Independent Appraiser - The term Independent Appraiser means an appraiser
---------------------
retained by the BANK to prepare an appraisal of the pro forma market value of
the Conversion Stock.
Local Community - The term Local Community means the Counties of Bristol,
---------------
Plymouth, Barnstable, Middlesex, Worcester, Hampden and Norfolk in Massachusetts
and the Counties of Bristol, Newport, Washington, Kent and Providence in Rhode
Island.
Local Eligible Account Holder - The term Local Eligible Account Holder
-----------------------------
means an Eligible Account Holder who resides in the BANK'S Local Community.
Local Other Member - The term Local Other Member means an Other Member who
------------------
resides in the BANK'S Local Community.
Local Supplemental Eligible Account Holder - The term Local Supplemental
------------------------------------------
Eligible Account Holder shall mean a Supplemental Eligible Account Holder who
resides in the BANK'S Local Community.
Member - The term Member means any Person or entity who qualifies as a
------
member of the BANK pursuant to its charter and bylaws.
OTS - The term OTS means Office of Thrift Supervision of the Department of
---
the Treasury.
Officer - The term Officer means an executive officer of the BANK which
-------
includes the Chief Executive Officer, President, Executive Vice President,
Senior Vice Presidents, Vice Presidents in charge of principal business
functions, Secretary, Treasurer and Controller and any Person performing
functions similar to those performed by the foregoing persons.
6
<PAGE>
Order Form - The term Order Form means any form together with attached
----------
cover letter, sent by the BANK to any Participant or Person containing among
other things a description of the alternatives available to such Person under
the Plan and by which any such Person may make elections regarding subscriptions
for Conversion Stock in the Subscription and Community Offerings.
Other Member - The term Other Member means any person who is a Member of
------------
the BANK (other than an Eligible Account Holder or Supplemental Eligible Account
Holder) at the close of business on the Voting Record Date.
Participants - The term Participants means the Eligible Account Holders,
------------
Employee Plans, Supplemental Eligible Account Holders and Other Members.
Person - The term Person means an individual, a corporation, a partnership,
------
an association, a joint-stock company, a trust (including Individual Retirement
Accounts and KEOGH Accounts), any unincorporated organization, a government or
political subdivision thereof or any other entity.
Plan - The term Plan means this Plan of Conversion of the BANK as it exists
----
on the date hereof and as it may hereafter be amended in accordance with its
terms.
Preferred Subscribers - The term Preferred Subscribers means those members
---------------------
of the general public which are natural persons residing in the BANK'S Local
Community.
Qualifying Deposit - The term Qualifying Deposit means the balance of each
------------------
Savings Account of $50 or more in the BANK at the close of business on the
Eligibility Record Date or the Supplemental Eligibility Record Date, whichever
may be the case. Savings Accounts with total deposit balances of less than $50
shall not constitute a Qualifying Deposit.
SEC - The term SEC refers to the United States Securities and Exchange
---
Commission.
7
<PAGE>
Savings Account - The term Savings Account has the same meaning as in
---------------
Section 561.42 of the Rules and Regulations of the OTS and includes certificates
of deposit.
Special Meeting of Members - The term Special Meeting of Members means the
--------------------------
special meeting and any adjournments thereof held to consider and vote upon this
Plan.
Subscription Offering - The term Subscription Offering means the offering
---------------------
of Conversion Stock for purchase through Order Forms to Participants.
Subscription Price - The term Subscription Price means the amount per share
------------------
of Conversion Stock to be paid initially by Participants in the Subscription
Offering and persons in the Community Offering.
Supplemental Eligibility Record Date - The term Supplemental Eligibility
------------------------------------
Record Date means the supplemental record date for determining Supplemental
Eligible Account Holders of the BANK. The Supplemental Eligibility Record Date
shall be the last day of the calendar quarter preceding the OTS' approval of the
application for conversion.
Supplemental Eligible Account Holder - The term Supplemental Eligible
------------------------------------
Account Holder means any person (other than an Eligible Account Holder) holding
a Qualifying Deposit, except officers, directors and their associates, as of the
Supplemental Eligibility Record Date.
Syndicated Community Offering - The term Syndicated Community Offering
-----------------------------
means the offering of Conversion Stock following the Subscription and Community
Offerings through a syndicate of broker-dealers.
8
<PAGE>
Tax-Qualified Employee Stock Benefit Plan - The term Tax-Qualified Employee
-----------------------------------------
Stock Benefit Plan means any defined benefit plan or defined contribution plan,
such as an employee stock ownership plan, stock bonus plan, profit-sharing plan
or other plan, which, with its related trust, meets the requirements to be
"qualified" under Section 401 of the Internal Revenue Code. A "Non-Tax-
Qualified Employee Stock Benefit Plan" is any defined benefit plan or defined
contribution plan which is not so qualified.
Voting Members - The term Voting Members means those persons qualifying as
--------------
voting members of the BANK pursuant to its charter and bylaws.
Voting Record Date - The term Voting Record Date means the date fixed by
------------------
the Directors in accordance with OTS regulations for determining eligibility to
vote at the Special Meeting of Members.
3. PROCEDURE FOR CONVERSION
After approval of the Plan by the Board of Directors of the BANK, the Plan
shall be submitted together with all other requisite material to the OTS for its
approval. Notice of the adoption of the Plan by the Board of Directors of the
BANK and the submission of the Plan to the OTS for its approval will be
published in a newspaper having general circulation in each community in which
an office of the BANK is located and copies of the Plan will be made available
at each office of the BANK for inspection by the Members. Upon receipt of
notice from the OTS to do so, the BANK also will cause to be published a notice
of the filing with the OTS of an application to convert in accordance with the
provisions of the Plan. Following approval by the OTS, the Plan will be
submitted to a vote of the Voting Members at the Special Meeting of Members
called for that purpose. Upon approval of the Plan by a
9
<PAGE>
majority of the total outstanding votes of the Voting Members, the BANK will
take all other necessary steps pursuant to applicable laws and regulations to
convert the BANK to stock form. The conversion must be completed within 24
months of the approval of the Plan by the Voting Members, unless a longer time
period is permitted by governing laws and regulations.
The Board of Directors of the BANK intends to take all necessary steps to
form the Holding Company, including the filing of an Application on Form H-(e)1
or H-(e)1-S, if available to the Holding Company, with the OTS. In the event
that the Holding Company is utilized, upon conversion the BANK will issue
capital stock to the Holding Company and the Holding Company will issue and sell
the Conversion Stock in accordance with this Plan.
The Board of Directors of the BANK may determine for any reason at any time
prior to the issuance of the Conversion Stock not to utilize a holding company
form of organization in the Conversion, in which case, the Holding Company's
registration statement on Form S-1 will be withdrawn from the SEC, the BANK will
take all steps necessary to complete the conversion from the mutual to the stock
form of organization, including filing any necessary documents with the OTS, and
will issue and sell the Conversion Stock in accordance with this Plan. In such
event, any subscriptions or orders received for Conversion Stock of the Holding
Company shall be deemed to be subscriptions or orders for Conversion Stock of
the BANK without any further action by the BANK or the subscribers for the
Conversion Stock, unless any such further action is required by the SEC or the
OTS, in which case the BANK shall take such necessary action to complete the
Conversion. Any references to the Holding Company in this Plan shall mean the
BANK in the event the Holding Company is eliminated in the Conversion.
10
<PAGE>
The Board of Directors of the BANK also intend to take all necessary steps
to establish the charitable foundation and to fund such charitable foundation in
the manner set forth in Section 7A hereof, subject to the approval of the Voting
Members.
The Conversion Stock will not be insured by the FDIC. The BANK will not
knowingly lend funds or otherwise extend credit to any Person to purchase shares
of the Conversion Stock.
4. HOLDING COMPANY APPLICATIONS AND APPROVALS
The Holding Company shall make timely applications for any requisite
regulatory approvals, including an Application on Form H-(e)1 or an H-(e)1-S, if
available to the Holding Company, to be filed with the OTS and a Registration
Statement on Form S-1 to be filed with the SEC. The BANK shall be a wholly-
owned subsidiary of the Holding Company unless the Holding Company is eliminated
in the Conversion.
5. SALE OF CONVERSION STOCK
The Conversion Stock will be offered simultaneously in the Subscription
Offering to the Eligible Account Holders, Employee Plans, Supplemental Eligible
Account Holders and Other Members in the respective priorities set forth in
Sections 8 through 11 of this Plan. The Subscription Offering may be commenced
as early as the mailing of the Proxy Statement for the Special Meeting of
Members and must be commenced in time to complete the Conversion within the time
period specified in Section 3.
11
<PAGE>
Any shares of Conversion Stock not subscribed for in the Subscription
Offering will be offered for sale in the Community Offering as provided in
Section 12 of this Plan. The Subscription Offering may be commenced prior to
the Special Meeting of Members and, in that event, the Community Offering may
also be commenced prior to the Special Meeting of Members. The offer and sale
of Conversion Stock prior to the Special Meeting of Members shall, however, be
conditioned upon approval of the Plan by the Voting Members.
If feasible, any shares of Conversion Stock remaining after the
Subscription and Community Offerings may be sold in a Syndicated Community
Offering, as provided in Section 13 of this Plan in a manner that will achieve
the widest distribution of the Conversion Stock as determined by the BANK. The
sale of all Conversion Stock subscribed for in the Subscription and Community
Offerings will be consummated simultaneously on the date the sale of Conversion
Stock in the Syndicated Community Offering is consummated and only if all
unsubscribed for Conversion Stock is sold.
The BANK may elect to offer to pay fees on a per share basis to brokers who
assist Persons in determining to purchase shares in the Subscription and
Community Offerings.
6. NUMBER OF SHARES AND PURCHASE PRICE OF CONVERSION STOCK
The total number of shares (or a range thereof) of Conversion Stock to be
issued and offered for sale will be determined jointly by the Board of Directors
of the BANK and the Board of Directors of the Holding Company, if the holding
company form of organization is utilized, immediately prior to the commencement
of the Subscription and Community Offerings, subject to adjustment thereafter if
necessitated by market or financial conditions, with the approval of the OTS, if
necessary. In particular, the total number of shares may be
12
<PAGE>
increased by up to 15% of the number of shares offered in the Subscription and
Community Offering if the Estimated Price Range is increased subsequent to the
commencement of the Subscription and Community Offering to reflect changes in
market and financial conditions.
All shares sold in the Conversion will be sold at a uniform price per share
referred to in this Plan as the Actual Purchase Price. The aggregate purchase
price for all shares of Conversion Stock will not be inconsistent with the
estimated consolidated pro forma market value of the BANK or the Holding
Company, if utilized. The estimated consolidated pro forma market value of the
BANK or the Holding Company, if utilized, will be determined for such purpose by
the Independent Appraiser. Prior to the commencement of the Subscription and
Community Offerings, an Estimated Price Range will be established, which range
will vary within 15% above to 15% below the midpoint of such range. The number
of shares of Conversion Stock to be issued and the purchase price per share may
be increased or decreased by the BANK. In the event that the aggregate purchase
price of the Conversion Stock is below the minimum of the Estimated Price Range,
or materially above the maximum of the Estimated Price Range, resolicitation of
purchasers may be required provided that up to a 15% increase above the maximum
of the Estimated Price Range will not be deemed material so as to require a
resolicitation. Up to a 15% increase in the number of shares to be issued which
is supported by an appropriate change in the estimated pro forma market value of
the BANK or the Holding Company, if utilized, will not be deemed to be material
so as to require a resolicitation of subscriptions. In the event that the
aggregate purchase price of the Conversion Stock is below the minimum of the
Estimated Price Range or in excess of 15% above the maximum of the Estimated
Price Range, and a resolicitation is required, such
13
<PAGE>
resolicitation shall be effected in such manner and within such time as the BANK
shall establish, with the approval of the OTS, if required.
Based upon the independent valuation as updated prior to the commencement
of the Subscription and Community Offerings, the Board of Directors of the
Holding Company, (if a holding company form of organization is utilized) and the
Board of Directors of the BANK will fix the Subscription Price and the range of
the number of shares to be offered. If upon completion of the Subscription and
Community Offerings all of the Conversion Stock is subscribed for, or if because
of a limited number of unsubscribed shares or otherwise a Syndicated Community
Offering cannot be effected, the total number of shares of Conversion Stock to
be issued and sold will be jointly determined by the BANK and Holding Company
(if a holding company form of organization is utilized) as follows: (a) the
estimated aggregate pro forma market value of the BANK or the Holding Company,
as the case may be, immediately after conversion as determined by the
Independent Appraiser, expressed in terms of a specific aggregate dollar amount
rather than as a range, upon completion of the Subscription and Community
Offerings or other sale of all of the Conversion Stock shall be divided by (b)
the Actual Purchase Price.
If there is a Syndicated Community Offering of shares of Conversion Stock
not subscribed for in the Subscription and Community Offerings, the price per
share at which the Conversion Stock is sold in such Syndicated Community
Offering shall be the Subscription Price.
Notwithstanding the foregoing, no sale of Conversion Stock may be
consummated unless, prior to such consummation, the Independent Appraiser
confirms to the BANK and Holding Company, if utilized, and to the OTS that, to
the best knowledge of the Independent
14
<PAGE>
Appraiser, nothing of a material nature has occurred which, taking into account
all relevant factors, would cause the Independent Appraiser to conclude that the
aggregate value of the Conversion Stock at the Actual Purchase Price is
incompatible with its estimate of the aggregate consolidated pro forma market
value of the Holding Company or the BANK if no Holding Company is utilized. If
such confirmation is not received, the BANK may cancel the Subscription and
Community Offerings and/or the Syndicated Community Offering, extend the
Conversion, establish a new Subscription Price Range and/or Estimated Price
Range, extend, reopen or hold new Subscription and Community Offerings and/or
Syndicated Community Offering or take such other action as the OTS may permit.
The Conversion Stock to be issued in the Conversion shall be fully paid and
nonassessable.
7. PURCHASE BY THE HOLDING COMPANY OF THE STOCK OF THE BANK
Upon the consummation of the sale of all of the Conversion Stock, and in
the event that a holding company form of organization is utilized, the Holding
Company will purchase from the BANK all of the capital stock of the BANK to be
issued by the BANK in the Conversion in exchange for the Conversion proceeds
that are not permitted to be retained by the Holding Company.
The Holding Company will apply to the OTS to retain up to 50% of the
proceeds of the Conversion. Assuming the Holding Company is not eliminated, a
lesser percentage may be acceptable. The BANK believes that the Conversion
proceeds will provide economic strength to the Holding Company and the BANK for
the future in a highly competitive and regulated environment and would
facilitate expansion through acquisitions, diversification into
15
<PAGE>
other related businesses and for other business and investment purposes,
including the payment of dividends and future repurchases of Conversion Stock as
permitted by the OTS. If during the Conversion process the Board of Directors
of the BANK determines not to complete the Conversion utilizing a holding
company form of organization, capital stock of the BANK will be issued and sold
in accordance with the Plan. The above activities may also be engaged in by the
BANK if the Holding Company is eliminated.
7A. ESTABLISHMENT AND FUNDING OF CHARITABLE FOUNDATION
As part of the Conversion, the Holding Company and the BANK intend to
establish a charitable foundation that will qualify as an exempt organization
under Section 501(c)(3) of the Internal Revenue Code (the "Foundation") and to
donate to the Foundation 8.0% of the number of shares of Common Stock sold in
the Conversion. The Foundation is being formed in connection with the
Conversion in order to complement the BANK's existing community reinvestment
activities and to share with the communities in which the BANK operates a part
of the BANK's financial success as a locally headquartered, community minded,
financial services institution. The funding of the Foundation with Common Stock
of the Holding Company accomplishes this goal as it enables such communities to
share in the potential growth and profitability of the Holding Company and the
BANK over the long-term.
The Foundation will be dedicated to the promotion of charitable purposes
within the communities in which the BANK operates, including, but not limited
to, grants or donations to support housing assistance, scholarships, local
education, not-for-profit medical facilities, not-for-profit community groups
and other types of organizations or civic minded projects. The Foundation will
annually distribute total grants to assist charitable organizations or to
16
<PAGE>
fund projects within its local community of not less than 5% of the average fair
value of Foundation assets each year. In order to serve the purposes for which
it was formed and maintain its 501(c)(3) qualification, the Foundation may sell,
on an annual basis, a limited portion of the Common Stock contributed to it by
the Holding Company.
A majority of the board of directors of the Foundation will be comprised of
civic and community leaders within the communities in which the BANK operates,
who are not affiliated with the BANK and the remaining members of the board will
be the existing directors of the Holding Company. The board of directors of the
Foundation will be responsible for establishing the polices of the Foundation
with respect to grants or donation, consistent with the stated purposes of the
Foundation.
The establishment and funding of the Foundation as part of the Conversion
is subject to the approval of the approval of the Voting Members by an
affirmative vote of a majority of the votes eligible to be cast by Voting
Members in person or by proxy at the Special Meeting. In the event that the
BANK's Members approve this Plan, but not the charitable foundation, the BANK
may determine to complete the Conversion without the establishment of the
Foundation and may do so without amending this Plan or obtaining any further
vote of the BANK's Members. Failure of the Voting Members to approve the
Foundation may materially affect the pro forma market value of the BANK. In
such an event, the BANK may establish a new Estimated Price Range and commence a
resolicitation of subscribers. For comparison purposes, Voting Members will be
provided with a projection of the pro forma market value of the Conversion
Stock, an Estimated Price Range and certain selected pro forma financial data
that would result if the Conversion were consummated without establishment of
the charitable foundation.
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8. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS (FIRST PRIORITY)
A. Each Eligible Account Holder shall receive, as first priority and
without payment, nontransferable subscription rights to subscribe for shares of
Conversion Stock equal to an amount up to the greater of: the amount permitted
to be subscribed for in the Community Offering which amount, pursuant to Section
12, currently is $300,000 of the Conversion Stock offered, but which may be
increased to 5% or decreased to less than $300,000 without the further approval
of members or resolicitation of subscribers; one-tenth of one percent (.10%) of
the total offering of shares of Conversion Stock; or fifteen times the product
(rounded down to the next whole number) obtained by multiplying the total number
of shares of Conversion Stock to be issued by a fraction of which the numerator
is the amount of the Qualifying Deposit of the Eligible Account Holder and the
denominator is the total amount of Qualifying Deposits of all Eligible Account
Holders, in each case on the Eligibility Record Date, subject to the maximum
purchase limitation specified in Section 14A and the minimum purchase limitation
specified in Section 14C and exclusive of an increase in the total number of
shares issued due to an increase in the Estimated Price Range of up to 15%.
B. A preference will be given to Eligible Account Holders residing in the
BANK'S Local Community as set forth in this Section 8. In accordance with such
preference, the subscriptions of Local Eligible Account Holders shall be filled
in full first before filling subscriptions of remaining Eligible Account
Holders. In the event that Local Eligible Account Holders exercise subscription
rights for a number of shares of Conversion Stock in excess of the total number
of such shares eligible for subscription, the shares of Conversion Stock shall
be allocated among the subscribing Local Eligible Account Holders so
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as to permit each subscribing Local Eligible Account Holder, to the extent
possible, to purchase a number of shares sufficient to make his or her total
allocation of Conversion Stock equal to the lesser of 100 shares or the number
of shares subscribed for by the Local Eligible Account Holder. Any shares
remaining after that allocation will be allocated among the subscribing Local
Eligible Account Holders whose subscriptions remain unsatisfied in the
proportion that the amount of the Qualifying Deposit of each Local Eligible
Account Holder whose subscription remains unsatisfied bears to the total amount
of the Qualifying Deposits of all Local Eligible Account Holders whose
subscriptions remain unsatisfied. If the amount so allocated exceeds the amount
subscribed for by any one or more Local Eligible Account Holders, the excess
shall be reallocated (one or more times as necessary) among those Local Eligible
Account Holders whose subscriptions are still not fully satisfied on the same
principle until all available shares have been allocated or all subscriptions
satisfied.
C. In the event that shares remain available for subscription after all
subscriptions by Local Eligible Account Holders have been filled in full, and
remaining Eligible Account Holders exercise subscription rights for a number of
shares of Conversion Stock in excess of the total number of shares eligible for
subscription, the remaining shares of Conversion Stock shall be allocated among
the remaining subscribing Eligible Account Holders so as to permit each
remaining subscribing Eligible Account Holder, to the extent possible, to
purchase a number of shares sufficient to make his or her total allocation of
Conversion Stock equal to the lesser of 100 shares or the number of shares
subscribed for by the remaining Eligible Account Holders. Any shares remaining
after that allocation will be allocated among the remaining subscribing Eligible
Account Holders whose subscriptions remain unsatisfied in the proportion that
the amount of the Qualifying Deposit of each remaining Eligible Account
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Holder whose subscription remains unsatisfied bears to the total amount of the
Qualifying Deposits of all remaining Eligible Account Holders whose
subscriptions remain unsatisfied. If the amount so allocated exceeds the amount
subscribed for by any one or more remaining Eligible Account Holders, the excess
shall be reallocated (one or more times as necessary) among those remaining
Eligible Account Holders whose subscriptions are still not fully satisfied on
the same principle until all available shares have been allocated or all
subscriptions satisfied.
D. Subscription rights as Eligible Account Holders received by Directors
and Officers and their Associates which are based on deposits made by such
persons during the twelve (12) months preceding the Eligibility Record Date
shall be subordinated to the Subscription Rights of all other Eligible Account
Holders.
9. SUBSCRIPTION RIGHTS OF THE EMPLOYEE PLANS (SECOND PRIORITY)
The Employee Plans shall receive, without payment, as a second priority
after the filling of subscriptions of Eligible Account Holders (including Local
Eligible Account Holders), nontransferable subscription rights to purchase in
the Subscription Offering the number of shares of Conversion Stock requested by
such Employee Plans. If, after the filling of subscriptions of Eligible Account
Holders, a sufficient number of shares are not available to fill the
subscriptions by such Employee Plans, the subscription by such Employee Plans
shall be filled to the maximum extent possible; provided, however, that in the
event of an increase in the total number of shares issued due to an increase in
the Estimated Price Range
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of up to 15%, the additional shares may be sold to the Employee Plans subject to
the provisions of Section 14.
The Employee Plans shall not be deemed to be an associate or affiliate of
or Person Acting in Concert with any Director or Officer of the Holding Company
or the BANK.
10. SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS (THIRD
PRIORITY)
A. Each Supplemental Eligible Account Holder shall receive, as third
priority and without payment, nontransferable subscription rights to subscribe
for shares of Conversion Stock equal to an amount up to the greater of: the
amount permitted to be subscribed for in the Community Offering which amount,
pursuant to Section 12, currently is $300,000 of the Conversion Stock offered,
but which may be increased to 5% or decreased to less than $300,000 without the
further approval of members or resolicitation of subscribers; one-tenth of one
percent (.10%) of the total offering of Conversion Stock; or fifteen times the
product (rounded down to the next whole number) obtained by multiplying the
total number of shares of Conversion Stock to be issued by a fraction of which
the numerator is the amount of the Qualifying Deposit of the Supplemental
Eligible Account Holder and the denominator is the total amount of the
Qualifying Deposits of all Supplemental Eligible Account Holders in the BANK on
the Supplemental Eligibility Record Date, subject to the maximum purchase
limitation specified in Section 14A and the minimum purchase limitation
specified in Section 14C and exclusive of an increase in the total number of
shares issued due to an increase in the Estimated Price Range of up to 15%.
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B. A preference will be given to Local Supplemental Eligible Account
Holders as set forth in this Section 10. In accordance with such preference,
the subscriptions of Local Supplemental Eligible Account Holders shall be filled
in full first before filling subscriptions of remaining Supplemental Eligible
Account Holders. In the event that Local Supplemental Eligible Account Holders
exercise subscription rights for a number of shares of Conversion Stock in
excess of the total number of such shares eligible for subscription, the shares
of Conversion Stock shall be allocated among the subscribing Local Supplemental
Eligible Account Holders so as to permit each subscribing Local Supplemental
Eligible Account Holder, to the extent possible, to purchase a number of shares
sufficient to make his or her total allocation of Conversion Stock equal to the
lesser of 100 shares or the number of shares subscribed for by the Local
Supplemental Eligible Account Holder. Any shares remaining after that
allocation will be allocated among the subscribing Local Supplemental Eligible
Account Holders whose subscriptions remain unsatisfied in the proportion that
the amount of the Qualifying Deposit of each Local Supplemental Eligible Account
Holder whose subscription remains unsatisfied bears to the total amount of the
Qualifying Deposits of all Local Supplemental Eligible Account Holders whose
subscriptions remain unsatisfied. If the amount so allocated exceeds the amount
subscribed for by any one or more Local Supplemental Eligible Account Holders,
the excess shall be reallocated (one or more times as necessary) among those
Local Supplemental Eligible Account Holders whose subscriptions are still not
fully satisfied on the same principle until all available shares have been
allocated or all subscriptions satisfied.
C. In the event that shares remain available for subscription after all
subscriptions by Local Supplemental Eligible Account Holders have been filled in
full and remaining
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Supplemental Eligible Account Holders exercise subscription rights for a number
of shares of Conversion Stock in excess of the total number of shares eligible
for subscription, the remaining shares of Conversion Stock shall be allocated
among the remaining subscribing Supplemental Eligible Account Holders so as to
permit each remaining subscribing Supplemental Eligible Account Holder, to the
extent possible, to purchase a number of shares sufficient to make his or her
total allocation of Conversion Stock equal to the lesser of 100 shares or the
number of shares subscribed for by the Supplemental Eligible Account Holder.
Any shares remaining after that allocation will be allocated among the remaining
subscribing Supplemental Eligible Account Holders whose subscriptions remain
unsatisfied in the proportion that the amount of the Qualifying Deposit of each
remaining Supplemental Eligible Account Holder whose subscription remains
unsatisfied bears to the total amount of the Qualifying Deposits of all
remaining Supplemental Eligible Account Holders whose subscriptions remain
unsatisfied. If the amount so allocated exceeds the amount subscribed for by
any one or more remaining Supplemental Eligible Account Holders, the excess
shall be reallocated (one or more times as necessary) among those remaining
Supplemental Eligible Account Holders whose subscriptions are still not fully
satisfied on the same principle until all available shares have been allocated
or all subscriptions satisfied.
D. Subscription rights received by an Eligible Account Holder pursuant to
Section 8 shall be applied in partial satisfaction of the subscription rights to
be received as a Supplemental Eligible Account Holder pursuant to this Section
10.
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11. SUBSCRIPTION RIGHTS OF OTHER MEMBERS (FOURTH PRIORITY)
A. Each Other Member shall receive, without payment, as a fourth priority
after the filling of subscriptions of the Eligible Account Holders, the Employee
Plans, and the Supplemental Eligible Account Holders, nontransferable
subscription rights to subscribe for shares of Conversion Stock equal to an
amount up to the greater of: the amount permitted to be subscribed for in the
Community Offering which amount, pursuant to Section 12, currently is $300,000
of the Conversion Stock offered, but which may be increased to 5% or decreased
to less than $300,000 without the further approval of members or resolicitation
of subscribers; or one-tenth of one percent (.10%) of the total offering of
shares of Conversion Stock, subject to the maximum purchase limitation specified
in Section 14A and the minimum purchase limitation specified in Section 14C and
exclusive of an increase in the total number of shares issued due to an increase
in the Estimated Price Range of up to 15%.
B. A Preference will be given to Local Other Members as set forth in this
Section 11. In accordance with such preference, the subscriptions of Local
Other Members shall be filled in full first before filling the subscriptions of
remaining Other Members. In the event that Local Other Members subscribe for a
number of shares of Conversion Stock which, when added to the shares of
Conversion Stock subscribed for by the Eligible Account Holders, the Employee
Plans and the Supplemental Eligible Account Holders is in excess of the total
number of shares of Conversion Stock being issued, the subscriptions of such
Local Other Members will be allocated among the subscribing Local Other Members
so as to permit each subscribing Local Other Member, to the extent possible, to
purchase a number of shares sufficient to make his or her total allocation of
Conversion Stock equal to the lesser of 100 shares or the number of shares
subscribed for by the Local Other Member. Any shares
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<PAGE>
remaining after that allocation will be allocated among the subscribing Local
Other Members whose subscriptions remain unsatisfied pro rata in the same
proportion that the number of votes of a subscribing Local Other Member on the
Voting Record Date bears to the total votes on the Voting Record Date of all
subscribing Local Other Members whose subscriptions remain unsatisfied. If the
amount so allocated exceeds the amount subscribed for by any one or more
remaining Local Other Members, the excess shall be reallocated (one or more
times as necessary) among those remaining Local Other Members whose
subscriptions are still not fully satisfied on the same principle until all
available shares have been allocated or all subscriptions satisfied.
C. In the event that shares remain available for subscription after all
subscriptions by Local Other Members have been filled in full and remaining
Other Members exercise subscription rights for a number of shares of Conversion
Stock in excess of the total number of shares eligible for subscription, the
remaining shares of Conversion Stock shall be allocated among the remaining
subscribing Other Members so as to permit each remaining subscribing Other
Member, to the extent possible, to purchase a number of shares sufficient to
make his or her total allocation of Conversion Stock equal to the lesser of 100
shares or the number of shares subscribed for by the Other Member. Any shares
remaining after that allocation will be allocated among the subscribing Other
Members whose subscriptions remain unsatisfied pro rata in the same proportion
that the number of votes of a subscribing Other Member on the Voting Record Date
bears to the total votes on the Voting Record Date of all subscribing Other
Members. If the amount so allocated exceeds the amount subscribed for by any one
or more remaining Other Members, the excess shall be reallocated (one or more
times as necessary) among those remaining Other Members whose subscriptions are
still not fully
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satisfied on the same principle until all available shares have been allocated
or all subscriptions satisfied.
12. COMMUNITY OFFERING (FIFTH PRIORITY)
If less than the total number of shares of Conversion Stock to be
subscribed for in the Conversion are sold in the Subscription Offering, it is
expected that shares remaining unsubscribed for will be made available for
purchase in the Community Offering to certain members of the general public,
which may subscribe together with any Associate or group of persons Acting in
Concert for up to $300,000 of the shares of Conversion Stock offered subject to
the Maximum Overall Purchase Limitation as specified in Section 14A and the
minimum purchase limitation specified in Section 14C and exclusive of an
increase in the total number of shares issued due to an increase in the
Estimated Price Range of up to 15%; provided, however, that the amount permitted
to be purchased in the Community Offering may be increased to 5% or decreased to
less than $300,000 without the further approval of members or resolicitation of
subscribers. The shares may be made available in the Community Offering through
a direct community marketing program which may provide for utilization of a
broker, dealer, consultant or investment banking firm, experienced and expert in
the sale of savings institution securities. Such entities may be compensated on
a fixed fee basis or on a commission basis, or a combination thereof. In
offering the unsubscribed for shares to the public in the Community Offering, a
number of shares equal to the lesser of 25% of the Conversion Stock or the
Conversion Stock not subscribed for in the Subscription Offering may be
initially reserved for institutional investors who need not be residents of the
BANK's Local Community. Any excess of shares and those not subscribed for by
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institutional investors will be available for purchase by the general public
with preference given to Preferred Subscribers. The BANK shall make
distribution of the Conversion Stock to be sold in the Community Offering in
such a manner as to promote the widest distribution of Conversion Stock. The
BANK reserves the right to reject any or all orders, in whole or in part, which
are received in the Community Offering.
To the extent that there are shares remaining after all subscriptions by
institutional investors are filled, if the Preferred Subscribers in the
Community Offering, whose orders would otherwise be accepted, subscribe for more
shares than are available for purchase, the shares available to them will be
allocated among the Preferred Subscribers in the manner which permits each such
person to the extent possible, to purchase the number of shares necessary to
make his total allocation of Conversion Stock equal to the lesser of 100 shares
or the number of shares subscribed for by such persons with preference given to
Preferred Subscribers. Thereafter, unallocated shares will be allocated among
the Preferred Subscribers whose subscriptions remain unsatisfied on a 100 shares
per order basis until all such orders have been filled or the remaining shares
have been allocated. To the extent that there are shares remaining after all
subscriptions by Preferred Subscribers, any remaining shares will be allocated
among members of the general public using the foregoing allocation as applied to
Preferred Subscribers. The BANK may establish all other terms and conditions of
such offer. It is expected that the Community Offering will commence
concurrently with the Subscription Offering. The Community Offering must be
completed within 45 days after the completion of the Subscription Offering
unless otherwise extended by the OTS.
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13. SYNDICATED COMMUNITY OFFERING
If feasible, all shares of Conversion Stock not subscribed for in the
Subscription and Community Offerings may be sold in a Syndicated Community
Offering, subject to such terms, conditions and procedures as may be determined
by the BANK, in a manner that will achieve the widest distribution of the
Conversion Stock subject to the right of the BANK to accept or reject in whole
or in part all subscriptions in the Syndicated Community Offering. In the
Syndicated Community Offering, any person together with any Associate or group
of persons Acting in Concert may purchase up to $300,000 of the total number of
shares of Conversion Stock offered subject to the maximum purchase limitation
specified in Section 14A and the minimum purchase limitation specified in
Section 14C and exclusive of an increase in the total number of shares issued
due to an increase in the Estimated Price Range of up to 15%; provided, however,
that this amount may be increased to 5% or decreased to less than $300,000
without the further approval of members or resolicitation of subscribers. The
shares purchased by any Person together with any Associate or group of persons
Acting in Concert pursuant to Section 12 shall be counted toward meeting the
maximum percentage of shares permitted to be purchased pursuant to this Section.
Provided that the Subscription Offering has commenced, the BANK may commence the
Syndicated Community Offering at any time after the mailing to the Members of
the Proxy Statement to be used in connection with the Special Meeting of
Members, provided that the completion of the offer and sale of the Conversion
Stock shall be conditioned upon the approval of this Plan by the Voting Members.
If the Syndicated Community Offering is not sooner commenced pursuant to the
provisions of the preceding sentence, the Syndicated Community Offering will be
commenced
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as soon as practicable following the date upon which the Subscription and
Community Offerings terminate.
Alternatively, if a Syndicated Community Offering is not held, the BANK
shall have the right to sell any shares of Conversion Stock remaining following
the Subscription and Community Offerings in an underwritten firm commitment
public offering. The provisions of Section 14 hereof shall not be applicable to
sales to underwriters for purposes of such an offering but shall be applicable
to the sales by the underwriters to the public. The price to be paid by the
underwriters in such an offering shall be equal to the Actual Purchase Price
less an underwriting discount to be negotiated among such underwriters and the
BANK, which will in no event exceed an amount deemed to be acceptable by the
OTS.
If for any reason a Syndicated Community Offering or an underwritten firm
commitment public offering of shares of Conversion Stock not sold in the
Subscription and Community Offerings can not be effected, or in the event that
any insignificant residue of shares of Conversion Stock is not sold in the
Subscription and Community Offerings or in the Syndicated Community Offering or
an underwritten firm commitment public offering, other purchase arrangements
will be made for the sale of unsubscribed shares by the BANK, if possible. Such
other purchase arrangements will be subject to the approval of the OTS.
14. LIMITATION ON PURCHASES
In addition to the maximum amount of Conversion Stock that may be
subscribed for as set forth in Sections 8, 10, 11, 12 and 13, the following
limitations shall apply to all purchases of shares of Conversion Stock:
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A. The maximum number of shares of Conversion Stock which may be
subscribed for or purchased in all categories in the conversion by any Person or
Participant together with any Associate or group or persons Acting in Concert
shall not exceed 1.0% of the Conversion Stock offered (the "Maximum Overall
Purchase Limitation"), except for the Employee Plans which may subscribe for up
to 10% of the Conversion Stock issued and except for certain Eligible Account
Holders and Supplemental Eligible Account Holders which may subscribe for or
purchase shares in accordance with Sections 8 and 10 herein, respectively;
provided, however, in the event that the Maximum Overall Purchase Limitation is
increased to more than 2.0% of the shares of Conversion Stock offered, orders
for Conversion Stock in the Community Offering and in the Syndicated Community
Offering (or, alternatively an underwritten firm commitment public offering), if
any, shall, as determined by the BANK, first be filled to a maximum of 2.0% of
the total number of shares of Conversion Stock offered and thereafter remaining
shares shall be allocated on an equal number of shares basis per order until all
orders have been filled.
B. The maximum number of shares of Conversion Stock which may be
purchased in all categories in the Conversion by Officers and Directors of the
BANK and their Associates in the aggregate shall not exceed 25% of the total
number of shares of Conversion Stock issued.
C. A minimum of 25 shares of Conversion Stock must be purchased by each
Person purchasing shares in the Conversion to the extent those shares are
available; provided, however, that in the event the minimum number of shares of
Conversion Stock purchased times the price per share exceeds $500, then such
minimum purchase requirement shall be
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reduced to such number of shares of Conversion Stock which when multiplied by
the price per share shall not exceed $500, as determined by the Board.
If the number of shares of Conversion Stock otherwise allocable pursuant to
Sections 8, 10, 11, 12 and 13, to any Person or that Person's Associates would
be in excess of the maximum number of shares permitted as set forth above, the
number of shares of Conversion Stock allocated to each such person shall be
reduced to the lowest limitation applicable to that Person, and then the number
of shares allocated to each group consisting of a Person and that Person's
Associates shall be reduced so that the aggregate allocation to that Person and
his or her Associates complies with the above maximums, and such maximum number
of shares shall be reallocated among that Person and his or her Associates as
they may agree, or in the absence of an agreement, in proportion to the shares
subscribed by each (after first applying the maximums applicable to each Person,
separately).
Depending upon market or financial conditions, the Board of Directors of
the BANK and the Holding Company, without further approval of the Members, may
decrease or increase the purchase limitations in this Plan, provided that the
maximum purchase limitations may not be increased to a percentage in excess of
5%. Notwithstanding the foregoing, the Maximum Overall Purchase Limitation may
be increased up to 9.99% provided that orders for Conversion Stock exceeding 5%
of the shares being offered shall not exceed, in the aggregate, 10% of the total
offering. If the BANK or the Holding Company, as the case may be, increases the
maximum purchase limitations, the BANK or the Holding Company, as the case may
be, is only required to resolicit Persons who subscribed for the maximum
purchase amount and may, in the sole discretion of the BANK or the Holding
Company, as the case may be, resolicit certain other large subscribers.
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In the event shares of Conversion stock are sold in excess of the maximum
of the Estimated Price Range, (the "Adjusted Maximum") such shares will be
allocated in the following order of priority: (i) to fill the Employee Plans'
subscription to the Adjusted Maximum; (ii) in the event that there is an
oversubscription at the Eligible Account Holder level, to fill unfulfilled
subscriptions of Eligible Account Holders exclusive of the Adjusted Maximum in
accordance with Section 8; (iii) in the event there is an oversubscription at
the Supplemental Eligible Account Holder level, to fill unfulfilled
subscriptions of Supplemental Eligible Account Holders exclusive of the Adjusted
Maximum in accordance with Section 10; (iv) in the event that there is an
oversubscription at the Other Member level, to fill unfulfilled subscriptions of
Other Members exclusive of the Adjusted Maximum in accordance with Section 11;
and (v) to fill unfulfilled Subscriptions in the Community Offering exclusive of
the Adjusted Maximum in accordance with Section 12.
For purposes of this Section 14, the Directors and Officers of the BANK and
the Holding Company shall not be deemed to be Associates or a group affiliated
with each other or otherwise Acting in Concert solely as a result of their being
Directors or Officers of the BANK or the Holding Company.
Each Person purchasing Conversion Stock in the Conversion shall be deemed
to confirm that such purchase does not conflict with the above purchase
limitations contained in this Plan.
For a period of three years following the Conversion, no Officer, Director
or their Associates shall purchase, without the prior written approval of the
OTS, any outstanding shares of common stock of the BANK or the Holding Company,
as the case may be, except from a broker-dealer registered with the SEC. This
provision shall not apply to negotiated
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transactions involving more than one percent of the outstanding shares of common
stock of the BANK or the Holding Company, as the case may be, the exercise of
any options pursuant to a stock option plan or purchases of common stock of the
BANK or the Holding Company, as the case may be, made by or held by any Tax-
Qualified Employee Stock Benefit Plan or Non-Tax-Qualified Employee Stock
Benefit Plan of the BANK or the Holding Company (including the Employee Plans)
which may be attributable to any Officer or Director. As used herein, the term
"negotiated transaction" means a transaction in which the securities are offered
and the terms and arrangements relating to any sale are arrived at through
direct communications between the seller or any person acting on its behalf and
the purchaser or his investment representative. The term "investment
representative" shall mean a professional investment advisor acting as agent for
the purchaser and independent of the seller and not acting on behalf of the
seller in connection with the transaction.
15. PAYMENT FOR CONVERSION STOCK
All payments for Conversion Stock subscribed for in the Subscription,
Community and Syndicated Community Offerings must be delivered in full to the
BANK, together with a properly completed and executed Order Form, or purchase
order in the case of the Syndicated Community Offering, on or prior to the
expiration date specified on the Order Form or purchase order, as the case may
be, unless such date is extended by the BANK; provided, however, that if the
Employee Plans subscribe for shares during the Subscription Offering, such plans
will not be required to pay for the shares at the time they subscribe but rather
may pay for such shares of Conversion Stock subscribed for by such plans at the
Actual Purchase Price upon consummation of the Conversion, provided that, in the
case of the employee stock
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ownership plan ("ESOP") there is in force from the time of its subscription
until the consummation of the Conversion, a loan commitment from the Holding
Company or an unrelated financial institution to lend to the ESOP, at such time,
the aggregate Subscription Price of the shares for which it subscribed. The
BANK may make scheduled discretionary contributions to an Employee Plan provided
such contributions do not cause the BANK to fail to meet its regulatory capital
requirement.
Notwithstanding the foregoing, the BANK and the Holding Company, if
utilized, shall have the right, in their sole discretion, to permit
institutional investors to submit contractually irrevocable orders in the
Community Offering and to thereafter submit payment for the Conversion Stock for
which they are subscribing in the Community Offering at any time prior to 48
hours before the completion of the Conversion, unless such 48 hour period is
waived by the BANK and the Holding Company, in their sole discretion.
Payment for Conversion Stock subscribed for shall be made either in cash
(if delivered in person), check or money order. Alternatively, subscribers in
the Subscription and Community Offerings may pay for the shares subscribed for
by authorizing the BANK on the Order Form to make a withdrawal from the
subscriber's Savings Account at the BANK in an amount equal to the purchase
price of such shares. Such authorized withdrawal, whether from a savings
passbook or certificate account, shall be without penalty as to premature
withdrawal. If the authorized withdrawal is from a certificate account, and the
remaining balance does not meet the applicable minimum balance requirement, the
certificate shall be cancelled at the time of withdrawal, without penalty, and
the remaining balance will earn interest at the passbook rate. Funds for which
a withdrawal is authorized will remain in the subscriber's Savings Account but
may not be used by the subscriber until the Conversion Stock has been
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<PAGE>
sold or the 45-day period (or such longer period as may be approved by the OTS)
following the Subscription and Community Offering has expired, whichever occurs
first. Thereafter, the withdrawal will be given effect only to the extent
necessary to satisfy the subscription (to the extent it can be filled) at the
purchase price per share. Interest will continue to be earned on any amounts
authorized for withdrawal until such withdrawal is given effect. Interest will
be paid by the BANK at not less than the passbook annual rate on payments for
Conversion Stock received in cash or by check or money order. Such interest
will be paid from the date payment is received by the BANK until consummation or
termination of the Conversion. If for any reason the Conversion is not
consummated, all payments made by subscribers in the Subscription, Community and
Syndicated Community Offerings will be refunded to them with interest. In case
of amounts authorized for withdrawal from Savings Accounts, refunds will be made
by cancelling the authorization for withdrawal. The BANK is prohibited by
regulation from knowingly making any loans or granting any lines of credit for
the purchase of stock in the Conversion, and therefore, will not do so.
16. MANNER OF EXERCISING SUBSCRIPTION RIGHTS THROUGH ORDER FORMS
As soon as practicable after the Prospectus prepared by the Holding Company
and BANK has been declared effective by the OTS and the SEC, if the holding
company form of organization is utilized, Order Forms will be distributed to all
Eligible Account Holders, the Employee Plans, the Supplemental Eligible Account
Holders and Other Members at their last known addresses appearing on the records
of the BANK for the purpose of subscribing to shares of Conversion Stock in the
Subscription Offering and will be made available for use by
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those Persons entitled to purchase in the Community Offering. Notwithstanding
the foregoing, the BANK may elect to send Order Forms only to those Persons who
request them after such notice as is approved by the OTS and is adequate to
apprise all Eligible Account Holders, the Employee Plans, Supplemental Eligible
Account Holders and Other Members of the pendency of the Subscription Offering
has been given. Such notice may be included with the proxy statement for the
Special Meeting of Members and may also be included in a notice of the pendency
of the Conversion and the Special Meeting of Members sent to all Eligible
Account Holders and Supplemental Eligible Account Holders in accordance with
regulations of the OTS.
Each Order Form will be preceded or accompanied by the Prospectus (if a
holding company form of organization is utilized) or the Offering Circular (if
the holding company form of organization is not utilized) describing the Holding
Company, if utilized, the BANK, the Conversion Stock and the Subscription and
Community Offerings. Each Order Form will contain, among other things, the
following:
A. A specified date by which all Order Forms must be received by the
BANK, which date shall be not less than twenty (20), nor more than forty-five
(45) days, following the date on which the Order Forms are mailed by the BANK,
and which date will constitute the termination of the Subscription Offering;
B. The Subscription Price per share for shares of Conversion Stock to be
sold in the Subscription and Community Offerings;
C. A description of the minimum and maximum number of shares of
Conversion Stock which may be subscribed for pursuant to the exercise of
subscription rights or otherwise purchased in the Community Offering;
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D. Instructions as to how the recipient of the Order Form is to indicate
thereon the number of shares of Conversion Stock for which such person elects to
subscribe and the available alternative methods of payment therefor;
E. An acknowledgment that the recipient of the Order Form has received a
final copy of the Prospectus or Offering Circular, as the case may be, prior to
execution of the Order Form;
F. A statement to the effect that all subscription rights are
nontransferable, will be void at the end of the Subscription Offering, and can
only be exercised by delivering within the subscription period such properly
completed and executed Order Form, together with cash (if delivered in person),
check or money order in the full amount of the purchase price as specified in
the Order Form for the shares of Conversion Stock for which the recipient elects
to subscribe in the Subscription Offering (or by authorizing on the Order Form
that the BANK withdraw said amount from the subscriber's Savings Account at the
BANK) to the BANK;
G. A statement to the effect that the executed Order Form, once received
by the BANK, may not be modified or amended by the subscriber without the
consent of the BANK; and
H. A statement with respect to the residence of the subscriber.
Notwithstanding the above, the BANK and the Holding Company will not accept
orders received on photocopied or facsimilied order forms.
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17. UNDELIVERED, DEFECTIVE OR LATE ORDER FORMS: INSUFFICIENT PAYMENT
In the event Order Forms (a) are not delivered and are returned to the BANK
by the United States Postal Service or the BANK is unable to locate the
addressee, (b) are not received back by the BANK or are received by the BANK
after the expiration date specified thereon, (c) are defectively filled out or
executed, (d) are not accompanied by the full required payment, except in the
case of institutional investors in the Community Offering, by delivering
irrevocable orders together with a legally binding commitment to pay in cash,
check, money order or wire transfer the full amount of the purchase price prior
to 48 hours before the completion of the Conversion for the shares of Conversion
Stock subscribed for (including cases in which savings accounts from which
withdrawals are authorized are insufficient to cover the amount of the required
payment), or (e) are not mailed pursuant to a "no mail" order placed in effect
by the account holder, the subscription rights of the person to whom such rights
have been granted will lapse as though such person failed to return the
contemplated Order Form within the time period specified thereon; provided,
however, that the BANK may, but will not be required to, waive any immaterial
irregularity on any Order Form or require the submission of corrected Order
Forms or the remittance of full payment for subscribed shares by such date as
the BANK may specify. The interpretation of the BANK of terms and conditions of
the Plan and of the Order Forms will be final, subject to the authority of the
OTS.
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18. RESTRICTIONS ON RESALE OR SUBSEQUENT DISPOSITION
A. All shares of Conversion Stock purchased by Directors or Officers of
the BANK or the Holding Company in the Conversion shall be subject to the
restriction that, except as provided in Section 18B, below, or as may be
approved by the OTS, no interest in such shares may be sold or otherwise
disposed of for value for a period of one (l) year following the date of
purchase.
B. The restriction on disposition of shares of Conversion Stock set forth
in Section 18A above shall not apply to the following:
(i) Any exchange of such shares in connection with a merger or
acquisition involving the BANK or the Holding Company, as the case may be, which
has been approved by the OTS; and
(ii) Any disposition of such shares following the death of the
person to whom such shares were initially sold under the terms of the Plan.
C. With respect to all shares of Conversion Stock subject to restrictions
on resale or subsequent disposition, each of the following provisions shall
apply:
(i) Each certificate representing shares restricted within the
meaning of Section 18A, above, shall bear a legend prominently stamped on its
face giving notice of the restriction;
(ii) Instructions shall be issued to the stock transfer agent for
the BANK or the Holding Company, as the case may be, not to recognize or effect
any transfer of any certificate or record of ownership of any such shares in
violation of the restriction on transfer; and
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(iii) Any shares of capital stock of the BANK or the Holding Company,
as the case may be, issued with respect to a stock dividend, stock split, or
otherwise with respect to ownership of outstanding shares of Conversion Stock
subject to the restriction on transfer hereunder shall be subject to the same
restriction as is applicable to such Conversion Stock.
19. VOTING RIGHTS OF STOCKHOLDERS
Upon conversion, the holders of the capital stock of the BANK shall have
the exclusive voting rights with respect to the BANK as specified in its
charter. The holders of the common stock of the Holding Company (if a holding
company form of organization is utilized) shall have the exclusive voting rights
with respect to the Holding Company.
20. ESTABLISHMENT OF LIQUIDATION ACCOUNT
The BANK shall establish at the time of conversion a liquidation account in
an amount equal to its net worth as of the latest practicable date prior to
conversion ("Liquidation Account"). The liquidation account will be maintained
by the BANK for the benefit of the Eligible Account Holders and Supplemental
Eligible Account Holders who continue to maintain their Savings Accounts at the
BANK. Each Eligible Account Holder and Supplemental Eligible Account Holder
shall, with respect to his Savings Account, hold a related inchoate interest in
a portion of the Liquidation Account balance, in relation to his Savings Account
balance at the Eligibility Record Date and/or Supplemental Eligibility Record
Date or to such balance as it may be subsequently reduced, as hereinafter
provided.
In the unlikely event of a complete liquidation of the BANK (and only in
such event), following all liquidation payments to creditors (including those to
Account Holders to the
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extent of their Savings Accounts) each Eligible Account Holder and Supplemental
Eligible Account Holder shall be entitled to receive a liquidating distribution
from the Liquidation Account, in the amount of the then adjusted subaccount
balance for his Savings Account then held, before any liquidation distribution
may be made to any holders of the BANK's capital stock. No merger,
consolidation, bulk purchase of assets with assumption of Savings Accounts and
other liabilities, or similar transactions with an FDIC-issued institution, in
which the BANK is not the surviving institution, shall be deemed to be a
complete liquidation for this purpose. In such transactions, the Liquidation
Account shall be assumed by the surviving institution.
The initial subaccount balance for a Savings Account held by an Eligible
Account Holder and Supplemental Eligible Account Holder shall be determined by
multiplying the opening balance in the Liquidation Account by a fraction, the
numerator of which is the amount of such Eligible Account Holder's and/or
Supplemental Eligible Account Holder's Qualifying Deposit and the denominator of
which is the total amount of all Qualifying Deposits of all Eligible Account
Holders and Supplemental Eligible Account Holders in the BANK. Such initial
subaccount balance shall not be increased, but shall be subject to downward
adjustment as described below. For Savings Accounts in existence at both dates,
separate subaccounts shall be determined on the basis of the Qualifying Deposits
in such Savings Account on such record dates. Such initial subaccount balances
shall not be increased but shall be subject to downward adjustment as described
below.
If, at the close of business on any annual closing date, commencing on or
after the effective date of Conversion, the deposit balance in the Savings
Account of an Eligible Account Holder or Supplemental Eligible Account Holder is
less than the lesser of (i) the
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balance in the Savings Account at the close of business on any other annual
closing date subsequent to the Eligibility Record Date or Supplemental
Eligibility Record Date, or (ii) the amount of the Qualifying Deposit in such
Savings Account, the subaccount balance for such Savings Account shall be
adjusted by reducing such subaccount balance in an amount proportionate to the
reduction in such deposit balance. In the event of such downward adjustment,
the subaccount balance shall not be subsequently increased, notwithstanding any
subsequent increase in the deposit balance of the related Savings Account. If
any such Savings Account is closed, the related subaccount shall be reduced to
zero.
The creation and maintenance of the Liquidation Account shall not operate
to restrict the use or application of any of the net worth accounts of the BANK.
21. TRANSFER OF SAVINGS ACCOUNTS AND CONTINUITY OF THE BANK
Upon Conversion, each Savings Account Holder having a Savings Account at
the BANK prior to the Conversion will continue to have a Savings Account,
without payment therefor, in the same amount and subject to the same terms and
conditions (except for voting and liquidation rights) as in effect prior to the
Conversion.
After the Conversion, the BANK will succeed to all the rights, interests,
duties and obligations of the BANK before the Conversion, including but not
limited to all rights and interests of the BANK in and to its assets and
properties, whether real, personal or mixed. The BANK will continue to be a
member of the Federal Home Loan Bank System and all its insured savings deposits
will continue to be insured by the FDIC to the extent provided by applicable
law.
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22. RESTRICTIONS ON ACQUISITION OF THE BANK AND HOLDING COMPANY
A. In accordance with OTS regulations, for a period of three years from
the date of consummation of the Conversion, no Person, other than the Holding
Company (if a holding company form of organization is utilized), shall directly
or indirectly offer to acquire or acquire the beneficial ownership of more than
10% of any class of an equity security of the BANK without the prior written
consent of the OTS.
B. 1. The charter of the BANK contains a provision stipulating that no
person, except the Holding Company (if a holding company form of organization is
utilized), for a period of five years following the date of the Conversion shall
directly or indirectly offer to acquire or acquire the beneficial ownership of
more than 10% of any class of an equity security of the BANK, without the prior
written approval of the OTS. In addition, such charter may also provide that
for a period of five years following the Conversion, shares beneficially owned
in violation of the above-described charter provision shall not be entitled to
vote and shall not be voted by any person or counted as voting stock in
connection with any matter submitted to stockholders for a vote. In addition,
special meetings of the stockholders relating to changes in control or amendment
of the charter may only be called by the Board of Directors, and shareholders
shall not be permitted to cumulate their votes for the election of directors.
2. The Certificate of Incorporation of the Holding Company, if a
holding company form of organization is utilized, will contain a provision
stipulating that in no event shall any record owner of any outstanding shares of
the Holding Company's common stock who beneficially owns in excess of 10% of
such outstanding shares be entitled or permitted to
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any vote in respect to any shares held in excess of 10%. In addition, the
Certificate of Incorporation and Bylaws of the Holding Company provide for
staggered terms of the directors, noncumulative voting for directors,
limitations on the calling of special meetings, a fair price provision for
certain business combinations and certain notice requirements.
C. For the purposes of this Section 22:
(i) The term "person" includes an individual, a group acting in
concert, a corporation, a partnership, an association, a joint stock company, a
trust, an unincorporated organization or similar company, a syndicate or any
other group formed for the purpose of acquiring, holding or disposing of
securities of an insured institution;
(ii) The term "offer" includes every offer to buy or acquire,
solicitation of an offer to sell, tender offer for, or request or invitation for
tenders of, a security or interest in a security for value;
(iii) The term "acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or otherwise; and
(iv) The term "security" includes non-transferable subscription
rights issued pursuant to a plan of conversion as well as a "security" as
defined in 15 U.S.C. (S) 78c(a)(10).
23. PAYMENT OF DIVIDENDS AND REPURCHASE OF STOCK
The BANK shall not declare or pay a cash dividend on, or repurchase any of,
its capital stock if the effect thereof would cause its regulatory capital to be
reduced below (i) the amount required for the Liquidation Account or (ii) the
federal regulatory capital requirement in Section 567.2 of the Rules and
Regulations of the OTS. Otherwise, the BANK may
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<PAGE>
declare dividends, make capital distributions or repurchase its capital stock in
accordance with applicable law and regulations.
24. AMENDMENT OF PLAN
If deemed necessary or desirable, the Plan may be substantively amended at
any time prior to solicitation of proxies from Members to vote on the Plan by a
two-thirds vote of the BANK's Board of Directors, and at any time thereafter by
such vote of such Board of Directors with the concurrence of the OTS. Any
amendment to the Plan made after approval by the Members with the approval of
the OTS shall not necessitate further approval by the Members unless otherwise
required by the OTS. The Plan may be terminated by majority vote of the BANK's
Board of Directors at any time prior to the Special Meeting of Members to vote
on the Plan, and at any time thereafter with the concurrence of the OTS.
By adoption of the Plan, the Members of the BANK authorize the Board of
Directors to amend or terminate the Plan under the circumstances set forth in
this Section.
25. CHARTER AND BYLAWS
By voting to adopt the Plan, members of the BANK will be voting to adopt a
Federal Stock Savings Bank Charter and Bylaws for a Federal Stock Savings Bank
attached as Exhibits I and II to this Plan. The effective date of the BANK's
stock charter and bylaws shall be the date of issuance and sale of the
Conversion Stock as specified by the OTS.
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26. CONSUMMATION OF CONVERSION
The Conversion of the BANK shall be deemed to take place and be effective
upon the completion of all requisite organizational procedures for obtaining a
Federal Stock Savings Bank Charter for the BANK and sale of all Conversion
Stock.
27. REGISTRATION AND MARKETING
Within the time period required by applicable laws and regulations, the
BANK or the Holding Company, as the case may be, will register the securities
issued in connection with the Conversion pursuant to the Securities Exchange Act
of 1934 and will not deregister such securities for a period of at least three
years thereafter, except that the maintenance of registration for three years
requirement may be fulfilled by any successor to the BANK or any holding company
of the BANK. In addition, the BANK or Holding Company, as the case may be, will
use its best efforts to encourage and assist a market-maker to establish and
maintain a market for the Conversion Stock and to list those securities on a
national or regional securities exchange or the NASDAQ system.
28. RESIDENTS OF FOREIGN COUNTRIES AND CERTAIN STATES
The 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
shares of Conversion Stock pursuant to the Plan reside. However, no such Person
will be issued subscription rights or be permitted to purchase shares of
Conversion Stock in the Subscription Offering if such Person resides in a
foreign country or in a state of the United States with respect to which both of
the following apply: A. a small number of Persons otherwise eligible to
subscribe for
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<PAGE>
shares under the Plan reside in such state and; B. the issuance of subscription
rights or the offer or sale of shares of Conversion Stock to such Persons would
require the BANK or the Holding Company, as the case may be, under the
securities laws of such state, to register as a broker, dealer, salesman or
agent or to register or otherwise qualify its securities for sale in such state
and such registration or qualification would be impracticable for reasons of
cost or otherwise.
29. EXPENSES OF CONVERSION
The BANK shall use its best efforts to assure that expenses incurred by it
in connection with the Conversion shall be reasonable.
30. CONDITIONS TO CONVERSION
The Conversion of the BANK pursuant to this Plan is expressly conditioned
upon the following:
(a) Prior receipt by the BANK of rulings of the United States Internal
Revenue Service and any applicable state taxing authority, or opinions of
counsel, substantially to the effect that the Conversion will not result in any
adverse federal or state tax consequences to Eligible Account Holders or to the
BANK and the Holding Company before or after the Conversion;
(b) The sale of all of the Conversion Stock offered in the Conversion; and
(c) The completion of the Conversion within the time period specified in
Section 3 of this Plan.
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31. INTERPRETATION
All interpretations of this Plan and application of its provisions to
particular circumstances by a majority of the Board of Directors of the BANK
shall be final, subject to the authority of the OTS.
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EXHIBIT I
FEDERAL STOCK CHARTER
FOR
FIRST FEDERAL SAVINGS BANK OF AMERICA
Section 1. Corporate Title.
The full corporate title of the institution is First Federal Savings Bank
of America (the "BANK").
Section 2. Office.
The home office shall be located in the City of Fall River, in the County
of Bristol, Commonwealth of Massachusetts.
Section 3. Duration.
The duration of the BANK is perpetual.
Section 4. Purpose and Powers.
The purpose of the BANK is to pursue any or all of the lawful objectives of
a Federal savings bank chartered under Section 5 of the Home Owners' Loan Act
and to exercise all the express, implied, and incidental powers conferred
thereby and by all acts amendatory thereof and supplemental thereto, subject to
the Constitution and laws of the United States as they are now in effect, or as
they may hereafter be amended, and subject to all lawful and applicable rules,
regulations, and orders of the Office of Thrift Supervision ("Office").
Section 5. Capital Stock.
The total number of shares of all classes of the capital stock which the
BANK has authority to issue is Twenty-Six million (26,000,000), of which Twenty-
Five million (25,000,000) shall be common stock, par value $1.00 per share and
of which One million (1,000,000) shall be preferred stock, par value $1.00 per
share. The shares may be issued from time to time as authorized by the Board of
Directors without further approval of shareholders except as otherwise provided
in this Section 5 or to the extent that such approval is required by governing
law, rule, or regulation. The consideration for the issuance of the shares shall
be paid in full before their issuance and shall not be less than the par value.
Neither promissory notes nor future services shall constitute payment or part
payment for the issuance of shares of the BANK. The consideration for the shares
shall be cash, tangible or intangible property (to the extent direct investment
in such property would be permitted), labor or services actually performed for
the BANK, or any combination of the foregoing. In
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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 BANK, shall
be conclusive. Upon payment of such consideration, such shares shall be deemed
to be fully paid and nonassessable. In the case of a stock dividend, that part
of the surplus of the BANK which is transferred to stated capital upon the
issuance of shares as a share dividend shall be deemed to be the consideration
for their issuance.
Except for shares issuable in connection with the conversion of the BANK
from the mutual to the stock form of capitalization, no shares of capital stock
(including shares issuable upon conversion, exchange, or exercise of other
securities) shall be issued, directly or indirectly, to officers, directors, or
controlling persons of the BANK other than as part of a general public offering
or as qualifying shares to a director, unless their issuance or the plan under
which they would be issued has been approved by a majority of the total votes
eligible to be cast at a legal meeting.
Nothing contained in this Section 5 (or in any supplementary sections
hereto) shall entitle the holders of any class or series of capital stock to
vote as a separate class or series or to more than one vote per share, except as
to the cumulation of votes for the election of directors: provided, that this
--------
restriction on voting separately by class or series shall not apply:
(i) To any provision which would authorize the holders of preferred
stock, voting as a class or series, to elect some members of the
Board of Directors, less than a majority thereof, in the event of
default in the payment of dividends on any class or series of
preferred stock;
(ii) To any provision which would require the holders of preferred stock,
voting as a class or series, to approve the merger or consolidation
of the BANK with another corporation or the sale, lease, or
conveyance (other than by mortgage or pledge) of properties or
business in exchange for securities of a corporation other than the
BANK if the preferred stock is exchanged for securities of such
other corporation: Provided, That no provision may require such
approval for transactions undertaken with the assistance or pursuant
to the direction of the Office or the Federal Deposit Insurance
Corporation;
(iii) To any amendment which would adversely change the specific terms of
any class or series of capital stock as set forth in this Section 5
(or in any supplementary sections hereto), including any amendment
which would create or enlarge any class or series ranking prior
thereto in rights and preferences. An amendment which increases the
number of authorized shares of any class or series of capital stock,
or substitutes the surviving BANK in a merger or consolidation for
the BANK, shall not be considered to be such an adverse change.
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A description of the different classes and series (if any) of the BANK's
capital stock and a statement of the designations, and the relative rights,
preferences, and limitations of the shares of each class of and series (if any)
of capital stock are as follows:
A. Common Stock. Except as provided in this Section 5 (or in any
------------
supplementary sections hereto) the holders of the common stock shall
exclusively possess all voting power. Each holder of shares of common
stock shall be entitled to one vote for each share held by such
holder, except as to the cumulation of votes for the election of
directors.
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class of
stock having preference over the common stock as to the payment of
dividends, the full amount of dividends and of sinking fund, or
retirement fund, or other retirement payments, if any, to which such
holders are respectively entitled in preference to the common stock,
then dividends may be paid on the common stock and on any class or
series of stock entitled to participate therewith as to dividends out
of any assets legally available for the payment of dividends.
In the event of any liquidation, dissolution, or winding up of the
BANK, the holders of the common stock (and the holders of any class or
series of stock entitled to participate with the common stock in the
distribution of assets) shall be entitled to receive, in cash or in
kind, the assets of the BANK available for distribution remaining
after: (i) payment or provision for payment of the BANK's debts and
liabilities; (ii) distributions or provision for distributions in
settlement of its liquidation account; and (iii) distributions or
provision for distributions to holders of any class or series of stock
having preference over the common stock in the liquidation,
dissolution, or winding up of the BANK. Each share of common stock
shall have the same relative rights as and be identical in all
respects with all the other shares of common stock.
B. Preferred Stock. The BANK may provide in supplementary sections to
---------------
its charter for one or more classes of preferred stock, which shall be
separately identified. The shares of any class may be divided into and
issued in series, with each series separately designated so as to
distinguish the shares thereof from the shares of all other series and
classes. The terms of each series shall be set forth in a
supplementary section to the charter. All shares of the same class
shall be identical except as to the following relative rights and
preferences, as to which there may be variations between different
series:
(a) The distinctive serial designation and the number of shares
constituting such series;
(b) The dividend rate or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative and,
if so, from
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which date(s), the payment date(s) for dividends, and the
participating or other special rights, if any, with respect to
dividends;
(c) The voting powers, full or limited, if any, of the shares of such
series;
(d) Whether the shares of such series shall be redeemable and, if so,
the price(s) at which, and the terms and conditions on which,
such shares may be redeemed;
(e) The amount(s) payable upon the shares of such series in the event
of voluntary or involuntary liquidation, dissolution, or winding
up of the BANK;
(f) Whether the shares of such series shall be entitled to the
benefit of a sinking or retirement fund to be applied to the
purchase or redemption of such shares, and if so entitled, the
amount of such fund and the manner of its application, including
the price(s) at which such shares may be redeemed or purchased
through the application of such fund;
(g) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes of stock
of the BANK and, if so, the conversion price(s) or the rate(s) of
exchange, and the adjustments thereof, if any, at which such
conversion or exchange may be made, and any other terms and
conditions of such conversion or exchange;
(h) The price or other consideration for which the shares of such
series shall be issued; and
(i) Whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of serial
preferred stock and whether such shares may be reissued as shares
of the same or any other series of serial preferred stock.
Each share of each series of serial preferred stock shall have the same
relative rights as and be identical in all respects with all the other shares of
the same series.
The Board of Directors shall have authority to divide, by the adoption of
supplementary charter sections, any authorized class of preferred stock into
series, and, within the limitations set forth in this section and the remainder
of this charter, fix and determine the relative rights and preferences of the
shares of any series so established.
Prior to the issuance of any preferred shares of a series established by a
supplementary charter section adopted by the Board of Directors, the BANK shall
file with the Secretary of
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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 BANK shall not be entitled to
preemptive rights with respect to any shares of the BANK which may be issued.
Section 7. Liquidation Account.
Pursuant to the requirements of the Office's regulations (12 C.F.R.
563b.3), the BANK shall establish and maintain a liquidation account for the
benefit of its savings account holders as of [____________] and [_____________]
("eligible savers"). In the event of a complete liquidation of the BANK, it
shall comply with such regulations with respect to the amount and the priorities
on liquidation of each of the BANK's eligible saver's inchoate interest in the
liquidation account, to the extent it is still in existence: provided, that an
eligible saver's inchoate interest in the liquidation account shall not entitle
such eligible saver to any voting rights at meetings of the BANK's shareholders.
Section 8. Certain Provisions Applicable for Five Years.
Notwithstanding anything contained in the BANK's charter or bylaws to the
contrary, for a period of five years from the date of consummation of the
conversion of the BANK from mutual to stock form, the following provisions shall
apply:
A. Beneficial Ownership Limitation. No person shall directly or
-------------------------------
indirectly offer to acquire or acquire the beneficial ownership of
more than 10 percent of any class of any equity security of the BANK.
This limitation shall not apply to a transaction in which the BANK
forms a holding company in conjunction with conversion, or thereafter,
if such formation is without change in the respective beneficial
ownership interests of the BANK's shareholders other than pursuant to
the exercise of any dissenter and appraisal rights, the purchase of
shares by underwriters in connection with a public offering, or the
purchase of shares by a tax-qualified employee stock benefit plan
which is exempt from the approval requirements under Section
574.3(c)(1)(vi) of the Office Regulations.
In the event shares are acquired in violation of this Section 8, all
shares beneficially owned by any person in excess of 10% shall be
considered "excess shares" and shall not be counted as shares entitled
to vote and shall not be voted by any person or counted as voting
shares in connection with any matters submitted to the shareholders
for a vote.
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<PAGE>
For the purposes of this Section 8, the following definitions apply:
(i) The term "person" includes an individual, a group acting in
concert, a corporation, a partnership, an association, a joint
stock company, a trust, any unincorporated organization or
similar company, a syndicate or any other group formed for the
purpose of acquiring, holding or disposing of the equity
securities of the BANK.
(ii) The term "offer" includes every offer to buy or otherwise
acquire, solicitation of an offer to sell, tender offer for, or
request or invitation for tenders of, a security or interest in
a security for value.
(iii) The term "acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or otherwise.
(iv) The term "acting in concert" means (a) knowing participation in
a joint activity or conscious parallel action towards a common
goal whether or not pursuant to an express agreement, or (b) a
combination or pooling of voting or other interests in the
securities of an issuer for a common purpose pursuant to any
contract, understanding, relationship, agreement or other
arrangement, whether written or otherwise.
B. Cumulative Voting Limitation. Shareholders shall not be permitted to
cumulate their votes for the election of directors.
C. Call for Special Meetings. Special meetings of shareholders relating
to changes in control of the BANK or amendments to its charter shall
be called only at the direction of the Board of Directors.
Section 9. Directors.
The BANK shall be under the direction of a Board of Directors. The
authorized number of directors, as stated in the BANK's bylaws, shall be not be
less than five nor more than 15 except when a greater number is approved by the
Office or its delegates.
Section 10. Amendment of Charter.
Except as provided in Section 5, no amendment, addition, alteration,
change, or repeal of this charter shall be made, unless such is first proposed
by the Board of Directors of the BANK, then preliminarily approved by the
Office, which preliminary approval may be granted by the Office pursuant to
regulations specifying preapproved charter amendments, and thereafter approved
by the shareholders by a majority of the total votes eligible to be cast at a
legal meeting. Any amendment, addition, alteration, change or repeal so acted
upon shall be
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effective upon filing with the Office in accordance with the regulatory
procedures or on such other date as the Office may specify in its preliminary
approval.
As adopted by the BANK's members on [____________], to be effective on the
date the BANK converts from mutual to stock form of organization.
FIRST FEDERAL SAVINGS BANK
OF AMERICA
Attest: ______________________________ By: ___________________________
Cecilia R. Viveiros, Secretary Robert F. Stoico
First Federal Savings Bank of President and Chief Executive
America Officer
OFFICE OF THRIFT SUPERVISION
Attest: ______________________________ By: ___________________________
Secretary to the Office
Declared effective on
the _____ day of __________, 1996
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EXHIBIT II
BYLAWS OF
FIRST FEDERAL SAVINGS BANK OF AMERICA
ARTICLE I. HOME OFFICE
The home office of First Federal Savings Bank of America ("BANK") is One
North Main Street, Fall River, Massachusetts 02720.
ARTICLE II. SHAREHOLDERS
Section l. Place of Meetings. All annual and special meetings of
-----------------------------
shareholders shall be held at the home office of the BANK or at such other place
in the State in which the principal place of business of the BANK is located as
the board of directors may determine.
Section 2. Annual Meeting. A meeting of the shareholders of the BANK for
--------------------------
the election of directors and for the transaction of any other business of the
BANK shall be held annually within 120 days after the end of the BANK's fiscal
year as the board of directors may determine.
Section 3. Special Meetings. For a period of five years from the date of
----------------------------
the completion of the conversion of the BANK from mutual to stock form, special
meetings of the shareholders relating to a change in control of the BANK or to
an amendment of the Charter of the BANK may be called only by the board of
directors. Thereafter, special meetings of the shareholders for any purpose or
purposes, unless otherwise prescribed by the regulations of the Office of Thrift
Supervision ("OTS"), may be called at any time by the chairman of the board, the
president, or a majority of the board of directors, and shall be called by the
chairman of the board, the president or the secretary upon the written request
of the holders of not less than one-tenth of all the outstanding capital stock
of the BANK entitled to vote at the meeting. Such written request shall state
the purpose or purposes of the meeting and shall be delivered at the home office
of the BANK addressed to the chairman of the board, the president or the
secretary.
Section 4. Conduct of Meetings. Annual and special meetings shall be
-------------------------------
conducted in accordance with the most current edition of Robert's Rules of Order
unless otherwise prescribed by regulations of the OTS or these bylaws. The
board of directors shall designate, when present, either the chairman of the
board or president to preside at such meetings.
Section 5. Notice of Meetings. Written notice stating the place, day and
------------------------------
hour of the meeting and the purpose(s) for which the meeting is called shall be
delivered not fewer than 20 nor more than 50 days before the date of the
meeting, either personally or by mail, by or at the direction of the chairman of
the board, the president, the secretary, or the directors calling the meeting,
to each shareholder of record entitled to vote at such meeting. If mailed, such
notice shall be deemed to be delivered when deposited in the mail, addressed to
the shareholder at the address as it appears on the stock transfer books or
records of the BANK as of the record date
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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 BANK shall make a complete list of the shareholders entitled to
vote at such meeting, or any adjournment, arranged in alphabetical order, with
the address and the number of shares held by each. This list of shareholders
shall be kept on file at the home office of the BANK and shall be subject to
inspection by any shareholder at any time during usual business hours, for a
period of 20 days prior to such meeting. Such list shall also be produced and
kept open at the time and place of the meeting and shall be subject to the
inspection by any shareholder during the entire time of the meeting. The
original stock transfer book shall constitute prima facie evidence of the
shareholders entitled to examine such list or transfer books or to vote at any
meeting of shareholders.
In lieu of making the shareholder list available for inspection by
shareholders as provided in the preceding paragraph, the board of directors may
elect to follow the procedures prescribed in (S)552.6(d) of the OTS's
Regulations as now or hereafter in effect.
Section 8. Quorum. A majority of the outstanding shares of the BANK
------------------
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of shareholders. If less than a majority of the outstanding shares
is represented at a meeting, a majority of the shares so represented may adjourn
the meeting from time to time without further notice. At such adjourned meeting
at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to constitute less than a quorum.
Section 9. Proxies. At all meetings of shareholders, a shareholder may
-------------------
vote by proxy executed in writing by the shareholder or by his duly authorized
attorney in fact. Proxies solicited on behalf of the management shall be voted
as directed by the shareholder or, in the
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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 BANK to the contrary, at any meeting of the shareholders of
the BANK any one or more of such shareholders may cast, in person or by proxy,
all votes to which such ownership is entitled. In the event an attempt is made
to cast conflicting votes, in person or by proxy, by the several persons in
whose names shares of stock stand, the vote or votes to which those persons are
entitled shall be cast as directed by a majority of those holding such and
present in person or by proxy at such meeting, but no votes shall be cast for
such stock if a majority cannot agree.
Section 11. Voting of Shares by Certain Holders. Shares standing in the
------------------------------------------------
name of another corporation may be voted by any officer, agent or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian or conservator may be voted by him, either in
person or by proxy, without a transfer of such shares into his name. Shares
standing in the name of a trustee may be voted by him, either in person or by
proxy, but no trustee shall be entitled to vote shares held by him without a
transfer of such shares into his name. Shares standing in the name of a receiver
may be voted by such receiver, and shares held by or under the control of a
receiver may be voted by such receiver without the transfer into his name if
authority to do so is contained in an appropriate order of the court or other
public authority by which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee and
thereafter the pledgee, shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the BANK, nor shares held
by another corporation, if a majority of the shares entitled to vote for the
election of directors of such other corporation are held by the BANK, shall be
voted at any meeting or counted in determining the total number of outstanding
shares at any given time for purposes of any meeting.
Section 12. Cumulative Voting. Except as otherwise provided in the BANK's
------------------------------
charter, every shareholder entitled to vote at an election for directors shall
have the right to vote, in person or by proxy, the number of shares owned by the
shareholder for as many persons as there are directors to be elected and for
whose election the shareholder has a right to vote, or to cumulate the votes by
giving one candidate as many votes as the number of such directors to be elected
multiplied by the number of shares shall equal or by distributing such votes on
the same principle among any number of candidates.
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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 OTS, the duties of such
inspectors shall include: determining the number of shares and the voting power
of each share, the shares represented at the meeting, the existence of a quorum,
and the authenticity, validity and effect of proxies; receiving votes, ballots,
or consents; hearing and determining all challenges and questions in any way
arising in connection with the rights to vote; counting and tabulating all votes
or consents; determining the result; and such acts as may be proper to conduct
the election or vote with fairness to all shareholders.
Section 14. Nominating Committee. The board of directors shall act as a
---------------------------------
nominating committee for selecting the management nominees for election as
directors. Except in the case of a nominee substituted as a result of the death
or other incapacity of a management nominee, the nominating committee shall
deliver written nominations to the secretary at least 20 days prior to the date
of the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the BANK. No nominations for directors
except those made by the nominating committee shall be voted upon at the annual
meeting unless other nominations by shareholders are made in writing and
delivered to the secretary of the BANK at least five days prior to the date of
the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the BANK. Ballots bearing the names of all
persons nominated by the nominating committee and by shareholders shall be
provided for use at the annual meeting. However, if the nominating committee
shall fail or refuse to act at least 20 days prior to the annual meeting,
nominations for directors may be made at the annual meeting by any shareholder
entitled to vote and shall be voted upon.
Section 15. New Business. Any new business to be taken up at the annual
-------------------------
meeting shall be stated in writing and filed with the secretary of the BANK at
least 5 days before the date of the annual meeting, and all business so stated,
proposed, and filed shall be considered at the annual meeting, but no other
proposal shall be acted upon at the annual meeting. Any shareholder may make any
other proposal at the annual meeting and the same may be discussed and
considered, but unless stated in writing and filed with the secretary at least 5
days before the meeting, such proposal shall be laid over for action at an
adjourned, special, or annual meeting of the shareholders taking place 30 days
or more thereafter. This provision shall not prevent the consideration and
approval or disapproval at the annual meeting of reports of officers, directors
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<PAGE>
and committees; but in connection with such reports no new business shall be
acted upon at such annual meeting unless stated and filed as herein provided.
Section 16. Informal Action by Shareholders. Any action required to be
--------------------------------------------
taken at a meeting of shareholders, or any other action which may be taken at a
meeting of the shareholders, may be taken without a meeting if consent in
writing, setting forth the action so taken, shall be given by all of the
shareholders entitled to vote with respect to the subject matter.
ARTICLE III. BOARD OF DIRECTORS
Section l. General Powers. The business and affairs of the BANK shall be
--------------------------
under the direction of its board of directors. The board of directors shall
annually elect a chairman of the board and a president from among its members
and shall designate, when present, either the chairman of the board or the
president to preside at its meetings.
Section 2. Number and Term. The board of directors shall consist of
---------------------------
eleven (11) members and shall be divided into three classes as nearly equal in
number as possible. The members of each class shall be elected for a term of
three years and until their successors are elected and qualified. One class
shall be elected by ballot annually.
Section 3. Regular Meetings. A regular meeting of the board of directors
----------------------------
shall be held without other notice than this bylaw immediately after, and at the
same place as, the annual meeting of shareholders. The board of directors may
provide, by resolution, the time and place, within the BANK's normal lending
territory, for the holding of additional regular meetings without other notice
than such resolution.
Section 4. Qualification. Each director shall at all times be the
-------------------------
beneficial owner of not less than 100 shares of capital stock of the BANK unless
the BANK is a wholly owned subsidiary of a holding company.
Section 5. Special Meetings. Special meetings of the board of directors
----------------------------
may be called by or at the request of the chairman of the board, the president
or one-third of the directors. The persons authorized to call special meetings
of the board of directors may fix any place, within the BANK's normal lending
territory, as the place for holding any special meeting of the board of
directors called by such persons.
Members of the board of directors may participate in special meetings by
means of conference telephone, or by means of similar communications equipment
by which all persons participating in the meeting can hear each other. Such
participation shall constitute presence in person but shall not constitute
attendance for the purpose of compensation pursuant to Section 12 of this
Article.
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Section 6. Notice. Written notice of any special meeting shall be given
------------------
to each director at least 24 hours prior thereto when delivered personally or by
telegram, or at least five days prior thereto when delivered by mail at the
address at which the director is most likely to be reached. Such notice shall be
deemed to be delivered when deposited in the mail so addressed, with postage
prepaid if mailed, or when delivered to the telegraph company if sent by
telegram. Any director may waive notice of any meeting by a writing filed with
the secretary. The attendance of a director at a meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any meeting of the board of directors need be
specified in the notice or waiver of notice of such meeting.
Section 7. Quorum. A majority of the number of directors fixed by
------------------
Section 2 of this Article III shall constitute a quorum for the transaction of
business at any meeting of the board of directors, but if less than such
majority is present at a meeting, a majority of the directors present may
adjourn the meeting from time to time. Notice of any adjourned meeting shall be
given in the same manner as prescribed by Section 6 of this Article III.
Section 8. Manner of Acting. The act of the majority of the directors
----------------------------
present at a meeting at which a quorum is present shall be the act of the board
of directors, unless a greater number is prescribed by regulation of the OTS or
by these bylaws.
Section 9. Action Without a Meeting. Any action required or permitted to
------------------------------------
be taken by the board of directors at a meeting may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the directors.
Section 10. Resignation. Any director may resign at any time by sending a
------------------------
written notice of such resignation to the home office of the BANK addressed to
the chairman of the board or president. Unless otherwise specified such
resignation shall take effect upon receipt by the chairman of the board or
president. More than three consecutive absences from regular meetings of the
board of directors, unless excused by resolution of the board of directors,
shall automatically constitute a resignation, effective when such resignation is
accepted by the board of directors.
Section 11. Vacancies. Any vacancy occurring in the board of directors
----------------------
may be filled by the affirmative vote of a majority of the remaining directors,
although less than a quorum of the board of directors. A director elected to
fill a vacancy shall be elected to serve until the next election of directors by
the shareholders. Any directorship to be filled by reason of an increase in the
number of directors may be filled by election by the board of directors for a
term of office continuing only until the next election of directors by the
shareholders.
Section 12. Compensation. Directors, as such, may receive a stated
-------------------------
salary for their services. By resolution of the board of directors, a
reasonable fixed sum, and reasonable expenses of attendance, if any, may be
allowed for actual attendance at each regular or special
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meeting of the board of directors. Members of either standing or special
committees may be allowed such compensation for actual attendance at committee
meetings as the board of directors may determine.
Section 13. Presumption of Assent. A director of the BANK who is present
----------------------------------
at a meeting of the board of directors at which action on any BANK matter is
taken shall be presumed to have assented to the action taken unless his dissent
or abstention shall be entered in the minutes of the meeting or unless he shall
file a written dissent to such action with the person acting as the secretary of
the meeting before the adjournment thereof or shall forward such dissent by
registered mail to the secretary of the BANK within five days after the date a
copy of the minutes of the meeting is received. Such right to dissent shall not
apply to a director who voted in favor of such action.
Section 14. Removal of Directors. At a meeting of shareholders called
---------------------------------
expressly for that purpose, any director may be removed for cause by a vote of
the holders of a majority of the shares then entitled to vote at an election of
directors. Whenever the holders of the shares of any class are entitled to elect
one or more directors by the provisions of the Charter or supplemental sections
thereto, the provisions of this section shall apply, in respect to the removal
of a director or directors so elected, to the vote of the holders of the
outstanding shares of that class and not to the vote of the outstanding shares
as a whole.
Section 15. Age Limitation. No person of an age 75 years or older will be
---------------------------
eligible for election, reelection, appointment, or reappointment to the board of
directors of the BANK and no director shall serve as such beyond the annual
meeting of the BANK immediately following the attainment of age 75; provided
that the age limitations set forth in this Section 15 of Article III shall not
apply to any director of the BANK who was a director of the BANK as of the
effective date of these Bylaws.
ARTICLE IV. EXECUTIVE AND OTHER COMMITTEES
Section l. Appointment. The board of directors, by resolution adopted by
-----------------------
a majority of the full board, may designate the chief executive officer and two
or more of the other directors to constitute an executive committee. The
designation of any committee pursuant to this Article IV and the delegation of
authority shall not operate to relieve the board of directors, or any director,
of any responsibility imposed by law or regulation.
Section 2. Authority. The executive committee, when the board of
---------------------
directors is not in session, shall have and may exercise all of the authority of
the board of directors except to the extent, if any, that such authority shall
be limited by the resolution appointing the executive committee; and except also
that the executive committee shall not have the authority of the board of
directors with reference to: the declaration of dividends; the amendment of the
Charter or bylaws of the BANK, or recommending to the shareholders a plan of
merger, consolidation, or conversion; the sale, lease or other disposition of
all or substantially all of the property and assets of the BANK otherwise than
in the usual and regular course of its business; a voluntary
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dissolution of the BANK; a revocation of any of the foregoing; or the approval
of a transaction in which any member of the executive committee, directly or
indirectly, has any material beneficial interest.
Section 3. Tenure. Subject to the provisions of Section 8 of this
------------------
Article IV, each member of the executive committee shall hold office until the
next regular annual meeting of the board of directors following his or her
designation and until a successor is designated as a member of the executive
committee.
Section 4. Meetings. Regular meetings of the executive committee may be
--------------------
held without notice at such times and places as the executive committee may fix
from time to time by resolution. Special meetings of the executive committee may
be called by any member thereof upon not less than one day's notice stating the
place, date and hour of the meeting, which notice may be written or oral. Any
member of the executive committee may waive notice of any meeting and no notice
of any meeting need be given to any member thereof who attends in person. The
notice of a meeting of the executive committee need not state the business
proposed to be transacted at the meeting.
Section 5. Quorum. A majority of the members of the executive committee
------------------
shall constitute a quorum for the transaction of business at any meeting
thereof, and action of the executive committee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.
Section 6. Action Without a Meeting. Any action required or permitted to
------------------------------------
be taken by the executive committee at a meeting may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the members of the executive committee.
Section 7. Vacancies. Any vacancy in the executive committee may be
---------------------
filled by a resolution adopted by a majority of the full board of directors.
Section 8. Resignations and Removal. Any member of the executive
------------------------------------
committee may be removed at any time with or without cause by resolution adopted
by a majority of the full board of directors. Any member of the executive
committee may resign from the executive committee at any time by giving written
notice to the president or secretary of the BANK. Unless otherwise specified,
such resignation shall take effect upon its receipt; the acceptance of such
resignation shall not be necessary to make it effective.
Section 9. Procedure. The executive committee shall elect a presiding
---------------------
officer from its members and may fix its own rules of procedure which shall not
be inconsistent with these bylaws. It shall keep regular minutes of its
proceedings and report the same to the board of directors for its information at
the meeting held next after the proceedings shall have occurred.
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Section 10. Other Committees. The board of directors may by resolution
-----------------------------
establish an audit, loan, or other committees composed of directors as they may
determine to be necessary or appropriate for the conduct of the business of the
BANK and may prescribe the duties, constitution and procedures thereof.
ARTICLE V. OFFICERS
Section 1. Positions. The officers of the BANK shall be a president, one
---------------------
or more vice presidents, a secretary and a treasurer, each of whom shall be
elected by the board of directors. The board of directors may also designate the
chairman of the board as an officer. The president may also be designated by the
board of directors as the chief executive officer. The president shall be a
director of the 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 BANK may require. The officers shall have such authority and perform such
duties as the board of directors may from time to time authorize or determine.
In the absence of action by the board of directors, the officers shall have such
powers and duties as generally pertain to their respective offices.
Section 2. Election and Term of Office. The officers of the BANK shall be
---------------------------------------
elected annually at the first meeting of the board of directors held after each
annual meeting of the shareholders. If the election of officers is not held at
such meeting, such election shall be held as soon thereafter as possible. Each
officer shall hold office until a successor has been duly elected and qualified
or until the officer's death, resignation or removal in the manner hereinafter
provided. Election or appointment of an officer, employee or agent shall not of
itself create contractual rights. The board of directors may authorize the BANK
to enter into an employment contract with any officer in accordance with
regulations of the OTS; but no such contract shall impair the right of the board
of directors to remove any officer at any time in accordance with Section 3 of
this Article V.
Section 3. Removal. Any officer may be removed by the board of directors
-------------------
whenever in its judgment the best interests of the BANK will be served thereby,
but such removal, other than for cause, shall be without prejudice to the
contractual rights, if any, of the person so removed.
Section 4. Vacancies. A vacancy in any office because of death,
---------------------
resignation, removal, disqualification or otherwise, may be filled by the board
of directors for the unexpired portion of the term.
Section 5. Remuneration. The remuneration of the officers shall be fixed
------------------------
from time to time by the board of directors.
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ARTICLE VI. CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section l. Contracts. To the extent permitted by regulations of the OTS,
---------------------
and except as otherwise prescribed by these bylaws with respect to certificates
for shares, the board of directors may authorize any officer, employee, or agent
of the BANK to enter into any contract or execute and deliver any instrument in
the name of and on behalf of the BANK. Such authority may be general or confined
to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the BANK and
-----------------
no evidence of indebtedness shall be issued in its name unless authorized by the
board of directors. Such authority may be general or confined to specific
instances.
Section 3. Checks, Drafts, Etc. All checks, drafts or other orders for
--------------------------------
the payment of money, notes or other evidences of indebtedness issued in the
name of the BANK shall be signed by one or more officers, employees or agents of
the BANK in such manner as shall from time to time be determined by the board of
directors.
Section 4. Deposits. All funds of the BANK not otherwise employed shall
--------------------
be deposited from time to time to the credit of the BANK in any duly authorized
depositories as the board of directors may select.
ARTICLE VII. CERTIFICATES FOR SHARES
AND THEIR TRANSFER
Section l. Certificates for Shares. Certificates representing shares of
-----------------------------------
capital stock of the BANK shall be in such form as shall be determined by the
board of directors and approved by the OTS. Such certificates shall be signed by
the chief executive officer or by any other officer of the BANK authorized by
the board of directors, attested by the secretary or an assistant secretary, and
sealed with the corporate seal or a facsimile thereof. The signatures of such
officers upon a certificate may be facsimiles if the certificate is manually
signed on behalf of a transfer agent or a registrar, other than the BANK itself
or one of its employees. Each certificate for shares of capital stock shall be
consecutively numbered or otherwise identified. The name and address of the
person to whom the shares are issued, with the number of shares and date of
issue, shall be entered on the stock transfer books of the BANK. All
certificates surrendered to the BANK for transfer shall be cancelled and no new
certificate shall be issued until the former certificate for a like number of
shares has been surrendered and cancelled, except that in case of a lost or
destroyed certificate, a new certificate may be issued upon such terms and
indemnity to the BANK as the board of directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of capital stock of the
------------------------------
BANK shall be made only on its stock transfer books. Authority for such transfer
shall be given only by the holder of record or by his legal representative, who
shall furnish proper evidence of such authority, or by his attorney authorized
by a duly executed power of attorney and filed with the BANK. Such transfer
shall be made only on surrender for cancellation of the certificate for such
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shares. The person in whose name shares of capital stock stand on the books of
the BANK shall be deemed by the BANK to be the owner for all purposes.
ARTICLE VIII. FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the BANK shall end on March 31 of each year. The BANK
shall be subject to an annual audit as of the end of its fiscal year by
independent public accountants appointed by and responsible to the board of
directors. The appointment of such accountants shall be subject to annual
ratification by the shareholders.
ARTICLE IX. DIVIDENDS
Subject to the terms of the BANK's Charter and the regulations and orders
of the OTS, the board of directors may, from time to time, declare, and the BANK
may pay, dividends on its outstanding shares of capital stock.
ARTICLE X. CORPORATE SEAL
The board of directors shall provide a BANK seal, which shall be two
concentric circles between which shall be the name of the BANK. The year of
incorporation or an emblem may appear in the center.
ARTICLE XI. AMENDMENTS
These bylaws may be amended in a manner consistent with regulations of the
OTS at any time by a majority vote of the full board of directors, or by a
majority vote of the votes cast by the shareholders of the BANK at any legal
meeting.
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EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
FIRSTFED AMERICA BANCORP, INC.
FIRST: The name of the Corporation is FIRSTFED AMERICA BANCORP, INC.
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(hereinafter sometimes referred to as the "Corporation").
SECOND: The address of the registered office of the Corporation in
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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
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or activity for which a corporation may be organized under the General
Corporation Law of the State of Delaware.
FOURTH:
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A. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is twenty-six million
(26,000,000) consisting of:
1. One million (1,000,000) shares of Preferred Stock, par value
one cent ($.01) per share (the "Preferred Stock"); and
2. Twenty-five million (25,000,000) shares of Common Stock, par
value one cent ($.01) per share (the "Common Stock").
B. The Board of Directors is authorized, subject to any limitations
prescribed by law, to provide for the issuance of the shares of Preferred
Stock in series, and by filing a certificate pursuant to the applicable law
of the State of Delaware (such certificate being hereinafter referred to as
a "Preferred Stock Designation"), to establish from time to time the number
of shares to be included in each such series, and to fix the designation,
powers, preferences, and rights of the shares of each such series and any
qualifications, limitations or restrictions thereof. The number of
authorized shares of Preferred Stock may be increased or decreased (but not
below the number of shares thereof then outstanding) by the affirmative
vote of the holders of a majority of the Common Stock, without a vote of
the holders of the Preferred Stock, or of any series thereof, unless a vote
of any such holders is required pursuant to the terms of any Preferred
Stock Designation.
C. 1. Notwithstanding any other provision of this Certificate of
Incorporation, in no event shall any record owner of any
outstanding Common Stock which is beneficially owned,
directly or indirectly, by a person who, as of any record
date for the
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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 beneficially owning
shares in excess of the Limit shall be a number equal to
the total number of votes which a single record owner of
all Common Stock beneficially owned by such person would
be entitled to cast, (subject to the provisions of this
Article FOURTH) multiplied by a fraction, the numerator
of which is the number of shares of such class or series
which are both beneficially owned by such person and
owned of record by such record owner and the denominator
of which is the total number of shares of Common Stock
beneficially owned by such person owning shares in
excess of the Limit.
2. The following definitions shall apply to this Section C
of this Article FOURTH:
a. "Affiliate" shall have the meaning ascribed to it
in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as
amended, as in effect on the date of filing of this
Certificate of Incorporation.
b. "Beneficial ownership" shall be determined pursuant
to Rule 13d-3 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as
amended, (or any successor rule or statutory
provision), or, if said Rule 13d-3 shall be
rescinded and there shall be no successor rule or
provision thereto, pursuant to said Rule 13d-3 as
in effect on the date of filing of this Certificate
of Incorporation; provided, however, that a person
shall, in any event, also be deemed the "beneficial
owner" of any Common Stock:
(1) which such person or any of its affiliates
beneficially owns, directly or indirectly; or
(2) which such person or any of its affiliates
has: (i) the right to acquire (whether such
right is exercisable immediately or only after
the passage of time), pursuant to any
agreement, arrangement or understanding (but
shall not be deemed to be the beneficial owner
of any voting shares solely by
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reason of an agreement, contract, or other
arrangement with this Corporation to effect
any transaction which is described in any one
or more of clauses 1 through 5 of Section A of
Article EIGHTH of this Certificate of
Incorporation ("Article EIGHTH")), or upon the
exercise of conversion rights, exchange
rights, warrants, or options or otherwise, or
(ii) sole or shared voting or investment power
with respect thereto pursuant to any
agreement, arrangement, understanding,
relationship or otherwise (but shall not be
deemed to be the beneficial owner of any
voting shares solely by reason of a revocable
proxy granted for a particular meeting of
stockholders, pursuant to a public
solicitation of proxies for such meeting, with
respect to shares of which neither such person
nor any such Affiliate is otherwise deemed the
beneficial owner); or
(3) which are beneficially owned, directly or
indirectly, by any other person with which
such first mentioned person or any of its
Affiliates acts as a partnership, limited
partnership, syndicate or other group pursuant
to any agreement, arrangement or understanding
for the purpose of acquiring, holding, voting
or disposing of any shares of capital stock of
this Corporation; and provided further,
however, that: (1) no Director or Officer of
this Corporation (or any Affiliate of any such
Director or Officer) shall, solely by reason
of any or all of such Directors or Officers
acting in their capacities as such, be deemed,
for any purposes hereof, to beneficially own
any Common Stock beneficially owned by any
other such Director or Officer (or any
Affiliate thereof); and (2) neither any
employee stock ownership or similar plan of
this Corporation or any subsidiary of this
Corporation, nor any trustee with respect
thereto or any Affiliate of such trustee
(solely by reason of such capacity of such
trustee), shall be deemed, for any purposes
hereof, to beneficially own any Common Stock
held under any such plan. For purposes only of
computing the percentage of beneficial
ownership of Common Stock of a person, the
outstanding Common Stock
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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. The "Limit" shall mean 10% of the then-outstanding
shares of Common Stock.
d. A "person" shall include an individual, a firm, a
group acting in concert, a corporation, a
partnership, an association, a joint venture, a
pool, a joint stock company, a trust, an
unincorporated organization or similar company, a
syndicate or any other group formed for the purpose
of acquiring, holding or disposing of securities or
any other entity.
3. The Board of Directors shall have the power to construe
and apply the provisions of this section and to make all
determinations necessary or desirable to implement such
provisions, including but not limited to matters with
respect to: (i) the number of shares of Common Stock
beneficially owned by any person; (ii) whether a person
is an affiliate of another; (iii) whether a person has
an agreement, arrangement, or understanding with another
as to the matters referred to in the definition of
beneficial ownership; (iv) the application of any other
definition or operative provision of the section to the
given facts; or (v) any other matter relating to the
applicability or effect of this section.
4. The Board of Directors shall have the right to demand
that any person who is reasonably believed to
beneficially own Common Stock in excess of the Limit (or
holds of record Common Stock beneficially owned by any
person in excess of the Limit) supply the Corporation
with complete information as to: (i) the record owner(s)
of all shares beneficially owned by such person who is
reasonably believed to own shares in excess of the
Limit; and (ii)
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any other factual matter relating to the applicability
or effect of this section as may reasonably be requested
of such person.
5. Except as otherwise provided by law or expressly
provided in this Section C, the presence, in person or
by proxy, of the holders of record of shares of capital
stock of the Corporation entitling the holders thereof
to cast a majority of the votes (after giving effect, if
required, to the provisions of this Section C) entitled
to be cast by the holders of shares of capital stock of
the Corporation entitled to vote shall constitute a
quorum at all meetings of the stockholders, and every
reference in this Certificate of Incorporation to a
majority or other proportion of capital stock (or the
holders thereof) for purposes of determining any quorum
requirement or any requirement for stockholder consent
or approval shall be deemed to refer to such majority or
other proportion of the votes (or the holders thereof)
then entitled to be cast in respect of such capital
stock.
6. Any constructions, applications, or determinations made
by the Board of Directors pursuant to this section in
good faith and on the basis of such information and
assistance as was then reasonably available for such
purpose shall be conclusive and binding upon the
Corporation and its stockholders.
7. In the event any provision (or portion thereof) of this
Section C shall be found to be invalid, prohibited or
unenforceable for any reason, the remaining provisions
(or portions thereof) of this Section shall remain in
full force and effect, and shall be construed as if such
invalid, prohibited or unenforceable provision had been
stricken herefrom or otherwise rendered inapplicable, it
being the intent of this Corporation and its
stockholders that each such remaining provision (or
portion thereof) of this Section C remain, to the
fullest extent permitted by law, applicable and
enforceable as to all stockholders, including
stockholders owning an amount of stock over the Limit,
notwithstanding any such finding.
FIFTH: The following provisions are inserted for the management of the
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business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its Directors and stockholders:
A. The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. In addition to the powers
and authority expressly conferred upon them by statute or by this
Certificate of Incorporation or the Bylaws of
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the Corporation, the Directors are hereby empowered to exercise all such
powers and do all such acts and things as may be exercised or done by the
Corporation.
B. The Directors of the Corporation need not be elected by written
ballot unless the Bylaws so provide.
C. Any action required or permitted to be taken by the stockholders
of the Corporation must be effected at a duly called annual or special
meeting of stockholders of the Corporation and may not be effected by any
consent in writing by such stockholders.
D. Special meetings of stockholders of the Corporation may be called
only by the Board of Directors pursuant to a resolution adopted by a
majority of the Whole Board or as otherwise provided in the Bylaws. The
term "Whole Board" shall mean the total number of authorized directorships
(whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board for
adoption).
SIXTH:
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A. The number of Directors shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the Whole Board. The Directors shall be divided into three
classes, as nearly equal in number as reasonably possible, with the term of
office of the first class to expire at the first annual meeting of
stockholders, the term of office of the second class to expire at the
annual meeting of stockholders one year thereafter and the term of office
of the third class to expire at the annual meeting of stockholders two
years thereafter with each Director to hold office until his or her
successor shall have been duly elected and qualified. At each annual
meeting of stockholders following such initial classification and election,
Directors elected to succeed those Directors whose terms expire shall be
elected for a term of office to expire at the third succeeding annual
meeting of stockholders after their election with each Director to hold
office until his or her successor shall have been duly elected and
qualified.
B. Subject to the rights of holders of any series of Preferred Stock
outstanding, the newly created directorships resulting from any increase in
the authorized number of Directors or any vacancies in the Board of
Directors resulting from death, resignation, retirement, disqualification,
removal from office or other cause may be filled only by a majority vote of
the Directors then in office, though less than a quorum, and Directors so
chosen shall hold office for a term expiring at the annual meeting of
stockholders at which the term of office of the class to which they have
been chosen expires. No decrease in the number of Directors constituting
the Board of Directors shall shorten the term of any incumbent Director.
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<PAGE>
C. Advance notice of stockholder nominations for the election of
Directors and of business to be brought by stockholders before any meeting
of the stockholders of the Corporation shall be given in the manner
provided in the Bylaws of the Corporation.
D. Subject to the rights of holders of any series of Preferred Stock
then outstanding, any Director, or the entire Board of Directors, may be
removed from office at any time, but only for cause and only by the
affirmative vote of the holders of at least 80 percent of the voting power
of all of the then-outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of Directors (after giving
effect to the provisions of Article FOURTH of this Certificate of
Incorporation ("Article FOURTH")), voting together as a single class.
SEVENTH: The Board of Directors is expressly empowered to adopt, amend or
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repeal Bylaws of the Corporation. Any adoption, amendment or repeal of the
Bylaws of the Corporation by the Board of Directors shall require the approval
of a majority of the Whole Board. The stockholders shall also have power to
adopt, amend or repeal the Bylaws of the Corporation; provided, however, that,
in addition to any vote of the holders of any class or series of stock of this
Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least 80 percent of the voting power of
all of the then-outstanding shares of the capital stock of the Corporation
entitled to vote generally in the election of Directors (after giving effect to
the provisions of Article FOURTH), voting together as a single class, shall be
required to adopt, amend or repeal any provisions of the Bylaws of the
Corporation.
EIGHTH:
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A. In addition to any affirmative vote required by law or this
Certificate of Incorporation, and except as otherwise expressly provided in
this Article EIGHTH:
1. any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with: (i) any Interested
Stockholder (as hereinafter defined); or (ii) any other
corporation (whether or not itself an Interested Stockholder)
which is, or after such merger or consolidation would be, an
Affiliate (as hereinafter defined) of an Interested
Stockholder; or
2. any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of
transactions) to or with any Interested Stockholder, or any
Affiliate of any Interested Stockholder, of any assets of the
Corporation or any Subsidiary having an aggregate Fair Market
Value (as hereinafter defined) equaling or exceeding 25% or
more of the combined assets of the Corporation and its
Subsidiaries; or
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<PAGE>
3. the issuance or transfer by the Corporation or any Subsidiary
(in one transaction or a series of transactions) of any
securities of the Corporation or any Subsidiary to any
Interested Stockholder or any Affiliate of any Interested
Stockholder in exchange for cash, securities or other
property (or a combination thereof) having an aggregate Fair
Market Value (as hereinafter defined) equaling or exceeding
25% of the combined Fair Market Value of the outstanding
common stock of the Corporation and its Subsidiaries, except
for any issuance or transfer pursuant to an employee benefit
plan of the Corporation or any Subsidiary thereof; or
4. the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of an
Interested Stockholder or any Affiliate of any Interested
Stockholder; or
5. any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any
merger or consolidation of the Corporation with any of its
Subsidiaries or any other transaction (whether or not with or
into or otherwise involving an Interested Stockholder) which
has the effect, directly or indirectly, of increasing the
proportionate share of the outstanding shares of any class of
equity or convertible securities of the Corporation or any
Subsidiary which is directly or indirectly owned by any
Interested Stockholder or any Affiliate of any Interested
Stockholder;
shall require the affirmative vote of the holders of at least 80% of the
voting power of the then-outstanding shares of stock of the Corporation
entitled to vote in the election of Directors (the "Voting Stock") (after
giving effect to the provisions of Article FOURTH), voting together as a
single class. Such affirmative vote shall be required notwithstanding the
fact that no vote may be required, or that a lesser percentage may be
specified, by law or by any other provisions of this Certificate of
Incorporation or any Preferred Stock Designation in any agreement with any
national securities exchange or otherwise.
The term "Business Combination" as used in this Article EIGHTH shall
mean any transaction which is referred to in any one or more of paragraphs
1 through 5 of Section A of this Article EIGHTH.
B. The provisions of Section A of this Article EIGHTH shall not be
applicable to any particular Business Combination, and such Business
Combination shall require only the affirmative vote of the majority of the
outstanding shares of capital stock entitled to vote after giving effect to
the provisions of Article FOURTH, or such vote (if any), as is required by
law or by this Certificate of Incorporation, if, in the case of any
Business
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Combination that does not involve any cash or other consideration being
received by the stockholders of the Corporation solely in their capacity as
stockholders of the Corporation, the condition specified in the following
paragraph 1 is met or, in the case of any other Business Combination, all
of the conditions specified in either of the following paragraphs 1 or 2
are met:
1. The Business Combination shall have been approved by a
majority of the Disinterested Directors (as hereinafter
defined).
2. All of the following conditions shall have been met:
a. The aggregate amount of the cash and the Fair Market
Value as of the date of the consummation of the
Business Combination of consideration other than cash
to be received per share by the holders of Common Stock
in such Business Combination shall at least be equal to
the higher of the following:
(1) (if applicable) the Highest Per Share Price (as
hereinafter defined), including any brokerage
commissions, transfer taxes and soliciting
dealers' fees, paid by the Interested Stockholder
or any of its Affiliates for any shares of Common
Stock acquired by it: (i) within the two-year
period immediately prior to the first public
announcement of the proposal of the Business
Combination (the "Announcement Date"); or (ii) in
the transaction in which it became an Interested
Stockholder, whichever is higher; or
(2) the Fair Market Value per share of Common Stock on
the Announcement Date or on the date on which the
Interested Stockholder became an Interested
Stockholder (such latter date is referred to in
this Article EIGHTH as the "Determination Date"),
whichever is higher.
b. The aggregate amount of the cash and the Fair Market
Value as of the date of the consummation of the
Business Combination of consideration other than cash
to be received per share by holders of shares of any
class of outstanding Voting Stock other than Common
Stock shall be at least equal to the highest of the
following (it being intended that the requirements of
this subparagraph (b) shall be required
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<PAGE>
to be met with respect to every such class of
outstanding Voting Stock, whether or not the Interested
Stockholder has previously acquired any shares of a
particular class of Voting Stock):
(1) (if applicable) the Highest Per Share Price (as
hereinafter defined), including any brokerage
commissions, transfer taxes and soliciting
dealers' fees, paid by the Interested Stockholder
for any shares of such class of Voting Stock
acquired by it: (i) within the two-year period
immediately prior to the Announcement Date; or
(ii) in the transaction in which it became an
Interested Stockholder, whichever is higher; or
(2) (if applicable) the highest preferential amount
per share to which the holders of shares of such
class of Voting Stock are entitled in the event of
any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; or
(3) the Fair Market Value per share of such class of
Voting Stock on the Announcement Date or on the
Determination Date, whichever is higher.
c. The consideration to be received by holders of a
particular class of outstanding Voting Stock (including
Common Stock) shall be in cash or in the same form as
the Interested Stockholder has previously paid for
shares of such class of Voting Stock. If the
Interested Stockholder has paid for shares of any class
of Voting Stock with varying forms of consideration,
the form of consideration to be received per share by
holders of shares of such class of Voting Stock shall
be either cash or the form used to acquire the largest
number of shares of such class of Voting Stock
previously acquired by the Interested Stockholder. The
price determined in accordance with subparagraph B.2 of
this Article EIGHTH shall be subject to appropriate
adjustment in the event of any stock dividend, stock
split, combination of shares or similar event.
d. After such Interested Stockholder has become an
Interested Stockholder and prior to the consummation of
such Business Combination: (1) except as approved by a
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majority of the Disinterested Directors (as hereinafter
defined), there shall have been no failure to declare
and pay at the regular date therefor any full quarterly
dividends (whether or not cumulative) on any
outstanding stock having preference over the Common
Stock as to dividends or liquidation; (2) there shall
have been: (i) no reduction in the annual rate of
dividends paid on the Common Stock (except as necessary
to reflect any subdivision of the Common Stock), except
as approved by a majority of the Disinterested
Directors; and (ii) an increase in such annual rate of
dividends as necessary to reflect any reclassification
(including any reverse stock split), recapitalization,
reorganization or any similar transaction which has the
effect of reducing the number of outstanding shares of
the Common Stock, unless the failure to so increase
such annual rate is approved by a majority of the
Disinterested Directors, and (3) neither such
Interested Stockholder or any of its Affiliates shall
have become the beneficial owner of any additional
shares of Voting Stock except as part of the
transaction which results in such Interested
Stockholder becoming an Interested Stockholder.
e. After such Interested Stockholder has become an
Interested Stockholder, such Interested Stockholder
shall not have received the benefit, directly or
indirectly (except proportionately as a stockholder),
of any loans, advances, guarantees, pledges or other
financial assistance or any tax credits or other tax
advantages provided, directly or indirectly, by the
Corporation, whether in anticipation of or in
connection with such Business Combination or otherwise.
f. A proxy or information statement describing the
proposed Business Combination and complying with the
requirements of the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder (or
any subsequent provisions replacing such Act, and the
rules or regulations thereunder) shall be mailed to
stockholders of the Corporation at least 30 days prior
to the consummation of such Business Combination
(whether or not such proxy or information statement is
required to be mailed pursuant to such Act or
subsequent provisions).
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C. For the purposes of this Article EIGHTH:
1. A "Person" shall include an individual, a firm, a group
acting in concert, a corporation, a partnership, an
association, a joint venture, a pool, a joint stock company,
a trust, an unincorporated organization or similar company,
a syndicate or any other group formed for the purpose of
acquiring, holding or disposing of securities or any other
entity.
2. "Interested Stockholder" shall mean any person (other than
the Corporation or any Holding Company or Subsidiary
thereof) who or which:
a. is the beneficial owner, directly or indirectly, of
more than 10% of the voting power of the outstanding
Voting Stock; or
b. is an Affiliate of the Corporation and at any time
within the two-year period immediately prior to the
date in question was the beneficial owner, directly or
indirectly, of 10% or more of the voting power of the
then outstanding Voting Stock; or
c. is an assignee of or has otherwise succeeded to any
shares of Voting Stock which were at any time within
the two-year period immediately prior to the date in
question beneficially owned by any Interested
Stockholder, if such assignment or succession shall
have occurred in the course of a transaction or series
of transactions not involving a public offering within
the meaning of the Securities Act of 1933, as amended.
3. For purposes of this Article EIGHTH, "beneficial ownership"
shall be determined in the manner provided in Section C of
Article FOURTH hereof.
4. "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General
Rules and Regulations under the Securities Exchange Act of
1934, as in effect on the date of filing of this Certificate
of Incorporation.
5. "Subsidiary" means any corporation of which a majority of
any class of equity security is owned, directly or
indirectly, by the Corporation; provided, however, that for
the purposes of the
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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.
6. "Disinterested Director" means any member of the Board of
Directors who is unaffiliated with the Interested
Stockholder and was a member of the Board of Directors prior
to the time that the Interested Stockholder became an
Interested Stockholder, and any Director who is thereafter
chosen to fill any vacancy of the Board of Directors or who
is elected and who, in either event, is unaffiliated with
the Interested Stockholder and in connection with his or her
initial assumption of office is recommended for appointment
or election by a majority of Disinterested Directors then on
the Board of Directors.
7. "Fair Market Value" means:
a. in the case of stock, the highest closing sales price
of the stock during the 30-day period immediately
preceding the date in question of a share of such stock
on the National Association of Securities Dealers
Automated Quotation System or any system then in use,
or, if such stock is admitted to trading on a principal
United States securities exchange registered under the
Securities Exchange Act of 1934, as amended, Fair
Market Value shall be the highest sale price reported
during the 30-day period preceding the date in
question, or, if no such quotations are available, the
Fair Market Value on the date in question of a share of
such stock as determined by the Board of Directors in
good faith, in each case with respect to any class of
stock, appropriately adjusted for any dividend or
distribution in shares of such stock or any stock split
or reclassification of outstanding shares of such stock
into a greater number of shares of such stock or any
combination or reclassification of outstanding shares
of such stock into a smaller number of shares of such
stock; and
b. in the case of property other than cash or stock, the
Fair Market Value of such property on the date in
question as determined by the Board of Directors in
good faith.
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8. Reference to "Highest Per Share Price" shall in each case
with respect to any class of stock reflect an appropriate
adjustment for any dividend or distribution in shares of
such stock or any stock split or reclassification of
outstanding shares of such stock into a greater number of
shares of such stock or any combination or reclassification
of outstanding shares of such stock into a smaller number of
shares of such stock.
9. In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than
cash to be received" as used in Subparagraphs (a) and (b) of
Paragraph 2 of Section B of this Article EIGHTH shall
include the shares of Common Stock and/or the shares of any
other class of outstanding Voting Stock retained by the
holders of such shares.
D. A majority of the Disinterested Directors of the Corporation shall
have the power and duty to determine for the purposes of this Article
EIGHTH, on the basis of information known to them after reasonable inquiry:
(a) whether a person is an Interested Stockholder; (b) the number of shares
of Voting Stock beneficially owned by any person; (c) whether a person is
an Affiliate or Associate of another; and (d) whether the assets which are
the subject of any Business Combination have, or the consideration to be
received for the issuance or transfer of securities by the Corporation or
any Subsidiary in any Business Combination has an aggregate Fair Market
Value equaling or exceeding 25% of the combined Fair Market Value of the
Common Stock of the Corporation and its Subsidiaries. A majority of the
Disinterested Directors shall have the further power to interpret all of
the terms and provisions of this Article EIGHTH.
E. Nothing contained in this Article EIGHTH shall be construed to
relieve any Interested Stockholder from any fiduciary obligation imposed by
law.
F. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser
vote or no vote, but in addition to any affirmative vote of the holders of
any particular class or series of the Voting Stock required by law, this
Certificate of Incorporation or any Preferred Stock Designation, the
affirmative vote of the holders of at least 80 percent of the voting power
of all of the then-outstanding shares of the Voting Stock (after giving
effect to the provisions of Article FOURTH), voting together as a single
class, shall be required to alter, amend or repeal this Article EIGHTH.
NINTH: The Board of Directors of the Corporation, when evaluating any
-----
offer of another Person (as defined in Article EIGHTH hereof) to: (A) make a
tender or exchange offer for any equity security of the Corporation; (B) merge
or consolidate the Corporation with another corporation or entity; or (C)
purchase or otherwise acquire all or substantially all of the properties and
assets of the Corporation, may, in connection with the exercise of its judgment
in determining
14
<PAGE>
what is in the best interest of the Corporation and its stockholders, give due
consideration to all relevant factors, including, without limitation, those
factors that Directors of any subsidiary of the Corporation may consider in
evaluating any action that may result in a change or potential change in the
control of the subsidiary, and the social and economic effect of acceptance of
such offer: on the Corporation's present and future customers and employees and
those of its Subsidiaries (as defined in Article EIGHTH hereof); on the
communities in which the Corporation and its Subsidiaries operate or are
located; on the ability of the Corporation to fulfill its corporate objective as
a savings and loan holding company under applicable laws and regulations; and on
the ability of its subsidiary savings and loan association to fulfill the
objectives of a federally-chartered stock form savings and loan association
under applicable statutes and regulations.
TENTH:
-----
A. Each person who was or is made a party or is threatened to be made
a party to or is otherwise involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she is or was a Director or
an Officer of the Corporation or is or was serving at the request of the
Corporation as a Director, Officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to an employee benefit plan (hereinafter an
"indemnitee"), whether the basis of such proceeding is alleged action in an
official capacity as a Director, Officer, employee or agent or in any other
capacity while serving as a Director, Officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to
the extent that such amendment permits the Corporation to provide broader
indemnification rights than such law permitted the Corporation to provide
prior to such amendment), against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid in settlement) reasonably incurred or suffered
by such indemnitee in connection therewith; provided, however, that, except
as provided in Section C hereof with respect to proceedings to enforce
rights to indemnification, the Corporation shall indemnify any such
indemnitee in connection with a proceeding (or part thereof) initiated by
such indemnitee only if such proceeding (or part thereof) was authorized by
the Board of Directors of the Corporation.
B. The right to indemnification conferred in Section A of this
Article TENTH shall include the right to be paid by the Corporation the
expenses incurred in defending any such proceeding in advance of its final
disposition (hereinafter and "advancement of expenses"); provided, however,
that, if the Delaware General Corporation Law requires, an advancement of
expenses incurred by an indemnitee in his or her capacity as a Director or
Officer (and not in any other capacity in which service was or is rendered
by such indemnitee, including, without limitation, services to an employee
benefit plan) shall be made only upon delivery to the Corporation of an
undertaking (hereinafter an
15
<PAGE>
"undertaking"), by or on behalf of such indemnitee, to repay all amounts so
advanced if it shall ultimately be determined by final judicial decision
from which there is no further right to appeal (hereinafter a "final
adjudication") that such indemnitee is not entitled to be indemnified for
such expenses under this Section or otherwise. The rights to
indemnification and to the advancement of expenses conferred in Sections A
and B of this Article TENTH shall be contract rights and such rights shall
continue as to an indemnitee who has ceased to be a Director, Officer,
employee or agent and shall inure to the benefit of the indemnitee's heirs,
executors and administrators.
C. If a claim under Section A or B of this Article TENTH is not paid
in full by the Corporation within sixty days after a written claim has been
received by the Corporation, except in the case of a claim for an
advancement of expenses, in which case the applicable period shall be
twenty days, the indemnitee may at any time thereafter bring suit against
the Corporation to recover the unpaid amount of the claim. If successful
in whole or in part in any such suit, or in a suit brought by the
Corporation to recover an advancement of expenses pursuant to the terms of
an undertaking, the indemnitee shall be entitled to be paid also the
expenses of prosecuting or defending such suit. In (i) any suit brought by
the indemnitee to enforce a right to indemnification hereunder (but not in
a suit brought by the indemnitee to enforce a right to an advancement of
expenses) it shall be a defense that, and (ii) in any suit by the
Corporation to recover an advancement of expenses pursuant to the terms of
an undertaking the Corporation shall be entitled to recover such expenses
upon a final adjudication that, the indemnitee has not met any applicable
standard for indemnification set forth in the Delaware General Corporation
Law. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such suit that indemnification
of the indemnitee is proper in the circumstances because the indemnitee has
met the applicable standard of conduct set forth in the Delaware General
Corporation Law, nor an actual determination by the Corporation (including
its Board of Directors, independent legal counsel, or its stockholders)
that the indemnitee has not met such applicable standard of conduct, shall
create a presumption that the indemnitee has not met the applicable
standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the
indemnitee to enforce a right to indemnification or to an advancement of
expenses hereunder, or by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the burden of proving
that the indemnitee is not entitled to be indemnified, or to such
advancement of expenses, under this Article TENTH or otherwise shall be on
the Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article TENTH shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, the
Corporation's Certificate of Incorporation, Bylaws, agreement, vote of
stockholders or Disinterested Directors or otherwise.
16
<PAGE>
E. The Corporation may maintain insurance, at its expense, to protect
itself and any Director, Officer, employee or agent of the Corporation or
subsidiary or Affiliate or another corporation, partnership, joint venture,
trust or other enterprise against any expense, liability or loss, whether
or not the Corporation would have the power to indemnify such person
against such expense, liability or loss under the Delaware General
Corporation Law.
F. The Corporation may, to the extent authorized from time to time by
the Board of Directors, grant rights to indemnification and to the
advancement of expenses to any employee or agent of the Corporation to the
fullest extent of the provisions of this Article TENTH with respect to the
indemnification and advancement of expenses of Directors and Officers of
the Corporation.
ELEVENTH: A Director of this Corporation shall not be personally liable to
--------
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for liability: (i) for any breach of the Director's
duty of loyalty to the Corporation or its stockholders; (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law; (iii) under Section 174 of the Delaware General Corporation
Law; or (iv) for any transaction from which the Director derived an improper
personal benefit. If the Delaware General Corporation Law is amended to
authorize corporate action further eliminating or limiting the personal
liability of Directors, then the liability of a Director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders
of the Corporation shall not adversely affect any right or protection of a
Director of the Corporation existing at the time of such repeal or modification.
TWELFTH: The Corporation reserves the right to amend or repeal any
-------
provision contained in this Certificate of Incorporation in the manner
prescribed by the laws of the State of Delaware and all rights conferred upon
stockholders are granted subject to this reservation; provided, however, that,
notwithstanding any other provision of this Certificate of Incorporation or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any vote of the holders of any class or series of the stock of this
Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least 80 percent of the voting power of
all of the then-outstanding shares of the capital stock of the Corporation
entitled to vote generally in the election of Directors (after giving effect to
the provisions of Article FOURTH), voting together as a single class, shall be
required to amend or repeal this Article TWELFTH, Section C of Article FOURTH,
Sections C or D of Article FIFTH, Article SIXTH, Article SEVENTH, Article EIGHTH
or Article TENTH.
17
<PAGE>
THIRTEENTH: The name and mailing address of the sole incorporator are as
----------
follows:
Name Mailing Address
---- --------------------------------
Fiona M. Martin Morris, Nichols, Arsht & Tunnell
1201 North Market Street
P.O. Box 1347
Wilmington, Delaware 19899-1347
I, THE UNDERSIGNED, being the incorporator, for the purpose of forming a
corporation under the laws of the State of Delaware, do make, file and record
this Certificate of Incorporation and do certify that the facts herein stated
are true, and accordingly, have hereto set my hand this 6th day of September,
1996.
/s/ Fiona M. Martin
--------------------------------
Fiona M. Martin
Incorporator
18
<PAGE>
EXHIBIT 3.2
FIRSTFED AMERICA BANCORP, INC.
BYLAWS
ARTICLE I - STOCKHOLDERS
Section 1. Annual Meeting.
--------- --------------
An annual meeting of the stockholders, for the election of Directors to
succeed those whose terms expire and for the transaction of such other business
as may properly come before the meeting, shall be held at such place, on such
date, and at such time as the Board of Directors shall each year fix, which date
shall be within thirteen (13) months subsequent to the later of the date of
incorporation or the last annual meeting of stockholders.
Section 2. Special Meetings.
--------- ----------------
Subject to the rights of the holders of any class or series of preferred
stock of the Corporation, special meetings of stockholders of the Corporation
may be called only by the Board of Directors pursuant to a resolution adopted by
a majority of the total number of Directors which the Corporation would have if
there were no vacancies on the Board of Directors (hereinafter the "Whole
Board").
Section 3. Notice of Meetings.
--------- ------------------
Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten (10) nor more than sixty (60)
days before the date on which the meeting is to be held, to each stockholder
entitled to vote at such meeting, except as otherwise provided herein or
required by law (meaning, here and hereinafter, as required from time to time by
the Delaware General Corporation Law or the Certificate of Incorporation of the
Corporation).
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than thirty (30) days
after the date for which the meeting was originally noticed, or if a new record
date is fixed for the adjourned meeting, written notice of the place, date, and
time of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 4. Quorum.
--------- ------
At any meeting of the stockholders, the holders of a majority of all of the
shares of the stock entitled to vote at the meeting, present in person or by
proxy (after giving effect to the provisions of Article FOURTH of the
Corporation's Certificate of Incorporation), shall constitute a quorum for all
purposes, unless or except to the extent that the presence of a larger number
1
<PAGE>
may be required by law. Where a separate vote by a class or classes is
required, a majority of the shares of such class or classes present in person or
represented by proxy (after giving effect to the provisions of Article FOURTH of
the Corporation's Certificate of Incorporation) shall constitute a quorum
entitled to take action with respect to that vote on that matter.
If a quorum shall fail to attend any meeting, the chairman of the meeting
or the holders of a majority of the shares of stock entitled to vote who are
present, in person or by proxy, may adjourn the meeting to another place, date,
or time.
If a notice of any adjourned special meeting of stockholders is sent to all
stockholders entitled to vote thereat, stating that it will be held with those
present in person or by proxy constituting a quorum, then except as otherwise
required by law, those present in person or by proxy at such adjourned meeting
shall constitute a quorum, and all matters shall be determined by a majority of
the votes cast at such meeting.
Section 5. Organization.
--------- ------------
Such person as the Board of Directors may have designated or, in the
absence of such a person, the Chairman of the Board of the Corporation or, in
his or her absence, such person as may be chosen by the holders of a majority of
the shares entitled to vote who are present, in person or by proxy, shall call
to order any meeting of the stockholders and act as chairman of the meeting. In
the absence of the Secretary of the Corporation, the secretary of the meeting
shall be such person as the chairman appoints.
Section 6. Conduct of Business.
--------- -------------------
(a) The chairman of any meeting of stockholders shall determine the
order of business and the procedures at the meeting, including such regulation
of the manner of voting and the conduct of discussion as seem to him or her in
order. The date and time of the opening and closing of the polls for each matter
upon which the stockholders will vote at the meeting shall be announced at the
meeting.
(b) At any annual meeting of the stockholders, only such business
shall be conducted as shall have been brought before the meeting: (i) by or at
the direction of the Board of Directors or (ii) by any stockholder of the
Corporation who is entitled to vote with respect thereto and who complies with
the notice procedures set forth in this Section 6(b). For business to be
properly brought before an annual meeting by a stockholder, the business must
relate to a proper subject matter for stockholder action and the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered or mailed to
and received at the principal executive offices of the Corporation not less than
ninety (90) days prior to the date of the annual meeting; provided, however,
that in the event that less than one hundred (100) days' notice or prior public
disclosure of the date of the meeting is given or made to stockholders, notice
by the stockholder to be timely must be received not later than the close of
business on the 10th day following the day on which such notice of
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<PAGE>
the date of the annual meeting was mailed or such public disclosure was made. A
stockholder's notice to the Secretary shall set forth as to each matter such
stockholder proposes to bring before the annual meeting: (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting; (ii) the name
and address, as they appear on the Corporation's books, of the stockholder
proposing such business; (iii) the class and number of shares of the
Corporation's capital stock that are beneficially owned by such stockholder; and
(iv) any material interest of such stockholder in such business.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
brought before or conducted at an annual meeting except in accordance with the
provisions of this Section 6(b). The Officer of the Corporation or other person
presiding over the annual meeting shall, if the facts so warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 6(b) and, if he should so
determine, he shall so declare to the meeting and any such business so
determined to be not properly brought before the meeting shall not be
transacted.
At any special meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting by or at the direction
of the Board of Directors.
(c) Only persons who are nominated in accordance with the procedures
set forth in these Bylaws shall be eligible for election as Directors.
Nominations of persons for election to the Board of Directors of the Corporation
may be made at a meeting of stockholders at which directors are to be elected
only: (i) by or at the direction of the Board of Directors; or (ii) by any
stockholder of the Corporation entitled to vote for the election of Directors at
the meeting who complies with the notice procedures set forth in this Section
6(c). Such nominations, other than those made by or at the direction of the
Board of Directors, shall be made by timely notice in writing to the Secretary
of the Corporation. To be timely, a stockholder's notice shall be delivered or
mailed to and received at the principal executive offices of the Corporation not
less than ninety (90) days prior to the date of the meeting; provided, however,
that in the event that less than one hundred (100) days' notice or prior
disclosure of the date of the meeting is given or made to stockholders, notice
by the stockholder to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. Such stockholder's
notice shall set forth: (i) as to each person whom such stockholder proposes to
nominate for election or re-election as a Director, all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (including
such person's written consent to being named in the proxy statement as a nominee
and to serving as a director if elected); and (ii) as to the stockholder giving
the notice (x) the name and address, as they appear on the Corporation's books,
of such stockholder and (y) the class and number of shares of the Corporation's
capital stock that are beneficially owned by such stockholder. At the request of
the Board of Directors, any person nominated by the Board of Directors for
election as a Director shall furnish to the Secretary of the Corporation that
information required to be set forth in a stockholder's notice of nomination
which pertains to the nominee. No person shall be eligible for election as a
Director of the Corporation unless nominated in accordance with the
3
<PAGE>
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
shall so determine, he or she shall so declare to the meeting and the defective
nomination shall be disregarded.
Section 7. Proxies and Voting.
--------- ------------------
At any meeting of the stockholders, every stockholder entitled to vote may
vote in person or by proxy authorized by an instrument in writing filed in
accordance with the procedure established for the meeting. Any facsimile
telecommunication or other reliable reproduction of the writing or transmission
created pursuant to this paragraph may be substituted or used in lieu of the
original writing or transmission for any and all purposes for which the original
writing or transmission could be used, provided that such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of the
entire original writing or transmission.
All voting, including on the election of Directors but excepting where
otherwise required by law or by the governing documents of the Corporation, may
be made by a voice vote; provided, however, that upon demand therefor by a
stockholder entitled to vote or his or her proxy, a stock vote shall be taken.
Every stock vote shall be taken by ballot, each of which shall state the name of
the stockholder or proxy voting and such other information as may be required
under the procedures established for the meeting. The Corporation shall, in
advance of any meeting of stockholders, appoint one or more inspectors to act at
the meeting and make a written report thereof. The Corporation may designate
one or more persons as alternate inspectors to replace any inspector who fails
to act. If no inspector or alternate is able to act at a meeting of
stockholders, the person presiding at the meeting shall appoint one or more
inspectors to act at the meeting. Each inspector, before entering upon the
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of inspector with strict impartiality and according to the best of his
ability.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law or the Certificate of Incorporation, all
other matters shall be determined by a majority of the votes cast.
Section 8. Stock List.
--------- ----------
A complete list of stockholders entitled to vote at any meeting of
stockholders, arranged in alphabetical order for each class of stock and showing
the address of each such stockholder and the number of shares registered in his
or her name, shall be open to the examination of any such stockholder, for any
purpose germane to the meeting, during ordinary business hours for a period of
at least ten (10) days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or if not so specified, at the place where the meeting is to be
held.
4
<PAGE>
The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such stockholder
who is present. This list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
Section 9. Consent of Stockholders in Lieu of Meeting.
--------- ------------------------------------------
Subject to the rights of the holders of any class or series of preferred
stock of the Corporation, any action required or permitted to be taken by the
stockholders of the Corporation must be effected at an annual or special meeting
of stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders.
ARTICLE II - BOARD OF DIRECTORS
Section 1. General Powers, Number, Term of Office and Limitations.
--------- ------------------------------------------------------
The business and affairs of the Corporation shall be under the direction of
its Board of Directors. The number of Directors who shall constitute the Whole
Board shall be such number as the Board of Directors shall from time to time
have designated, except that in the absence of such designation shall be seven.
The Board of Directors shall annually elect a Chairman of the Board from among
its members who shall, when present, preside at its meetings.
The Directors, other than those who may be elected by the holders of any
class or series of Preferred Stock, shall be divided, with respect to the time
for which they severally hold office, into three classes, with the term of
office of the first class to expire at the first annual meeting of stockholders,
the term of office of the second class to expire at the annual meeting of
stockholders one year thereafter and the term of office of the third class to
expire at the annual meeting of stockholders two years thereafter, with each
Director to hold office until his or her successor shall have been duly elected
and qualified. At each annual meeting of stockholders, Directors elected to
succeed those Directors whose terms then expire shall be elected for a term of
office to expire at the third succeeding annual meeting of stockholders after
their election, with each Director to hold office until his or her successor
shall have been duly elected and qualified.
No person of an age 75 years or older will be eligible for election,
reelection, appointment, or reappointment to the Board of Directors of the
Corporation and no director shall serve as such beyond the annual meeting of the
Corporation immediately following the attainment of age 75; provided further,
-------- -------
however, that the age limitations set forth herein shall not apply to any
- -------
director of the Corporation who was a director of the First Federal Savings Bank
of America, Fall River, Massachusetts, as of the effective date of the
incorporation of the Corporation.
5
<PAGE>
Section 2. Vacancies and Newly Created Directorships.
--------- -----------------------------------------
Subject to the rights of the holders of any class or series of Preferred
Stock, and unless the Board of Directors otherwise determines, newly created
directorships resulting from any increase in the authorized number of directors
or any vacancies in the Board of Directors resulting from death, resignation,
retirement, disqualification, removal from office or other cause may be filled
only by a majority vote of the Directors then in office, though less than a
quorum, and Directors so chosen shall hold office for a term expiring at the
annual meeting of stockholders at which the term of office of the class to which
they have been elected expires and until such Director's successor shall have
been duly elected and qualified. No decrease in the number of authorized
directors constituting the Board shall shorten the term of any incumbent
Director.
Section 3. Regular Meetings.
--------- ----------------
Regular meetings of the Board of Directors shall be held at such place or
places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all Directors. A
notice of each regular meeting shall not be required.
Section 4. Special Meetings.
--------- ----------------
Special meetings of the Board of Directors may be called by one-third (1/3)
of the Directors then in office (rounded up to the nearest whole number), by the
Chairman of the Board or the President or, in the event that the Chairman of the
Board or President are incapacitated or otherwise unable to call such meeting,
by the Secretary, and shall be held at such place, on such date, and at such
time as they, or he or she, shall fix. Notice of the place, date, and time of
each such special meeting shall be given each Director by whom it is not waived
by mailing written notice not less than five (5) days before the meeting or by
telegraphing or telexing or by facsimile transmission of the same not less than
twenty-four (24) hours before the meeting. Unless otherwise indicated in the
notice thereof, any and all business may be transacted at a special meeting.
Section 5. Quorum.
--------- ------
At any meeting of the Board of Directors, a majority of the Whole Board
shall constitute a quorum for all purposes. If a quorum shall fail to attend
any meeting, a majority of those present may adjourn the meeting to another
place, date, or time, without further notice or waiver thereof.
Section 6. Participation in Meetings By Conference Telephone.
--------- -------------------------------------------------
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar
6
<PAGE>
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;
(5) To confer upon any Officer of the Corporation the power to
appoint, remove and suspend subordinate Officers, employees and agents;
(6) To adopt from time to time such stock, option, stock purchase,
bonus or other compensation plans for Directors, Officers, employees and
agents of the Corporation and its subsidiaries as it may determine;
(7) To adopt from time to time such insurance, retirement, and
other benefit plans for Directors, Officers, employees and agents of the
Corporation and its subsidiaries as it may determine;
(8) To adopt from time to time regulations, not inconsistent with
these Bylaws, for the management of the Corporation's business and affairs;
and
7
<PAGE>
(9) To fix the Compensation of officers and employees of the
Corporation and its subsidiaries as it may determine.
Section 9. Compensation of Directors.
--------- -------------------------
Directors, as such, may receive, pursuant to resolution of the Board of
Directors, fixed fees and other compensation for their services as Directors,
including, without limitation, their services as members of committees of the
Board of Directors.
ARTICLE III - COMMITTEES
Section 1. Committees of the Board of Directors.
--------- ------------------------------------
The Board of Directors, by a vote of a majority of the Board of Directors,
may from time to time designate committees of the Board, with such lawfully
delegable powers and duties as it thereby confers, to serve at the pleasure of
the Board and shall, for these committees and any others provided for herein,
elect a Director or Directors to serve as the member or members, designating, if
it desires, other Directors as alternate members who may replace any absent or
disqualified member at any meeting of the committee. Any committee so
designated may exercise the power and authority of the Board of Directors to
declare a dividend, to authorize the issuance of stock or to adopt a certificate
of ownership and merger pursuant to Section 253 of the Delaware General
Corporation Law if the resolution which designates the committee or a
supplemental resolution of the Board of Directors shall so provide. In the
absence or disqualification of any member of any committee and any alternate
member in his or her place, the member or members of the committee present at
the meeting and not disqualified from voting, whether or not he or she or they
constitute a quorum, may by unanimous vote appoint another member of the Board
of Directors to act at the meeting in the place of the absent or disqualified
member.
Section 2. Conduct of Business.
--------- -------------------
Each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be made
for notice to members of all meetings. The quorum requirements for each such
committee shall be a majority of the members of such committee unless otherwise
determined by the Board of Directors by a majority vote of the Board of
Directors which such quorum determined by a majority of the Board may be one-
third of such members and all matters considered by such committees shall be
determined by a majority vote of the members present. Action may be taken by
any committee without a meeting if all members thereof consent thereto in
writing, and the writing or writings are filed with the minutes of the
proceedings of such committee.
8
<PAGE>
Section 3. Nominating Committee.
---------- --------------------
The Board of Directors shall appoint a Nominating Committee of the Board,
consisting of not less than three (3) members. The Nominating Committee shall
have authority: (a) to review any nominations for election to the Board of
Directors made by a stockholder of the Corporation pursuant to Section 6(c)(ii)
of Article I of these Bylaws in order to determine compliance with such Bylaw;
and (b) to recommend to the Whole Board nominees for election to the Board of
Directors to replace those Directors whose terms expire at the annual meeting of
stockholders next ensuing.
ARTICLE IV - OFFICERS
Section 1. Generally.
--------- ---------
(a) The Board of Directors as soon as may be practicable after the
annual meeting of stockholders shall choose a Chairman of the Board, Chief
Executive Officer, a President, one or more Vice Presidents, a Secretary and a
Treasurer and from time to time may choose such other officers as it may deem
proper. The Chairman of the Board shall be chosen from among the Directors.
Any number of offices may be held by the same person.
(b) The term of office of all Officers shall be until the next
annual election of Officers and until their respective successors are chosen but
any Officer may be removed from office at any time by the affirmative vote of a
majority of the authorized number of Directors then constituting the Board of
Directors.
(c) All Officers chosen by the Board of Directors shall have such
powers and duties as generally pertain to their respective Offices, subject to
the specific provisions of this ARTICLE IV. Such officers shall also have such
powers and duties as from time to time may be conferred by the Board of
Directors or by any committee thereof.
Section 2. Chairman of the Board of Directors.
--------- ----------------------------------
The Chairman of the Board, subject to the provisions of these Bylaws and to
the direction of the Board of Directors, when present shall preside at all
meetings of the stockholders of the Corporation. The Chairman of the Board
shall perform such duties designated to him by the Board of Directors and which
are delegated to him or her by the Board of Directors by resolution of the Board
of Directors.
Section 3. President and Chief Executive Officer.
--------- -------------------------------------
The President and Chief Executive Officer shall have general responsibility
for the management and control of the business and affairs of the Corporation
and shall perform all duties and have all powers which are commonly incident to
the office of President and Chief
9
<PAGE>
Executive Officer or which are delegated to him or her by the Board of
Directors. Subject to the direction of the Board of Directors, the President
and Chief Executive Officer shall have power to sign all stock certificates,
contracts and other instruments of the Corporation which are authorized and
shall have general supervision of all of the other Officers (other than the
Chairman of the Board), employees and agents of the Corporation.
Section 4. Vice President.
---------- --------------
The Vice President or Vice Presidents shall perform the duties of the
President in his absence or during his inability to act. In addition, the Vice
Presidents shall perform the duties and exercise the powers usually incident to
their respective offices and/or such other duties and powers as may be properly
assigned to them by the Board of Directors, the Chairman of the Board or the
President. A Vice President or Vice Presidents may be designated as Executive
Vice President or Senior Vice President.
Section 5. Secretary.
--------- ---------
The Secretary or Assistant Secretary shall issue notices of meetings, shall
keep their minutes, shall have charge of the seal and the corporate books, shall
perform such other duties and exercise such other powers as are usually incident
to such office and/or such other duties and powers as are properly assigned
thereto by the Board of Directors, the Chairman of the Board or the President.
Subject to the direction of the Board of Directors, the Secretary shall have the
power to sign all stock certificates.
Section 6. Treasurer.
---------- ----------
The Treasurer shall be the Comptroller of the Corporation and shall have
the responsibility for maintaining the financial records of the Corporation. He
or she shall make such disbursements of the funds of the Corporation as are
authorized and shall render from time to time an account of all such
transactions and of the financial condition of the Corporation. The Treasurer
shall also perform such other duties as the Board of Directors may from time to
time prescribe. Subject to the direction of the Board of Directors, the
Treasurer shall have the power to sign all stock certificates.
Section 7. Assistant Secretaries and Other Officers.
--------- -----------------------------------------
The Board of Directors may appoint one or more Assistant Secretaries and
such other Officers who shall have such powers and shall perform such duties as
are provided in these Bylaws or as may be assigned to them by the Board of
Directors, the Chairman of the Board or the President.
10
<PAGE>
Section 8. Action with Respect to Securities of Other Corporations.
---------- --------------------------------------------------------
Unless otherwise directed by the Board of Directors, the President or any
Officer of the Corporation authorized by the President shall have power to vote
and otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of stockholders of or with respect to any action of stockholders of any
other corporation in which this Corporation may hold securities and otherwise to
exercise any and all rights and powers which this Corporation may possess by
reason of its ownership of securities in such other corporation.
ARTICLE V - STOCK
Section 1. Certificates of Stock.
--------- ---------------------
Each stockholder shall be entitled to a certificate signed by, or in the
name of the Corporation by, the Chairman of the Board or the President, and by
the Secretary or an Assistant Secretary, or any Treasurer or Assistant
Treasurer, certifying the number of shares owned by him or her. Any or all of
the signatures on the certificate may be by facsimile.
Section 2. Transfers of Stock.
--------- ------------------
Transfers of stock shall be made only upon the transfer books of the
Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where a
certificate is issued in accordance with Section 4 of Article V of these Bylaws,
an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefor.
Section 3. Record Date.
--------- -----------
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders, or to receive payment of
any dividend or other distribution or allotment of any rights or to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date on which the resolution
fixing the record date is adopted and which record date shall not be more than
sixty (60) nor less than ten (10) days before the date of any meeting of
stockholders, nor more than sixty (60) days prior to the time for such other
action as hereinbefore described; provided, however, that if no record date is
fixed by the Board of Directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the next day preceding the day
on which the meeting is held, and, for determining stockholders entitled to
receive payment of any dividend or other distribution or allotment or rights or
to exercise any rights of change, conversion or exchange of stock or for any
other purpose, the
11
<PAGE>
record date shall be at the close of business on the day on which the Board of
Directors adopts a resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 4. Lost, Stolen or Destroyed Certificates.
--------- --------------------------------------
In the event of the loss, theft or destruction of any certificate of stock,
another may be issued in its place pursuant to such regulations as the Board of
Directors may establish concerning proof of such loss, theft or destruction and
concerning the giving of a satisfactory bond or bonds of indemnity.
Section 5. Regulations.
--------- -----------
The issue, transfer, conversion and registration of certificates of stock
shall be governed by such other regulations as the Board of Directors may
establish.
ARTICLE VI - NOTICES
Section 1. Notices.
--------- -------
Except as otherwise specifically provided herein or required by law, all
notices required to be given to any stockholder, Director, Officer, employee or
agent shall be in writing and may in every instance be effectively given by hand
delivery to the recipient thereof, by depositing such notice in the mails,
postage paid, or by sending such notice by prepaid telegram or mailgram or other
courier. Any such notice shall be addressed to such stockholder, Director,
Officer, employee or agent at his or her last known address as the same appears
on the books of the Corporation. The time when such notice is received, if hand
delivered, or dispatched, if delivered through the mails or by telegram or
mailgram or other courier, shall be the time of the giving of the notice.
Section 2. Waivers.
--------- -------
A written waiver of any notice, signed by a stockholder, Director, Officer,
employee or agent, whether before or after the time of the event for which
notice is to be given, shall be deemed equivalent to the notice required to be
given to such stockholder, Director, Officer, employee or agent. Neither the
business nor the purpose of any meeting need be specified in such a waiver.
12
<PAGE>
ARTICLE VII - MISCELLANEOUS
Section 1. Facsimile Signatures.
--------- --------------------
In addition to the provisions for use of facsimile signatures elsewhere
specifically authorized in these Bylaws, facsimile signatures of any officer or
officers of the Corporation may be used whenever and as authorized by the Board
of Directors or a committee thereof.
Section 2. Corporate Seal.
--------- --------------
The Board of Directors may provide a suitable seal, containing the name of
the Corporation, which seal shall be in the charge of the Secretary. If and
when so directed by the Board of Directors or a committee thereof, duplicates of
the seal may be kept and used by the Treasurer or by an Assistant Secretary or
an assistant to the Treasurer.
Section 3. Reliance Upon Books, Reports and Records.
--------- ----------------------------------------
Each Director, each member of any committee designated by the Board of
Directors, and each Officer of the Corporation shall, in the performance of his
or her duties, be fully protected in relying in good faith upon the books of
account or other records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its Officers or
employees, or committees of the Board of Directors so designated, or by any
other person as to matters which such Director or committee member reasonably
believes are within such other person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the Corporation.
Section 4. Fiscal Year.
--------- -----------
The fiscal year of the Corporation shall be as fixed by the Board of
Directors.
Section 5. Time Periods.
--------- ------------
In applying any provision of these Bylaws which requires that an act be
done or not be done a specified number of days prior to an event or that an act
be done during a period of a specified number of days prior to an event,
calendar days shall be used, the day of the doing of the act shall be excluded,
and the day of the event shall be included.
ARTICLE VIII - AMENDMENTS
The Board of Directors may amend, alter or repeal these Bylaws at any
meeting of the Board, provided notice of the proposed change was given not less
than two (2) days prior to the meeting. The stockholders shall also have power
to amend, alter or repeal these Bylaws at any
13
<PAGE>
meeting of stockholders provided notice of the proposed change was given in the
notice of the meeting; provided, however, that, notwithstanding any other
provisions of the Bylaws or any provision of law which might otherwise permit a
lesser vote or no vote, but in addition to any affirmative vote of the holders
of any particular class or series of the voting stock required by law, the
Certificate of Incorporation, any Preferred Stock Designation or these Bylaws,
the affirmative votes of the holders of at least 80% of the voting power of all
the then-outstanding shares of the Voting Stock, voting together as a single
class, shall be required to alter, amend or repeal any provisions of these
Bylaws.
The above Bylaws are effective as of September 6, 1996, the date of
incorporation of FIRSTFED AMERICA BANCORP, INC.
14
<PAGE>
EXHIBIT 4
COMMON STOCK COMMON STOCK
PAR VALUE $.01 SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP
FIRSTFED AMERICA BANCORP, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT
S P E C I M E N
is the owner of:
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK $.01 PAR VALUE PER SHARE OF
FIRSTFED AMERICA BANCORP, INC.
The shares represented by this certificate are transferable only on the stock
transfer books of the Corporation by the holder of record hereof, or by his duly
authorized attorney or legal representative, upon the surrender of this
certificate properly endorsed. This certificate and the shares represented
hereby are issued and shall be held subject to all the provisions of the
Certificate of Incorporation of the Corporation and any amendments thereto
(copies of which are on file with the Transfer Agent), to all of which
provisions the holder by acceptance hereof, assents.
This certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar. The shares represented by this Certificate are not
insured by the Federal Deposit Insurance Corporation or any other government
agency.
IN WITNESS THEREOF, FIRSTFED AMERICA BANCORP, INC. has caused this
certificate to be executed by the facsimile signatures of its duly authorized
officers and has caused a facsimile of its corporate seal to be hereunto
affixed.
Dated: [SEAL]
President Secretary
<PAGE>
FIRSTFED AMERICA BANCORP, INC.
The shares represented by this certificate are subject to a limitation
contained in the Certificate of Incorporation to the effect that in no event
shall any record owner of any outstanding common stock which is beneficially
owned, directly or indirectly, by a person who beneficially owns in excess of
10% of the outstanding shares of common stock (the "Limit") be entitled or
permitted to any vote in respect of shares held in excess of the Limit.
The Board of Directors of the Corporation is authorized by resolution(s),
from time to time adopted, to provide for the issuance of serial preferred stock
in series and to fix and state the voting powers, designations, preferences and
relative, participating, optional, or other special rights of the shares of each
such series and the qualifications, limitations and restrictions thereof. The
Corporation will furnish to any shareholder upon request and without charge a
full description of each class of stock and any series thereof.
The shares represented by this certificate may not be cumulatively voted on
any matter. The affirmative vote of the holders of at least 80% of the voting
stock of the Corporation, voting together as a single class, shall be required
to approve certain business combinations and other transactions, pursuant to the
Certificate of Incorporation or to amend certain provisions of the Certificate
of Incorporation.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFTS MIN ACT - __________ custodian___________
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors Act
____________________
(State)
JT TEN - as joint tenants with right
of survivorship and not as
tenants in common
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, __________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFICATION NUMBER OF ASSIGNEE
________________________________________________________________________________
Please print or typewrite name and address including postal zip code of assignee
_______________________________________________ shares of the common stock
represented by the within Certificate, and do hereby irrevocably constitute and
appoint _______________________________________________________________________
Attorney to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.
DATED _________________ _________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE
OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE GUARANTEED:_________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15
<PAGE>
Exhibit 5.0
________________, 1996
Board of Directors
FIRSTFED AMERICA BANCORP, INC.
One North Main Street
Fall River, Massachusetts 02720
Re: The offering of up to ________ shares of
FIRSTFED AMERICA BANCORP, INC. Common Stock
Gentlemen:
You have requested our opinion concerning certain matters of Delaware law
in connection with the conversion of First Federal Savings Bank of America (the
"Bank"), a federally-chartered savings bank, from the mutual form of ownership
to the stock form of ownership (the "Conversion"), and the related subscription
offering, community offering and syndicated community offering (the "Offerings")
by FIRSTFED AMERICA BANCORP, INC., a Delaware corporation (the "Company"), of up
to _________ shares of its common stock, par value $.01 per share ("Common
Stock"), (________ shares if the Estimated Valuation Range is increased up to
15% to reflect changes in market and financial conditions following commencement
of the Offerings).
In connection with your request for our opinion, you have provided to us
and we have reviewed the Company's certificate of incorporation filed with the
Delaware Secretary of State on September 6, 1996 (the "Certificate of
Incorporation"); the Company's Bylaws; the Company's Registration Statement on
Form S-1, as filed with the Securities and Exchange Commission initially on
September __, 1996 and as amended on November __, 1996 (the "Registration
Statement"); a consent of the sole incorporator of the Company; resolutions of
the Board of Directors of the Company (the "Board") concerning the organization
of the Company, the Offerings and designation of a Pricing Committee of the
Board, and the form of stock certificate approved by the Board to represent
shares of Common Stock. We have also been furnished a certificate of the
Delaware Secretary of State certifying the Company's good standing as a Delaware
corporation. Capitalized terms used but not defined herein shall have the
meaning given them in the Certificate of Incorporation.
<PAGE>
Board of Directors
_______________, 1996
Page 2
In rendering this opinion, we have relied upon the opinion of Morris,
Nichols, Arsht & Tunnell as to matters of Delaware law upon which opinion we
believe we are justified in relying.
We understand that the Company will contribute funds to a wholly-owned
subsidiary of the Company (the "Subsidiary") which Subsidiary will loan to the
trust for the Bank's Employee Stock Ownership Plan (the "ESOP") the funds the
ESOP Trust will use to purchase shares of Common Stock for which the ESOP Trust
subscribes pursuant to the Offerings and for purposes of rendering the opinion
set forth in paragraph 2 below, we assume that: (a) the Board of Directors of
the Company has duly authorized the capital contribution to the Subsidiary for
purposes of making a loan to the ESOP Trust (the "Loan"); (b) the Board of
Directors of the Subsidiary has duly authorized the Loan to the ESOP Trust; (c)
the ESOP serves a valid corporate purpose for the Company; (d) the Loan will be
made at an interest rate and on other terms that are fair to the Subsidiary; (e)
the terms of the Loan will be set forth in customary and appropriate documents
including, without limitation, a promissory note representing the indebtedness
of the ESOP Trust to the Subsidiary as a result of the Loan; and (f) the closing
for the Loan and for the sale of Common Stock to the ESOP Trust will be held
after the closing for the sale of the other shares of Common Stock sold in the
Offerings, the receipt by the Company of the proceeds thereof and the
contribution by the Company to the Subsidiary of the funds sufficient to make
the Loan.
Based upon and subject to the foregoing, and limited in all respects to
matters of Delaware law, it is our opinion that:
1. The Company has been duly organized and is validly existing in good
standing as a corporation under the laws of the State of Delaware.
2. Upon the due adoption by the Pricing Committee of a resolution fixing
the number of shares of Common Stock to be sold in the Offerings, the Common
Stock to be issued in the Offerings (including the shares to be issued to the
ESOP Trust) will be duly authorized and, when such shares are sold and paid for
in accordance with the terms set forth in the Prospectus and such resolution of
the Pricing Committee, and certificates representing such shares in the form
provided to us are duly and properly issued, will be validly issued, fully paid
and nonassessable.
<PAGE>
Board of Directors
_______________, 1996
Page 3
The following provisions of the Certificate of Incorporation may not be
given effect by a court applying Delaware law, but in our opinion the failure to
give effect to such provisions will not affect the duly authorized, validly
issued, fully paid and nonassessable status of the Common Stock:
1. (a) Subsections C.3 and C.6 of Article FOURTH and Section D of
Article EIGHTH, which grant the Board the authority to construe
and apply the provisions of those Articles, subsection C.4 of
Article FOURTH, to the extent that subsection obligates any
person to provide to the Board the information such subsection
authorizes the Board to demand, and the provision of Subsection
C.7 of Article EIGHTH empowering the Board to determine the Fair
Market Value of property offered or paid for the Company's stock
by an Interested Stockholder, in each case to the extent, if any,
that a court applying Delaware law were to impose equitable
limitations upon such authority; and
(b) Article NINTH, which authorizes the Board to consider the effect
of any offer to acquire the Company on constituencies other than
stockholders in evaluating any such offer.
We consent to the filing of this opinion as an exhibit to the Registration
Statement on Form S-1 and the Form AC and to the use of the name of our firm
where it appears in the Registration Statement, Form AC and Prospectus.
Very truly yours,
MULDOON, MURPHY & FAUCETTE
<PAGE>
September 26, 1996 Draft
------------------------
[Morris, Nichols, Arsht & Tunnell Letterhead]
September __, 1996
Muldoon, Murphy & Faucette
5101 Wisconsin Avenue, N.W.
Washington, DC 20016
Ladies and Gentlemen:
You have requested our opinion concerning certain matters of Delaware law
in connection with (i) the conversion of First Federal Savings Bank of America
(the "Bank"), from the mutual form of ownership to stock form of ownership (the
"Conversion"), and (ii) the subscription and community offering (the
"Offering"), in connection with the Conversion, by FIRSTFED AMERICA BANCORP,
INC., a Delaware corporation (the "Company"), of up to 8,067,250 shares of its
common stock, par value $.01 per share (the "Common Stock"), and (iii) the sale
of ______ shares of Common Stock (the "Foundation Shares") to The FirstFed
Savings Bank of America Foundation (the "Foundation") pursuant to the Charitable
Gift to The FirstFed Savings Bank of America Foundation dated as of ____________
___, 1996 by the Company (the "Gift Instrument").
In connection with your request for our opinion, you have provided to us,
and we have reviewed, the Company's certificate of incorporation (the "Company
Certificate of Incorporation"), its by-laws, the Registration Statement filed
with the Securities and
<PAGE>
Muldoon, Murphy & Faucette
September , 1996
--
Page 2
Exchange Commission in connection with the Offering (the "Registration
Statement"), including the prospectus constituting a part thereof (the
"Prospectus"), a consent of the sole incorporator of the Company, resolutions of
the Board of Directors of the Company (the "Board") concerning, inter alia, the
----- ----
organization of the Company, the Offering, the Gift Instrument (including the
issuance of shares of Common Stock to the Foundation) and the designation of a
Pricing Committee of the Board (the "Pricing Committee"), the form of stock
certificate approved by the Board to represent shares of Common Stock, the
Foundation's certificate of incorporation (the "Foundation Certificate of
Incorporation"), its by-laws, a consent of the sole incorporator of the
Foundation, and the Gift Instrument. We have also obtained certificates of the
Delaware Secretary of State as to the Company's and the Foundation's good
standing as Delaware corporations. Capitalized terms used but not defined
herein shall have the meanings given them in the Company Certificate of
Incorporation.
We understand that a wholly-owned subsidiary of the Company (the
"Subsidiary") will loan to the Bank's Employee Stock Ownership Plan (the "ESOP")
the funds the ESOP will use to purchase the shares of Common Stock for which the
ESOP has subscribed as part of the Offering. The Subsidiary will receive the
funds necessary to make such loan by way of a capital contribution by the
Company to the Subsidiary (the "Capital Contribution"). In this
<PAGE>
Muldoon, Murphy & Faucette
September , 1996
--
Page 3
regard, we have assumed, for purposes of rendering the opinion set forth in
paragraph 2 below, that: (a) the board of directors of the Subsidiary has duly
authorized the loan to the ESOP (the "Loan") and the Board has duly authorized
the Capital Contribution; (b) the Loan serves a valid corporate purpose of the
Subsidiary and the Capital Contribution serves a valid corporate purpose of the
Company; (c) the Loan will be made at an interest rate and on other terms that
are fair to the Subsidiary; (d) the terms of the Loan will be set forth in
customary and appropriate documents including, without limitation, a promissory
note representing the indebtedness of the ESOP to the Subsidiary as a result of
the Loan; and (e) the Capital Contribution, the closing for the Loan and for the
sale of Common Stock to the ESOP will be held after the closing for the sale of
the other shares of Common Stock sold in the Offering and the receipt by the
Company of the proceeds thereof.
We call your attention to the fact that the opinions expressed herein are
limited in all respects to matters of Delaware corporate law. We express no
opinion concerning the requirements of any other law, rule or regulation, state
or federal, applicable to the Bank, the Company, the Foundation, the Offering,
or the Conversion, including, without limitation, those applicable to federally
insured savings banks or their holding companies.
Based upon and subject to the foregoing, it is our opinion that:
<PAGE>
Muldoon, Murphy & Faucette
September , 1996
--
Page 4
1. The Company has been duly organized and is validly existing in good
standing as a corporation under the laws of the State of Delaware, with the
corporate power and authority to own its property and conduct its business as
now conducted as described in the Prospectus.
2. Upon the due adoption by the Pricing Committee of a resolution fixing
the number of shares of Common Stock to be sold in the Offering, the Common
Stock to be issued in the Offering (including the shares to be issued to the
ESOP) will be duly authorized and, when such shares are sold and paid for in
accordance with the terms set forth in the Prospectus and such resolution of the
Pricing Committee, and certificates representing such shares in the form
provided to us are duly and properly issued, will be validly issued, fully paid
and nonassessable, with no personal liability for the payment of the Company's
debts arising solely by virtue of the ownership thereof; such issuance and sale
will not be in violation of or subject to any preemptive rights provided for by
Delaware law or by the Company Certificate of Incorporation.
3. The Foundation has been duly organized and is validly existing as a
non-stock corporation in good standing under the laws of the State of Delaware
with the corporate power and authority to own, lease, and operate its properties
and to conduct its business as described in the Prospectus.
<PAGE>
Muldoon, Murphy & Faucette
September , 1996
--
Page 5
4. No approvals of any Delaware governmental agency, bureau, commission,
department or other organization is required to establish the Foundation and to
issue and sell the Foundation Shares to the Foundation as described in the
Prospectus pursuant to the Gift Instrument; provided, however, that we express
-------- -------
no opinion with respect to the Delaware Securities Act (6 Del. C. (S) 7301 et.
---- -- --
seq.).
- ---
5. The Foundation Shares have been duly and validly authorized for
issuance and sale, and when issued and delivered by the Company as provided in
the Gift Instrument against payment therefor, and a certificate representing
such shares in the form provided to us is duly and properly issued, such shares
will be duly and validly issued, fully paid and nonassessable, with no personal
liability for the payment of the Company's debts arising solely by virtue of the
ownership thereof; such issuance and sale will not be in violation of or subject
to any preemptive rights provided for by Delaware law or by the Company
Certificate of Incorporation.
The following provisions of the Company Certificate of Incorporation may
not be given effect by a court applying Delaware law, but in our opinion the
failure to give effect to such provisions will not affect the duly authorized,
validly issued, fully paid and nonassessable status of the Common Stock:
<PAGE>
Muldoon, Murphy & Faucette
September , 1996
--
Page 6
(a) Subsections C.3 and C.6 of Article FOURTH and Section D of Article
EIGHTH, which grant the Board the authority to construe and apply the provisions
of those Articles, subsection C.4 of Article FOURTH, to the extent that
provision obligates any person to provide to the Board the information such
subsection authorizes the Board to demand, and the provision of Section C.7 of
Article EIGHTH empowering the Board to determine the Fair Market Value of
property offered or paid for the Company's stock by an Interested Stockholder,
to the extent, if any, that a court applying Delaware law were to impose
equitable limitations upon the authority of the directors of the Company under
such provisions.
(b) Article NINTH of the Company Certificate of Incorporation, which
purports to permit the Board to consider the effect of any offer to acquire the
Company on constituencies other than stockholders in evaluating any such offer.
Very truly yours,
<PAGE>
Exhibit 8.0
September __, 1996
Board of Directors
First Federal Savings Bank of America
One North Main Street
Fall River, Massachusetts 02720
Board of Directors
FIRSTFED AMERICA BANCORP, INC.
One North Main Street
Fall River, Massachusetts 02720
Re: Certain Federal Tax Consequences of the Conversion of First Federal
Savings Bank of America from a Federally Chartered Mutual Savings Bank
to a Federally Chartered Stock Savings Bank and the Offer and Sale of
Common Stock of FIRSTFED AMERICA BANCORP, INC. (the "Conversion")
Ladies and Gentlemen:
You have requested an opinion on certain federal income tax consequences of
the proposed conversion of First Federal Savings Bank of America (the "Bank")
from a federally chartered mutual savings bank to a federally chartered capital
stock savings bank and the acquisition of the Bank's capital stock by FIRSTFED
AMERICA BANCORP, INC., a Delaware corporation (the "Holding Company"), pursuant
to the plan of conversion adopted on August 2, 1996, and amended on September
17, 1996, (the "Plan of Conversion").
The proposed transaction is described in the Prospectus and the Plan of
Conversion, and the tax consequences of the proposed transaction will be as set
forth in the section of this letter entitled "FEDERAL TAX OPINION."
<PAGE>
Board of Directors
_______________, 1996
Page 2
We have made such inquiries and have examined such documents and records as
we have deemed appropriate for the purpose of this opinion. In rendering this
opinion, we have received certain standard representations of the Holding
Company and the Bank concerning the Holding Company and the Bank as well as the
transaction ("Representations"). These Representations are required to be
furnished prior to the execution of this letter and again prior to the closing
of the Conversion. We will rely upon the accuracy of the Representations of the
Holding Company and the Bank and the statements of facts contained in the
examined documents, particularly the Plan of Conversion. We have also assumed
the authenticity of all signatures, the legal capacity of all natural persons
and the conformity to the originals of all documents submitted to us as copies.
Each capitalized term used herein, unless otherwise defined, has the meaning set
forth in the Plan of Conversion. We have assumed that the Conversion will be
consummated strictly in accordance with the terms of the Plan of Conversion.
The Plan of Conversion and the Prospectus contain a detailed description of
the Conversion. These documents as well as the Representations to be provided
by the Holding Company and the Bank are incorporated in this letter as part of
the statement of the facts.
First Federal Savings Bank of America, with an administrative office in
Fall River, Massachusetts, is a federally chartered mutual savings bank. As a
mutual savings bank, the Bank has never been authorized to issue stock.
Instead, the proprietary interest in the reserves and undivided profits of the
Bank belong to the deposit account holders of the Bank, hereinafter sometimes
referred to as "depositors." A depositor of the Bank has a right to share, pro
rata, with respect to the withdrawal value of his respective deposit account in
any liquidation proceeds distributed in the event the Bank is ever liquidated.
In addition, a depositor of the Bank is entitled to interest on his account
balance as fixed and paid by the Bank.
In order to provide organizational and economic strength to the Bank, the
Board of Directors has adopted the Plan of Conversion whereby the Bank will
convert itself into a federally-chartered capital stock savings bank (the
"Converted Bank"), the stock of which will be held entirely by the Holding
Company. Assuming that the Holding Company form of organization is utilized,
the Holding Company will acquire the stock of the Bank by purchase, in exchange
for the Conversion proceeds that are not permitted to be retained by the Holding
Company. The Holding Company will apply to the Office of Thrift Supervision
("OTS") to retain up to 50% of the proceeds received from the Conversion. The
aggregate sales price of the Common Stock issued in the Conversion will be based
on an independent appraiser's valuation of the estimated pro forma market value
of the Common Stock of the Converted Bank. The Conversion and sale of the
Common Stock will be subject to approval by the OTS and the approval of the
Voting Members.
<PAGE>
Board of Directors
_______________, 1996
Page 3
ESTABLISHMENT OF LIQUIDATION ACCOUNT. The Bank shall establish at the time
of Conversion a liquidation account in an amount equal to its net worth as of
the latest practicable date prior to Conversion. The liquidation account will
be maintained by the Bank for the benefit of the Eligible Account Holders and
Supplemental Eligible Account Holders who continue to maintain their Savings
Accounts at the Bank. Each Eligible Account Holder and Supplemental Eligible
Account Holder shall, with respect to his Savings Account, hold a related
inchoate interest in a portion of the liquidation account balance, in relation
to his Savings Account balance on the Eligibility Record Date and/or
Supplemental Eligibility Record Date or to such balance as it may be
subsequently reduced, as provided in the Plan of Conversion.
In the unlikely event of a complete liquidation of the Bank (and only in
such event), following all liquidation payments to creditors (including those to
Account Holders to the extent of their Savings Accounts) each Eligible Account
Holder and Supplemental Eligible Account Holder shall be entitled to receive a
liquidating distribution from the liquidation account, in the amount of the then
adjusted subaccount balance for his Savings Account then held, before any
liquidation distribution may be made to any holders of the Bank's capital stock.
No merger, consolidation, purchase of bulk assets with assumption of Savings
Accounts and other liabilities, or similar transaction with an FDIC institution,
in which the Bank is not the surviving institution, shall be deemed to be a
complete liquidation for this purpose. In such transactions, the liquidation
account shall be assumed by the surviving institution.
ESTABLISHMENT OF FOUNDATION. As part of the Conversion, the Company and
the Bank intend to establish a charitable foundation that will qualify as an
exempt organization under Section 501(c)(3) of the Internal Revenue Code (the
"Foundation") and to donate to the Foundation 8.0% of the number of shares of
Common Stock sold in the Conversion. The establishment and funding of the
Foundation as part of the Conversion is subject to the approval of the voting
members of the Bank at the Special Meeting of Members. In the event that the
Foundation does not receive the prerequisite approval, the Bank may determine to
complete the Conversion without the Foundation.
The Plan of Conversion provides that the Foundation is being formed to
further the Converted Bank's long term commitment to its community. The Plan of
Conversion states that the Foundation is intended to complement the Bank's
existing community reinvestment activities so as to allow the local community to
share in the growth and profitability of the Holding Company and the Converted
Bank over the long term.
The Foundation will be dedicated to the promotion of charitable and
educational purposes within the Bank's Local Community, including, but not
limited to, grants or donations to support housing assistance, scholarships,
local education, not-for-profit medical facilities, not-for-profit community
groups and other types of organizations or civic minded projects. The Foundation
will annually distribute total grants and donations to assist charitable
organizations or to fund
<PAGE>
Board od Directors
________________, 1996
Page 4
projects within its local community of not less than 5% of the average fair
value of the Foundation assets each year.
* * *
You have provided the following representations concerning this
transaction:
(a) The fair market value of the withdrawable deposit accounts plus
interests in the liquidation account of the Converted Bank to be
constructively received under the Plan of Conversion will, in each
instance, be equal to the fair market value of the withdrawable
deposit accounts (plus the related interest in the residual equity of
the Bank) deemed to be surrendered in exchange therefor.
(b) If an individual's total deposits in the Bank equal or exceed $50 as
of the Eligibility Record Date or the Supplemental Eligibility Record
Date, then no amount of that individual's total deposits will be
excluded from participating in the liquidation account. The fair
market value of the deposit accounts of the Bank which have a balance
of less than $50 on the Eligibility Record Date or the Supplemental
Eligibility Record Date will be less than 1% of the total fair market
value of all deposit accounts of the Bank.
(c) Immediately following the Conversion, the Eligible Account Holders and
the Supplemental Eligible Account Holders of the Bank will own all of
the outstanding interests in the liquidation account and will own such
interest solely by reason of their ownership of deposits in the Bank
immediately before the Conversion.
(d) After the Conversion, the Converted Bank will continue the business of
the Bank in the same manner as prior to the Conversion. The Converted
Bank has no plan or intention and the Holding Company has no plan or
intention to cause the Converted Bank to sell its assets other than in
the ordinary course of business.
(e) The Holding Company has no plan or intention to sell, liquidate or
otherwise dispose of the stock of the Converted Bank other than in the
ordinary course of business.
(f) The Holding Company and the Converted Bank have no current plan or
intention to redeem or otherwise acquire any of the Common Stock
issued in the Conversion transaction.
<PAGE>
Board of Directors
________________, 1996
Page 5
(g) Immediately after the Conversion, the assets and liabilities of the
Converted Bank will be identical to the assets and liabilities of the
Bank immediately prior to the Conversion, plus the net proceeds from
the sale of the Converted Bank's common stock to the Holding Company
and any liability associated with indebtedness incurred by the
Employee Plans in the acquisition of Common Stock by the Employee
Plans.
(h) The Bank, Converted Bank and the Holding Company are corporations
within the meaning of section 7701(a)(3) of the Internal Revenue Code
of 1986, as amended (the "Code").
(i) None of the shares of the Common Stock to be purchased by the
depositor-employees of the Bank in the Conversion will be issued or
acquired at a discount. However, shares may be given to certain
Directors and employees as compensation by means of the Employee
Plans. Compensation to be paid to such Directors and depositor-
employees will be commensurate with amounts paid to third parties
bargaining at arm's length for similar services.
(j) The fair market value of the assets of the Bank, which will be
transferred to the Converted Bank in the Conversion, will equal or
exceed the sum of the liabilities of the Bank which will be assumed by
the Converted Bank and any liabilities to which the transferred assets
are subject.
(k) The Bank is not under the jurisdiction of a bankruptcy or similar
court in any Title 11 or similar case within the meaning of section
368(a)(3)(A) of the Code.
(l) Upon the completion of the Conversion, the Holding Company will own
and hold 100% of the issued and outstanding capital stock of the
Converted Bank and no other shares of capital stock of the Converted
Bank will be issued and/or outstanding. At the time of the
Conversion, the Converted Bank does not have any plan or intention to
issue additional shares of its stock following the transaction.
Further, no shares of preferred stock of the Converted Bank will be
issued and/or outstanding.
(m) Upon the completion of the Conversion, there will be no rights,
warrants, contracts, agreements, commitments or understandings with
respect to the capital stock of the Converted Bank, nor will there be
any securities outstanding which are convertible into the capital
stock of the Converted Bank.
<PAGE>
Board of Directors
________________, 1996
Page 6
(n) No cash or property will be given to Eligible Account Holders,
Supplemental Eligible Account Holders, or others in lieu of (a)
nontransferable subscription rights, or (b) an interest in the
liquidation account of the Converted Bank.
(o) The Bank utilizes a reserve for bad debts in accordance with section
593 and, following the Conversion, to the extent allowed under the
Code, the Converted Bank shall likewise utilize a reserve for bad
debts in accordance with section 593.
(p) The Bank currently satisfies the 60% "qualified assets" test of
section 7701(a)(19) of the Code. Management expects the Converted
Bank to be able to continue to satisfy the test in the future. The
Converted Bank will also satisfy the "qualified thrift lender" tests
set out in sections 301 and 303 of the Financial Institutions Reform,
Recovery and Enforcement Act of 1989.
(q) Depositors will pay the expenses of the Conversion solely applicable
to them, if any. The Holding Company and the Bank will each pay
expenses of the transaction attributable to them and will not pay any
expenses solely attributable to the depositors or to the Holding
Company shareholders.
(r) The exercise price of the subscription rights received by the Bank's
Eligible Account Holders, Supplemental Eligible Account Holders, and
other holders of subscription rights to purchase Holding Company
Common Stock will be equal to the fair market value of the stock of
the Holding Company at the time of the completion of the Conversion as
determined by an independent appraisal.
(s) The proprietary interests of the Eligible Account Holders and the
Supplemental Eligible Account Holders in the Bank arise solely by
virtue of the fact that they are account holders in the Bank.
(t) There is no plan or intention for the Converted Bank to be liquidated
or merged with another corporation following this proposed
transaction.
(u) The liabilities of the Bank assumed by the Converted Bank plus the
liabilities, if any, to which the transferred assets are subject were
incurred by the Bank in the ordinary course of its business and are
associated with the assets transferred.
(v) The Bank currently has no net operating losses for federal tax
purposes, and has no such losses available for carryover to future tax
years. The Bank has neither generated nor carried forward a net
operating loss for federal tax purposes in the past ten tax years.
<PAGE>
Board of Directors
________________, 1996
Page 7
LIMITATIONS ON OPINION
----------------------
Our opinions expressed herein are based solely upon current provisions of
the Internal Revenue Code of 1986, as amended, including applicable regulations
thereunder and current judicial and administrative authority. Any future
amendments to the Code or applicable regulations, or new judicial decisions or
administrative interpretations, any of which could be retroactive in effect,
could cause us to modify our opinion. No opinion is expressed herein with
regard to the federal, state, or city tax consequences of the Conversion under
any section of the Code except if and to the extent specifically addressed.
FEDERAL TAX OPINION
-------------------
Based solely upon the foregoing representations and information and
assuming the transaction occurs in accordance with the Plan of Conversion, and
taking into consideration the limitations noted throughout this opinion, it is
our opinion that under current federal income tax law:
(1) Pursuant to the Conversion, the changes at the corporate level other
than changes in the form of organization will be insubstantial. Based
upon that fact and the fact that the equity interest of a depositor in
a mutual savings bank is more nominal than real, unlike that of a
shareholder of a corporation, the Conversion of the Bank from a mutual
savings bank to a stock savings bank is a tax-free reorganization
since it is a mere change in identity, form or place of organization
within the meaning of section 368(a)(1)(F) of the Code (see Rev. Rul.
80-105, 1980-1 C.B. 78). Neither the Bank nor the Converted Bank
shall recognize gain or loss as a result of the Conversion. The Bank
and the Converted Bank shall each be "a party to a reorganization"
within the meaning of section 368(b) of the Code.
(2) No gain or loss shall be recognized by the Converted Bank or the
Holding Company on the receipt by the Converted Bank of money from the
Holding Company in exchange for shares of the Converted Bank's capital
stock or by the Holding Company upon the receipt of money from the
sale of its Common Stock (Section 1032(a) of the Code).
(3) The basis of the assets of the Bank in the hands of the Converted Bank
shall be the same as the basis of such assets in the hands of the Bank
immediately prior to the Conversion (Section 362(b) of the Code).
<PAGE>
Board of Directors
________________, 1996
Page 8
(4) The holding period of the assets of the Bank in the hands of the
Converted Bank shall include the period during which the Bank held the
assets (Section 1223(2) of the Code).
(5) No gain or loss shall be recognized by the Eligible Account Holders
and the Supplemental Eligible Account Holders of the Bank on the
issuance to them of withdrawable deposit accounts in the Converted
Bank plus interests in the liquidation account of the Converted Bank
in exchange for their deposit accounts in the Bank or to the other
depositors on the issuance to them of withdrawable deposit accounts
(Section 354(a) of the Code).
(6) Provided that the amount to be paid for such stock pursuant to the
subscription rights is equal to the fair market value of the stock, no
gain or loss will be recognized by Eligible Account Holders and
Supplemental Eligible Account Holders upon the distribution to them of
the nontransferable subscription rights to purchase shares of stock in
the Holding Company (Section 356(a)). Gain realized, if any, by the
Eligible Account Holders and Supplemental Eligible Account Holders on
the distribution to them of nontransferable subscription rights to
purchase shares of Common Stock will be recognized but only in an
amount not in excess of the fair market value of such subscription
rights (Section 356(a)). Eligible Account Holders and Supplemental
Eligible Account Holders will not realize any taxable income as a
result of the exercise by them of the nontransferable subscription
rights (Rev. Rul. 56-572, 1956-2 C.B. 182).
(7) The basis of the deposit accounts in the Converted Bank to be received
by the Eligible Account Holders, Supplemental Eligible Account Holders
and other depositors of the Bank will be the same as the basis of
their deposit accounts in the Bank surrendered in exchange therefor
(Section 358(a)(1) of the Code). The basis of the interests in the
liquidation account of the Converted Bank to be received by the
Eligible Account Holders of the Bank shall be zero (Rev. Rul. 71-233,
1971-1 C.B. 113). The basis of the Holding Company Common Stock to
its stockholders will be the purchase price thereof plus the basis, if
any, of nontransferable subscription rights (Section 1012 of the
Code). Accordingly, assuming the nontransferable subscription rights
have no value, the basis of the Common Stock to the Eligible Account
Holders and Supplemental Eligible Account Holders will be the amount
paid therefor. The holding period of the Common Stock purchased
pursuant to the exercise of subscription rights shall commence on the
date on which the right to acquire such stock was exercised (Section
1223(6) of the Code).
<PAGE>
Board of Directors
________________, 1996
Page 9
Our opinion under paragraph (6) above is predicated on the representation
that no person shall receive any payment, whether in money or property, in lieu
of the issuance of subscription rights. Our opinion under paragraphs (6) and
(7) above assumes that the subscription rights to purchase shares of Common
Stock received by Eligible Account Holders, Supplemental Eligible Account
Holders and Other Members have a fair market value of zero. We understand that
you have received a letter from Keller & Company, Inc. that the subscription
rights do not have any value. We express no view regarding the valuation of the
subscription rights.
If the subscription rights are subsequently found to have a fair market
value, income may be recognized by various recipients of the subscription rights
(in certain cases, whether or not the rights are exercised) and the Holding
Company and/or the Converted Bank may be taxable on the distribution of the
subscription rights.
* * *
Since this letter is rendered in advance of the closing of this
transaction, we have assumed that the transaction will be consummated in
accordance with the Plan of Conversion as well as all the information and
Representations referred to herein. Any change in the transaction could cause
us to modify our opinion.
We consent to the inclusion of this opinion as an exhibit to the Form AC
and Form S-1 Registration Statement of FIRSTFED AMERICA BANCORP, INC. and the
references to and summary of this opinion in such Form AC and Form S-1
Registration Statement.
Sincerely,
MULDOON, MURPHY & FAUCETTE
<PAGE>
[LETTERHEAD OF KPMG PEAT MARWICK LLP APPEARS HERE]
September 24, 1996
PRIVATE
- -------
Board of Directors
First Federal Savings Bank of America
One North Main Street
Fall River, MA 02720
Board of Directors
FIRSTFED AMERICA BANCORP, INC.
One North Main Street
Fall River, MA 02720
Ladies and Gentlemen:
This letter constitutes our opinion as to certain state income tax consequences
of the proposed conversion of First Federal Savings Bank of America (Bank) from
a federally chartered mutual savings bank to a federally chartered stock savings
bank followed by the acquisition of the Bank's capital stock by FIRSTFED AMERICA
BANCORP, INC. (Holding Company), a Delaware corporation, pursuant to the plan of
conversion (the "Conversion").
The opinions contained herein are based solely on the FACTS and REPRESENTATIONS
stated in your letter dated September 24, 1996. All Section references are to
the Internal Revenue Code of 1986, as amended (Code) and Massachusetts General
Laws (MGL) as in effect as of the date of this opinion. If any of the FACTS and
REPRESENTATIONS is not correct or complete, it is imperative that we be informed
in writing as this could have a material adverse effect on our opinion.
STATEMENT OF FACTS
------------------
First Federal Savings Bank of America, with an administrative office in Fall
River, Massachusetts, is a federally chartered mutual savings bank. As a mutual
savings bank, the Bank has never been authorized to issue stock. Instead, the
proprietary interest in the reserves and undivided profits of the Bank belong to
the deposit account holders of the Bank, hereinafter sometimes referred to as
"depositors". A depositor of the Bank has a right to share, pro rata, with
respect to the withdrawal value of his respective deposit account in any
liquidation proceeds distributed in the event the Bank
<PAGE>
Board of Directors
First Federal Savings Bank of America
September 24, 1996
Page 2
is ever liquidated. In addition, a depositor of the Bank is entitled to interest
on his account balance as fixed and paid by the Bank.
Holding Company is a Delaware corporation recently organized by the Bank for the
purpose of acquiring all of the capital stock of the Bank to be issued in the
Conversion. Holding Company will have authorized capital stock consisting of 25
million shares of common stock ("Common Stock") and 1 million shares of
preferred stock. Only Common Stock will be issued in connection with the
Conversion. Holding Company will acquire the stock of the Bank in exchange for
the greater of that portion of the net proceeds of the Offerings sufficient to
increase the Bank's tangible capital to 10% of its total adjusted assets or up
to 50% of the net proceeds from the Offerings.
DESCRIPTION OF THE CONVERSION
-----------------------------
In order to provide organizational and economic strength to the Bank, the Board
of Directors has adopted a plan of conversion (the "Plan of Conversion") whereby
the Bank will convert itself into a federally chartered stock savings bank (the
"Converted Bank"), the stock of which will be held entirely by the Holding
Company. In connection with the Conversion, the Holding Company will issue
shares of its $0.01 par value Common Stock in Subscription and Community
Offerings. It is anticipated that all such shares of Common Stock not
subscribed for in the Subscription and Community Offerings will be offered to
the general public in a Syndicated Community Offering.
The aggregate sales price of the Common Stock issued in the Conversion will be
based on an independent appraiser's valuation of the estimated pro forma value
of the Common Stock of the Converted Bank. The Conversion and sale of the
Common Stock will be accomplished pursuant to the rules and regulations and will
be subject to the approval of the Office of the Thrift Supervision, Department
of the Treasury (the "OTS").
In accordance with the Plan of Conversion, rights to subscribe for the purchase
of Common Stock have been granted under the Plan of Conversion to the following
persons in the following order of priority: (1) depositors whose accounts in
the Bank totalled $50 or more on June 30, 1995 ("Eligible Account Holders"),
with a preference given to Eligible Account Holders residing in the counties of
Bristol, Plymouth, Barnstable, Middlesex, Worcester, Hampden and Norfolk in the
Commonwealth of Massachusetts and the counties of Bristol, Newport, Washington,
Kent and Providence in the State of Rhode Island (the Bank's "Local Community"),
("Local Eligible Account Holders"); (2) the Employee Plans, including the ESOP;
(3) depositors whose eligible savings accounts in the Bank totalled $50 or more
on September 30, 1996 ("Supplemental Eligible Account Holders"), with a
preference given to Supplemental Eligible Account Holders residing in the Bank's
Local Community ("Local Supplemental Eligible Account Holders"); and (4) other
members of the Bank, consisting of depositors of the Bank as of _______________,
1996, the voting record date ("Voting Record Date") for the special meeting of
members to vote on the
<PAGE>
Board of Directors
First Federal Savings Bank of America
September 24, 1996
Page 3
Conversion, and borrowers with loans outstanding as of ___________________ which
continue to be outstanding as of the Voting Record Date, other than those
members who otherwise qualify as Eligible Account Holders or Supplemental
Eligible Account Holders ("Other Members"), with a preference given to Other
members residing in the Bank's Local Community, ("Local Other Members"). All
subscriptions received will be subject to the availability of Common Stock after
satisfaction of all subscriptions of all persons having prior rights in the
Subscription Offering and to the maximum and minimum purchase limitations set
forth in the Plan of Conversion.
REPRESENTATIONS
---------------
In connection with the proposed reorganization, the following representations
have been made to us by you and we have relied on them as an integral assumption
in reaching our conclusions:
1) The value of the withdrawable deposit accounts plus interests in the
liquidation account of the Converted Bank to be received under the
Plan of Conversion will, in each instance, be equal to the value of
the withdrawable deposit accounts (plus the related interest in the
residual equity of the Bank) deemed to be surrendered in exchange
therefor.
2) If an individual's total deposits in the Bank equal or exceed $50 as
of the Eligibility Record Date and/or the Supplemental Eligibility
Record Date, then no amount of that individual's total deposits will
be excluded from participation in the liquidation account. The value
of the deposit accounts of the Bank which have a balance of less than
$50 on the Eligibility Record Date or the Supplemental Eligibility
Record Date is less than 1% of the total value of all deposit accounts
of the Bank.
3) Immediately following the Conversion, the Eligible Account Holders and
the Supplemental Eligible Account Holders of the Bank will own all
of the outstanding interests in the liquidation account and will own
such interest solely by reason of their ownership of deposits in the
Bank immediately before the Conversion.
4) After the Conversion, the Converted Bank will continue the business of
the Bank in the same manner as prior to the Conversion. The Converted
Bank has no plan or intention and the Holding Company has no plan or
intention to cause the Converted Bank to sell its assets other than in
the ordinary course of business.
5) The Holding Company has no plan or intention to sell, liquidate or
otherwise dispose of the stock of the Converted Bank other than in
the ordinary course of business.
<PAGE>
Board of Directors
First Federal Savings Bank of America
September 24, 1996
Page 4
6) The Holding Company and the Converted Bank have no current plan or
intention to redeem or otherwise acquire any of the Common Stock
issued in the Conversion transaction.
7) Immediately after the Conversion, the assets and liabilities of the
Converted Bank will be identical to the assets and liabilities of
the Bank immediately prior to the Conversion, plus the net proceeds
from the sale of the Converted Bank's common stock to the Holding
Company and any liability associated with indebtedness incurred by the
Employee Plans in the acquisition of Common Stock by the Employee
and/or Stock Plans.
8) The Bank, Converted Bank and the Holding Company are corporations
within the meaning of section 7701(a)(3) of the Internal Revenue Code
of 1986, as amended (the "Code").
9) None of the shares of the Common Stock to be purchased by the
depositor-employees of the Bank in the Conversion will be issued or
acquired at a discount. However, shares may be given to certain
Directors and employees as compensation by means of the Employee
and/or Stock Plans that may be approved at the conversion or
subsequently thereto. Compensation to be paid to such Directors and
depositor-employees will be commensurate with amounts paid to third
parties bargaining at arm's length for similar services.
10) The value of the assets of the Bank, which will be transferred to
Converted Bank in the Conversion, will equal or exceed the sum of the
liabilities of the Bank which will be assumed by the converted Bank
and any liabilities to which the transferred assets are subject.
11) The Bank is not under the jurisdiction of a bankruptcy or similar
court in any Title 11 or similar case within the meaning of section
368(a)(3)(A) of the Code.
12) Upon the completion of the Conversion, the Holding Company will own
and hold 100% of the issued and outstanding capital stock of the
Converted Bank and no other shares of capital stock of the Converted
Bank will be issued and/or outstanding. At the time of the
Conversion, the converted Bank does not have any plan or intention to
issue additional shares of its stock following the transaction.
Further, no shares of preferred stock of the Converted Bank will be
issued and/or outstanding.
<PAGE>
Board of Directors
First Federal Savings Bank of America
September 24, 1996
Page 5
13) Upon the completion of the conversion, there will be no rights,
warrants, contracts, agreements, commitments or understandings with
respect to the capital stock of the converted Bank, nor will there be
any securities outstanding which are convertible into the capital
stock of the Converted Bank.
14) No cash or property will be given to Eligible Account Holders,
Supplemental Eligible Account Holders, or others in lieu of (a)
nontransferable subscription rights, or (b) an interest in the
liquidation account of the converted Bank.
15) Depositors will pay the expenses of the conversion solely applicable
to them, if any. The Holding Company and the Bank will each pay
expenses of the transaction attributable to them and will not pay
any expenses solely attributable to the depositors or to the Holding
Company shareholders.
16) The exercise price of the subscription rights received by the Bank's
Eligible Account Holders, Supplemental Eligible Account Holders, and
other holders of subscription rights to purchase Holding Company
Common Stock will be equal to the value of the stock of the Holding
Company at the time of the completion of the Conversion as determined
by an independent appraisal.
17) The proprietary interests of the Eligible Account Holders and the
Supplemental Eligible Account Holders in the Bank arise solely by
virtue of the fact that they are account holders in the Bank.
18) There is no plan or intention for the Converted Bank to be liquidated
or merged with another corporation following this proposed
transaction.
19) The liabilities of the Bank assumed by the Converted Bank plus the
liabilities, if any, to which the transferred assets are subject
were incurred by the Bank in the ordinary course of its business and
are associated with the assets transferred.
20) The Bank currently has no net operating losses for federal tax
purposes, and has no such losses available for carryover to future tax
years. The Bank has neither generated nor carried forward a net
operating loss for federal tax purposes in the past 5 tax years.
21) If it becomes necessary for Holding Company to loan money to the ESOP,
the money will be lent from a newly created subsidiary of Holding
Company ("ESOP Loan Subsidiary").
<PAGE>
Board of Directors
First Federal Savings Bank of America
September 24, 1996
Page 6
DISCUSSION
----------
FINANCIAL INSTITUTION EXCISE TAX
Bank is a federally chartered mutual savings bank subject to the Massachusetts
Financial Institution excise tax under MGL chapter 63, sections 1, 2, 2A, and 7.
Holding Company will be a Delaware chartered corporation subject to
Massachusetts excise tax under MGL chapter 63, section 39 or the excise imposed
under MGL chapter 63, section 38B(b) if Holding Company is classified as a
security corporation pursuant to that section. ESOP Loan Subsidiary will be a
Massachusetts domestic corporation subject to the Massachusetts Financial
Institution excise tax under MGL chapter 63, sections 1, 2, 2A and 7.
The Massachusetts Financial Institution excise tax provides that banks and
certain corporations are taxed on net income as defined in MGL chapter 63,
section 1, which provides that net income is equal to "gross income other than
ninety-five percent of dividends received in any taxable year beginning on or
after January first, nineteen hundred and ninety-nine from or on account of the
ownership of any class of stock if the financial institution owns fifteen
percent or more of the voting stock of the institution paying the dividend, less
the deductions, but not the credits allowable under the provisions of the
Internal Revenue Code, as amended and in effect for the taxable year. For
taxable years beginning on or after January first, nineteen hundred and ninety-
nine, the provisions of section 291 of said Code shall not apply; and the
provisions of section 171(a)(2) and 265 of said Code shall only apply to the
extent that the income to which the deductions relate is excludable from gross
income. Deductions with respect to the following items, however, shall not be
allowed except as otherwise provided:
(a) dividends received, except as otherwise provided;
(b) losses sustained in other taxable years; or
(c) taxes on or measured by income, franchise taxes measured by net
income, franchise taxes for the privilege of doing business and capital
stock taxes imposed by any state."
Pursuant MGL chapter 63, section 1 for taxable years beginning on or after
January 1, 1995 gross income "is defined under the provisions of the federal
Internal Revenue Code, as amended and in effect for the taxable year, plus the
interest from bonds, notes and evidences of indebtedness of any state, including
the Commonwealth". Accordingly, a transaction that is non taxable for federal
income tax purposes because it qualifies as a tax-free reorganization within the
meaning of Section 368(a)(1)(F) of the federal Internal Revenue Code would also
be non taxable for
<PAGE>
Board of Directors
First Federal Savings Bank of America
September 24, 1996
Page 7
Massachusetts Financial Institution excise tax purposes by reason of the fact
that the federal treatment is controlling for Massachusetts purposes.
Although there is no case law nor regulations, announcements, or letter rulings
issued by the Department of Revenue ("DOR") since the adoption of the revised
definition of gross income, the DOR has issued numerous letter rulings regarding
reorganizations under pre-1995 law. In several letter rulings, the DOR has
ruled that no gain or loss should be recognized on transactions which qualify as
reorganizations under Code section 368(a)./1/ Other letter rulings have been
issued which exclude from Massachusetts gross income or loss resulting from the
conversion of a mutual savings or cooperative bank to a stock savings or
cooperative bank./2/
The letter rulings relating to the conversion from mutual to stock form of doing
business specifically address the issue of whether the issuance of stock, under
Section 1032 of the Code, creates income to the issuer. In all of the rulings,
the DOR stated that no gain or loss should be recognized on the receipt of money
in exchange for shares of common stock./3/
Accordingly, no gain should be recognized by either Holding Company upon
issuance of its shares to the public or by Bank upon issuance of its shares to
Holding Company.
While the above rulings apply to pre-1995 tax law, the statutory definition of
gross income under pre-1995 tax law was very broad to include gross income from
all sources. Accordingly, the conclusions reached by these rulings would
provide weight to our conclusion that a non taxable transaction for federal
income tax purposes would also be non taxable for Massachusetts Financial
Institution excise tax purposes.
CORPORATE EXCISE TAX
It is the intent of management of Holding Company to obtain classification as a
Massachusetts Security Corporation under Massachusetts Chapter 63, Section
38B(b) for Massachusetts excise tax purposes. One of the requirements for
obtaining classification as a Massachusetts Security Corporation is that the
company be engaged "exclusively in buying, selling, dealing in, or holding
securities its own behalf and not as a broker."/4/
Holding Company has been authorized to loan money to the ESOP plan to be used
for the purchase of Holding Company stock. The lending of money is an
impermissible activity for Massachusetts
- ------------------
/1/ Massachusetts Letter Rulings 82-5, 83-53, 85-3, and 85-63.
/2/ Massachusetts Letter Rulings 84-11, 83-61 and 83-53.
/3/ Ibid.
/4/ MGL Chapter 63, Section 38(B).
<PAGE>
Board of Directors
First Federal Savings Bank of America
September 24, 1996
Page 8
Security Corporations/5/ and would result in disqualification as a Massachusetts
Security Corporation. Such disqualification could result in additional taxes
(net worth and/or income based) being incurred by Holding Company.
Management has represented to us that if it becomes necessary for the Holding
Company to loan money to the ESOP plan, the Holding Company will create a newly
formed subsidiary, ESOP Loan Subsidiary. ESOP Loan Subsidiary will then loan
the money to the ESOP plan.
Massachusetts Letter Rulings 88-13 and 91-3 addressed the issues of whether bank
holding companies and other corporations, respectively, were allowed to own
wholly-owned subsidiaries and what there permissible activities would be. In
both rulings, and particularly in the case of bank holding companies,
corporations were given fairly broad powers to manage the investment in their
wholly-owned subsidiaries provided they did not actually conduct a trade or
business themselves.
Provided ESOP Loan Subsidiary is created in such a manner that the business of
ESOP Loan Subsidiary can be managed by ESOP Loan Subsidiary and is not managed
by Holding Company, the formation of ESOP Loan Subsidiary followed by the
lending of money from ESOP Loan Subsidiary to the ESOP plan should not violate
the requirements necessary to obtain and retain Massachusetts Security
Classification status for Holding Company.
OPINION
-------
Accordingly, based upon the facts and representations stated herein, it is the
opinion of KPMG Peat Marwick LLP regarding the Massachusetts income tax effect
of the planned reorganization that:
1). Provided that the Conversion qualifies as a tax-free reorganization
within the meaning of section 368(a)(1)(F) of the Code, the Conversion
will also qualify as a tax-free reorganization for Massachusetts
excise tax purposes (Massachusetts Letter Rulings 84-11, 83-53 and 83-
61).
2). No gain or loss shall be recognized by the Converted Bank or the
Holding Company on the receipt by the Converted Bank of money from
the Holding Company in exchange for shares of the Converted Bank's
capital stock or by the Holding Company upon the receipt of money
from the sale of its Common Stock (Massachusetts Letter Ruling 87-11,
Section 1032(a) of the Code).
- ------------------
/5/ Massachusetts Directive 86-35.
<PAGE>
Board of Directors
First Federal Savings Bank of America
September 24, 1996
Page 9
3). The basis of the assets of the Bank in the hands of the Converted Bank
shall be the same as the basis of such assets in the hands of the Bank
immediately prior to the Conversion (Massachusetts Letter Ruling 84-
11, Section 362(b) of the Code).
4). The holding period of the assets of the Bank in the hands of the
Converted Bank shall include the period during which the Bank held the
assets (Section 1223(2) of the Code and Massachusetts Letter Ruling
84-11).
5). No gain or loss will be recognized by the Eligible Account Holders and
the Supplemental Eligible Account Holders of the Bank on the
constructive issuance to them of withdrawable deposit accounts in the
Converted Bank plus interests in the liquidation account of the
Converted Bank in exchange for their deposit accounts in the Bank or
to the other depositors on the issuance to them of withdrawable
deposit accounts (Massachusetts Letter Ruling 84-11 and Section 354(a)
of the Code).
6). Provided that the amount to be paid for such stock pursuant to the
subscription rights is equal to the fair market value of the stock, no
gain or loss will be recognized by Eligible Account Holders and
Supplemental Eligible Account Holders upon the distribution to them of
the nontransferable subscription rights to purchase shares of stock in
the Holding Company (Section 356(a) and Massachusetts Letter Ruling
84-11). Gain realized, if any, by the Eligible Account Holders and
Supplemental Eligible Account Holders on the distribution to them of
nontransferable subscription rights to purchase shares of Common Stock
will be recognized but only in an amount not in excess of the fair
market value of such subscription rights (Section 356(a) and
Massachusetts Letter Ruling 84-11). Eligible Account Holders and
Supplemental Account Holders will not realize any taxable income as a
result of the exercise by them of the nontransferable subscription
rights (Massachusetts Letter Ruling 84-11).
7). The basis of the deposit accounts in the Converted Bank to be received
by the Eligible Account Holders, Supplemental Eligible Account Holders
and other depositors of the Bank will be the same as the basis of
their deposit accounts in the Bank surrendered in exchange therefor
(Section 358(a)(1) of the Code and Massachusetts Letter Rulings 84-11
and 83-61). The basis of the interests in the liquidation account of
the Converted Bank to be received by the Eligible Account Holders of
the Bank shall be zero (Massachusetts Letter Rulings 84-11 and 83-61).
The basis of the Holding Company Common Stock to its stockholders will
be the purchase price thereof plus the fair market values, if any, of
nontransferable subscription rights (Section 1012 of the Code and
Massachusetts Letter Rulings 84-11 and 83-61). Accordingly,
assuming the nontransferable subscription rights have no value, the
basis of the Common Stock to the Eligible Account Holders and
<PAGE>
Board of Directors
First Federal Savings Bank of America
September 24, 1996
Page 10
Supplemental Eligible Account Holders will be the amount paid
therefor. The holding period of the Common Stock purchased pursuant to
the exercise of subscription rights shall commence on the date on
which the right to acquire such stock was exercised (Section 1223(6)
of the Code and Massachusetts Letter Ruling 84-11 and 83-61).
8). Under MGL Chapter 63, Sections 1, 2 and 7, the Bank and the Converted
Bank will be treated as the same savings bank and as if the Conversion
had not occurred (Mssachusetts Letter Ruling 84-11). Accordingly:
a) the part of the current taxable year of the Bank before the
Conversion and the part of the current taxable year of the
Converted Bank after the Conversion will constitute a single
taxable year of the Converted Bank;
b) the Converted Bank will succeed to and take into account the net
operating income of the Bank as of the date of the Conversion;
c) for the current taxable year, the Converted Bank may claim as a
credit any estimated tax under MGL Chapter 63, Section 2 paid by
the Bank prior to the Conversion.
9). The lending of money from ESOP Loan Subsidiary to the ESOP plan will
not prevent Holding Company from qualifying as a Massachusetts
Security Corporation provided that Holding Company does not conduct
any other activities deemed impermissible under MGL Chapter 63,
Section 38B, and the various regulations, announcements and letter
rulings issued by the Department of Revenue.
Our opinion under paragraph (6) above is predicated on the representation that
no person shall receive any payment, whether in money or property, in lieu of
the issuance of subscription rights. Our opinion under paragraphs (6) and (7)
above assumes that the subscription rights to purchase shares of Common Stock
received by Eligible Account Holders, Supplemental Eligible Account Holders and
Other Members have a fair market value of zero. We understand that you have
received an opinion of Keller & Company that the subscription rights do not have
any value. We express no view regarding the valuation of the subscription
rights.
If the subscription rights are subsequently found to have a fair market value,
income may be recognized by various recipients of the subscription rights (in
certain cases, whether or not the rights are exercised) and Holding Company
and/or the Converted Bank may be taxable on the distribution of the subscription
rights.
<PAGE>
Board of Directors
First Federal Savings Bank of America
September 24, 1996
Page 11
Our opinion assumes that the Conversion qualifies under Code Section 368(a) as a
tax free reorganization. We understand that the federal tax opinion is being
rendered by Muldoon, Murphy & Faucette, Attorneys at Law. We express no view
regarding whether the Conversion qualifies as a tax free reorganization under
the Code.
CONCLUSION
----------
THE OPINIONS CONTAINED HEREIN ARE RENDERED ONLY WITH RESPECT TO THE SPECIFIC
MATTERS DISCUSSED HEREIN AND WE EXPRESS NO OPINION WITH RESPECT TO ANY OTHER
LEGAL, FEDERAL, STATE, OR LOCAL TAX ASPECT OF THESE TRANSACTIONS. THIS OPINION
IS NOT BINDING UPON ANY TAX AUTHORITY INCLUDING THE MASSACHUSETTS DEPARTMENT OF
REVENUE OR ANY COURT AND NO ASSURANCE CAN BE GIVEN THAT A POSITION CONTRARY TO
THAT EXPRESSED HEREIN WILL NOT BE ASSERTED BY A TAX AUTHORITY.
IN RENDERING OUR OPINIONS WE ARE RELYING UPON THE RELEVANT PROVISIONS OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED, MASSACHUSETTS GENERAL LAWS AND THE
REGULATIONS, JUDICIAL AND ADMINISTRATIVE INTERPRETATIONS THEREOF, ALL AS OF THE
DATE OF THIS LETTER.
HOWEVER, ALL OF THE FOREGOING AUTHORITIES ARE SUBJECT TO CHANGE OR MODIFICATION
WHICH CAN BE RETROACTIVE IN EFFECT AND, THEREFORE, COULD ALSO AFFECT OUR
OPINIONS. WE UNDERTAKE NO RESPONSIBILITY TO UPDATE OUR OPINION FOR ANY
SUBSEQUENT CHANGE OR MODIFICATION.
Very truly yours,
KPMG PEAT MARWICK LLP
/s/ KPMG Peat Marwick LLP
<PAGE>
Exhibit 10.1
FIRST FEDERAL SAVINGS BANK OF AMERICA
EMPLOYEE STOCK OWNERSHIP PLAN
EFFECTIVE JANUARY 1, 1996
<PAGE>
FIRST FEDERAL SAVINGS BANK OF AMERICA
EMPLOYEE STOCK OWNERSHIP PLAN
This Employee Stock Ownership Plan, executed on _______________, by the
First Federal Savings Bank of America, a federally chartered stock savings bank
(the "Bank"),
W I T N E S S E T H T H A T :
WHEREAS, the board of directors of the Bank has resolved to adopt an
employee stock ownership plan for eligible employees in accordance with the
terms and conditions presented to the directors;
NOW, THEREFORE, the Bank hereby adopts the following Plan setting forth the
terms and conditions pertaining to contributions, and the payment of benefits to
Participants and Beneficiaries, effective January 1, 1996.
IN WITNESS WHEREOF, the Bank has adopted this Plan and caused this
instrument to be executed by its duly authorized officers as of the above date.
ATTEST:
____________________________ By: __________________
Secretary President
<PAGE>
C O N T E N T S
<TABLE>
<S> <C> <C>
Section 1. Plan Identity.............................................................. 1
--------------
1.1 Name.................................................................. 1
-----
1.2 Purpose............................................................... 1
--------
1.3 Effective Date........................................................ 1
---------------
1.4 Fiscal Period......................................................... 1
--------------
1.5 Single Plan for All Employers......................................... 1
-----------------------------
1.6 Interpretation of Provisions.......................................... 1
----------------------------
Section 2. Definitions................................................................ 1
-----------
Section 3. Eligibility for Participation.............................................. 8
-----------------------------
3.1 Initial Eligibility................................................... 8
-------------------
3.2 Terminated Employees.................................................. 8
---------------------
3.3 Certain Employees Ineligible.......................................... 8
-----------------------------
3.4 Participation and Reparticipation..................................... 8
----------------------------------
Section 4. Employer Contributions and Credits......................................... 9
-----------------------------------
4.1 Discretionary Contributions........................................... 9
----------------------------
4.2 Contributions for Stock Obligations................................... 9
------------------------------------
4.3 Definitions Related to Contributions.................................. 10
-------------------------------------
4.4 Conditions as to Contributions........................................ 10
-------------------------------
4.5 Matching Employer Contributions....................................... 11
--------------------------------
Section 5. Limitations on Contributions and Allocations............................... 11
---------------------------------------------
5.1 Limitation on Annual Additions........................................ 11
-------------------------------
5.2 Coordinated Limitation With Other Plans............................... 11
----------------------------------------
5.3 Effect of Limitations................................................. 12
---------------------
5.4 Limitations as to Certain Section 1042 Transactions................... 13
---------------------------------------------------
5.5 Limitations as to Certain Participants................................ 13
---------------------------------------
5.6 Nondiscrimination Test for Matching Employer Contributions............ 14
-----------------------------------------------------------
Section 6. Trust Fund and Its Investment.............................................. 15
------------------------------
6.1 Creation of Trust Fund................................................ 15
-----------------------
6.2 Stock Fund and Investment Fund........................................ 15
-------------------------------
6.3 Acquisition of Stock.................................................. 15
---------------------
6.4 Participants' Option to Diversify..................................... 16
----------------------------------
Section 7. Voting Rights and Dividends on Stock....................................... 16
-------------------------------------
7.1 Voting and Tendering of Stock......................................... 16
------------------------------
7.2 Dividends on Stock.................................................... 17
-------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Section 8. Adjustments to Accounts................................................... 17
------------------------
8.1 Adjustments for Transactions......................................... 17
-----------------------------
8.2 Valuation of Investment Fund......................................... 18
-----------------------------
8.3 Adjustments for Investment Experience................................ 18
--------------------------------------
8.4 Adjustments for Capital Changes...................................... 18
--------------------------------
Section 9. Vesting of Participants' Interests........................................ 18
-----------------------------------
9.1 Deferred Vesting in Accounts......................................... 18
-----------------------------
9.2 Computation of Vesting Years......................................... 19
-----------------------------
9.3 Full Vesting Upon Certain Events..................................... 19
---------------------------------
9.4 Full Vesting Upon Plan Termination................................... 20
-----------------------------------
9.5 Forfeiture, Repayment, and Restoral.................................. 20
------------------------------------
9.6 Accounting for Forfeitures........................................... 21
---------------------------
9.7 Vesting and Nonforfeitability........................................ 21
------------------------------
Section 10. Payment of Benefits....................................................... 21
--------------------
10.1 Benefits for Participants........................................... 21
--------------------------
10.2 Benefits on a Participant's Death................................... 22
----------------------------------
10.3 Marital Status...................................................... 22
---------------
10.4 Delay in Benefit Determination...................................... 22
-------------------------------
10.5 Accounting for Benefit Payments..................................... 22
--------------------------------
10.6 Options to Receive and Sell Stock................................... 22
----------------------------------
10.7 Restrictions on Disposition of Stock................................ 23
-------------------------------------
10.8 Direct Transfer of Eligible Plan Distributions...................... 24
-----------------------------------------------
Section 11. Rules Governing Benefit Claims and Review of Appeals...................... 24
-----------------------------------------------------
11.1 Claim for Benefits.................................................. 24
-------------------
11.2 Notification by Committee........................................... 25
--------------------------
11.3 Claims Review Procedure............................................. 25
------------------------
Section 12. The Committee and Its Functions........................................... 25
--------------------------------
12.1 Authority of Committee............................................. 25
-----------------------
12.2 Identity of Committee.............................................. 26
----------------------
12.3 Duties of Committee................................................ 26
--------------------
12.4 Valuation of Stock................................................. 26
-------------------
12.5 Compliance with ERISA.............................................. 27
----------------------
12.6 Action by Committee................................................ 27
--------------------
12.7 Execution of Documents............................................. 27
-----------------------
12.8 Adoption of Rules.................................................. 27
------------------
12.9 Responsibilities to Participants................................... 27
---------------------------------
12.10 Alternative Payees in Event of Incapacity.......................... 27
------------------------------------------
12.11 Indemnification by Employers....................................... 28
-----------------------------
12.12 Nonparticipation by Interested Member.............................. 28
--------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Section 13. Adoption, Amendment, or Termination of the Plan........................... 28
------------------------------------------------
13.1 Adoption of Plan by Other Employers................................. 28
------------------------------------
13.2 Adoption of Plan by Successor....................................... 28
------------------------------
13.3 Plan Adoption Subject to Qualification.............................. 28
---------------------------------------
13.4 Right to Amend or Terminate......................................... 29
----------------------------
Section 14. Miscellaneous Provisions.................................................. 29
------------------------
14.1 Plan Creates No Employment Rights................................... 29
----------------------------------
14.2 Nonassignability of Benefits........................................ 29
-----------------------------
14.3 Limit of Employer Liability......................................... 30
----------------------------
14.4 Treatment of Expenses............................................... 30
----------------------
14.5 Number and Gender................................................... 30
------------------
14.6 Nondiversion of Assets.............................................. 30
-----------------------
14.7 Separability of Provisions.......................................... 30
---------------------------
14.8 Service of Process.................................................. 30
-------------------
14.9 Governing State Law................................................. 30
--------------------
Section 15. Top-Heavy Provisions...................................................... 31
---------------------
15.1 Determination of Top-Heavy Status................................... 31
----------------------------------
15.2 Minimum Contributions............................................... 32
----------------------
15.3 Minimum Vesting..................................................... 33
----------------
</TABLE>
<PAGE>
FIRST FEDERAL SAVINGS BANK
OF AMERICA
EMPLOYEE STOCK OWNERSHIP PLAN
Section 1. Plan Identity.
--------------
1.1 Name. The name of this Plan is "First Federal Savings Bank of
----
America Employee Stock Ownership Plan."
1.2 Purpose. The purpose of this Plan is to describe the terms and
--------
conditions under which contributions made pursuant to the Plan will be credited
and paid to the Participants and their Beneficiaries.
1.3 Effective Date. The Effective Date of this Plan is January 1,
---------------
1996.
1.4 Fiscal Period. This Plan shall be operated on the basis of a
--------------
January 1-December 31 fiscal year for the purpose of keeping the Plan's books
and records and distributing or filing any reports or returns required by law.
1.5 Single Plan for All Employers. This Plan shall be treated as a
------------------------------
single plan with respect to all participating Employers for the purpose of
crediting contributions and forfeitures and distributing benefits, determining
whether there has been any termination of Service, and applying the limitations
set forth in Section 5.
1.6 Interpretation of Provisions. The Employers intend this Plan and
-----------------------------
the Trust to be a qualified stock bonus plan under Section 401(a) of the Code
and an employee stock ownership plan within the meaning of Section 407(d)(6) of
ERISA and Section 4975(e)(7) of the Code. The Plan is intended to have its
assets invested primarily in qualifying employer securities of one or more
Employers within the meaning of Section 407(d)(5) of ERISA, and to satisfy any
requirement under ERISA or the Code applicable to such a plan. Accordingly, the
Plan and Trust Agreement shall be interpreted and applied in a manner consistent
with this intent and shall be administered at all times and in all respects in a
nondiscriminatory manner.
Section 2. Definitions. The following capitalized words and phrases shall
------------
have the meanings specified when used in this Plan and in the Trust Agreement,
unless the context clearly indicates otherwise:
"Account" means a Participant's interest in the assets accumulated under
this Plan as expressed in terms of a separate account balance which is
periodically adjusted to reflect his Employer's contributions, the Plan's
investment experience, and distributions and forfeitures.
"Active Participant" means any Employee who has satisfied the eligibility
requirements of Section 3 and who qualifies as an Active Participant for a
particular Plan Year under Section 4.3.
1
<PAGE>
"Bank" means First Federal Savings Bank of America, and any entity which
succeeds to the business of the Bank and adopts this Plan as its own pursuant to
Section 13.2.
"Beneficiary" means the person or persons who are designated by a
Participant to receive benefits payable under the Plan on the Participant's
death. In the absence of any designation or if all the designated Beneficiaries
shall die before the Participant dies or shall die before all benefits have been
paid, the Participant's Beneficiary shall be his surviving spouse, if any, or
his estate if he is not survived by a spouse. The Committee may rely upon the
advice of the Participant's executor or administrator as to the identity of the
Participant's spouse.
"Break in Service" means any five or more consecutive 12-month periods
beginning January 1 in which an Employee has 500 or fewer Hours of Service per
period. Solely for this purpose, an Employee shall be considered employed for
his normal hours of paid employment during a Recognized Absence, unless he does
not resume his Service at the end of the Recognized Absence. Further, if an
Employee is absent for any period (i) by reason of the Employee's pregnancy,
(ii) by reason of the birth of the Employee's child, (iii) by reason of the
placement of a child with the Employee in connection with the Employee's
adoption of the child, or (iv) for purposes of caring for such child for a
period beginning immediately after such birth or placement, the Employee shall
be credited with the Hours of Service which would normally have been credited
but for such absence, up to a maximum of 501 Hours of Service, in the first 12-
month period which would otherwise be counted toward a Break in Service.
"Change in Control" means an event of a nature that; (i) would be required
to be reported in response to Item 1(a) of the Current Report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a Change in
Control of the Holding Company within the meaning of the Home Owners' Loan Act
of 1933, as amended, the Federal Deposit Insurance Act, and the Rules and
Regulations promulgated by the Office of Thrift Supervision (or its predecessor
agency) ("OTS"), as in effect on the date hereof (provided, that in applying the
definition of change in control as set forth under the rules and regulations of
the OTS, the Board shall substitute its judgment for that of the OTS); or (iii)
without limitation such a Change in Control shall be deemed to have occurred at
such time as (A) any "person" (as the term is used in Sections 13(d) and 14(d)
of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of voting securities of
the Bank or the Holding Company representing 20% or more of the Bank's or the
Holding Company's outstanding voting securities or the right to acquire such
securities except for any voting securities of the Bank purchased by the Holding
Company and any securities purchased by any employee benefit plan of the
Holding Company's or its Subsidiaries'; or (B) individuals who constitute the
Board on the date hereof (the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, provided that any person becoming a
director subsequent to the date hereof whose election was approved by a vote of
at least three-quarters of the directors comprising the Incumbent Board, or
whose nomination for election by the Company's stockholders was approved by a
Nominating Committee solely composed of members which are Incumbent Board
members, shall be, for purposes of this clause (B), considered as though he were
a member of the Incumbent Board; or
2
<PAGE>
(C) a plan of reorganization, merger, consolidation, sale of all or
substantially all the assets of the Bank or the Holding Company or similar
transaction occurs or is effectuated in which the Bank or Holding Company is not
the resulting entity; provided, however, that such an event listed above will be
deemed to have occurred upon the receipt of all required federal regulatory
approvals, not including the lapse of any statutory waiting periods; or (D) a
proxy statement shall be distributed soliciting proxies from stockholders of the
Holding Company, by someone other than the current management of the Holding
Company, seeking stockholder approval of a plan of reorganization, merger or
consolidation of the Holding Company or Bank with one or more corporations as a
result of which the outstanding shares of the class of securities then subject
to such plan or transaction are exchanged for or converted into cash or property
or securities not issued by the Bank or the Holding Company shall be
distributed; or (E) a tender offer is made for 20% or more of the voting
securities of the Bank or the Holding Company then outstanding.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the committee responsible for the administration of this
Plan in accordance with Section 12.
"Disability" means a condition which renders the Participant totally and
permanently disabled due to sickness or injury, such disability is likely to be
continuous and permanent, and such disability renders the Participant unable to
continue a like gainful occupation. In any event, the Committee's good faith
decision as to whether a Participant's Service has been terminated by Disability
shall be final and conclusive.
"Early Retirement" means retirement on or after a Participant's (i)
attainment of age 60 or the total of a Participant's age, when added to the
Participant's years of service recognized for purposes of vested service under
the Bank's defined benefit retirement plan, equals or exceeds 75 years, and
(ii) with regard to Participant's who were employed by the Employer on or after
September 11, 1972, the Participant's completion of ten consecutive years of
vesting service under the Bank's defined benefit retirement plan.
"Effective Date" means January 1, 1996.
"Employee" means any individual who is or has been employed by the Bank.
"Employee" also means an individual employed by a leasing organization who,
pursuant to an agreement between an Employer and the leasing organization, has
performed services for the Employer and any related persons (within the meaning
of Section 414(n)(6) of the Code) on a substantially full-time basis for more
than one year, if such services are of a type historically performed by
employees in the Employer's business field. However, such a "leased employee"
shall not be considered an Employee if (i) he participates in a money purchase
pension plan sponsored by the leasing organization which provides for immediate
participation, immediate full vesting, and an annual contribution of at least 10
percent of the Employee's Total Compensation, and (ii) leased employees do not
constitute more than 20 percent of the Employer's total work force (including
3
<PAGE>
leased employees, but excluding Highly Paid Employees and any other employees
who have not performed services for the Employer on a substantially full-time
basis for at least one year).
"Employer" means the Bank or any affiliate within the purview of section
414(b), (c) or (m) and 415(h) of the Code, any other corporation, partnership,
or proprietorship which adopts this Plan with the Bank's consent pursuant to
Section 13.1, and any entity which succeeds to the business of any Employer and
adopts the Plan pursuant to Section 13.2.
"Entry Date" means the Effective Date of the Plan and the first day of each
July and January thereafter.
"ERISA" means the Employee Retirement Income Security Act of 1974 (P.L. 93-
406, as amended).
"Highly Paid Employee" for any Plan Year beginning before December 31, 1996,
means an Employee who, during either of that or the immediately preceding Plan
Year, (i) owned more than five percent of the outstanding equity interest or the
outstanding voting interest in any Employer, (ii) had Total Compensation
exceeding $75,000 (as adjusted pursuant to section 415(d) of the Code), (iii)
had Total Compensation exceeding $50,000 (as adjusted pursuant to section 415(d)
of the Code) and was among the most highly compensated one-fifth of all
Employees, or (iv) was at any time an officer of an Employer and had Total
Compensation exceeding $45,000 (or 50 percent of the currently applicable dollar
limit under Section 415(b)(1)(A) of the Code). For this purpose:
(a) "Total Compensation" shall include any amount which is excludable
from the Employee's gross income for tax purposes pursuant to Sections 125,
402(e)(3), 402(h)(1)(B), or 403(b) of the Code.
(b) The number of Employees in "the most highly compensated one-fifth
of all Employees" shall be determined by taking into account all individuals
working for all related employer entities described in the definition of
"Service", but excluding any individual who has not completed six months of
Service, who normally works fewer than 17-1/2 hours per week or in fewer
than six months per year, who has not reached age 21, whose employment is
covered by a collective bargaining agreement, or who is a nonresident alien
who receives no earned income from United States sources.
(c) The number of individuals counted as "officers" shall not be more
than the lesser of (i) 50 individuals and (ii) the greater of 3 individuals
or 10 percent of the total number of Employees. If no officer earns more
than $45,000 (or the adjusted limit), then the highest paid officer shall be
a Highly Paid Employee.
(d) A former employee shall be treated as a highly compensated
employee if such employee was a highly paid employee when such employee
separated from service, or if such employee was a highly paid employee at
any time after attaining age 55.
4
<PAGE>
(e) If an employee is, during a determination year or look-back year,
a family member of either a 5 percent owner who is an active or former
employee or a highly compensated employee who is one of the 10 most highly
compensated employees ranked on the basis of compensation paid by the
employer during such year, then the family member and the 5 percent owner or
top-ten highly compensated employee shall be aggregated. In such case, the
family member and 5 percent owner or top-ten highly compensated employee
shall be treated as a single employee receiving compensation and plan
contributions or benefits equal to the sum of such compensation and
contributions or benefits of the family member and 5 percent owner or top-
ten highly compensated employee. For purposes of this section, family
member includes the spouse, lineal ascendants and descendants of the
employee or former employee and the spouses of such lineal ascendants and
descendants. For this purpose, the determination year shall be the plan
year. The look-back year shall be the twelve-month period immediately
preceding the determination year.
(f) The determination of who is a highly compensated employee,
including the determinations of the number and identity of employees in the
top-paid group, the top 100 employees, the number of employees treated as
officers and the compensation that is considered, will be made in accordance
with section 414(q) of the Code and the regulations thereunder.
"Highly Paid Employee" for any Plan Year beginning after December 31, 1996,
means an Employee who: (A) owned more than five percent of the outstanding
equity interest or the outstanding voting interest in any Employer during the
year or the preceding year, or (B) for the year or the preceding year (i) had
Total Compensation exceeding $80,000 (as adjusted pursuant to section 415(d) of
the Code), and, (ii) if the Employer elects with respect to a preceding year,
was among the most highly compensated one-fifth of all Employees for such
preceding year
(a) "Total Compensation" shall include any amount which is excludable
from the Employee's gross income for tax purposes pursuant to Sections 125,
402(e)(3), 402(h)(1)(B), or 403(b) of the Code.
(b) The number of Employees in "the most highly compensated one-fifth
of all Employees" shall be determined by taking into account all individuals
working for all related employer entities described in the definition of
"Service", but excluding any individual who has not completed six months of
Service, who normally works fewer than 17-1/2 hours per week or in fewer
than six months per year, who has not reached age 21, whose employment is
covered by a collective bargaining agreement, or who is a nonresident alien
who receives no earned income from United States sources.
(c) A former employee shall be treated as a highly compensated
employee if such employee was a highly paid employee when such employee
separated from service, or if such employee was a highly paid employee at
any time after attaining age 55.
5
<PAGE>
(d) The determination of who is a highly compensated employee,
including the determinations of the number and identity of employees in the top-
paid group and the compensation that is considered, will be made in accordance
with section 414(q) of the Code and the regulations thereunder.
"Holding Company" means FirstFed America Bancorp, Inc., the holding company
of First Federal Savings Bank of America, and any entity which succeeds to the
business of the Holding Company.
"Hours of Service" means hours to be credited to an Employee under the
following rules:
(a) Each hour for which an Employee is paid or is entitled to be paid
for services to an Employer is an Hour of Service.
(b) Each hour for which an Employee is directly or indirectly paid or
is entitled to be paid for a period of vacation, holidays, illness,
disability, lay-off, jury duty, temporary military duty, or leave of absence
is an Hour of Service. However, except as otherwise specifically provided, no
more than 501 Hours of Service shall be credited for any single continuous
period in which an Employee performs no duties. Further, no Hours of Service
shall be credited on account of payments made solely under a plan maintained
to comply with worker's compensation, unemployment compensation, or disability
insurance laws, or to reimburse an Employee for medical expenses.
(c) Each hour for which back pay (ignoring any mitigation of damages)
is either awarded or agreed to by an Employer is an Hour of Service. However,
no more than 501 Hours of Service shall be credited for any single continuous
period during which an Employee would not have performed any duties.
(d) Hours of Service shall be credited in any one period only under
one of the foregoing paragraphs (a), (b) and (c); an Employee may not get
double credit for the same period.
(e) If an Employer finds it impractical to count the actual Hours of
Service for any class or group of non-hourly Employees, each Employee in that
class or group shall be credited with 45 Hours of Service for each weekly pay
period in which he has at least one Hour of Service. However, an Employee
shall be credited only for his normal working hours during a paid absence.
(f) Hours of Service to be credited on account of a payment to an
Employee (including back pay) shall be recorded in the period of Service for
which the payment was made. If the period overlaps two or more Plan Years, the
Hours of Service credit shall be allocated in proportion to the respective
portions of the period included in the several Plan Years. However, in the
case of periods of 31 days or less, the Administrator may apply a uniform
policy of crediting the Hours of Service to either the first Plan Year or the
second.
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<PAGE>
(g) In all respects an Employee's Hours of Service shall be counted as
required by Section 2530.200b-2(b) and (c) of the Department of Labor's
regulations under Title I of ERISA.
"Investment Fund" means that portion of the Trust Fund consisting of assets
other than Stock.
"Matching Employer Contributions" means contributions made by the Employer
pursuant to Section 4.5 to a Participant's Matching Employer Contributions
Account.
"Normal Retirement Age" means a the later of the Participant's 65th birthday
or the fifth anniversary of the Participant's participation in the Plan.
"Normal Retirement Date" means the first day of the month coincident with or
next following attainment of Normal Retirement Age.
"Participant" means any Employee who is participating in the Plan, or who
has previously participated in the Plan and still has a balance credited to his
Account.
"Plan Year" means the 12 consecutive month period commencing January 1 and
ending December 31 of each year.
"Recognized Absence" means a period for which --
(a) an Employer grants an Employee a leave of absence for a limited
period, but only if an Employer grants such leaves on a nondiscriminatory
basis; or
(b) an Employee is temporarily laid off by an Employer because of a
change in business conditions; or
(c) an Employee is on active military duty, but only to the extent
that his employment rights are protected by the Military Selective Service Act
of 1967 (38 U.S.C. sec. 2021).
"Service" means an Employee's period(s) of employment or self-employment
with an Employer, excluding for initial eligibility purposes any period in which
the individual was a nonresident alien and did not receive from an Employer any
earned income which constituted income from sources within the United States.
An Employee's Service shall include any service which constitutes service with a
predecessor employer within the meaning of Section 414(a) of the Code. An
Employee's Service shall also include any service with an entity which is not an
Employer, but only either (i) for a period after 1975 in which the other entity
is a member of a controlled group of corporations or is under common control
with other trades and businesses within the meaning of Section 414(b) or 414(c)
of the Code, and a member of the controlled group or one of the trades and
businesses is an Employer, or (ii) for a period after 1979 in which
7
<PAGE>
the other entity is a member of an affiliated service group within the meaning
of Section 414(m) of the Code, and a member of the affiliated service group is
an Employer.
"Spouse" means the individual, if any, to whom a Participant is lawfully
married on the date benefit payments to the Participant are to begin, or on the
date of the Participant's death, if earlier.
"Stock" means shares of the voting common stock or preferred stock meeting
the requirements of Section 409(e)(3) of the Code issued by an Employer or an
affiliated corporation.
"Stock Fund" means that portion of the Trust Fund consisting of Stock.
"Stock Obligation" means an indebtedness arising from any extension of
credit to the Plan or the Trust which was obtained for the purpose of buying
Stock and which satisfies the requirements set forth in Section 6.3.
"Total Compensation" means a Participant's wages, salary, overtime, bonuses,
commissions, and any other amounts received for personal services rendered while
in Service from any Employer or an affiliate (within the purview of Section
414(b), (c), and (m) of the Code), plus his earned income from any such entity
as defined in Section 401(c)(2) of the Code if he is self-employed. "Total
Compensation" shall include (i) severance payments and amounts paid as a result
of termination, (ii) amounts excludable from gross income under Section 911 of
the Code, (iii) amounts described in Sections 104(a)(3), 105(a), and 105(h) of
the Code to the extent includable in gross income, (iv) amounts received from an
Employer for moving expenses which are not deductible under Section 217 of the
Code, (v) amounts includable in gross income in the year of, and on account of,
the grant of a nonqualified stock option, (vi) amounts includable in gross
income pursuant to Section 83(b) of the Code, and (vii) amounts includable in
gross income under an unfunded nonqualified plan of deferred compensation, but
shall exclude (viii) Employer contributions to or amounts received from a funded
or qualified plan of deferred compensation, (ix) Employer contributions to a
simplified employee pension account to the extent deductible under Section 219
of the Code, (x) Employer contributions to a Section 403(b) annuity contract,
and (xi) amounts includable in gross income pursuant to Section 83(a) of the
Code, (xii) amounts includable in gross income upon the exercise of nonqualified
stock option or upon the disposition of stock acquired under any stock option,
and (xiii) any other amounts expended by the Employer on the Participant's
behalf which are excludable from his income or which receive special tax
benefits. A Participant's Total Compensation shall exclude any compensation in
any limitation year in excess of the limit currently in effect under Section
401(a)(17) of the Code.
"Trust" or "Trust Fund" means the trust fund created under this Plan.
"Trust Agreement" means the agreement between the Bank and the Trustee
concerning the Trust Fund. If any assets of the Trust Fund are held in a co-
mingled trust fund with assets of other qualified retirement plans, "Trust
Agreement" shall be deemed to include the trust agreement governing that co-
mingled trust fund. With respect to the allocation of investment
8
<PAGE>
responsibility for the assets of the Trust Fund, the provisions of Section 2 of
the Trust Agreement are incorporated herein by reference.
"Trustee" means one or more corporate persons and individuals selected from
time to time by the Bank to serve as trustee or co-trustees of the Trust Fund.
"Unallocated Stock Fund" means that portion of the Stock Fund consisting of
the Plan's holding of stock which have been acquired in exchange for one or more
Stock Obligations and which have not yet been allocated to the Participant's
Accounts in accordance with Section 4.2.
"Valuation Date" means the last day of the Plan Year and each other date as
of which the committee shall determine the investment experience of the
Investment Fund and adjust the Participants' accounts accordingly.
"Valuation Period" means the period following a Valuation Date and ending
with the next Valuation Date.
"Vesting Year" means a unit of Service credited to a Participant pursuant to
Section 9.2 for purposes of determining his vested interest in his Account.
Section 3. Eligibility for Participation.
------------------------------
3.1 Initial Eligibility. An Employee shall enter the Plan as of the
--------------------
Entry Date coinciding with or on the next date an Employee completes an
eligibility computation period with the Employer, during which the Employee
completes at least 1,000 hours of service for the Employer and attains age 21.
However, if an Employee is not in active Service with an Employer on the date
he would otherwise first enter the Plan, his entry shall be deferred until the
next day he is in Service.
For purposes of this Plan, a Participant's initial eligibility computation
period shall be the twelve consecutive month period beginning with the day a
Participant first completes an Hour of Service. A Participant's subsequent
eligibility computation periods shall be the Plan Year, commencing with the Plan
Year which includes the first anniversary of the day the Participant first
completed an Hour of Service.
3.2 Terminated Employees. No Employee shall have any interest or
---------------------
rights under this Plan if he is never in active Service with an Employer on or
after the Effective Date.
3.3 Certain Employees Ineligible. No Employee shall be eligible to
-----------------------------
participate in the Plan while he is employed by a division or subsidiary of the
Holding Company, other than the Bank, unless such division or subsidiary has,
with the approval of the Bank, adopted the Plan
9
<PAGE>
for its employees. Additionally, No Employee shall participate in the Plan
while his Service is an hourly paid Employee, or is covered by a collective
bargaining agreement between an Employer and the Employee's collective
bargaining representative if (i) retirement benefits have been the subject of
good faith bargaining between the Employer and the representative and (ii) the
collective bargaining agreement does not provide for the Employee's
participation in the Plan. No Employee shall participate in the Plan while he
is actually employed by a leasing organization rather than an Employer.
3.4 Participation and Reparticipation. Subject to the satisfaction of
----------------------------------
the foregoing requirements, an Employee shall participate in the Plan during
each period of his Service from the date on which he first becomes eligible
until his termination. For this purpose, an Employee returning within five
years of his or her termination who previously satisfied the initial eligibility
requirements shall re-enter the Plan as of the date of his return to Service
with an Employer.
Section 4. Employer Contributions and Credits.
-----------------------------------
4.1 Discretionary Contributions. Each Employer shall from time to time
----------------------------
contribute, with respect to a Plan Year, such amounts as it may determine from
time to time. An Employer shall have no obligation to contribute any amount
under this Plan except as so determined in its sole discretion. The Employers'
contributions and available forfeitures for a Plan Year shall be credited as of
the last day of the year to the Accounts of the Active Participants in
proportion to their amounts of Cash Compensation.
4.2 Contributions for Stock Obligations. If the Trustee, upon
------------------------------------
instructions from the Committee, incurs any Stock Obligation upon the purchase
of Stock, the Employer shall, subject to the provisions of the Bank's Plan of
Conversion and any regulatory prohibitions, contribute for each Plan Year an
amount sufficient to cover all payments of principal and interest as they come
due under the terms of the Stock Obligation. If there is more than one Stock
Obligation, the Employers shall designate the one to which any contribution is
to be applied. The Employer's obligation to make contributions under this
Section 4.2 shall be reduced to the extent of any investment earnings realized
on such contributions and any dividends paid by the Employers on Stock held in
the Unallocated Stock Account, which earnings and dividends shall be applied to
the Stock Obligation related to that Stock.
In each Plan Year in which Employer contributions, earnings on
contributions, or dividends on unallocated Stock are used as payments under a
Stock Obligation, a certain number of shares of the Stock acquired with that
Stock Obligation which is then held in the Unallocated Stock Fund shall be
released for allocation among the Participants. The number of shares released
shall bear the same ratio to the total number of those shares then held in the
Unallocated Stock Fund (prior to the release) as (i) the principal and interest
payments made on the Stock Obligation in the current Plan Year bears to (ii) the
sum of (i) above, and the remaining principal and interest payments required (or
projected to be required on the basis of the interest rate in effect at the end
of the Plan Year) to satisfy the Stock Obligation.
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<PAGE>
At the direction of the Committee, the current and projected payments of
interest under a Stock Obligation may be ignored in calculating the number of
shares to be released in each year if (i) the Stock Obligation provides for
annual payments of principal and interest at a cumulative rate that is not less
rapid at any time than level annual payments of such amounts for 10 years, (ii)
the interest included in any payment is ignored only to the extent that it would
be determined to be interest under standard loan amortization tables, and (iii)
the term of the Stock Obligation, by reason of renewal, extension, or
refinancing, has not exceeded 10 years from the original acquisition of the
Stock.
For these purposes, each Stock Obligation, the Stock purchased with it, and
any dividends on such Stock, shall be considered separately. The Stock released
from the Unallocated Stock Fund in any Plan Year shall be credited as of the
last day of the year to the Accounts of the Active Participants in proportion to
their amounts of Cash Compensation.
4.3 Definitions Related to Contributions. For the purposes of this
-------------------------------------
Plan, the following terms have the meanings specified:
"Active Participant" means a Participant who has satisfied the eligibility
requirements under Section 3. However, a Participant shall not qualify as an
Active Participant unless (i) he is in active Service with an Employer as of the
last day of the Plan Year, or (ii) he is on a Recognized Absence as of that
date, or (iii) his Service terminated during the Plan Year by reason of Normal
Retirement, Early Retirement, Disability or death.
"Cash Compensation" means the Participant's base compensation reportable on
Form W-2. A Participant's Cash Compensation shall exclude any compensation in
excess of the limit currently in effect under Section 401(a)(17) of the Code.
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any provision of the Plan to the contrary, the annual
compensation of each employee taken in to account under the Plan shall not
exceed the Omnibus Budget Reconciliation Act of 1993 ("OBRA 1993") annual
compensation limit. The OBRA 1993 annual compensation limit is $150,000, as
adjusted by the Commissioner of the Internal Revenue Service for increases in
the cost-of-living in accordance with Section 401(a)(17)(B) of the Code. The
cost-of-living adjustment in effect for a calendar year applies to any period,
not exceeding 12 months, over which compensation is determined (the
"Determination Period") beginning in such calendar year. If a Determination
Period consists of fewer than 12 months, the OBRA 1993 annual compensation
limitation will be multiplied by a fraction, the numerator of which is the
number of months in the Determination Period, and the denominator of which is
12. For Plan Years commencing prior to December 31, 1996, for purposes of
applying the limitations of Section 401(a)(17) of the Code, the rules relating
to the family members of a Highly Paid Employee will apply, except that the only
the employee's spouse and lineal descendants who have not attained age 19 will
be included in as family members. Notwithstanding the preceding, for Plan Years
beginning after December 31, 1996, the aggregation rules relating to the family
members of a Highly Paid Employee will not apply.
11
<PAGE>
4.4 Conditions as to Contributions. Employers' contributions shall in
-------------------------------
any event be subject to the limitation set forth in Section 5. Contributions
may be made in the form of cash, or securities and other property to the extent
permissible under ERISA, including Stock, and shall be held by the Trustee in
accordance with the Trust Agreement. In addition to the provisions of Section
13.3 for the return of an Employer's contributions in connection with a failure
of the Plan to qualify initially under the Code, any amount contributed by an
Employer due to a good faith mistake of fact, or based upon a good faith but
erroneous determination of its deductibility under Section 404 of the Code,
shall be returned to the Employer within one year after the date on which the
contribution was originally made, or within one year after its nondeductibility
has been finally determined. However, the amount to be returned shall be
reduced to take account of any adverse investment experience within the Trust
Fund in order that the balance credited to each Participant's Account is not
less that it would have been if the contribution had never been made.
Section 5. Limitations on Contributions and Allocations.
---------------------------------------------
5.1 Limitation on Annual Additions. Notwithstanding the provisions of
-------------------------------
Section 4, the annual addition to a Participant's accounts under this and any
other defined contribution plans maintained by the Employers or an affiliate
(within the purview of Section 414(b), (c), and (m) and Section 415(h) of the
Code, which affiliate shall be deemed an Employer for this purpose) shall not
exceed for any limitation year an amount equal to the lesser of --
5.1-1 $30,000, or the one-fourth of the dollar limitation currently in
effect under Section 415(b)(1)(A) of the Code; or
5.1-2 25 percent of the Participant's Total Compensation for such
limitation year.
For purposes of this Section 5.1 and the following Section 5.2, the "annual
addition" to a Participant's accounts means the sum of (i) the Employer
contributions and Employee forfeitures credited to a Participant's accounts with
respect to a limitation year, plus (ii) the Participant's total voluntary
contributions for that year. The $30,000 and Section 415(b)(1)(A) limitations
referred to shall, for each limitation year, be automatically adjusted to the
new dollar limitations determined by the Commissioner of Internal Revenue for
the calendar year beginning in that limitation year. Notwithstanding the
foregoing, if the special limitations on annual additions described in section
415(c)(6) of the Code applies, the limitations described in this section shall
be adjusted accordingly. A "limitation year" means each 12 consecutive month
period beginning January 1.
5.2 Coordinated Limitation With Other Plans. For Plan Years commencing
----------------------------------------
prior to December 31, 1999, aside from the limitation prescribed by Section 5.1
with respect to the annual addition to a Participant's accounts for any single
limitation year, if a Participant has ever participated in one or more defined
benefit plans maintained by an Employer or an affiliate, then the benefits
provided under the defined benefit plan on his account shall be limited on a
12
<PAGE>
cumulative basis so that the sum of his defined contribution plan fraction and
his defined benefit plan fraction does not exceed one. For this purpose:
5.2-1 A Participant's defined contribution plan fraction with
respect to a Plan Year shall be a fraction, (i) the numerator of which is
the sum of the annual additions to his accounts under all defined
contribution plans (whether or not terminated) maintained by the Employer
for the current year and all prior limitation years (including annual
additions of the Participant's nondeductible employee contributions to all
defined benefit plans, whether or not terminated, maintained by an Employer,
and the annual additions attributable to all welfare benefit plans,
individual medical accounts, and simplified employee pensions maintained by
the Employer), and (ii) the denominator of which is the sum of the lesser of
the following amounts -A- and -B- determined for the current limitation year
and each prior limitation year of Service with an Employer: -A- is 1.25
times the dollar limitation determined under Section 415(c)(1)(A) of the
Code, or 1.0 times such dollar limitation if the Plan is top-heavy, and -B-
is 35 percent of the Participant's Total Compensation for such year. If the
Employee was a Participant as of the end of the first limitation year
beginning after December 31, 1986 in one or more defined contribution plans
maintained by an Employer which plan(s) were in existence on May 6, 1986,
and if the sum of this fraction and the defined benefit fraction (described
below) would otherwise exceed 1.0 under the terms of this Plan, the
numerator of this fraction will be adjusted. To affect this adjustment, an
amount equal to the product of the excess of the sum of the fractions over
1.0, multiplied by the denominator of this fraction shall be permanently
subtracted from the numerator of this fraction. This adjustment shall be
calculated using the fractions as they would be computed as of the end of
the last limitation year beginning before January 1, 1987, and disregarding
any changes in the terms and conditions of the Plan made after May 5, 1986,
but using the limitation applicable under Section 415 of the Code for the
first limitation year beginning on or after January 1, 1987.
5.2-2 A Participant's defined benefit plan fraction with respect
to a limitation year shall be a fraction, (i) the numerator of which is his
projected annual benefit payable at normal retirement under the Employers'
defined benefit plans, and (ii) the denominator of which is the lesser of
(a) 1.25 times $90,000, or 1.0 times such dollar limitation if the Plan is
top-heavy, and (b) 1.4 times the Participant's average Total Compensation
during his highest-paid three consecutive limitation years.
Notwithstanding the preceding, for Plan Years commencing after December 31,
1999, this Section 5.2 shall no longer be applicable.
5.3 Effect of Limitations. The Committee shall take whatever action
----------------------
may be necessary from time to time to assure compliance with the limitations set
forth in Section 5.1 and 5.2. Specifically, the Committee shall see that each
Employer restrict its contributions for any Plan Year to an amount which, taking
into account the amount of available forfeitures, may be completely allocated to
the Participants consistent with those limitations. Where the limitations would
otherwise be exceeded by any Participant, further allocations to the Participant
shall be
13
<PAGE>
curtailed to the extent necessary to satisfy the limitations. Where an
excessive amount is contributed on account of a mistake as to one or more
Participants' compensation, or there is an amount of forfeitures which may not
be credited in the Plan Year in which it becomes available, the amount shall be
held in a suspense account to be allocated in lieu of any Employer contributions
in future years until it is eliminated, and to be returned to the Employer if it
cannot be credited consistent with these limitations before the termination of
the Plan.
5.4 Limitations as to Certain Section 1042 Transactions. Aside from
----------------------------------------------------
the limitations set forth in Section 5.1 and 5.2, if the Plan acquires any Stock
in a transaction as to which a selling shareholder or the estate of a deceased
shareholder is claiming the benefit of Section 1042 of the Code, the Committee
shall see that none of such Stock, and no other assets in lieu of such Stock,
are allocated to the Accounts of certain Participants in order to comply with
Section 409(n) of the Code.
This restriction shall apply at all times to a Participant who owns (taking
into account the attribution rules under Section 318(a) of the Code, without
regard to the exception for employee plan trusts in Section 318(a)(2)(B)(i) more
than 25 percent of any class of stock of a corporation which issued the Stock
acquired by the Plan, or another corporation within the same controlled group,
as defined in Section 409(l)(4) of the Code (any such class of stock hereafter
called a "Related Class"). For this purpose, a Participant who owns more than
25 percent of any Related Class at any time within the one year preceding the
Plan's purchase of the Stock shall be subject to the restriction as to all
allocations of the Stock, but any other Participant shall be subject to the
restriction only as to allocations which occur at a time when he owns more than
25 percent of any Related Class.
Further, this restriction shall apply to the selling shareholder claiming
the benefit of Section 1042 and any other Participant who is related to such a
shareholder within the meaning of Section 267(b) of the Code, during the period
beginning on the date on which the Plan purchases the Stock and ending 10 years
after the later of (i) the date of such purchase, and (ii) the date of the
allocation under Section 4.2 attributable to the final payment on whatever Stock
Obligations were incurred with the purchase.
This restriction shall not apply to any Participant who is a lineal
descendant of a selling shareholder if the aggregate amounts allocated under the
Plan for the benefit of all such descendants do not exceed five percent of the
Stock acquired from the shareholder.
5.5 Limitations as to Certain Participants. Aside from the limitations
---------------------------------------
set forth in Section 5.1 and 5.2, in no event shall more than one third of the
Employer contributions to the Plan (including Matching Employer Contributions)
be allocated to the Accounts of highly compensated Participants (within the
meaning of Section 414(q) of the Code). The Committee shall take whatever
action may be necessary from time to time to assure compliance with the
limitations set forth in this Section 5.5. Specifically, the Committee shall,
beginning with the Participants whose Cash Compensation amounts are in excess
of the limit under Section 401(a)(17) of the Code, reduce the amount of Cash
Compensation of such highly compensated
14
<PAGE>
Participants on a pro-rata basis per individual that would otherwise be taken
into account for purposes of allocating benefits under Section 4.2 of this Plan.
If, in order to satisfy this Section 5.5, such Participants' Cash Compensation
amount per individual must be reduced to an amount that is lower than the Cash
Compensation amount of the next most highly compensated Participant (the
"breakpoint amount"), then, for purposes of allocating benefits under Section
4.2 of the Plan, the Cash Compensation amounts of all Participants shall be
reduced to an amount not to exceed such breakpoint amount.
Section 6. Trust Fund and Its Investment.
------------------------------
6.1 Creation of Trust Fund. All amounts received under the Plan
----------------------
from an Employer and investments shall be held as the Trust Fund pursuant to the
terms of this Plan and of the Trust Agreement between the Bank and the Trustee.
The benefits described in this Plan shall be payable only from the assets of the
Trust Fund, and none of the Bank, any other Employer, its board of directors or
trustees, its stockholders, its officers, its employees, the Committee, and the
Trustee shall be liable for payment of any benefit under this Plan except from
the Trust Fund.
6.2 Stock Fund and Investment Fund. The Trust Fund held by the
------------------------------
Trustee shall be divided into the Stock Fund, consisting entirely of Stock, and
the Investment Fund, consisting of all assets of the Trust other than Stock. The
Trustee shall have no investment responsibility for the Stock Fund, but shall
accept any Employer contributions made in the form of Stock, and shall acquire,
sell, exchange, distribute, and otherwise deal with and dispose of Stock in
accordance with the instructions of the Committee.
6.3 Acquisition of Stock. From time to time the Committee may, in
--------------------
its sole discretion, direct the Trustee to acquire Stock from the issuing
Employer or from shareholders, including shareholders who are or have been
Employees, Participants, or fiduciaries with respect to the Plan. The Trustee
shall pay for such Stock no more than its fair market value, which shall be
determined conclusively by the Committee pursuant to Section 12.4. The Committee
may direct the Trustee to finance the acquisition of Stock by incurring or
assuming indebtedness to the seller or another party which indebtedness shall be
called a "Stock Obligation". Any Stock Obligation shall be subject to the
following conditions and limitations:
6.3-1 A Stock Obligation shall be for a specific term, shall not
be payable on demand except in the event of default, and shall bear a
reasonable rate of interest.
6.3-2 A Stock Obligation may, but need not, be secured by a
collateral pledge of either the Stock acquired in exchange for the Stock
Obligation, or the Stock previously pledged in connection with a prior Stock
Obligation which is being repaid with the proceeds of the current Stock
Obligation. No other assets of the Plan and Trust may be used as collateral
for a Stock Obligation, and no creditor under a Stock Obligation shall have
any right or recourse to any Plan and Trust assets other than Stock
remaining subject to a collateral pledge.
15
<PAGE>
6.3-3 Any pledge of Stock to secure a Stock Obligation must provide
for the release of pledged Stock in connection with payments on the Stock
Obligations in the ratio prescribed in Section 4.2.
6.3-4 Repayments of principal and interest on any Stock Obligation
generally shall be made by the Trustee from cash contributions designated
for such payments, from earnings on such contributions, and from cash
dividends received on Stock held in the Unallocated Stock Fund.
6.4 Participants' Option to Diversify. The Committee shall provide for
----------------------------------
a procedure under which each Participant may, during the first five years of a
certain six-year period, elect to have up to 25 percent of the value of his
Account committed to alternative investment options within the Investment Fund.
For the sixth year in this period, the Participant may elect to have up to 50
percent of the value of his Account committed to other investments. The six-
year period shall begin with the Plan Year following the first Plan Year in
which the Participant has both reached aged 55 and completed 10 years of
participation in the Plan; a Participant's election to diversify his Account
must be made within the 90-day period immediately following the last day of each
of the six Plan Years. The Committee shall see that the Investment Fund
includes a sufficient number of investment options to comply with Section
401(a)(28)(B) of the Code. The Trustee shall comply with any investment
directions received from Participants in accordance with the procedures adopted
from time to time by the Committee under this Section 6.4.
Section 7. Voting Rights and Dividends on Stock.
-------------------------------------
7.1 Voting and Tendering of Stock. The Trustee generally shall vote
------------------------------
all shares of Stock held under the Plan. However, if any Employer has
registration-type class of securities within the meaning of Section 409(e)(4) of
the Code, or if a matter submitted to the holders of the Stock involves a
merger, consolidation, recapitalization, reclassification, liquidation,
dissolution, or sale of substantially all assets of an entity, then (i) the
shares of Stock which have been allocated to Participants' Accounts shall be
voted by the Trustee in accordance with the Participants' written instructions,
and (ii) the Trustee shall vote any shares of Stock which have been allocated to
Participants' Accounts but for which no written instructions have been received
and any unallocated Stock in a manner calculated to most accurately reflect the
instructions it has received from Participants regarding the allocated Stock.
In the event no shares of Stock have been allocated to Participants' Accounts at
the time Stock is to be voted, each Participant shall be deemed to have one
share of Stock allocated to his or her account for the sole purpose of providing
the Trustee with voting instructions. Notwithstanding any provision hereunder
to the contrary, all shares of Stock which have been allocated to Participants'
Accounts and for which the Trustee has received no written instructions and all
unallocated shares of Stock must be voted by the Trustee in a manner determined
by the Trustee to be solely in the interest of the Participants and
Beneficiaries. Whenever such voting rights are to be exercised, the Employers,
the Committee, and the Trustee shall see that all Participants and Beneficiaries
are provided with the same notices and other materials as are provided to other
holders of the Stock, and are
16
<PAGE>
provided with adequate opportunity to deliver their instructions to the Trustee
regarding the voting of Stock allocated to their Accounts. The instructions of
the Participants with respect to the voting of allocated shares hereunder shall
be confidential.
7.1-1 In the event of a tender offer, Stock shall be tendered by
the Trustee in the same manner as set forth above with respect to the voting
of Stock. Notwithstanding any provision hereunder to the contrary, Stock must
be tendered by the Trustee in a manner determined by the Trustee to be solely
in the interest of the Participants and Beneficiaries.
7.2 Dividends on Stock. Dividends on Stock which are received by the
-------------------
Trustee in the form of additional Stock shall be retained in the Stock Fund, and
shall be allocated among the Participant's Accounts and the Unallocated Stock
Fund in accordance with their holdings of the Stock on which the dividends have
been paid. Dividends on Stock credited to Participants' Accounts which are
received by the Trustee in the form of cash shall, at the direction of the
Company paying the dividends, either (i) be credited to the Accounts in
accordance with Section 8.3 and invested as part of the Investment Fund, (ii) be
distributed immediately to the Participants in proportion with the Participants'
Account balance; (iii) be distributed to the Participants within 90 days of the
close of the Plan Year in which paid in proportion with the Participants'
Account balance; or (iv) be used to repay principal and interest on the Stock
Obligation used to acquire Stock on which the dividends were paid. Dividends on
Stock held in the Unallocated Stock Fund which are received by the Trustee in
the form of cash shall be applied as soon as practicable to payments of
principal and interest under the Stock Obligation incurred with the purchase of
the Stock.
Section 8. Adjustments to Accounts.
------------------------
8.1 Adjustments for Transactions. An Employer contribution pursuant to
-----------------------------
Section 4.1 shall be credited to the Participants' Accounts as of the last day
of the Plan Year for which it is contributed. Stock released from the
Unallocated Stock Fund upon the Trust's repayment of a Stock Obligation pursuant
to Section 4.2 shall be credited to the Participants' Accounts as of the last
day of the Plan Year in which the repayment occurred. Any excess amounts
remaining from the use of, or the use of the proceeds of, a sale of Stock from
the Unallocated Stock Fund to repay a Stock Obligation shall be allocated as of
the last day of the Plan Year in which the repayment occurred among the
Participants' Accounts as earnings, in proportion to the opening balance in each
Account and shall not be deemed annual additions within the meaning of Section
415(c)(2) of the Code. Any benefit which is paid to a Participant or
Beneficiary pursuant to Section 10 shall be charged to the Participant's Account
as of the first day of the Valuation Period in which it is paid. Any forfeiture
or restoral shall be charged or credited to the Participant's Account as of the
first day of the Valuation Period in which the forfeiture or restoral occurs
pursuant to Section 9.6.
8.2 Valuation of Investment Fund. As of each Valuation Date, the
-----------------------------
Trustee shall prepare a balance sheet of the Investment Fund, recording each
asset (including any contribution receivable from an Employer) and liability at
its fair market value. Any liability with respect to
17
<PAGE>
short positions or options and any item of accrued income or expense and
unrealized appreciation or depreciation shall be included; provided, however,
that such an item may be estimated or excluded if it is not readily
ascertainable unless estimating or excluding it would result in a material
distortion. The Committee shall then determine the net gain or loss of the
Investment Fund since the preceding Valuation Date, which shall mean the entire
income of the Investment Fund, including realized and unrealized capital gains
and losses, net of any expenses to be charged to the general Investment Fund and
excluding any contributions by the Employer. The determination of gain or loss
shall be consistent with the balance sheets of the Investment Fund for the
current and preceding Valuation Dates.
8.3 Adjustments for Investment Experience. Any net gain or loss of the
--------------------------------------
Investment Fund during a Valuation Period, as determined pursuant to Section
8.2, shall be allocated as of the last day of the Valuation Period among the
Participants' Accounts in proportion to the opening balance in each Account, as
adjusted for benefit payments and forfeitures during the Valuation Period,
without regard to whatever Stock may be credited to an Account.
8.4 Adjustments for Capital Changes. In the event of any change in the
-------------------------------
outstanding shares of Stock by reason of any stock dividend or split,
recapitalization, merger, consolidation, spin-off, reorganization, combination
or exchange of shares, or other similar corporate change, or other increase or
decrease in such shares effected without receipt or payment of consideration by
the bank issuing the Stock, the Committee shall adjust the number of shares of
Stock allocated to the Participants' Accounts to prevent dilution or enlargement
of such Accounts.
18
<PAGE>
Section 9. Vesting of Participants' Interests.
-----------------------------------
9.1 Deferred Vesting in Accounts. A Participant's vested interest in
-----------------------------
his Account shall be based on his Vesting Years in accordance with the following
Table, subject to the balance of this Section 9:
<TABLE>
<CAPTION>
Vesting Percentage of
Years Interest Vested
------- ---------------
<S> <C>
fewer than 1 0%
1 20%
2 40%
3 60%
4 80%
5 or more 100%
</TABLE>
9.2 Computation of Vesting Years. For purposes of this Plan, a
-----------------------------
"Vesting Year" means each 12-month period beginning with his initial Service
with the Employer. However, a Participant's Vesting Years shall be computed
subject to the following conditions and qualifications:
(a) A Participant's vested interest in his Account accumulated
before a Break in Service shall be determined without regard to any Service
after the Break. Notwithstanding the foregoing, in the event a Participant
has an eligibility computation period (as defined in Section 3.1 of the
Plan) during which he performs 500 or fewer Hours of Service (a "one year
break in Service"), and then returns to Service prior to having a Break in
Service, his Service performed both before and after his break in employment
shall be taken into account in determining his Vesting Years. Generally, if
a Participant has a Break in Service before his interest in his Account has
become vested to some extent, he shall lose credit for any Vesting Year
before the Break in Service. However, if a Participant separates from
Service before his interest in his Account has become vested to some extent,
and returns to Service after a Break in Service, the Participant's Vesting
Years both prior to and after the Break in Service will count as Vesting
Years for his Account accumulated after the Break if the number of the
Participant's consecutive one year breaks in Service is less than the number
of years of Service prior to the Break in Service.
(b) Unless otherwise specifically excluded, a Participant's Vesting
Years shall include any period of active military duty to the extent
required by the Military Selective Service Act of 1967 (38 U.S.C. Section
2021).
9.3 Full Vesting Upon Certain Events. Notwithstanding Section 9.1, a
---------------------------------
Participant's interest in his Account shall fully vest on the Participant's
Normal Retirement Date, provided the Participant is in Service on or after that
date. The Participant's interest shall also
19
<PAGE>
fully vest in the event that his Service is terminated by Early Retirement,
Disability or by death or upon the occurrence of a Change in Control of the Bank
or the Holding Company.
9.4 Full Vesting Upon Plan Termination. Notwithstanding Section 9.1, a
-----------------------------------
Participant's interest in his Account shall fully vest if he is in active
Service upon termination of this Plan or upon the permanent and complete
discontinuance of contributions by his Employer. In the event of a partial
termination, the interest of each Participant who is in Service shall fully vest
with respect to that part of the Plan which is terminated.
9.5 Forfeiture, Repayment, and Restoral. If a Participant's Service
------------------------------------
terminates before his interest in his Account is fully vested, that portion
which has not vested shall be forfeited if he either (i) receives a distribution
of his entire vested benefit , or (ii) has a Break in Service. If a Participant
who has received his entire vested interest returns to Service before he has a
Break in Service, he may repay to the Trustee an amount equal to the
distribution. The Participant may repay such amount at any time within five
years after he has returned to Service. The amount shall be credited to his
Account as of the last day of the Plan Year in which it is repaid; an additional
amount equal to the portion of his Account which was previously forfeited shall
be restored to his Account at the same time from other Employees' forfeitures
and, if such forfeitures are insufficient, from a special contribution by his
Employer for that year. In the case of a terminated Participant who does not
receive a distribution of his entire vested interest and whose Service resumes
after a Break in Service, any undistributed balance from his prior participation
which was not forfeited shall be maintained as a fully vested subaccount with
his Account. If a portion of a Participant's Account is forfeited, assets other
that Stock must be forfeited before any Stock may be forfeited. In the case of
a Participant who has incurred a Break in Service and then returns to Service,
all years of Service after the Break in Service will be disregarded for the
purpose of vesting his Account accrued before the Break in Service, but both
pre-Break and post-Break Service will count for the purpose of vesting the
Participant's Account that accrues after the Break in Service. If a
Participant's Service terminates prior to his Account having become vested, such
Participant shall be deemed to have received a distribution of his entire vested
interest as of the Valuation Date next following his termination of Service.
9.6 Accounting for Forfeitures. A forfeiture shall be charged to the
---------------------------
Participant's Account as of the first day of the first Valuation Period in which
the forfeiture becomes certain pursuant to Section 9.5. Except as otherwise
provided in that Section, a forfeiture shall be added to the contributions of
the terminated Participant's Employer which are to be credited to other
Participants pursuant to Section 4.1 as of the last day of the Plan Year in
which the forfeiture becomes certain.
9.7 Vesting and Nonforfeitability. A Participant's interest in his
------------------------------
Account which has become vested shall be nonforfeitable for any reason.
20
<PAGE>
Section 10. Payment of Benefits.
--------------------
10.1 Benefits for Participants. A Participant whose Service ends for
--------------------------
any reason shall receive the vested portion of his Account in a single payment
on a date selected by the Committee. That date shall be on or before the 60th
day after the end of the Plan Year in which his Service ends. Notwithstanding
the foregoing, if the balance credited to his Account exceeds $3,500, his
benefits shall not be paid before the latest of his 65th birthday or the tenth
anniversary of the year in which he commenced participation in the Plan unless
he elects an early payment date in a written election filed with the Committee.
A Participant may modify such an election at any time, provided any new benefit
payment date is at least 30 days after a modified election is delivered to the
Committee. Such an election is not valid unless it is made after the
Participant has received the required notice under Section 1.411(a)-11(c) of the
Income Tax Regulations that provides a general description of the material
features of a lump sum distribution and the Participant's right to defer receipt
of his benefit. The Notice shall be provided no less than 30 days and no more
than 90 days before the first day on which all events have occurred which
entitle the Participant to such benefit. Written consent of the Participant to
the distribution generally may not be made within 30 days of the date the
Participant receives the notice and shall not be made more than 90 days from the
date the Participant receives the notice. However, a distribution may be made
less than 30 days after the notice provided under Section 1.411(a)-11(c) of the
Income Tax Regulations is given, if:
(a) the Committee clearly informs the Participant that he has a right to
period of at least 30 days after receiving the notice to consider the decision
of whether or not to elect a distribution (and if applicable, a particular
distribution option), and
(b) the Participant, after receiving the notice, affirmatively elects a
distribution.
In all events, a Participant's benefits shall be paid by April 1st of the
calendar year in which he reaches age 71-1/2. A Participant's benefits from
that portion of his Account committed to the Investment Fund shall be calculated
on the basis of the most recent Valuation Date before the day of payment.
For Plan Years beginning after December 31, 1996, with respect to all
Participants other than those who are 5% owners within the meaning of Section
416 of the Code, such Participant's benefits shall be paid by April 1st of the
later of (i) the calendar year in which he reaches age 71-1/2, or (ii) the
calendar year in which he retires. With respect to all Participants who are 5%
owners within the meaning of Section 416 of the Code, such Participants benefits
shall be paid by April 1st of the calendar year in which he reaches age 71-1/2.
10.2 Benefits on a Participant's Death. If a Participant dies before
----------------------------------
his benefits are paid pursuant to Section 10.1, the balance credited to his
Account shall be paid to his Beneficiary in a single distribution on or before
the 60th day after the end of the Plan Year in which he died. The benefits from
that portion of the Account committed to the Investment Fund shall be calculated
on the basis of the most recent Valuation Date before the date of payment.
21
<PAGE>
If a married Participant dies before his benefit payments begin, then unless
he has specifically elected otherwise the Committee shall cause the balance in
his Account to be paid to his Spouse. No election by a married Participant of a
different Beneficiary shall be valid unless the election is accompanied by the
Spouse's written consent, which (i) must acknowledge the effect of the election,
(ii) must explicitly provide either that the designated Beneficiary may not
subsequently be changed by the Participant without the Spouse's further consent,
or that it may be changed without such consent, and (iii) must be witnessed by
the Committee, its representative, or a notary public. This requirement shall
not apply if the Participant establishes to the Committee's satisfaction that
the Spouse may not be located.
10.3 Marital Status. The Committee shall from time to time take
---------------
whatever steps it deems appropriate to keep informed of each Participant's
marital status. Each Employer shall provide the Committee with the most
reliable information in the Employer's possession regarding its Participants'
marital status, and the Committee may, in its discretion, require a notarized
affidavit from any Participant as to his marital status. The Committee, the
Plan, the Trustee, and the Employers shall be fully protected and discharged
from any liability to the extent of any benefit payments made as a result of the
Committee's good faith and reasonable reliance upon information obtained from a
Participant and his Employer as to his marital status.
10.4 Delay in Benefit Determination. If the Committee is unable to
-------------------------------
determine the benefits payable to a Participant or Beneficiary on or before the
latest date prescribed for payment pursuant to Section 10.1 or 10.2, the
benefits shall in any event be paid within 60 days after they can first be
determined, with whatever makeup payments may be appropriate in view of the
delay.
10.5 Accounting for Benefit Payments. Any benefit payment shall be
--------------------------------
charged to the Participant's Account as of the first day of the Valuation Period
in which the payment is made.
10.6 Options to Receive and Sell Stock. Unless ownership of virtually
----------------------------------
all Stock is restricted to active Employees and qualified retirement plans for
the benefit of Employees pursuant to the certificates of incorporation or by-
laws of the Employers issuing Stock, a terminated Participant or the Beneficiary
of a deceased Participant may instruct the Committee to distribute the
Participant's entire vested interest in his Account in the form of Stock. In
that event, the Committee shall apply the Participant's vested interest in the
Investment Fund to purchase sufficient Stock from the Stock Fund or from any
owner of stock to make the required distribution. In all other cases, the
Participant's vested interest in the Stock Fund shall be distributed in shares
of Stock, and his vested interest in the Investment Fund shall be distributed in
cash.
Any Participant who receives Stock pursuant to Section 10.1, and any person
who has received Stock from the Plan or from such a Participant by reason of the
Participant's death or incompetency, by reason of divorce or separation from the
Participant, or by reason of a rollover contribution described in Section 402(c)
of the Code, shall have the right to require the Employer
22
<PAGE>
which issued the Stock to purchase the Stock for its current fair market value
(hereinafter referred to as the "put right"). The put right shall be
exercisable by written notice to the Committee during the first 60 days after
the Stock is distributed by the Plan, and, if not exercised in that period,
during the first 60 days in the following Plan Year after the Committee has
communicated to the Participant its determination as to the Stock's current fair
market value. However, the put right shall not apply to the extent that the
Stock, at the time the put right would otherwise be exercisable, may be sold on
an established market in accordance with federal and state securities laws and
regulations. If the put right is exercised, the Trustee may, if so directed by
the Committee in its sole discretion, assume the Employer's rights and
obligations with respect to purchasing the Stock.
The Employer or the Trustee, as the case may be, may elect to pay for the
Stock in equal periodic installments, not less frequently than annually, over a
period not longer than five years from the 30th day after the put right is
exercised, with adequate security and interest at a reasonable rate on the
unpaid balance, all such terms to be set forth in a promissory note delivered to
the seller with normal terms as to acceleration upon any uncured default.
Nothing contained herein shall be deemed to obligate any Employer to
register any Stock under any federal or state securities law or to create or
maintain a public market to facilitate the transfer or disposition of any Stock.
The put right described herein may only be exercised by a person described in
the second preceding paragraph, and may not be transferred with any Stock to any
other person. As to all Stock purchased by the Plan in exchange for any Stock
Obligation, the put right be nonterminable. The put right for Stock acquired
through a Stock Obligation shall continue with respect to such Stock after the
Stock Obligation is repaid or the Plan ceases to be an employee stock ownership
plan. Except as provided above, in accordance with the provisions of Sections
54.4975-7(b)(4) of the Treasury Regulations, no Stock acquired with the proceeds
of a Stock Obligation may be subject to any put, call or other option or buy-
sell or similar arrangement while held by and when distributed from the Plan,
whether the Plan is then an employee stock ownership plan.
10.7 Restrictions on Disposition of Stock. Except in the case of Stock
-------------------------------------
which is traded on an established market, a Participant who receives Stock
pursuant to Section 10.1, and any person who has received Stock from the Plan or
from such a Participant by reason of the Participant's death or incompetency, by
reason of divorce or separation from the Participant, or by reason of a rollover
contribution described in Section 402(c) of the Code, shall, prior to any sale
or other transfer of the Stock to any other person, first offer the Stock to the
issuing Employer and to the Plan at its current fair market value. This
restriction shall apply to any transfer, whether voluntary, involuntary, or by
operation of law, and whether for consideration or gratuitous. Either the
Employer or the Trustee may accept the offer within 14 days after it is
delivered. Any Stock distributed by the Plan shall bear a conspicuous legend
describing the right of first refusal under this Section 10.7, as well as any
other restrictions upon the transfer of the Stock imposed by federal and state
securities laws and regulations.
23
<PAGE>
10.8 Direct Transfer of Eligible Plan Distributions. A Participant or
----------------------------------------------
Beneficiary may direct that an "eligible rollover distribution" (as defined
below) included in such payment be paid directly to an "eligible retirement
plan" (as defined below).
To effect such a direct transfer, the Participant or Beneficiary must notify
the Committee that a direct transfer is desired and provide to the Committee the
eligible retirement plan to which the payment is to be made. Such notice shall
be made in such form and at such time as the Committee may prescribe. Upon
receipt of such notice, the Committee shall direct the Trustee to make a
trustee-to-trustee transfer of the eligible rollover distribution to the
eligible retirement plan so specified.
For purposes of this Section 10.8, an "eligible rollover distribution" shall
have the meaning set forth in Section 402(c)(4) of the Code and any regulations
promulgated thereunder. To the extent such meaning is not inconsistent with the
above references, an eligible rollover distribution shall mean any distribution
of all or any portion of the Participant's Account, except that such term shall
not include any distribution which is one of a series of substantially equal
periodic payments (not less frequently than annually) made (i) for the life (or
life expectancy) of the Participant or the joint lives (or joint life
expectancies) of the Participant and a designated Beneficiary, or (ii) for a
period of ten years or more. Further, the term "eligible rollover distribution
shall not include any distribution required to be made under Section 401(a)(9)
of the Code.
For purposes of this Section 10.8, an "eligible retirement plan" shall have
the meaning set forth in Section 402(c)(8) of the Code and any regulations
promulgated thereunder. To the extent such meaning is not inconsistent with the
above references, an eligible retirement plan shall mean: (i) an individual
retirement account described in Section 408(a) of the Code; (ii) an individual
retirement annuity described in Section 408(b) of the Code (other than an
endowment contract), (iii) a qualified trust described in Section 401(a) of the
Code and exempt under Section 501(a) of the Code, and (iv) an annuity plan
described in Section 403(a) of the Code.
Section 11. Rules Governing Benefit Claims and Review of Appeals.
-----------------------------------------------------
11.1 Claim for Benefits. Any Participant or Beneficiary who qualifies
-------------------
for the payment of benefits shall file a claim for his benefits with the
Committee on a form provided by the Committee. The claim, including any
election of an alternative benefit form, shall be filed at least 30 days before
the date on which the benefits are to begin. If a Participant or Beneficiary
fails to file a claim by the 30th day before the date on which benefits become
payable, he shall be presumed to have filed a claim for payment for the
Participant's benefits in the standard form prescribed by Sections 10.1 or 10.2
11.2 Notification by Committee. Within 90 days after receiving a claim
--------------------------
for benefits (or within 180 days, if special circumstances require an extension
of time and written notice of the extension is given to the Participant or
Beneficiary within 90 days after receiving the claim for benefits), the
Committee shall notify the Participant or Beneficiary whether the claim has been
24
<PAGE>
approved or denied. If the Committee denies a claim in any respect, the
Committee shall set forth in a written notice to the Participant or Beneficiary:
(i) each specific reason for the denial;
(ii) specific references to the pertinent Plan provisions on which
the denial is based;
(iii) a description of any additional material or information which
could be submitted by the Participant or Beneficiary to support his
claim, with an explanation of the relevance of such information;
and
(iv) an explanation of the claims review procedures set forth in
Section 11.3.
11.3 Claims Review Procedure. Within 60 days after a Participant or
-----------------------
Beneficiary receives notice from the Committee that his claim for benefits has
been denied in any respect, he may file with the Committee a written notice of
appeal setting forth his reasons for disputing the Committee's determination.
In connection with his appeal the Participant or Beneficiary or his
representative may inspect or purchase copies of pertinent documents and records
to the extent not inconsistent with other Participants' and Beneficiaries'
rights of privacy. Within 60 days after receiving a notice of appeal from a
prior determination (or within 120 days, if special circumstances require an
extension of time and written notice of the extension is given to the
Participant or Beneficiary and his representative within 60 days after receiving
the notice of appeal), the Committee shall furnish to the Participant or
Beneficiary and his representative, if any, a written statement of the
Committee's final decision with respect to his claim, including the reasons for
such decision and the particular Plan provisions upon which it is based.
Section 12. The Committee and Its Functions.
--------------------------------
12.1 Authority of Committee. The Committee shall be the "plan
-----------------------
administrator" within the meaning of ERISA and shall have exclusive
responsibility and authority to control and manage the operation and
administration of the Plan, including the interpretation and application of its
provisions, except to the extent such responsibility and authority are otherwise
specifically (i) allocated to the Bank, the Employers, or the Trustee under the
Plan and Trust Agreement, (ii) delegated in writing to other persons by the
Bank, the Employers, the Committee, or the Trustee, or (iii) allocated to other
parties by operation of law. The Committee shall have exclusive responsibility
regarding decisions concerning the payment of benefits under the Plan. The
Committee shall have full investment responsibility with respect to the
Investment Fund except to the extent, if any, specifically provided in the Trust
Agreement. In the discharge of its duties, the Committee may employ
accountants, actuaries, legal counsel, and other agents (who also may be
employed by an Employer or the Trustee in the same or some other capacity) and
may pay their reasonable expenses and compensation.
25
<PAGE>
12.2 Identity of Committee. The Committee shall consist of three or
----------------------
more individuals selected by the Bank. Any individual, including a director,
trustee, shareholder, officer, or employee of an Employer, shall be eligible to
serve as a member of the Committee. The Bank shall have the power to remove any
individual serving on the Committee at any time without cause upon 10 days
written notice, and any individual may resign from the Committee at any time
upon 10 days written notice to the Bank. The Bank shall notify the Trustee of
any change in membership of the Committee.
12.3 Duties of Committee. The Committee shall keep whatever records may
--------------------
be necessary to implement the Plan and shall furnish whatever reports may be
required from time to time by the Bank. The Committee shall furnish to the
Trustee whatever information may be necessary to properly administer the Trust.
The Committee shall see to the filing with the appropriate government agencies
of all reports and returns required of the plan Committee under ERISA and other
laws.
Further, the Committee shall have exclusive responsibility and authority
with respect to the Plan's holdings of Stock and shall direct the Trustee in all
respects regarding the purchase, retention, sale, exchange, and pledge of Stock
and the creation and satisfaction of Stock Obligations. The Committee shall at
all times act consistently with the Bank's long-term intention that the Plan, as
an employee stock ownership plan, be invested primarily in Stock. Subject to
the direction of the Committee with respect to Stock Obligations pursuant to the
provision of Section 4.2, and subject to the provisions of Sections 6.4 and 10.6
as to Participants' rights under certain circumstances to have their Accounts
invested in Stock or in assets other than Stock, the Committee shall determine
in its sole discretion the extent to which assets of the Trust shall be used to
repay Stock Obligations, to purchase Stock, or to invest in other assets to be
selected by the Committee or an investment manager. No provision of the Plan
relating to the allocation or vesting of any interests in the Stock Fund or the
Investment Fund shall restrict the Committee from changing any holdings of the
Trust, whether the changes involve an increase or a decrease in the Stock or
other assets credited to Participants' Accounts. In determining the proper
extent of the Trust's investment in Stock, the Committee shall be authorized to
employ investment counsel, legal counsel, appraisers, and other agents to pay
their reasonable expenses and compensation.
12.4 Valuation of Stock. If the valuation of any Stock is not
-------------------
established by reported trading on a generally recognized public market, the
Committee shall have the exclusive authority and responsibility to determine its
value for all purposes under the Plan. Such value shall be determined as of
each Valuation Date, and on any other date as of which the Plan purchases or
sells such Stock. The Committee shall use generally accepted methods of valuing
stock of similar corporations for purposes of arm's length business and
investment transactions, and in this connection the Committee shall obtain, and
shall be protected in relying upon, the valuation of such Stock as determined by
an independent appraiser experienced in preparing valuations of similar
businesses.
26
<PAGE>
12.5 Compliance with ERISA. The Committee shall perform all acts
----------------------
necessary to comply with ERISA. Each individual member or employee of the
Committee shall discharge his duties in good faith and in accordance with the
applicable requirements of ERISA.
12.6 Action by Committee. All actions of the Committee shall be
--------------------
governed by the affirmative vote of a number of members which is a majority of
the total number of members currently appointed, including vacancies. The
members of the Committee may meet informally and may take any action without
meeting as a group.
12.7 Execution of Documents. Any instrument executed by the Committee
-----------------------
shall be signed by any member or employee of the Committee.
12.8 Adoption of Rules. The Committee shall adopt such rules and
------------------
regulations of uniform applicability as it deems necessary or appropriate for
the proper administration and interpretation of the Plan.
12.9 Responsibilities to Participants. The Committee shall determine
---------------------------------
which Employees qualify to enter the Plan. The Committee shall furnish to each
eligible Employee whatever summary plan descriptions, summary annual reports,
and other notices and information may be required under ERISA. The Committee
also shall determine when a Participant or his Beneficiary qualifies for the
payment of benefits under the Plan. The Committee shall furnish to each such
Participant or Beneficiary whatever information is required under ERISA (or is
otherwise appropriate) to enable the Participant or Beneficiary to make whatever
elections may be available pursuant to Sections 6 and 10, and the Committee
shall provide for the payment of benefits in the proper form and amount from the
assets of the Trust Fund. The Committee may decide in its sole discretion to
permit modifications of elections and to defer or accelerate benefits to the
extent consistent with applicable law and the best interests of the individuals
concerned.
12.10 Alternative Payees in Event of Incapacity. If the Committee finds
------------------------------------------
at any time that an individual qualifying for benefits under this Plan is a
minor or is incompetent, the Committee may direct the benefits to be paid, in
the case of a minor, to his parents, his legal guardian, a custodian for him
under the Uniform Transfers to Minors Act, or the person having actual custody
of him, or, in the case of an incompetent, to his spouse, his legal guardian, or
the person having actual custody of him, the payments to be used for the
individual's benefit. The Committee and the Trustee shall not be obligated to
inquire as to the actual use of the funds by the person receiving them under
this Section 12.10, and any such payment shall completely discharge the
obligations of the Plan, the Trustee, the Committee, and the Employers to the
extent of the payment.
12.11 Indemnification by Employers. Except as separately agreed in
-----------------------------
writing, the Committee, and any member or employee of the Committee, shall be
indemnified and held harmless by the Employers, jointly and severally, to the
fullest extent permitted by law against any and all costs, damages, expenses,
and liabilities reasonably incurred by or imposed upon it or him in connection
with any claim made against it or him or in which it or he may be involved
27
<PAGE>
by reason of its or his being, or having been, the Committee, or a member or
employee of the Committee, to the extent such amounts are not paid by insurance.
12.12 Nonparticipation by Interested Member. Any member of the Committee
--------------------------------------
who also is a Participant in the Plan shall take no part in any determination
specifically relating to his own participation or benefits, unless his
abstention would leave the Committee incapable of acting on the matter.
Section 13. Adoption, Amendment, or Termination of the Plan.
------------------------------------------------
13.1 Adoption of Plan by Other Employers. With the consent of the Bank,
------------------------------------
any entity may become a participating Employer under the Plan by (i) taking such
action as shall be necessary to adopt the Plan, (ii) becoming a party to the
Trust Agreement establishing the Trust Fund, and (iii) executing and delivering
such instruments and taking such other action as may be necessary or desirable
to put the Plan into effect with respect to the entity's Employees.
13.2 Adoption of Plan by Successor. In the event that any Employer
------------------------------
shall be reorganized by way of merger, consolidation, transfer of assets or
otherwise, so that an entity other than an Employer shall succeed to all or
substantially all of the Employer's business, the successor entity may be
substituted for the Employer under the Plan by adopting the Plan and becoming a
party to the Trust Agreement. Contributions by the Employer shall be
automatically suspended from the effective date of any such reorganization until
the date upon which the substitution of the successor entity for the Employer
under the Plan becomes effective. If, within 90 days following the effective
date of any such reorganization, the successor entity shall not have elected to
become a party to the Plan, or if the Employer shall adopt a plan of complete
liquidation other than in connection with a reorganization, the Plan shall be
automatically terminated with respect to Employees of the Employer as of the
close of business on the 90th day following the effective date of the
reorganization, or as of the close of business on the date of adoption of a plan
of complete liquidation, as the case may be.
13.3 Plan Adoption Subject to Qualification. Notwithstanding any other
---------------------------------------
provision of the Plan, the adoption of the Plan and the execution of the Trust
Agreement are conditioned upon their being determined initially by the Internal
Revenue Service to meet the qualification requirements of Section 401(a) of the
Code, so that the Employers may deduct currently for federal income tax purposes
their contributions to the Trust and so that the Participants may exclude the
contributions from their gross income and recognize income only when they
receive benefits. In the event that this Plan is held by the Internal Revenue
Service not to qualify initially under Section 401(a), the Plan, may be amended
retroactively to the earliest date permitted by U.S. Treasury Regulations in
order to secure qualification under Section 401(a). If this Plan is held by the
Internal Revenue Service not to qualify initially under Section 401(a) either as
originally adopted or as amended, each Employer's contributions to the Trust
under this Plan (including any earnings thereon) shall be returned to it and
this Plan shall be terminated. In the event that this Plan is amended after its
initial qualification and the Plan as amended is held by the Internal Revenue
Service not to qualify under Section 401(a), the amendment may
28
<PAGE>
be modified retroactively to the earliest date permitted by U.S. Treasury
Regulations in order to secure approval of the amendment under Section 401(a).
13.4 Right to Amend or Terminate. The Bank intends to continue this
----------------------------
Plan as a permanent program. However, each participating Employer separately
reserves the right to suspend, supersede, or terminate the Plan at any time and
for any reason, as it applies to that Employer's Employees, and the Bank
reserves the right to amend, suspend, supersede, merge, consolidate, or
terminate the Plan at any time and for any reason, as it applies to the
Employees of all Employers. No amendment, suspension, supersession, merger,
consolidation, or termination of the Plan shall reduce any Participant's or
Beneficiary's proportionate interest in the Trust Fund, or shall divert any
portion of the Trust Fund to purposes other than the exclusive benefit of the
Participants and their Beneficiaries prior to the satisfaction of all
liabilities under the Plan. Except as is required for purposes of compliance
with the Code or ERISA, each as amended from time to time, neither the
provisions of Section 4.1 and 4.2 relating to the crediting of contributions,
forfeitures and shares of Stock released from the Unallocated Stock Fund, nor
any other provision of the Plan relating to the allocation of benefits to
Participants, may be amended more frequently than once every six months.
Moreover, there shall not be any transfer of assets to a successor plan or
merger or consolidation with another plan unless, in the event of the
termination of the successor plan or the surviving plan immediately following
such transfer, merger, or consolidation, each participant or beneficiary would
be entitled to a benefit equal to or greater than the benefit he would have been
entitled to if the plan in which he was previously a participant or beneficiary
had terminated immediately prior to such transfer, merger, or consolidation.
Following a termination of this Plan by the Bank, the Trustee shall continue to
administer the Trust and pay benefits in accordance with the Plan as amended
from time to time and the Committee's instructions.
Section 14. Miscellaneous Provisions.
-------------------------
14.1 Plan Creates No Employment Rights. Nothing in this Plan shall be
----------------------------------
interpreted as giving any Employee the right to be retained as an Employee by an
Employer, or as limiting or affecting the rights of an Employer to control its
Employees or to terminate the Service of any Employee at any time and for any
reason, subject to any applicable employment or collective bargaining
agreements.
14.2 Nonassignability of Benefits. No assignment, pledge, or other
-----------------------------
anticipation of benefits from the Plan will be permitted or recognized by the
Employers, the Committee, or the Trustee. Moreover, benefits from the Plan
shall not be subject to attachment, garnishment, or other legal process for
debts or liabilities of any Participant or Beneficiary, to the extent permitted
by law. This prohibition on assignment or alienation shall apply to any
judgment, decree, or order (including approval of a property settlement
agreement) which relates to the provision of child support, alimony, or property
rights to a present or former spouse, child or other dependent of a Participant
pursuant to a State domestic relations or community property law, unless the
judgment, decree, or order is determined by the Committee to be a qualified
domestic relations order within the meaning of Section 414(p) of the Code.
29
<PAGE>
14.3 Limit of Employer Liability. The liability of the Employers with
----------------------------
respect to Participants under this Plan shall be limited to making contributions
to the Trust from time to time, in accordance with Section 4.
14.4 Treatment of Expenses. All expenses incurred by the Committee and
----------------------
the Trustee in connection with administering this Plan and Trust Fund shall be
paid by the Trustee from the Trust Fund to the extent the expenses have not been
paid or assumed by the Employers or by the Trustee.
14.5 Number and Gender. Any use of the singular shall be interpreted to
------------------
include the plural, and the plural the singular. Any use of the masculine,
feminine, or neuter shall be interpreted to include the masculine, feminine, or
neuter, as the context shall require.
14.6 Nondiversion of Assets. Except as provided in Sections 5.3 and
-----------------------
13.3, under no circumstances shall any portion of the Trust Fund be diverted to
or used for any purpose other than the exclusive benefit of the Participants and
their Beneficiaries prior to the satisfaction of all liabilities under the Plan.
14.7 Separability of Provisions. If any provision of this Plan is held
---------------------------
to be invalid or unenforceable, the other provisions of the Plan shall not be
affected but shall be applied as if the invalid or unenforceable provision had
not been included in the Plan.
14.8 Service of Process. The agent for the service of process upon the
-------------------
Plan shall be the president of the Bank, or such other person as may be
designated from time to time by the Bank.
14.9 Governing State Law. This Plan shall be interpreted in accordance
--------------------
with the laws of the Commonwealth of Massachusetts to the extent those laws are
applicable under the provisions of ERISA.
Section 15. Top-Heavy Provisions.
---------------------
15.1 Determination of Top-Heavy Status. The Committee shall determine
----------------------------------
on a regular basis whether each Plan Year is or is not a "Top-Heavy Year" for
purposes of implementing the provisions of Sections 15.2, and 15.3, which apply
only to the extent the Plan is top-heavy or super top-heavy within the meaning
of Section 416 and the Treasury Regulations promulgated thereunder. In making
this determination, the Committee shall use the following definitions and
principles:
15.1-1 The "Employer" includes all business entities which are
considered commonly controlled or affiliated within the meaning of Sections
414(b), 414(c), and 414(m) of the Code.
30
<PAGE>
15.1-2 The "plan aggregation group" includes each qualified
retirement plan maintained by the Employer (i) in which a Key Employee is a
Participant during the Plan Year, (ii) which enables any plan described in
clause (i) to satisfy the requirements of Section 401(a)(4) or 410 of the
Code, or (iii) which provides contributions or benefits comparable to those
of the plans described in clauses (i) and (ii) and which is designated by
the Committee as part of the plan aggregation group.
15.1-3 The "determination date," with respect to the first Plan
Year of any plan, means the last day of that Plan Year, and with respect to
each subsequent Plan Year, means the last day of the preceding Plan Year. If
any other plan has a determination date which differs from this Plan's
determination date, the top-heaviness of this Plan shall be determined on
the basis of the other plan's determination date falling within the same
calendar years as this Plan's determination date.
15.1-4 A "Key Employee," with respect to a Plan Year, means an
Employee who at any time during the five years ending on the top-heavy
determination date for the Plan Year has received compensation from an
Employer and has been (i) an officer of the Employer having Total
Compensation greater than 50 percent of the limit then in effect under
Section 415(b)(1)(A) of the Code, (ii) one of the 10 Employees owning the
largest interests in the Employer having Total Compensation greater than the
limit then in effect under Section 415(c)(1)(A), (iii) an owner of more than
five percent of the outstanding equity interest or the outstanding voting
interest in any Employer, or (iv) an owner of more than one percent of the
outstanding equity interest or the outstanding voting interest in an
Employer whose Total Compensation exceeds $150,000. In determining which
individuals are Key Employees, the rules of Section 416(i) of the Code and
Treasury Regulations promulgated thereunder shall apply. The Beneficiary of
a Key Employee shall also be considered a Key Employee.
15.1-5 A "Non-key Employee" means an Employee who at any time
during the five years ending on the top-heavy determination date for the
Plan Year has received compensation from an Employer and who has never been
a Key Employee, and the Beneficiary of any such Employee.
15.1-6 The "aggregated benefits" for any Plan Year means (i) the
adjusted account balances in defined contribution plans on the determination
date, plus (ii) the adjusted value of accrued benefits in defined benefit
plans, calculated as of the annual valuation date coinciding with or next
preceding the determination date, with respect to Key Employees and Non-key
Employees under all plans within the plan aggregation group which includes
this Plan. For this purpose, the "adjusted account balance" for and the
"adjusted value of accrued benefit" for any Employee shall be increased by
all plan distributions made with respect to the Employee during the five
years ending on the determination date. Further, the adjusted account
balance under a plan shall not include any amount attributable to a rollover
contribution or similar transfer to the plan initiated by an Employee and
made after 1983, unless both plans involved are maintained by the Employer,
in which event the transferred amount shall be counted in the transferee
plan and
31
<PAGE>
ignored for all purposes in the transferor plan. Finally, the adjusted
value of accrued benefits under any defined benefit plan shall be determined
by assuming whichever actuarial assumptions were applied by the Pension
Benefit Guaranty Corporation to determine the sufficiency of plan assets for
plans terminating on the valuation date.
15.1-7 This Plan shall be "top-heavy" for any Plan Year in which
the aggregated benefits of the Key Employees exceed 60 percent of the total
aggregated benefits for both Key Employees and Non-key Employees.
15.1-8 This Plan shall be "super top-heavy" for any Plan Year in
which the aggregated benefits of the Key Employees exceed 90 percent of the
total aggregated benefits for both Key Employees and Non-key Employees.
15.1-9 A "Top-Heavy Year" means a Plan Year in which the Plan is
top-heavy.
15.2 Minimum Contributions. For any Top-Heavy Year, each Employer shall
----------------------
make a special contribution on behalf of each Participant to the extent that the
total allocations to his Account pursuant to Section 4 is less than the lesser
of (i) four percent of his Total Compensation for that year, or (ii) the highest
ratio of such allocation to Total Compensation received by any Key Employee for
that year. For purposes of the special contribution of this Section 15.2, a Key
Employee's Total Compensation shall include amounts the Key Employee elected to
defer under a qualified 401(k) arrangement. Such a special contribution shall
be made on behalf of each Participant who is employed by an Employer on the last
day of the Plan Year, regardless of the number of his Hours of Service, and
shall be allocated to his Account.
For any Plan Year when (1) the Plan is top-heavy and (2) a Non-key
Employee is a Participant in both this Plan and a defined benefit plan included
in the plan aggregation group which is top heavy, the sum of the Employer
contributions and forfeitures allocated to the Account of each such Non-key
Employee shall be equal to at least five percent (5%) of such Non-key Employee's
Total Compensation for that year.
15.3 Minimum Vesting. If a Participant's vested interest in his Account
----------------
is to be determined in a Top-Heavy Year, it shall be based on the following
"top-heavy table":
Vesting Percentage of
Years Interest Vested
------- ---------------
fewer than 3 0%
3 or more 100%
32
<PAGE>
Exhibit 10.2
[FAB FUNDING CORPORATION LETTERHEAD]
September ____, 1996
Robert F. Stoico
President and Chief Executive Officer
First Federal Savings Bank of America
One North Main Street
Fall River, Massachusetts 02720
Dear Mr. Stoico:
This letter confirms FAB FUNDING CORPORATION's commitment to fund a
leveraged ESOP in an amount up to $________. The commitment is subject to the
following terms and conditions:
1. Lender: FAB FUNDING CORPORATION (the "Company").
------
2. Borrower: First Federal Savings Bank of America Employee Stock
--------
Ownership Plan.
3. Trustee: ______________________________.
-------
4. Security: Unallocated shares of stock of the Company held in the
--------
First Federal Savings Bank of America Employee Stock Ownership Plan.
5. Maturity: Up to ten years from takedown.
--------
6. Amortization: Equal principal payments on quarterly, semi-annual or
------------
annual basis; specific amount to be set prior to takedown upon
determination of total loan disbursements.
7. Pricing:
-------
a. [8%] or [the Prime Rate as published in the Wall Street Journal
on the date of the loan transaction].
8. Interest Payments:
-----------------
a. Quarterly, semi-annual or annual 360 or 365 day basis.
<PAGE>
Mr. Robert F. Stoico
September ___, 1996
Page 2
9. Funding: In full by _______________, unless such date is waived by the
-------
Company.
10. Prepayment: Voluntary prepayments are permitted at any time.
----------
11. Conditions Precedent to Closing: Receipt by the Company of all
-------------------------------
supporting loan documents in a form and with terms and conditions
satisfactory to the Company and its counsel. Consummation of the
transaction will also be contingent upon no material adverse change
occurring in the condition of First Federal Savings Bank of America or
the Company.
12. Closing Date: Not later than _____________, unless such date is waived
------------
by the Company.
If the terms and conditions are agreeable to you, please indicate your
acceptance by signing the enclosed copy and returning it to my attention.
Sincerely,
Terrence M. Tyrrell
Clerk and Treasurer
Accepted on Behalf of
First Federal Savings Bank of America
By: _________________________________ Date: _____________________
Robert F. Stoico
President and Chief Executive Officer
<PAGE>
FIRST FEDERAL SAVINGS BANK OF AMERICA
EMPLOYEE STOCK OWNERSHIP TRUST
LOAN AND SECURITY AGREEMENT
FAB FUNDING CORPORATION
One North Main Street
Fall River, Massachusetts 02720
___________, 1996
Gentlemen:
The undersigned, ________________ ("Trustee"), not individually but
solely as Trustee under the First Federal Savings Bank of America Employee Stock
Ownership Trust (the "Trust") effective _________________ (the "Borrower"),
applies to you for your commitment, subject to all of the terms and conditions
hereof and on the basis of the representations hereinafter set forth, to make a
loan available to the Borrower as hereinafter set forth. FAB FUNDING
CORPORATION is hereinafter referred to as the "Lender". The term "Company" as
used herein refers to First Federal Savings Bank of America, as the sponsoring
employer of First Federal Savings Bank of America Employee Stock Ownership Plan
(the "ESOP").
SECTION ONE. THE TERM LOAN.
1.1 AMOUNT AND TERMS. By its acceptance hereof the Lender agrees,
----------------
subject to all of the terms and conditions hereof and on the basis of the
representations hereinafter set forth, to make a loan (the "Loan") of up to
______________________________dollars ($___________________) (the "Commitment"),
such proceeds to be used by the Borrower entirely to acquire shares ("Shares")
of the common stock, par value $.01 of FIRSTFED AMERICA BANCORP, INC., a
Delaware corporation.
The Loan is intended to be an "exempt loan" as described in Section
4975(d) of the Internal Revenue Code of 1986, as amended (the "Code"), as
defined in Section 54.4975-7(b) of the Treasury Regulations (the "Regulations"),
as described in Section 408(b)(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA") and as described in Department of Labor
Regulations Section 2550.408b-3 (collectively, the "Exempt Loan Rules").
<PAGE>
1.2 THE NOTE. The disbursement of the Loan pursuant to Section 1.1
--------
hereof shall be made against and evidenced by a promissory note of the Borrower
in the form annexed hereto as Exhibit A (the "Note"), such Note to bear interest
as hereinafter provided, and to mature in nine consecutive annual principal
installments commencing on December 31, 199_ and on the last day of each and
every December each year thereafter, each such installment to be in an amount as
set forth on the attached amortization schedule, except that the final
installment in the amount of all principal and interest not sooner paid shall be
due on December 31, 20__, the final maturity thereof.
Without regard to the principal amount of the Note stated on its face,
the actual principal amount at any time outstanding and owed by the Borrower on
account of the Note shall be the amount of the disbursement of the Loan made by
the Lender under Section 1.1 hereof less all payments of principal actually
received by the Lender. The amount of such disbursement made by the Lender and
any repayments of principal thereof shall be recorded by the Lender on its books
or records or, at its option, endorsed on the reverse side of the Note by the
Lender and the unpaid principal balance at any time so recorded or endorsed by
the Lender shall be prima facie evidence in any court or other proceedings
brought to enforce the Note of the principal amount remaining unpaid thereon.
1.3 EXEMPT LOAN RULES. Notwithstanding anything to the contrary
------------------
contained in this Loan and Security Agreement (the "Agreement") or in the Note,
the Borrower shall be obligated to make repayments of the Loan only to the
extent that such repayments when added to the repayments theretofore made during
the applicable plan year would not exceed an amount which would cause the
limitations of Section 415 of the Code to be exceeded for any ESOP participant.
Except as set forth in the next succeeding sentence and to the extent
permitted by applicable law, including, without limitation, the Exempt Loan
Rules, the principal amount of the Loan and any interest thereon shall be
payable solely from contributions (other than contributions of employer
securities) made to the Trust in accordance with the ESOP, and cash dividends
received on the Shares, to enable the Borrower to pay its obligations under the
Loan and from earnings attributable to the Shares and the investment of such
contributions and dividends.
The Lender acknowledges and agrees that it shall have no other
recourse against the Borrower for repayment of the Loan and that it shall have
no recourse against assets of the ESOP included in the Trust other than pursuant
to Sections 3 and 8 hereof.
SECTION TWO. INTEREST AND FEES.
2.1 INTEREST RATE. The Loan shall bear interest (which the Borrower
-------------
hereby promises to pay) prior to maturity (whether by lapse of time,
acceleration or otherwise) at a rate per annum equal at all times to the
Interest Rate as defined in Section 10.3 hereof.
2
<PAGE>
2.2 BASIS AND PAYMENT DATES. All interest accruing on the Note prior
-----------------------
to maturity shall be due and payable on a annual basis on the last day of each
year (commencing December 31, 1996) and at maturity (unless prepaid in whole
prior to such date, then on the date of such prepayment in whole) and interest
accruing after maturity shall be due and payable upon demand. All interest on
the Note shall be computed on the basis of a year of 360 days.
SECTION THREE. COLLATERAL.
3.1 GRANT OF SECURITY INTEREST-PLEDGED SHARES. The Borrower hereby
-----------------------------------------
grants, pledges and assigns to the Lender _________ shares of the issued and
outstanding common stock, par value $.01 per share all of which were either (i)
purchased by the Borrower from the proceeds of the disbursement of the Loan;
(ii) acquired by the Borrower with the proceeds of a prior exempt loan within
the meaning of Section 54.4975-7(b) of the Regulations, and pledged as
collateral for such prior exempt loan, where the balance of such prior exempt
loan has been repaid with the proceeds of the disbursement of the Loan (the
"Pledged Shares" being hereinafter referred to as the "Collateral"). The
Pledged Shares shall be evidenced by a stock certificate. The assignment and
pledge herein granted and provided for is made and given to secure and shall
secure the prompt payment of principal of and interest on the Note as and when
the same becomes due and payable and the payment, observance and performance of
any and all obligations and liabilities arising under or provided for in this
Agreement or the Note or any of them in each instance as the same may be amended
or modified and whether now existing or hereafter arising.
3.2 FURTHER ASSURANCES. The Borrower covenants and agrees that it
------------------
will at any time and from time to time as requested by the Lender execute and
deliver such further instruments and do and perform such other acts as the
Lender may reasonably deem necessary or desirable to provide for or perfect the
lien of the Lender in the Collateral hereunder.
3.3 VOTING. Upon the occurrence of a Default or an Event of Default
------
hereunder, the Lender shall have the right to transfer the Collateral or any
part thereof into its name or into the name of its nominee. The Lender shall
not be entitled to vote the Pledged Shares unless and until an Event of Default
has occurred and so long as the same shall not have been waived by the Lender.
3.4 PARTIAL RELEASES. The Lender agrees, provided always that no
----------------
Default or Event of Default shall have occurred and be continuing, as promptly
as is practicable after December 31 in each year (the period commencing the date
hereof and ending December 31, 1996 and each subsequent 12-month period ending
on December 31 being hereinafter referred to as a "Plan Year"), to release that
number of Pledged Shares then being held to secure the Loan which is equal to
the number of such Pledged Shares held as of the last day of the Plan Year
multiplied by a fraction, the numerator of which is the aggregate amount of all
principal and interest payments made on the Note during the Plan Year and the
denominator of which
3
<PAGE>
is the sum of the numerator plus the unpaid principal and interest of the Note
as of the last day of such Plan Year.
SECTION FOUR. PAYMENTS.
4.1 PLACE AND APPLICATION. All payments of principal, interest, fees
---------------------
and all other amounts payable hereunder shall be made to the Lender at One North
Main Street, Fall River, Massachusetts 02720, for the account of the Lender (or
at such other place for the account of the Lender as the Lender may from time to
time in writing specify to the Borrower) in immediately available and freely
transferable funds at the place of payment. All payments shall be paid in full
without setoff or counterclaim and without reduction for and free from any and
all taxes, levies, duties, fees, charges, deductions, withholdings, restrictions
or conditions of any nature imposed by any government or any political
subdivision or taxing authority thereof.
4.2 PREPAYMENTS. The Borrower shall have the privilege of prepaying
-----------
in whole or in part the Note at any time upon giving three (3) Business Days'
prior notice to the Lender, each such prepayment to be made by the payment of
the principal amount to be prepaid and accrued interest thereon to the date
fixed for prepayment. All such prepayments shall be made without premium or
penalty. Prepayments shall first be applied to the several installments of the
Note in the inverse order of their respective maturities.
SECTION FIVE. REPRESENTATIONS AND WARRANTIES.
The Borrower represents and warrants to the Lender as follows:
5.1 The Trust is a duly organized, validly existing employee stock
ownership trust.
5.2 The proceeds of the disbursement of the Loan shall be applied in
their entirety to the payment of the purchase price for the Pledged Shares.
5.3 The Borrower has full right, power and authority to enter into
this Agreement, to make the borrowings hereunder provided for, to issue the Note
in evidence thereof and to perform each and all of the matters and things herein
and therein provided for and this Agreement does not, and the Note when issued
will not, nor will the performance or observance by the Borrower of any of the
matters or things herein or therein provided, contravene any provision of law or
the Trust or any other covenant or agreement affecting the Trust or any of its
assets. As of the date of the disbursement of the Loan, the Pledged Shares will
be fully paid and non-assessable and the Pledged Shares will be owned by the
Borrower free and clear of all liens, charges and encumbrances whatsoever,
except for any lien of Lender provided for herein.
4
<PAGE>
5.4 Except as disclosed to the Lender in writing, there is no
litigation or governmental proceeding pending, nor to the knowledge of the
Borrower threatened, against the ESOP and Trust.
5.5 The ESOP and Trust have no material liabilities, whether absolute
or contingent, except for those heretofore disclosed to the Lender.
SECTION SIX. REPRESENTATIONS AND WARRANTIES OF THE LENDER
The Lender represents and warrants that:
6.1 The Lender is a corporation duly organized under the laws of the State
of Delaware, and is validly existing and in good standing under the laws of the
State of Delaware. The Lender has full power and authority and legal right to
make and perform this Agreement.
6.2 The execution, delivery and performance by the Lender of this
Agreement have been duly authorized by all necessary action by the Lender and is
not and will not violate any provisions of law applicable to the Lender, any
rules, regulations or orders applicable to the Lender or any judgments or
decrees binding upon the Lender. This Agreement is a valid and legally binding
obligation of the Lender enforceable against the Lender in accordance with its
terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting credits' rights generally
and the general principles of equity (regardless of whether considered in a
proceeding at law or in equity).
6.3 No authorizations, approvals or consents of, and no filings or
registrations with, any governmental regulatory authority or agency are required
for the execution, delivery or performance by the Lender of this Agreement, or
any transaction contemplated hereby, or for the validity or enforceability
against the Lender hereof except as have already been received or accomplished.
6.4 The execution, delivery and performance of the Agreement and the
consummation of the transactions contemplated hereby will not violate, conflict
with or constitute a default under (i) any of the provisions of the Lender's
Certificate of Incorporation or Bylaws, (ii) any provision of any agreement,
instrument, order, arbitration award, judgment or decree to which the Lender is
a party or by which it is or its assets are bound (iii) any statute, rule or
regulation of any federal, state or local government or agency applicable to the
Lender, except in any such case (i), (ii), (iii) above, for any such conflicts,
violations, defaults which either individually or in the aggregate do not have a
material adverse effect on the business properties of the Lender and its
subsidiaries, taken as a whole.
6.5 The Company has taken such actions as are required by applicable law
to be taken by it to establish the ESOP and the Trust.
5
<PAGE>
6.6 There is no action, suit, investigation or proceeding pending, or to
the best knowledge of the Company, threatened against or affecting the ESOP
before any court or governmental department, agency or instrumentality.
6.7 The Loan will be an "exempt loan" as that term is defined under
Section 54.4975-7(b)(1)(iii) of the Regulations, provided the ESOP Committee
determines that the interest rate is not more than reasonable; and the
transactions contemplated by this Agreement are not "prohibited transactions"
within the meaning of Section 4975 of the Code or Section 406(a) of ERISA.
6.8 Except as otherwise provided in this Agreement, the Shares are not
subject to any restriction on transfer under applicable Federal securities law
and may be freely traded over-the-counter.
SECTION SEVEN. CONDITIONS PRECEDENT.
The obligation of the Lender to make the Loan shall be subject to
satisfaction of the following conditions precedent:
7.1 The Lender shall have received executed originals of this Agreement
and the Note duly signed and properly completed.
7.2 The Lender shall have received either (i) the certificate evidencing
all the Pledged Shares together with duly executed blank stock power therefore
or (ii) if such Pledged Shares are not yet available, a duly executed agreement
to pledge such stock in the form attached hereto as Exhibit B (in which event
such certificate and stock power will be delivered within 10 days of the date of
the Lender makes the Loan).
7.3 The Lender shall have received copies (executed or certified, as may
be appropriate) of all legal documents or proceedings taken in connection with
the execution and delivery of this Agreement and the Note.
SECTION EIGHT. COVENANTS.
Borrower covenants and agrees that so long as any amount remains unpaid on
the Note or the Commitment is outstanding, except to the extent compliance in
any case or cases is waived in writing by the Lender:
8.1 COMPLIANCE.
----------
The Borrower will comply with all requirements of the Code, ERISA and any
other law, rule or regulation applicable to it as such laws, rules or
regulations affect the ESOP or the Trust.
6
<PAGE>
8.2 REPORTS.
-------
(a) The Borrower will maintain a system of accounting for the ESOP and
the Trust in accordance with sound accounting practice and will, from time to
time, furnish to the Lender and its duly authorized representatives, such
information and data with respect to the financial condition of the ESOP and the
Trust as the Lender may reasonably request.
(b) Without any request the Borrower will furnish to the Lender promptly
after knowledge thereof shall have come to the attention of the Borrower,
written notice of the occurrence of any Default or Event of Default hereunder or
of any threatened or pending litigation or governmental proceeding against the
Plan or the Trust.
8.3 DETERMINATION LETTER. The Company shall apply for a determination
--------------------
letter from the Internal Revenue Service that the Plan and the Trust, taken
together, qualify as an employee stock ownership plan for purposes of Section
4975(e)(7) of the Code and the rules and regulations thereunder.
SECTION NINE. EVENTS OF DEFAULT AND REMEDIES.
9.1 EVENT OF DEFAULT. Any one or more of the following shall constitute
-----------------
an Event of Default hereunder:
(a) The Borrower shall default in the payment of principal and/or
interest in respect of the Note or any other amounts payable under this
Agreement when due;
(b) Any representation, warranty or statement made by the Borrower
herein or in connection with the making of the Loan proves to be incorrect
in any material respect as of the date of the issuance or making thereof;
(c) The Borrower shall default in the due performance or observance
by it of any term, covenant or agreement (other than those referred to in
subparts (a) and (b), inclusive, of this Section 9.1) contained in this
Agreement and such default shall continue unremedied for a period of 30
days after notice to the Borrower by the Lender or any other holder of the
Note;
(d) The ESOP shall be terminated prior to the expiration of the term
of this Agreement.
9.2 LIMITATIONS ON USE OF TRUST ASSETS. When any Event of Default
-----------------------------------
described in subsections (a) to (c), of Section 9.1 has occurred and is
continuing, the Lender or the holder of the Note shall have no rights to assets
of the Trust other than (i) contributions (other than contributions of employer
securities) that are made by the Lender to enable the Borrower to meet its
obligations pursuant to the Loan, cash dividends received by the Borrower on the
Shares and earnings attributable to the investment of such contributions and
dividends and (ii)
7
<PAGE>
the Pledged Stock; provided further, however, that the value of Trust assets
transferred to the Lender as a result of an Event of Default shall not exceed
the amount of the repayment then in default, and, provided further, that so long
as the Lender is a "party in interest" within the meaning of ERISA Section 3(14)
or a "disqualified person" within the meaning of Section 4975(e)(2) of the Code,
a transfer of Trust assets upon default shall be made only if, and to the extent
of, the Borrower's failure to meet the loan's payment schedule.
9.3 RIGHTS UPON AN EVENT OF DEFAULT. When any Event of Default has
--------------------------------
occurred and is continuing the Lender may, in addition to such other rights or
remedies as it may have, then or at any time or times thereafter exercise with
respect to the Collateral any and all of the rights, options and remedies of a
secured party under the Uniform Commercial Code of Massachusetts (the "UCC")
including without limitation the sale of all or any part of the Collateral at
any brokers' board or any public or private sale, provided, however that the
Lender shall only be able to exercise such rights and remedies to the extent of
all interest and principal payments which are due and payable as of the date of
the Event of Default and provided further that prior to such exercise the Lender
shall release from the Collateral so much thereof as it would have been required
to release under Section 3.4 hereof if the period from the previous December 31
to the date of such release constituted a Plan Year and no Event of Default had
occurred. The net proceeds of any such sale, after deducting all costs and
expenses incurred in the collection, protection, sale and delivery of the
Collateral (which expenses Borrower promises to pay) shall be applied first to
the payment of any costs and expenses incurred by the Lender in selling or
otherwise disposing of the Collateral, second, to the payment of the principal
of and the interest on the Note, and, third, ratably as among any other items of
the indebtedness hereby secured. Any surplus remaining after the full payment
and satisfaction of the foregoing shall be returned to the Borrower or to
whomsoever a court of competent jurisdiction shall determine to be entitled
thereto. Any requirement of said UCC as to reasonable notice shall be met by
the Lender personally delivering or mailing notice (by certified mail - return
receipt requested) to the Borrower at its address as provided in Section 11.6
hereof at least ten (10) days prior to the event giving rise to the requirement
of such notice. In connection with any offer, solicitation or sale of the
Collateral, the Lender may restrict bidders and otherwise proceed in whatever
manner it reasonably believes appropriate in order to comply or assure
compliance with applicable legal requirements pertaining to the offer and sale
of securities of the same type as the Collateral.
9.4 ERISA RESTRICTIONS. The number of shares of Pledged Stock as to which
-------------------
the Lender may exercise the rights set forth in this Section 9 may not exceed
that number of shares (then remaining subject to pledge hereunder) which is then
equal in current value to the amount in default under the Note. The remedies
set forth in this Section 9 may only be exercised to the extent consistent with
the restrictions on remedies set forth in Section 408(b)(3) of ERISA and the
regulations thereunder and Section 4975(d)(3) of the Code and the regulations
thereunder.
8
<PAGE>
SECTION TEN. DEFINITIONS.
10.1 The term "Business Day" shall mean any day on which savings
------------
institutions are generally open for business in Massachusetts other than a
Saturday or Sunday.
10.2 The term "Event of Default" shall mean any event condition specified
----------------
as such in Section 9.1 hereof and the term "Default" shall mean any event or
-------
condition which, with the lapse of time, the giving of notice, or both would
constitute an Event of Default.
Capitalized terms defined elsewhere in this Agreement shall have the
meanings as defined in all provisions hereof.
10.3 The term "Interest Rate" shall mean [8%].
-------------
SECTION ELEVEN. MISCELLANEOUS
-------------
11.1 HOLIDAYS. If any principal of the Note shall fall due on Saturday,
--------
Sunday or on another day which is a legal holiday for savings institutions in
the Commonwealth of Massachusetts, interest at the rate the Note bears for the
period prior to maturity shall continue to accrue on such principal from the
stated due date thereof to and including the next succeeding Business Day on
which the same is payable.
11.2 NO WAIVER, CUMULATIVE REMEDIES. No delay or failure on the part of
------------------------------
the Lender or the part of the holder of the Note in the exercise of any power
or right shall preclude any other or further exercise thereof, or the exercise
of any other power or right, and the rights and remedies hereunder of the Lender
and of any holder of the Note are cumulative to, and not exclusive of, any
rights or remedies which any of them would otherwise have.
11.3 AMENDMENTS, ETC. No amendment, modification, termination or waiver
----------------
of any provision of this Agreement or of the Note nor consent to any departure
by the Borrower therefrom, shall in any event be effective unless the same shall
be in writing and signed by the Lender, and then such consent, modification or
waiver shall be effective only in the specific instance and for the specific
purpose for which given. No notice to or demand on the Borrower in any case
shall entitle the Borrower to any other further notice or demand in similar or
other circumstances.
11.4. SURVIVAL OF REPRESENTATIONS. All representations and warranties
---------------------------
made herein or in certificates given in connection with the Loan shall survive
the execution and delivery of this Agreement and of the Note, and shall continue
in full force and effect with respect to the date as of which they were made as
long as any credit is in use or available hereunder.
9
<PAGE>
11.5 PAYMENTS. So long as the Lender is the holder of the Note, the
--------
Borrower will promptly and punctually pay the principal of and interest on the
Note without presentment of the Note and without any notation of any such
payment being made on the Note.
11.6 ADDRESSES FOR NOTICES. All communications provided for herein shall
---------------------
be in writing and shall be deemed to have been given or made when served
personally or when deposited in the United States mail addressed, if to the
Borrower at __________________________, Trust Officer; if to the Lender at One
North Main Street, Fall River, Massachusetts 02720, or at such other address as
shall be designated by any party hereto in a written notice to each other party
pursuant to this Section 11.6.
11.7 HEADINGS. Article and Section headings used in this Agreement are
--------
for convenience or reference only and are not a part of this Agreement for any
other purpose.
11.8 SEVERABILITY OF PROVISIONS. Any provision of this Agreement which is
--------------------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such unenforceability without impairing the enforceability of
the remaining provisions hereof affecting the enforceability of such provision
in any other jurisdiction.
11.9 COUNTERPARTS. This Agreement may be executed in any number of
------------
counterparts, and by different parties hereto on separate counterparts, and all
such counterparts taken together shall be deemed to constitute one and the same
instrument.
11.10 BINDING NATURE, GOVERNING LAW, ETC. This Agreement shall be binding
-----------------------------------
upon the Borrower and its successors and assigns and shall inure to the benefit
of the Lender and the benefit of its successors and assigns, including any
subsequent holder of the Note. To the extent not preempted by Federal law, this
Agreement and the rights and duties of the parties hereto shall be construed and
determined in accordance with the laws of the Commonwealth of Massachusetts
without regard to principles of conflicts of laws. This Agreement constitutes
the entire understanding of the parties with respect to the subject matter
hereof and any prior agreements, whether written or oral, with respect thereto
are superseded hereby.
11.11 CONCERNING THE BORROWER. The term "Borrower" as used herein shall
-----------------------
mean and include the undersigned as Trustee of the Trust and its successors in
trust not individually but solely as Trustee under that certain First Federal
Savings Bank of America Employee Stock Ownership Trust effective ____________,
by and between the undersigned and First Federal Savings Bank of America and
this Agreement shall be binding upon the undersigned and its successors and
assigns and upon the trust estate. The undersigned assumes no personal or
individual liability or responsibility for payment of the indebtedness evidenced
by the Note or for observance or performance of the covenants and agreements
herein contained or for the truthfulness of the representations and warranties
herein contained, the undersigned having executed this Agreement and the Note
solely in its capacity as trustee as aforesaid to bind the undersigned, its
successors in trust and the trust estates.
10
<PAGE>
11.12 LIMITED LIABILITY. Anything contained herein or in the Note to the
-----------------
contrary notwithstanding, the sole and only recourse of the Lender and any other
holder of the Note for payment of the obligations hereunder and under the Note,
as against the Borrower for the payment of the obligations hereunder and under
the Note shall be to (i) the Collateral, (ii) contributions, other than employer
securities not constituting Collateral hereunder, made to the ESOP and the Trust
by sponsoring employers to enable the Borrower to meet its obligations hereunder
and under the Note, and (iii) earnings attributable to the Pledged Shares and to
the investment of such employer contributions, but only to the extent of the
failure of the Borrower to meet the payment schedule of the Loan provided for
herein. The Trust assets may be transferred to Lender upon the occurrence of a
Default or an Event of Default hereunder only upon and to the extent of the
failure of the Plan to meet the payment schedule of the Loan. In no event may
the value of the Trust assets so transferred exceed the amount of the default.
11.13 LENDER'S DUTY OF CARE. It is agreed and understood that the
---------------------
Lender's duty with respect to the Collateral shall be solely to use reasonable
care in the custody and preservation of the Collateral in the Lender's
possession, which shall not include any steps necessary to preserve rights
against prior parties.
All provisions in this Agreement shall be construed so as to maintain (i)
the ESOP as a qualified leveraged employee stock ownership plan under Sections
401(a) and 4975(e)(7) of the Code, (ii) the Trust as exempt from taxation under
Section 501(a) of the Code, and (iii) the Loan as an "exempt loan" under the
Exempt Loan Rules.
[Remainder of this page intentionally left blank]
Upon your acceptance hereof in the manner hereinafter set forth, this
Agreement shall constitute a contract between us for the uses and purposes
hereinabove set forth.
11
<PAGE>
Dated as of this ___ day of ______________, 1996.
_______________________., and its successors in trust,
as Trustee under that certain First Federal Savings
Bank of America Employee Stock Ownership Trust
effective __________ by and between the undersigned and
First Federal Savings Bank of America.
By___________________________________
Accepted and agreed to at Fall River, Massachusetts as of the date last
above written.
FAB FUNDING CORPORATION
By___________________________________
12
<PAGE>
EXHIBIT A
PROMISSORY NOTE
$___________
Fall River, Massachusetts ____________, 19__
For VALUE RECEIVED, the undersigned,_____________________, not individually
but solely as Trustee under that certain First Federal Savings Bank of America
Employee Stock Ownership Trust effective______________ by and between the
undersigned ("Borrower") and First Federal Savings Bank of America promises to
pay to the order of FAB FUNDING CORPORATION, a Massachusetts Corporation (the
"Lender") at its office at One North Main Street, Fall River, Massachusetts
02720, the principal sum of _____________________________ ($ ),
----------------
if less, the aggregate principal amount of the loan made to the Borrower under
Section 1.1 of the Loan and Security Agreement hereinafter referred to in nine
consecutive annual principal installments each in an amount equal to that set
forth on the attached amortization schedule, together with all accrued interest
on the unpaid principal sum, payable annually commencing on December 31, 199_,
and on the last business day of each and every December in each year thereafter,
except that the final installment in the amount of all principal and interest
not sooner paid shall be due on December 31, 20__, the final maturity hereof.
The Borrower promises to pay interest (computed on the basis of a year of
360 days) at said office on the balance of principal from time to time remaining
outstanding and unpaid hereon at the rate per annum equal at all times to the
Interest Rate as defined in Section 10.3 of the Loan and Security Agreement (as
defined below) on the last business day of each and every December, commencing
December 31, 1996, and in each year thereafter and on the final maturity date of
this Note. On demand, the Borrower promises to pay interest on any overdue
principal hereof (whether by lapse of time, acceleration, or otherwise) until
paid at the stated rate.
This Note is issued under the terms and provisions of that certain First
Federal Savings Bank of America Employee Stock Ownership Trust Loan and Security
Agreement bearing even date herewith by and between the Borrower and the Lender
(the "Loan and Security Agreement") and this Note and the holder hereof are
entitled to all the benefits and security provided for thereby or referred to
therein to which Loan and Security Agreement reference is hereby made for a
statement thereof.
This Note may be declared due prior to its express maturity and voluntary
prepayments may be made hereon, all in the events, on the terms and in the
manner as provided in such Loan and Security Agreement.
<PAGE>
Recourse for the payment of this Note has been limited by the provisions of
the Loan and Security Agreement and this Note is expressly made subject to such
provisions. This Note shall be governed by and construed in accordance with the
laws of New York without regard to principles of conflicts of laws. The
Borrower hereby waives presentment for payment and demand.
Upon the occurrence of an Event of Default as such term is defined in the
Loan and Security Agreement at the option of the Lender, all amounts payable by
the Borrower to the Lender under the terms of this Note may immediately become
due and payable by the Borrower to the Lender pursuant to the provisions of
Section 9.2 of the Loan and Security Agreement, and the Lender shall have all of
the rights, powers, and remedies available under the terms of this Note, any of
the other documents evidencing and securing this Loan and all applicable laws.
The Borrower and all endorsers, guarantors, and other parties who may now or in
the future be primarily or secondarily liable for the payment of the
indebtedness evidenced by this Note hereby severally waive presentment, protest
and demand, notice of protest, notice of demand and of dishonor and non-payment
of this Note and expressly agree that this Note any payment hereunder may be
extended from time to time without in any way affecting the liability of the
Borrower, guarantors and endorsers.
_____________ and its successors in trust,
as Trustee under that certain First Federal
Savings Bank of America Employee Stock
Ownership Trust effective ________ by and
between the undersigned and First Federal
Savings Bank of America.
By:___________________________
<PAGE>
EXHIBIT B
SECURITY AGREEMENT
INSTRUMENTS OR NEGOTIABLE DOCUMENTS TO BE DEPOSITED
For new value contemporaneously given by FAB FUNDING CORPORATION, ("Lender")
to the undersigned ("Borrower"), the receipt whereof is hereby acknowledged, the
Borrower does hereby grant a security interest to said Lender in the instruments
or negotiable documents hereafter described ("Collateral"), in all of which
Collateral the Borrower warrants that the Borrower has good, valid and effective
rights to the ownership and possession thereof and to the grant of the security
interest hereby made:
___________ shares of the common stock, par value $.01 per share, of
FIRSTFED AMERICA BANCORP, INC., a Delaware corporation.
Borrower agrees to deliver said collateral to said Lender not later than the
close of business on _________________, ____, said date being within 10 days
from the date hereof.
Said security interest secures the payment of all indebtedness and
liabilities as undertaken in the Loan and Security Agreement to which this is a
part, now existing or hereafter arising, and the Lender has all the rights with
respect to said Collateral and said security interest as more fully set forth in
the form of secured note or notes executed and delivered by the undersigned to
said Lender prior hereto or contemporaneously herewith.
This agreement, including matters of interpretation and construction, and
the rights of the Lender and the duties and obligations of the debt hereunder
are to be determined in accordance with the laws of the Commonwealth of
Massachusetts, particularly the Uniform Commercial Code, except where preempted
by federal law.
Dated at Roslyn, New York the ___ day of __________, ___.
_______________., and its successors in trust,
as Trustee under that certain First Federal
Savings Bank of America Employee Stock Ownership
Trust effective __________ by and between the
undersigned and First Federal Savings Bank of
America.
By:_________________________________
<PAGE>
EXHIBIT C
LEVEL DEBT SERVICE LOAN AMORTIZATION SCHEDULE
YEAR PRINCIPAL INTEREST
- ---- --------- --------
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
<PAGE>
EXHIBIT 10.3
THE FIRST FEDERAL SAVINGS BANK OF AMERICA
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I.................................................................. 2
Purpose of the Plan................................................... 2
ARTICLE II................................................................. 2
Definitions........................................................... 2
2.1 Board.................................................. 2
-----
2.2 Code................................................... 2
----
2.3 Defined Benefit Plan................................... 2
--------------------
2.4 Eligible Employee...................................... 2
-----------------
2.5 Employee............................................... 2
--------
2.6 ERISA.................................................. 2
-----
2.7 ESOP................................................... 2
----
2.8 Former Participant..................................... 3
------------------
2.9 Matching Contribution.................................. 3
---------------------
2.10 Nonqualified Plan...................................... 3
-----------------
2.11 Participant............................................ 3
-----------
2.12 Period of Participation................................ 3
-----------------------
2.13 Retirement Benefit..................................... 3
------------------
2.14 Bank................................................... 3
----
2.15 Savings Plan........................................... 3
------------
2.16 SERP................................................... 3
----
2.17 Supplemental ESOP Benefit.............................. 3
-------------------------
2.18 Supplemental Retirement Plan Benefit................... 3
------------------------------------
2.19 Supplemental Savings Plan Benefit...................... 3
---------------------------------
2.20 Termination of Service................................. 4
----------------------
ARTICLE III................................................................ 4
Participation......................................................... 4
3.1 Eligibility for Participation.......................... 4
-----------------------------
3.2 Supplemental Savings Plan Benefit Account.............. 5
-----------------------------------------
3.3 Commencement of Participation.......................... 5
-----------------------------
3.4 Termination of Participation........................... 5
----------------------------
ARTICLE IV................................................................. 6
Benefits to Participants.............................................. 6
4.1 Supplemental Benefits.................................. 6
---------------------
4.2 Payment to Missing Person.............................. 7
-------------------------
4.3 Release from Liability................................. 7
----------------------
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE V.................................................................. 7
Administration........................................................ 7
5.1 Duties of the Board.................................... 7
--------------------
5.2 Liabilities of the Board............................... 7
-------------------------
5.3 Expenses............................................... 8
--------
ARTICLE VI................................................................. 8
Amendment and Termination............................................. 8
6.1 Amendment and Termination.............................. 8
-------------------------
6.2 Vesting and Payment Upon Termination................... 8
------------------------------------
6.3 Preservation of Benefits on Amendment.................. 9
-------------------------------------
ARTICLE VII................................................................ 9
Miscellaneous Provisions.............................................. 9
7.1 Governing Law.......................................... 9
-------------
7.2 No Right to Continued Employment....................... 9
--------------------------------
7.3 Construction of Language............................... 9
------------------------
7.4 Non-alienation of Benefits............................. 9
--------------------------
7.5 Operation as Unfunded Nonqualified Plan................ 10
---------------------------------------
7.6 Reliance Upon Information.............................. 10
-------------------------
7.7 Effective Date......................................... 10
--------------
</TABLE>
ii
<PAGE>
THE FIRST FEDERAL SAVINGS BANK OF AMERICA
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
WHEREAS, the employees of First Federal Savings Bank of America ("Bank")
are provided with benefits under the Financial Institutions Retirement Fund as
adopted by First Federal Savings Bank of America ("Defined Benefit Plan"), the
First Federal Savings Bank of America Employees' Profit Sharing Plan and Trust
("Savings Plan") and the First Federal Savings Bank of America Employee Stock
Ownership Plan ("ESOP"); and
WHEREAS, the Internal Revenue Code of 1986, as amended ("Code") imposes
limitations on the level of annual benefits that may provided to Participants in
the Defined Benefit Plan, the level of savings which may be contributed by
Participants to the Savings Plan, the amount of contributions that may be made
to the Savings Plan and the ESOP by the Bank on the behalf of Participants, and
limits the amount of compensation which may be considered in determining
benefits under all of these plans; and
WHEREAS, the Board of Directors of the Bank desires to adopt the plan to
provide certain employees with benefits to replace benefits to which they would
be entitled but for the application of the limitations imposed by the Code;
THEREFORE, by resolution of the Board of Directors, the Supplemental
Executive Retirement Plan has been adopted.
1
<PAGE>
ARTICLE I
Purpose of the Plan
-------------------
The purpose of First Federal Savings Bank of America Supplemental Executive
Retirement Plan ("SERP") is to provide a designated select group of highly
compensated management employees of the Bank with deferred benefits to which
they would otherwise be entitled under the terms of the Defined Benefit Plan,
the Savings Plan and the ESOP, but for limitations on benefits and includible
compensation imposed by the Code. The benefits will be paid out of the Bank's
general assets exclusively. This Plan is intended to be a top hat plan within
the meaning of the Employee Retirement Income Security Act of 1974, as amended.
ARTICLE II
Definitions
-----------
Wherever appropriate to the purposes of the SERP, capitalized terms shall
have the meanings assigned to them under the Defined Benefit Plan, the Savings
Plan and the ESOP. Notwithstanding the preceding, the following definitions
shall apply for the purposes of this SERP unless a different meaning is clearly
indicated by the context.
2.1 Board means the Board of Directors of the Bank.
-----
2.2 Code means the Internal Revenue Code of 1986, as amended from time to
----
time (including the corresponding provisions of any succeeding law).
2.3 Defined Benefit Plan means the Financial Institutions Retirement Fund
--------------------
as adopted by First Federal Savings Bank of America, as may be amended from time
to time (including the corresponding provisions of any successor qualified
defined benefit plan adopted by the Bank).
2.4 Eligible Employee means an Employee who is eligible for participation
-----------------
in the SERP in accordance with the provisions of Article III.
2.5 Employee means any person, including an officer, who is employed by
--------
the Bank.
2.6 ERISA means the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time (including the corresponding provisions of any
succeeding law).
2.7 ESOP means the First Federal Savings Bank of America Employee Stock
----
Ownership Plan.
2
<PAGE>
2.8 Former Participant means a person whose participation in the SERP has
-------------------
terminated as provided under Section 3.4.
2.9 Matching Contribution means an amount equal to the product of (i) the
---------------------
amount such Participant is contributing to the SERP under Section 3.2 subject to
any limitation on Employer Matching Contributions under the Savings Plan and
(ii) the percentage of the Employer Matching Contributions being made under the
Savings Plan during the same period.
2.10 Nonqualified Plan means a plan of deferred compensation which does not
-----------------
meet the requirements of Section 401(a) of the Code.
2.11 Participant means any person who is participating in the SERP in
-----------
accordance with its terms.
2.12 Period of Participation means the period during which a person is a
-----------------------
Participant.
2.13 Retirement Benefit means the benefit payable to a Participant pursuant
------------------
to the terms of the Defined Benefit Plan.
2.14 Bank means First Federal Savings Bank of America having its principal
----
office at One North Main Street, Fall River, Massachusetts 02720, and its
successors or assigns.
2.15 Savings Plan means the First Federal Savings Bank of America
------------
Employees' Profit Sharing Plan and Trust, as may be amended from time to time
(including the corresponding provisions of any successor qualified savings plan
adopted by the Bank).
2.16 SERP means this First Federal Savings Bank of America Supplemental
----
Executive Retirement Plan as amended from time to time.
2.17 Supplemental ESOP Benefit means the benefit provided by this SERP
-------------------------
based on limitations, imposed by Sections 401(a)(17) and/or 415 of the Code, on
the benefits of a Participant under the ESOP. Such benefit equals the positive
difference between the number of shares allocated to a Participant under the
ESOP and the number which would have been allocated under the ESOP at that time
except for the operation of the limitations of the Code.
2.18 Supplemental Retirement Plan Benefit means the benefit provided by
------------------------------------
this SERP based on limitations imposed by Section 401(a)(17) and 415 of the
Code, on the benefits of a Participant in the Defined Benefit Plan. Such
Benefit equals the positive difference between the annual benefit payable under
the Defined Benefit Plan to the Participant and the annual benefit that would
have been payable under the Defined Benefit to the Participant but for the
limitations imposed by the Code.
2.19 Supplemental Savings Plan Benefit means the benefit provided by this
---------------------------------
SERP based on limitations, imposed by the Code, on the level of savings which
may be contributed
3
<PAGE>
by Participants under the Savings Plan. In particular, the Supplemental Savings
Plan Benefit shall be a benefit equal to the amount contributed to the Bank by
the Participants and the Bank, and earnings thereon, both in accordance with
Section 3.2 of this SERP.
2.20 Termination of Service means an Employee's separation from the service
----------------------
of the Bank, whether by resignation, discharge, death, disability, retirement or
otherwise.
ARTICLE III
-----------
Participation
-------------
3.1 Eligibility for Participation.
------------------------------
Only Eligible Employees may be or may become Participants.
(a) An Employee shall become an Eligible Employee for
Supplemental Retirement Plan Benefits if:
(1) The Board, in its sole discretion, designates him
as an Eligible Employee; and
(2) He is a Participant in the Defined Benefit Plan
and his benefits thereunder are limited by
Sections 401(a)(17) and/or Section 415 of the
Code.
(b) An Employee shall become an Eligible Employee for
Supplemental Savings Plan Benefits if:
(1) The Board, in its sole discretion, designates him
as an Eligible Employee; and
(2) He is a Participant in the Savings Plan and his
benefits thereunder would be limited by Sections
401(m), 401(a)(17) and/or 415 of the Code if maximum
contributions were desired; and
(3) He elects to participate in the Savings Plan; and
(4) Deposit with the Bank, for credit to his
Supplemental Savings Plan Benefit Account, the amount
defined in Section 3.2.
4
<PAGE>
(c) An Employee shall become an Eligible Employee for
Supplemental ESOP Benefits if:
(1) The Board, in its sole discretion, designates him
as an Eligible Employee; and
(2) He is a Participant in the ESOP and his benefits
thereunder are limited by the application of
Sections 401(a)(17) and/or 415 of the Code.
3.2 Supplemental Savings Plan Benefit Account
-----------------------------------------
The Bank will accept deferrals of compensation from each Participant who is
an Eligible Employee pursuant to Section 3.1(b) and who elects to participate in
the SERP. Each such Eligible Employee may make annual deferrals of compensation
in an amount equal to the difference between (i) the maximum amount the
Participant would be permitted to contribute to the Savings Plan for the given
year but for the limitations of Sections 401(m), 401(a)(17), 415, or any other
Section of the Code and (ii) deferrals actually made to the Savings Plan.
Amounts returned from the Savings Plan because of any discrimination testing or
other limitations on contributions will be deferred into this SERP without
further action on the Participant being required, to the extent such deferral is
permitted under applicable law. If such deferral is not permitted,
Participant's election will run to other Compensation in an amount equal to such
returned monies. The Bank will establish a memorandum account, maintained as a
Supplemental Savings Plan Benefit Account for such Participant on the Bank's
books, which will be credited with the amount of such contributions. The
Supplemental Savings Plan Benefit Accounts are not insured by the Federal
Deposit Insurance Corporation and shall be considered an asset of the Bank
subject to the claims of general creditors.
Amounts credited to a Participant's Supplemental Savings Plan Benefit
Account shall be credited with interest at a rate equal to the combined weighted
return provided to the Participant's Account under the Savings Plan. Such
interest shall be credited monthly. The Bank will credit the Participant's
Supplemental Savings Plan Benefits Account with the Matching Contribution when
otherwise due under the Savings Plan.
3.3 Commencement of Participation.
-----------------------------
An Eligible Employee shall become a Participant on the date determined by
the Board. However, in no event will an Employee become a Participant prior to
[________].
3.4 Termination of Participation.
----------------------------
Participation in the Plan shall cease on the: (a) date of the
Participant's Termination of Service; or (b) date on which he ceases to be an
Eligible Employee.
5
<PAGE>
ARTICLE IV
----------
Benefits to Participants
------------------------
4.1 Supplemental Benefits.
---------------------
(a) A Participant who satisfies Section 3.1(a) of the SERP shall be
entitled to an unfunded, unseured promise from the Bank of
Supplemental Retirement Plan Benefits.
(b) A Participant who satisfies Section 3.1(b) of the SERP shall be
entitled to an unfunded, unsecured promise from the Bank of
Supplemental Savings Plan Benefits.
(c) A Participant who satisfies Section 3.1(c) of the SERP shall be
entitled to an unfunded, unsecured promise from the Bank of
Supplemental ESOP Benefits.
(d) The Supplemental Retirement Plan Benefit provided for in Section
3.1(a) shall be paid commencing upon Termination of Service to
the Participant or his designated beneficiary in the manner and
for the period as the Participant shall have elected with respect
to his benefit under the Defined Benefit Plan.
(e) Participants shall be vested in the benefits under Section
3.1(a), in the same percentage that they are vested in benefits
payable under the Defined Benefit Plan.
(f) The Supplemental Savings Plan Benefit provided for in Section
3.1(b) shall be paid commencing upon Termination of Service to
the Participant or his designated beneficiary in the manner and
for the period as the Participant shall have elected with respect
to his benefit under the Savings Plan.
(g) Participants shall be vested in the benefits payable under
Section 3.1(b), in the same percentage that they are vested in
benefits payable under the Savings Plan.
(h) A Participant shall be vested in benefits payable under Section
3.1(c) of this SERP in the same percentage that such Participant
has a vested interest in his account under the ESOP.
(i) The Supplemental ESOP Benefit provided for in Section 3.1(c)
shall be paid commencing upon Termination of Service to the
Participant or his designated beneficiary in the manner and for
the period as the
6
<PAGE>
Participant shall have elected with respect to his benefit under
the ESOP.
4.2 Payment to Missing Person.
--------------------------
If the Bank is unable to effect delivery of any amount payable hereunder to
the person entitled thereto, or upon his death, to his personal representative,
it shall so advise the Board and the Board shall give written notice to such
person at his last known address as shown in such Participant's record of
employment. If such person or his personal representative does not present
himself to the Board after three years from the date of mailing such notice,
then the Board shall direct such amount, including any amount thereafter
becoming due to such person or his personal representative to be distributed in
the manner provided herein with respect to the death of a Participant. If there
is no valid designation of Beneficiary on file; or, if there can be no
distribution under the foregoing provision, the same shall be treated as a
forfeiture in accordance with the provisions hereof.
4.3 Release from Liability.
-----------------------
Payment to any Participant, legal representative or Beneficiary, in
accordance with the provisions of this Plan, is deemed to be in full
satisfaction of all claims by the Participant, representative or Beneficiary
against this SERP, the Board, and the Bank. The Board may require such
Participant, legal representative, or Beneficiary as a condition precedent to
payment to execute a receipt and release in such form as shall be determined by
the Board.
ARTICLE V
---------
Administration
--------------
5.1 Duties of the Board.
-------------------
The Board shall have full responsibility for the management, operation,
interpretation and administration of the Plan in accordance with its terms, and
shall have such authority as is necessary or appropriate in carrying out its
responsibilities. Actions taken by the Board pursuant to this Section 5.1 shall
be conclusive and binding upon the Bank, Participants, Former Participants,
Beneficiaries, and other interested parties. The Board may delegate any duties
to persons of its choosing.
5.2 Liabilities of the Board.
-------------------------
Neither the Board nor its individual members shall be deemed to be a
fiduciary with respect to this Plan; nor shall any of the foregoing individuals
or entities be liable to any Participants, Former Participants or Beneficiaries
in connection with the management,
7
<PAGE>
operation, interpretation or administration of the Plan, any such liability
being solely that of the Bank.
5.3 Expenses.
--------
Any expenses incurred in the management, operation, interpretation or
administration of the Plan shall be paid by the Bank. In no event shall the
benefits otherwise payable under this Plan be reduced to offset the expenses
incurred in managing, operating, interpreting or administering the Plan.
5.4 Unfunded Character of Plan.
--------------------------
The SERP shall be unfunded. Neither the Bank nor the Board nor its
individual members shall segregate or otherwise identify specific assets to be
applied to purposes of the Plan, nor shall any of them be deemed to be a trustee
of any amounts to be paid under the Plan. Any liability of the Bank to any
person with respect to benefits payable under the Plan shall be based solely
upon such contractual obligations, if any, as shall be created by the Plan, and
shall give rise only to a claim against the general assets of the Bank. No such
liability shall be deemed to be secured by any pledge or any other encumbrance
on any specific property of the Bank.
ARTICLE VI
----------
Amendment and Termination
-------------------------
6.1 Amendment and Termination.
--------------------------
Subject to the provisions of Sections 6.2 and 6.3, the Board shall have the
right to amend or terminate the Plan, in whole or in part.
6.2 Vesting and Payment Upon Termination.
------------------------------------
(a) In the event of the termination or partial termination of
this SERP, the rights of all affected parties, if any, to
any benefits accrued to the date of such termination or
partial termination, shall become nonforfeitable.
(b) In the event of the termination of this SERP all benefit
shall be immediately payable to the Participant by the Bank
in whatever form the SERP otherwise provides, or in the
discretion of the Board may be paid in a lump sum payment of
the present value as determined in accordance with the
assumptions and methodology of Section 7520 of the Code.
8
<PAGE>
6.3 Preservation of Benefits on Amendment.
-------------------------------------
No amendment of this SERP shall reduce the vested and accrued benefits,
if any, of a Participant under this SERP.
ARTICLE VII
-----------
Miscellaneous Provisions
------------------------
7.1 Governing Law.
-------------
The SERP shall be construed, administered, and enforced according to laws
of the Commonwealth of Massachusetts except to the extent that such laws are
pre-empted by the federal laws of the United States of America.
7.2 No Right to Continued Employment.
--------------------------------
Neither the establishment of the SERP nor any provisions of the SERP, nor
any action of the Board shall be held or construed to confer upon any Employee
the right to a continuation of employment by the Bank. Subject to any
employment contract or Change in Control Agreement, the Bank reserves the right
to dismiss any Employee or otherwise deal with any Employee to the same extent
as though the SERP had not been adopted.
7.3 Construction of Language.
------------------------
Wherever appropriate in the SERP, words used in the singular may be read in
the plural, words in the plural may be read in the singular, and words importing
the masculine gender shall be deemed equally to refer to the feminine and the
neuter. Any reference to any Article or Section shall be to an Article or
Section of this SERP, unless otherwise indicated.
7.4 Non-alienation of Benefits.
--------------------------
The right to receive a benefit under the SERP shall not be subject in any
manner to anticipation, alienation, or assignment, nor shall such right be
liable for or subject to debts, contracts, liabilities. Should any
Participants, Former Participants, Beneficiaries or other person attempt to
anticipate, alienate or assign his interest in or right to a benefit, or should
any person claiming against him seem to subject such interest or right to legal
or equitable process, all the interest or right of such Participants or Former
Participants, Beneficiaries or other person entitled to benefits under the SERP
shall cease, and in that event, such interest or right shall be held or applied,
at the direction of the Board, for or to the benefit of such Participants,
Former Participants, Beneficiaries or other person or his spouse, children or
other dependents in such manner and in such proportions as the Board may deem
proper.
9
<PAGE>
7.5 Operation as Unfunded Nonqualified Plan.
---------------------------------------
The SERP is intended to be an unfunded, nonqualified plan maintained
primarily for the purpose of providing deferred compensation for a select group
of management or highly compensated employees. The SERP is not intended to
comply with the requirements of Section 401(a) of the Code. The SERP shall be
administered and construed so as to effectuate this intent.
7.6 Reliance Upon Information
-------------------------
The Board shall not be liable for any decision or action taken in good
faith in connection with the administration of the SERP. Without limiting the
generality of the foregoing, any such decision or action taken by the Board in
reliance upon any information supplied to them by an officer of the Bank, the
Bank's legal counsel, or the Bank's independent accountants in connection with
the administration of the SERP shall be deemed to have been taken in good faith.
7.7 Effective Date
--------------
The SERP shall become effective [________].
Executed at Fall River, Massachusetts on the ____ day of [________].
FIRST FEDERAL SAVINGS BANK OF AMERICA
By _________________________________
Title _________________________________
10
<PAGE>
Exhibit 10.4
FORM OF
FIRST FEDERAL SAVINGS BANK OF AMERICA
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of ____________, 199_ by
and among First Federal Savings Bank of America (the "Bank"), a federally
chartered savings bank, with its principal administrative office at One North
Main Street, Fall River, Massachusetts, 02720, FIRSTFED AMERICA BANCORP, INC., a
corporation organized under the laws of the State of Delaware, the holding
company for the Bank (the "Holding Company"), and ______________ ("Executive").
WHEREAS, the Bank wishes to assure itself of the services of Executive for
the period provided in this Agreement; and
WHEREAS, Executive is willing to serve in the employ of the Bank on a full-
time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, Executive agrees to serve as
____________________ of the Bank. Executive shall render administrative and
management services to the Bank such as are customarily performed by persons
situated in a similar executive capacity. During said period, Executive also
agrees to serve, if elected, as an officer and director of the Holding Company
or any subsidiary of the Bank.
2. TERMS AND DUTIES.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of[TWENTY FOUR (24) / THIRTY-SIX (36)] full calendar months
thereafter. Commencing on the first anniversary date of this Agreement, and
continuing on each anniversary thereafter, the disinterested members of the
board of directors of the Bank ("Board") may extend the Agreement an additional
year such that the remaining term of the Agreement shall be [TWENTY FOUR (24) /
THIRTY SIX (36)] months unless the Executive elects not to extend the term of
this Agreement by giving written notice in accordance with Section 8 of this
Agreement. The Board will review the Agreement and Executive's performance
annually for purposes of determining whether to extend the Agreement and the
rationale and results thereof shall be included in the minutes of the Board's
meeting. The Board shall give notice to the Executive as soon as possible after
such review as to whether the Agreement is to be extended.
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence,
<PAGE>
Executive shall devote substantially all his business time, attention, skill,
and efforts to the faithful performance of his duties hereunder including
activities and services related to the organization, operation and management of
the Bank and participation in community and civic organizations; provided,
however, that, with the approval of the Board, as evidenced by a resolution of
such Board, from time to time, Executive may serve, or continue to serve, on the
boards of directors of, and hold any other offices or positions in, companies or
organizations, which, in such Board's judgment, will not present any conflict of
interest with the Bank, or materially affect the performance of Executive's
duties pursuant to this Agreement.
(c) Notwithstanding anything herein to the contrary, Executive's
employment with the Bank may be terminated by the Bank or the Executive during
the term of this Agreement, subject to the terms and conditions of this
Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Bank shall pay Executive as compensation a salary of
$_____________ per year ("Base Salary"). Base Salary shall include any amounts
of compensation deferred by Executive under any qualified or unqualified plan
maintained by the Bank. Such Base Salary shall be payable bi-weekly. During the
period of this Agreement, Executive's Base Salary shall be reviewed at least
annually; the first such review will be made no later than one year from the
date of this Agreement. Such review shall be conducted by the Board or by a
Committee of the Board, delegated such responsibility by the Board. The
Committee or the Board may increase Executive's Base Salary. Any increase in
Base Salary shall become the "Base Salary" for purposes of this Agreement. In
addition to the Base Salary provided in this Section 3(a), the Bank shall also
provide Executive, at no premium cost to Executive, with all such other benefits
as are provided uniformly to permanent full-time employees of the Bank.
(b) The Executive shall be entitled to participate in any employee benefit
plans, arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the Bank will not, without
Executive's prior written consent, make any changes in such plans, arrangements
or perquisites which would materially adversely affect Executive's rights or
benefits thereunder; except to the extent such changes are made applicable to
all Bank employees on a non-discriminatory basis. Without limiting the
generality of the foregoing provisions of this Subsection (b), Executive shall
be entitled to participate in or receive benefits under any employee benefit
plans including but not limited to, retirement plans, supplemental retirement
plans, pension plans, profit-sharing plans, health-and-accident plans, medical
coverage or any other employee benefit plan or arrangement made available by the
Bank in the future to its senior executives and key management employees,
subject to and on a basis consistent with the terms, conditions and overall
administration of such plans and arrangements. Executive shall be entitled to
incentive compensation and bonuses as provided in any plan of the Bank in which
Executive is eligible to participate. Nothing paid to the Executive under any
such plan or arrangement will be deemed to be in lieu of other compensation to
which the Executive is entitled under this Agreement.
-2-
<PAGE>
(c) In addition to the Base Salary provided for by paragraph (a) of
this Section 3 and other compensation provided for by paragraph (b) of this
Section 3, the Bank shall pay or reimburse Executive for all reasonable travel
and other reasonable expenses incurred by Executive performing his obligations
under this Agreement and may provide such additional compensation in such form
and such amounts as the Board may from time to time determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Bank or the Holding Company of Executive's full-time
employment hereunder for any reason other than a termination governed by Section
5(a) hereof, or Termination for Cause, as defined in Section 7 hereof; (ii)
Executive's resignation from the Bank's employ upon any (A) failure to elect or
reelect or to appoint or reappoint Executive as , unless consented to
-------
by the Executive, (B) a material change in Executive's function, duties, or
responsibilities, which change would cause Executive's position to become one
of lesser responsibility, importance, or scope from the position and attributes
thereof described in Section 1, above, unless consented to by Executive, (C)
a relocation of Executive's principal place of employment by more than 25 miles
from its location at the effective date of this Agreement, unless consented to
by the Executive, (D) a material reduction in the benefits and perquisites to
the Executive from those being provided as of the effective date of this
Agreement, unless consented to by the Executive, (E) a liquidation or
dissolution of the Bank or Holding Company, or (F) breach of this Agreement by
the Bank. Upon the occurrence of any event described in clauses (A), (B), (C),
(D), (E) or (F), above, Executive shall have the right to elect to terminate
his employment under this Agreement by resignation upon not less than sixty
(60) days prior written notice given within six full months after the event
giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Bank shall be obligated to pay
Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be a sum equal to the sum of:
(i) the amount of the remaining payments that the Executive would have earned if
he had continued his employment with the Bank during the remaining term of this
Agreement at the Executive's Base Salary at the Date of Termination; and (ii)
the amount equal to the annual contributions that would have been made on
Executive's behalf to any employee benefit plans of the Bank or the Holding
Company during the remaining term of this Agreement based on contributions made
(on an annualized basis) at the Date of Termination; provided, however, that any
-------- -------
payments pursuant to this subsection and subsection 4(c) below shall not, in the
aggregate, exceed three times Executive's average annual compensation for the
five most recent taxable years that Executive has been employed by the Bank or
such lesser number of years in the event that Executive shall have been employed
by the Bank for less than five years. In the event the Bank is not in
compliance with its minimum capital requirements or if such payments pursuant to
this subsection (b) would cause
-3-
<PAGE>
the Bank's capital to be reduced below its minimum regulatory capital
requirements, such payments shall be deferred until such time as the Bank or
successor thereto is in capital compliance. At the election of the Executive,
which election is to be made prior to an Event of Termination, such payments
shall be made in a lump sum as of the Executive's Date of Termination. In the
event that no election is made, payment to Executive will be made on a monthly
basis in approximately equal installments during the remaining term of the
Agreement. Such payments shall not be reduced in the event the Executive obtains
other employment following termination of employment.
(c) Upon the occurrence of an Event of Termination, the Bank will cause to
be continued life, medical, dental and disability coverage substantially
identical to the coverage maintained by the Bank or the Holding Company for
Executive prior to his termination at no premium cost to the Executive, except
to the extent such coverage may be changed in its application to all Bank or
Holding Company employees. Such coverage shall cease upon the expiration of the
remaining term of this Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the Bank
or Holding Company shall mean an event of a nature that: (i) would be required
to be reported in response to Item 1 of the current report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"); or (ii) results in a
Change in Control of the Bank or the Holding Company within the meaning of the
Home Owners' Loan Act of 1933, as amended, the Federal Deposit Insurance Act and
the Rules and Regulations promulgated by the Office of Thrift Supervision
("OTS") (or its predecessor agency), as in effect on the date hereof (provided,
that in applying the definition of change in control as set forth under the
rules and regulations of the OTS, the Board shall substitute its judgment for
that of the OTS); or (iii) without limitation such a Change in Control shall be
deemed to have occurred at such time as (A) any "person" (as the term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of voting securities of the Bank or the Holding Company representing
25% or more of the Bank's or the Holding Company's outstanding voting securities
or right to acquire such securities except for any voting securities of the Bank
purchased by the Holding Company and any voting securities purchased by any
employee benefit plan of the Bank or the Holding Company, or (B) individuals who
constitute the Board on the date hereof (the "Incumbent Board") cease for any
reason to constitute at least a majority thereof, provided that any person
becoming a director subsequent to the date hereof whose election was approved by
a vote of at least three-quarters of the directors comprising the Incumbent
Board, or whose nomination for election by the Holding Company's stockholders
was approved by the same Nominating Committee serving under an Incumbent Board,
shall be, for purposes of this clause (B), considered as though he were a member
of the Incumbent Board, or (C) a plan of reorganization, merger, consolidation,
sale of all or substantially all the assets of the Bank or the Holding Company
or similar transaction occurs in which the Bank or Holding Company is not the
resulting entity; provided, however, that such an event listed above will be
deemed to
-4-
<PAGE>
have occurred or to have been effectuated upon the receipt of all required
regulatory approvals not including the lapse of any statutory waiting periods.
(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in paragraphs (c), and (d) of this Section 5
upon his subsequent termination of employment at any time during the term of
this Agreement due to: (1) Executive's dismissal or (2) Executive's voluntary
resignation following any demotion, loss of title, office or significant
authority or responsibility, material reduction in annual compensation or
benefits or relocation of his principal place of employment by more than 25
miles from its location immediately prior to the Change in Control, unless such
termination is because of his death, disability, retirement or termination for
Cause.
(c) Upon Executive's entitlement to benefits pursuant to Section 5(b), the
Bank shall pay Executive, or in the event of his subsequent death, his
beneficiary or beneficiaries, or his estate, as the case may be, a sum equal to
the greater of: (1) the payments due for the remaining term of the Agreement; or
2) three (3) times Executive's average annual compensation for the five (5) most
recent taxable years that Executive has been employed by the Bank or such lesser
number of years in the event that Executive shall have been employed by the Bank
for less than five (5) years. Such average annual compensation shall include
Base Salary, commissions, bonuses, contributions on Executive's behalf to any
pension and/or profit sharing plan, severance payments, retirement payments,
directors or committee fees and fringe benefits paid or to be paid to the
Executive in any such year and payment of any expense items without
accountability or business purpose or that do not meet the Internal Revenue
Service requirements for deductibility by the Bank; provided, however, that any
-------- -------
payment under this provision and subsection 5(d) below shall not exceed three
(3) times the Executive's average annual compensation. In the event the Bank is
not in compliance with its minimum capital requirements or if such payments
would cause the Bank's capital to be reduced below its minimum regulatory
capital requirements, such payments shall be deferred until such time as the
Bank or successor thereto is in capital compliance. At the election of the
Executive, which election is to be made prior to a Change in Control, such
payment shall be made in a lump sum as of the Executive's Date of Termination.
In the event that no election is made, payment to the Executive will be made in
approximately equal installments on a monthly basis over a period of [TWENTY
FOUR (24) / THIRTY-SIX (36)] months following the Executive's termination. Such
payments shall not be reduced in the event Executive obtains other employment
following termination of employment.
(d) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Bank will cause to be continued life, medical, dental and disability
coverage substantially identical to the coverage maintained by the Bank for
Executive prior to his severance at no premium cost to the Executive, except to
the extent that such coverage may be changed in its application for all Bank
employees on a non-discriminatory basis. Such coverage and payments shall cease
upon the expiration of [TWENTY FOUR (24) / THIRTY-SIX (36)] months following the
Date of Termination.
-5-
<PAGE>
6. CHANGE OF CONTROL RELATED PROVISIONS
Notwithstanding the provisions of Section 5, in no event shall the
aggregate payments or benefits to be made or afforded to Executive under said
paragraphs (the "Termination Benefits") constitute an "excess parachute payment"
under Section 280G of the Internal Revenue Code of 1986, as amended, or any
successor thereto, and in order to avoid such a result, Termination Benefits
will be reduced, if necessary, to an amount (the "Non-Triggering Amount"), the
value of which is one dollar ($1.00) less than an amount equal to three (3)
times Executive's "base amount", as determined in accordance with said Section
280G. The allocation of the reduction required hereby among the Termination
Benefits provided by Section 5 shall be determined by Executive.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of
Executive's personal dishonesty, incompetence, willful misconduct, any breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order or material
breach of any provision of this Agreement. Notwithstanding the foregoing,
Executive shall not be deemed to have been Terminated for Cause unless and until
there shall have been delivered to him a Notice of Termination which shall
include a copy of a resolution duly adopted by the affirmative vote of not less
than a majority of the members of the Board at a meeting of the Board called and
held for that purpose (after reasonable notice to Executive and an opportunity
for him, together with counsel, to be heard before the Board), finding that in
the good faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail.
Executive shall not have the right to receive compensation or other benefits for
any period after the Date of Termination for Cause. During the period beginning
on the date of the Notice of Termination for Cause pursuant to Section 8 hereof
through the Date of Termination for Cause, stock options and related limited
rights granted to Executive under any stock option plan shall not be exercisable
nor shall any unvested awards granted to Executive under any stock benefit plan
of the Bank, the Holding Company or any subsidiary or affiliate thereof, vest.
At the Date of Termination for Cause, such stock options and related limited
rights and any unvested awards shall become null and void and shall not be
exercisable by or delivered to Executive at any time subsequent to such
Termination for Cause.
8. NOTICE.
(a) Any purported termination by the Bank or by Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes of
this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
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<PAGE>
(b) "Date of Termination" shall mean the date specified in the Notice
of Termination (which, in the case of a Termination for Cause, shall not be less
than thirty days from the date such Notice of Termination is given.).
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and,
provided further, that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, in the event the Executive is
terminated for reasons other than Termination for Cause, the Bank will continue
to pay Executive his Base Salary in effect when the notice giving rise to the
dispute was given until the earlier of: 1) the resolution of the dispute in
accordance with this Agreement or 2) the expiration of the remaining term of
this Agreement as determined as of the Date of Termination. Amounts paid under
this Section are in addition to all other amounts due under this Agreement and
shall not be offset against or reduce any other amounts due under this
Agreement.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Bank. Executive shall, upon reasonable notice,
furnish such information and assistance to the Bank as may reasonably be
required by the Bank in connection with any litigation in which it or any of its
subsidiaries or affiliates is, or may become, a party.
10. NON-COMPETITION AND NON-DISCLOSURE OF BANK BUSINESS.
(a) Upon any termination of Executive's employment hereunder pursuant to
Section 4 hereof, Executive agrees not to compete with the Bank for a period of
one (1) year following such termination in any city, town or county in which the
Executive's normal business office is located and the Bank has an office or has
filed an application for regulatory approval to establish an office, determined
as of the effective date of such termination, except as agreed to pursuant to a
resolution duly adopted by the Board. Executive agrees that during such period
and within said cities, towns and counties, Executive shall not work for or
advise, consult or otherwise serve with, directly or indirectly, any entity
whose business materially competes with the depository, lending or other
business activities of the Bank. The parties hereto, recognizing that
irreparable injury will result to the Bank, its business and property in the
event of Executive's breach of this Subsection 10(a) agree that in the event of
any such breach by Executive, the Bank, will be entitled, in addition to any
other remedies and damages available, to an injunction to restrain the violation
hereof by Executive, Executive's
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<PAGE>
partners, agents, servants, employees and all persons acting for or under the
direction of Executive. Nothing herein will be construed as prohibiting the
Bank from pursuing any other remedies available to the Bank for such breach or
threatened breach, including the recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Bank and affiliates
thereof, as it may exist from time to time, is a valuable, special and unique
asset of the business of the Bank. Executive will not, during or after the term
of his employment, disclose any knowledge of the past, present, planned or
considered business activities of the Bank or affiliates thereof to any person,
firm, corporation, or other entity for any reason or purpose whatsoever.
Notwithstanding the foregoing, Executive may disclose any knowledge of banking,
financial and/or economic principles, concepts or ideas which are not solely and
exclusively derived from the business plans and activities of the Bank. Further,
Executive may disclose information regarding the business activities of the Bank
to the OTS and the Federal Deposit Insurance Corporation ("FDIC") pursuant to a
formal regulatory request. In the event of a breach or threatened breach by
Executive of the provisions of this Section, the Bank will be entitled to an
injunction restraining Executive from disclosing, in whole or in part, the
knowledge of the past, present, planned or considered business activities of the
Bank or affiliates thereof, or from rendering any services to any person, firm,
corporation, other entity to whom such knowledge, in whole or in part, has been
disclosed or is threatened to be disclosed. Nothing herein will be construed as
prohibiting the Bank from pursuing any other remedies available to the Bank for
such breach or threatened breach, including the recovery of damages from
Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash
or check from the general funds of the Bank. The Holding Company, however,
unconditionally guarantees payment and provision of all amounts and benefits due
hereunder to Executive and, if such amounts and benefits due from the Bank are
not timely paid or provided by the Bank, such amounts and benefits shall be paid
or provided by the Holding Company.
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement dated _________, between
Executive and the Holding Company, such compensation payments and benefits paid
by the Holding Company will be subtracted from any amounts due simultaneously to
Executive under similar provisions of this Agreement. Payments pursuant to this
Agreement and the Holding Company Agreement shall be allocated in proportion to
the services rendered and time expended on such activities by Executive as
determined by the Holding Company and the Bank on a quarterly basis.
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<PAGE>
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Bank or any
predecessor of the Bank and Executive, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to Executive of
a kind elsewhere provided. No provision of this Agreement shall be interpreted
to mean that Executive is subject to receiving fewer benefits than those
available to him without reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Bank and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. REQUIRED PROVISIONS.
(a) The Bank may terminate Executive's employment at any time, but any
termination by the Bank, other than Termination for Cause, shall not prejudice
Executive's right to compensation or other benefits under this Agreement.
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause as defined in Section 7 hereinabove.
(b) If Executive is suspended from office and/or temporarily prohibited
from participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
Section 1818(e)(3) or (g)(1); the Bank's obligations under this contract shall
be suspended as of the date of service, unless stayed by
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<PAGE>
appropriate proceedings. If the charges in the notice are dismissed, the Bank
may in its discretion: (i) pay Executive all or part of the compensation
withheld while their contract obligations were suspended; and (ii) reinstate (in
whole or in part) any of the obligations which were suspended.
(c) If Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
Section 1818(e)(4) or (g)(1), all obligations of the Bank under this contract
shall terminate as of the effective date of the order, but vested rights of the
contracting parties shall not be affected.
(d) If the Bank is in default as defined in Section 3(x)(1) of the Federal
Deposit Insurance Act, 12 U.S.C. Section 1813(x)(1) all obligations of the Bank
under this contract shall terminate as of the date of default, but this
paragraph shall not affect any vested rights of the contracting parties.
(e) All obligations of the Bank under this contract shall be terminated,
except to the extent determined that continuation of the contract is necessary
for the continued operation of the institution: (i) by the Director of the OTS
(or his designee), the FDIC or the Resolution Trust Corporation, at the time the
FDIC enters into an agreement to provide assistance to or on behalf of the Bank
under the authority contained in Section 13(c) of the Federal Deposit Insurance
Act, 12 U.S.C. Section 1823(c); or (ii) by the Director of the OTS (or his
designee) at the time the Director (or his designee) approves a supervisory
merger to resolve problems related to the operations of the Bank or when the
Bank is determined by the Director to be in an unsafe or unsound condition. Any
rights of the parties that have already vested, however, shall not be affected
by such action.
(f) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
Section 1828(k) and 12 C.F.R. Section 545.121 and any rules and regulations
promulgated thereunder.
16. REINSTATEMENT OF BENEFITS UNDER SECTION 15(b).
In the event Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice described in
Section 15(b) hereof (the "Notice") during the term of this Agreement and a
Change in Control, as defined herein, occurs, the Bank will assume its
obligation to pay and Executive will be entitled to receive all of the
termination benefits provided for under Section 5 of this Agreement upon the
Bank's receipt of a dismissal of charges in the Notice.
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17. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
18. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
19. GOVERNING LAW.
The validity, interpretation, performance and enforcement of this Agreement
shall be governed by the laws of the State of Delaware, but only to the extent
not superseded by federal law.
20. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Bank, in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of Executive, whether by judgment,
arbitration or settlement, Executive shall be entitled to the payment of all
back-pay, including salary, bonuses and any other cash compensation, fringe
benefits and any compensation and benefits due Executive under this Agreement.
21. PAYMENT OF COSTS AND LEGAL FEES.
All reasonable costs and legal fees paid or incurred by Executive pursuant
to any dispute or question of interpretation relating to this Agreement shall be
paid or reimbursed by the Bank if Executive is successful on the merits pursuant
to a legal judgment, arbitration or settlement.
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<PAGE>
22. INDEMNIFICATION.
(a) The Bank shall provide Executive (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, or in lieu thereof, shall indemnify
Executive (and his heirs, executors and administrators) as permitted under
federal law against all expenses and liabilities reasonably incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved by reason of his having been a director or officer of the Bank
(whether or not he continues to be a director or officer at the time of
incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgments, court costs and attorneys' fees and
the cost of reasonable settlements.
(b) Any payments made to Executive pursuant to this Section are subject to
and conditioned upon compliance with 12 C.F.R. Section 545.121 and any rules or
regulations promulgated thereunder.
23. SUCCESSOR TO THE BANK.
The Bank shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank or the Holding Company,
expressly and unconditionally to assume and agree to perform the Bank's
obligations under this Agreement, in the same manner and to the same extent that
the Bank would be required to perform if no such succession or assignment had
taken place.
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<PAGE>
SIGNATURES
IN WITNESS WHEREOF, First Federal Savings Bank of America and FIRSTFED
AMERICA BANCORP, INC. have caused this Agreement to be executed and their seals
to be affixed hereunto by their duly authorized officers and directors, and
Executive has signed this Agreement, on the ____ day of ___________, 199_.
ATTEST: FIRST FEDERAL SAVINGS BANK
OF AMERICA
________________________________ By: __________________________________________
____________ ____________
Secretary President and Chief Executive Officer
[SEAL]
ATTEST: FIRSTFED AMERICA BANCORP, INC.
(Guarantor)
________________________________ By: _______________________________________
____________ ____________
Secretary President and Chief Executive Officer
[SEAL]
WITNESS:
________________________________ _______________________________________
______________
Executive
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Exhibit 10.5
FORM OF
FIRSTFED AMERICA BANCORP, INC.
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of __________, 199_ by
and between FIRSTFED AMERICA BANCORP, INC. (the "Holding Company"), a
corporation organized under the laws of Delaware, with its principal offices at
One North Main Street, Fall River, Massachusetts, and ______________
("Executive"). Any reference to "Institution" herein shall mean First Federal
Savings Bank of America or any successor thereto.
WHEREAS, the Holding Company wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the Holding
Company on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of Executive's employment hereunder, Executive agrees to
serve as __________ of the Holding Company. The Executive shall render
administrative and management services to the Holding Company such as are
customarily performed by persons in a similar executive capacity. During said
period, Executive also agrees to serve, if elected, as an officer and director
of any subsidiary of the Holding Company.
2. TERMS.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of [TWENTY FOUR (24) / THIRTY-SIX (36)] full calendar months
thereafter. Commencing on the date of the execution of this Agreement, the term
of this Agreement shall be extended for one day each day until such time as the
board of directors of the Holding Company (the "Board") or Executive elects not
to extend the term of the Agreement by giving written notice to the other party
in accordance with Section 8 of this Agreement, in which case the term of this
Agreement shall be fixed and shall end on the [SECOND / THIRD] anniversary of
the date of such written notice.
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantially all his
business time, attention, skill, and efforts to the faithful performance of his
duties hereunder, including activities and services related to the organization,
operation and management of the Holding Company and its direct or indirect
subsidiaries ("Subsidiaries") and participation in community, professional and
civic
<PAGE>
organizations; provided, however, that, with the approval of the Board, as
evidenced by a resolution of such Board, from time to time, Executive may serve,
or continue to serve, on the boards of directors of, and hold any other offices
or positions in, companies or organizations, which, in such Board's judgment,
will not present any conflict of interest with the Holding Company or its
Subsidiaries, or materially affect the performance of Executive's duties
pursuant to this Agreement.
(c) Notwithstanding anything herein contained to the contrary, Executive's
employment with the Holding Company may be terminated by the Holding Company or
Executive during the term of this Agreement, subject to the terms and conditions
of this Agreement. However, Executive shall not perform, in any respect,
directly or indirectly, during the pendency of his temporary or permanent
suspension or termination from the Institution, duties and responsibilities
formerly performed at the Institution as part of his duties and responsibilities
as __________ of the Holding Company.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Executive shall be entitled to a salary from the Holding Company
or its Subsidiaries of $__________ per year ("Base Salary"). Base Salary shall
include any amounts of compensation deferred by Executive under any qualified or
unqualified plan maintained by the Holding Company and its Subsidiaries. Such
Base Salary shall be payable bi-weekly. During the period of this Agreement,
Executive's Base Salary shall be reviewed at least annually; the first such
review will be made no later than one year from the date of this Agreement. Such
review shall be conducted by the Board or by a Committee of the Board delegated
such responsibility by the Board. The Committee or the Board may increase
Executive's Base Salary. Any increase in Base Salary shall become the "Base
Salary" for purposes of this Agreement. In addition to the Base Salary provided
in this Section 3(a), the Holding Company shall also provide Executive, at no
premium cost to Executive, with all such other benefits as provided uniformly to
permanent full-time employees of the Holding Company and its Subsidiaries.
(b) The Executive shall be entitled to participate in any employee benefit
plans, arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the Holding Company and its
Subsidiaries will not, without Executive's prior written consent, make any
changes in such plans, arrangements or perquisites which would materially
adversely affect Executive's rights or benefits thereunder, except to the extent
that such changes are made applicable to all Holding Company and Institution
employees eligible to participate in such plans, arrangements and perquisites on
a non-discriminatory basis. Without limiting the generality of the foregoing
provisions of this Subsection (b), Executive shall be entitled to participate in
or receive benefits under any employee benefit plans including, but not limited
to, retirement plans, supplemental retirement plans, pension plans, profit-
sharing plans, health-and-accident plans, medical coverage and any other
employee benefit plan or arrangement made available by the Holding Company and
its Subsidiaries in the future to its senior executives and key management
employees, subject to
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and on a basis consistent with the terms, conditions and overall administration
of such plans and arrangements. Executive shall be entitled to incentive
compensation and bonuses as provided in any plan of the Holding Company and its
Subsidiaries in which Executive is eligible to participate. Nothing paid to the
Executive under any such plan or arrangement will be deemed to be in lieu of
other compensation to which the Executive is entitled under this Agreement.
(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3 and other compensation provided for by paragraph (b) of this Section
3, the Holding Company shall pay or reimburse Executive for all reasonable
travel and other reasonable expenses incurred in the performance of Executive's
obligations under this Agreement and may provide such additional compensation in
such form and such amounts as the Board may from time to time determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Holding Company of Executive's full-time employment hereunder
for any reason other than termination governed by Section 5(a) hereof, or for
Cause, as defined in Section 7 hereof; (ii) Executive's resignation from the
Holding Company's employ, upon, any (A) failure to elect or reelect or to
appoint or reappoint Executive as unless consented to by the Executive,
-------
(B) a material change in Executive's function, duties, or responsibilities
with the Holding Company or its Subsidiaries, which change would cause
Executive's position to become one of lesser responsibility, importance, or
scope from the position and attributes thereof described in Section 1, above,
unless consented to by the Executive, (C) a relocation of Executive's principal
place of employment by more than 25 miles from its location at the effective
date of this Agreement, unless consented to by the Executive, (D) a material
reduction in the benefits and perquisites to the Executive from those being
provided as of the effective date of this Agreement, unless consented to by the
Executive, (E) a liquidation or dissolution of the Holding Company or the
Institution, or (F) breach of this Agreement by the Holding Company. Upon the
occurrence of any event described in clauses (A), (B), (C), (D), (E) or (F),
above, Executive shall have the right to elect to terminate his employment under
this Agreement by resignation upon not less than sixty (60) days prior written
notice given within six full calendar months after the event giving rise to said
right to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Holding Company shall be obligated to
pay Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, a sum equal to the sum of: (i)
the amount of the remaining payments that the Executive would have earned if he
had continued his employment with the Institution during the remaining term of
this Agreement at the Executive's Base Salary at the Date of Termination; and
(ii) the amount equal to the annual contributions that would have been made on
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Executive's behalf to any employee benefit plans of the Institution or the
Holding Company during the remaining term of this Agreement based on
contributions made (on an annualized basis) at the Date of Termination. At the
election of the Executive, which election is to be made prior to an Event of
Termination, such payments shall be made in a lump sum. In the event that no
election is made, payment to the Executive will be made on a monthly basis in
approximately equal installments during the remaining term of the Agreement.
Such payments shall not be reduced in the event the Executive obtains other
employment following termination of employment.
(c) Upon the occurrence of an Event of Termination, the Holding Company
will cause to be continued life, medical, dental and disability coverage
substantially equivalent to the coverage maintained by the Holding Company or
its Subsidiaries for Executive prior to his termination at no premium cost to
the Executive. Such coverage shall cease upon the expiration of the remaining
term of this Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the Holding
Company or the Institution shall mean an event of a nature that: (i) would be
required to be reported in response to Item 1(a) of the current report on Form
8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a
Change in Control of the Institution or the Holding Company within the meaning
of the Home Owners' Loan Act of 1933, as amended, the Federal Deposit Insurance
Act, and the Rules and Regulations promulgated by the Office of Thrift
Supervision (or its predecessor agency), as in effect on the date hereof
(provided, that in applying the definition of change in control as set forth
under the rules and regulations of the OTS, the Board shall substitute its
judgment for that of the OTS); or (iii) without limitation such a Change in
Control shall be deemed to have occurred at such time as (A) any "person" (as
the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of voting securities of the Institution or the Holding
Company representing 20% or more of the Institution's or the Holding Company's
outstanding voting securities or right to acquire such securities except for any
voting securities of the Institution purchased by the Holding Company and any
voting securities purchased by any employee benefit plan of the Holding Company
or its Subsidiaries, or (B) individuals who constitute the Board on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least three-quarters of
the directors comprising the Incumbent Board, or whose nomination for election
by the Company's stockholders was approved by a Nominating Committee solely
composed of members which are Incumbent Board members, shall be, for purposes of
this clause (B), considered as though he were a member of the Incumbent Board,
or (C) a plan of reorganization, merger, consolidation, sale of all or
substantially all the assets of the Institution or the Holding Company or
similar transaction occurs or is effectuated in which the Institution or Holding
Company is not the resulting entity; provided, however, that such an event
listed above will be deemed to have occurred or
4
<PAGE>
to have been effectuated upon the receipt of all required federal regulatory
approvals not including the lapse of any statutory waiting periods, or (D) a
proxy statement has been distributed soliciting proxies from stockholders of the
Holding Company, by someone other than the current management of the Holding
Company, seeking stockholder approval of a plan of reorganization, merger or
consolidation of the Holding Company or Institution with one or more
corporations as a result of which the outstanding shares of the class of
securities then subject to such plan or transaction are exchanged for or
converted into cash or property or securities not issued by the Institution or
the Holding Company shall be distributed, or (E) a tender offer is made for 20%
or more of the voting securities of the Institution or Holding Company then
outstanding.
(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in paragraphs (c) and (d), of this Section 5
upon his subsequent termination of employment at any time during the term of
this Agreement due to (i) Executive's dismissal, or (ii) Executive's voluntary
resignation following any demotion, loss of title, office or significant
authority or responsibility, reduction in the annual compensation or reduction
in benefits or relocation of his principal place of employment by more than 25
miles from its location immediately prior to the change in control, unless such
termination is because of his death or termination for Cause.
(c) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Holding Company shall pay Executive, or in the event of his subsequent
death, his beneficiary or beneficiaries, or his estate, as the case may be, as
severance pay or liquidated damages, or both, a sum equal to the greater of:
(i) the payments due for the remaining term of the Agreement; or (ii) three (3)
times Executive's average annual compensation for the five (5) preceding taxable
years. Such annual compensation shall include Base Salary, commissions,
bonuses, contributions on behalf of Executive to any pension and profit sharing
plan, severance payments, directors or committee fees and fringe benefits paid
or to be paid to the Executive during such years. At the election of the
Executive, which election is to be made prior to a Change in Control, such
payment shall be made in a lump sum. In the event that no election is made,
payment to the Executive will be made on a monthly basis in approximately equal
installments during the remaining term of the Agreement. Such payments shall
not be reduced in the event Executive obtains other employment following
termination of employment.
(d) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Company will cause to be continued life, medical, dental and disability
coverage substantially equivalent to the coverage maintained by the Institution
for Executive at no premium cost to Executive prior to his severance. Such
coverage and payments shall cease upon the expiration of [TWENTY FOUR (24) /
THIRTY-SIX (36)] months following the Change in Control.
5
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6. CHANGE OF CONTROL RELATED PROVISIONS.
(a) Notwithstanding the provisions of Section 5, in the event that:
(i) the aggregate payments or benefits to be made or afforded to
Executive, which are deemed to be parachute payments as defined
in Section 280G of the Internal Revenue Code of 1986, as amended
(the "Code") or any successor thereof, (the "Termination
Benefits") would be deemed to include an "excess parachute
payment" under Section 280G of the Code; and
(ii) if such Termination Benefits were reduced to an amount (the "Non-
Triggering Amount"), the value of which is one dollar ($1.00)
less than an amount equal to three (3) times Executive's "base
amount," as determined in accordance with said Section 280G and
the Non-Triggering Amount less the product of the marginal rate
of any applicable state and federal income tax and the Non-
Triggering Amount would be greater than the aggregate value of
the Termination Benefits (without such reduction) minus (i) the
amount of tax required to be paid by the Executive thereon by
Section 4999 of the Code and further minus (ii) the product of
the Termination Benefits and the marginal rate of any applicable
state and federal income tax,
then the Termination Benefits shall be reduced to the Non-Triggering Amount.
The allocation of the reduction required hereby among the Termination Benefits
shall be determined by the Executive.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of
Executive's personal dishonesty, willful misconduct, any breach of fiduciary
duty involving personal profit, intentional failure to perform stated duties,
willful violation of any law, rule, regulation (other than traffic violations or
similar offenses), final cease and desist order or material breach of any
provision of this Agreement. Notwithstanding the foregoing, Executive shall not
be deemed to have been terminated for Cause unless and until there shall have
been delivered to him a Notice of Termination which shall include a copy of a
resolution duly adopted by the affirmative vote of not less than three-fourths
of the members of the Board at a meeting of the Board called and held for that
purpose (after reasonable notice to Executive and an opportunity for him,
together with counsel, to be heard before the Board), finding that in the good
faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail. The
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause. During the period beginning on the
date of the Notice of Termination for Cause pursuant to Section 8 hereof through
the Date of Termination, stock options and related limited rights granted to
Executive under any stock option plan shall not be exercisable nor
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shall any unvested awards granted to Executive under any stock benefit plan of
the Institution, the Holding Company or any subsidiary or affiliate thereof,
vest. At the Date of Termination, such stock options and related limited rights
and any such unvested awards shall become null and void and shall not be
exercisable by or delivered to Executive at any time subsequent to such
Termination for Cause.
8. NOTICE.
(a) Any purported termination by the Holding Company or by Executive shall
be communicated by Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment under the
provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by the Executive in which case the
Date of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected)
and provided further that the Date of Termination shall be extended by a notice
of dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Holding Company will
continue to pay Executive his full compensation in effect when the notice giving
rise to the dispute was given (including, but not limited to, Base Salary) and
continue him as a participant in all compensation, benefit and insurance plans
in which he was participating when the notice of dispute was given, until the
dispute is finally resolved in accordance with this Agreement. Amounts paid
under this Section are in addition to all other amounts due under this Agreement
and shall not be offset against or reduce any other amounts due under this
Agreement.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Holding Company. Executive shall, upon
reasonable notice, furnish such information and assistance to the Holding
Company as may reasonably be required by the Holding Company in connection
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with any litigation in which it or any of its subsidiaries or affiliates is, or
may become, a party.
10. NON-COMPETITION AND NON-DISCLOSURE.
(a) Upon any termination of Executive's employment hereunder pursuant to
Section 4 hereof, Executive agrees not to compete with the Holding Company or
its Subsidiaries for a period of one (1) year following such termination in any
city, town or county in which the Executive's normal business office is located
and the Holding Company or any of its Subsidiaries has an office or has filed an
application for regulatory approval to establish an office, determined as of the
effective date of such termination, except as agreed to pursuant to a resolution
duly adopted by the Board. Executive agrees that during such period and within
said cities, towns and counties, Executive shall not work for or advise, consult
or otherwise serve with, directly or indirectly, any entity whose business
materially competes with the depository, lending or other business activities of
the Holding Company or its Subsidiaries. The parties hereto, recognizing that
irreparable injury will result to the Holding Company or its Subsidiaries, its
business and property in the event of Executive's breach of this Subsection
10(a) agree that in the event of any such breach by Executive, the Holding
Company or its Subsidiaries, will be entitled, in addition to any other remedies
and damages available, to an injunction to restrain the violation hereof by
Executive, Executive's partners, agents, servants, employees and all persons
acting for or under the direction of Executive. Executive represents and admits
that in the event of the termination of his employment pursuant to Section 7
hereof, Executive's experience and capabilities are such that Executive can
obtain employment in a business engaged in other lines and/or of a different
nature than the Holding Company or its Subsidiaries, and that the enforcement of
a remedy by way of injunction will not prevent Executive from earning a
livelihood. Nothing herein will be construed as prohibiting the Holding Company
or its Subsidiaries from pursuing any other remedies available to the Holding
Company or its Subsidiaries for such breach or threatened breach, including the
recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Holding Company and
its Subsidiaries as it may exist from time to time, is a valuable, special and
unique asset of the business of the Holding Company and its Subsidiaries.
Executive will not, during or after the term of his employment, disclose any
knowledge of the past, present, planned or considered business activities of the
Holding Company and its Subsidiaries thereof to any person, firm, corporation,
or other entity for any reason or purpose whatsoever unless expressly authorized
by the Board of Directors or required by law. Notwithstanding the foregoing,
Executive may disclose any knowledge of banking, financial and/or economic
principles, concepts or ideas which are not solely and exclusively derived from
the business plans and activities of the Holding Company. In the event of a
breach or threatened breach by the Executive of the provisions of this Section,
the Holding Company will be entitled to an injunction restraining Executive from
disclosing, in whole or in part, the knowledge of the past, present, planned or
considered business activities of the Holding Company or its Subsidiaries or
from rendering any services to any person, firm, corporation, other entity to
whom such knowledge, in whole
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or in part, has been disclosed or is threatened to be disclosed. Nothing herein
will be construed as prohibiting the Holding Company from pursuing any other
remedies available to the Holding Company for such breach or threatened breach,
including the recovery of damages from Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash
or check from the general funds of the Holding Company subject to Section 11(b).
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement dated __________, between
Executive and the Institution, such compensation payments and benefits paid by
the Institution will be subtracted from any amount due simultaneously to
Executive under similar provisions of this Agreement. Payments pursuant to this
Agreement and the Institution Agreement shall be allocated in proportion to the
level of activity and the time expended on such activities by the Executive as
determined by the Holding Company and the Institution on a quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Holding Company or any
predecessor of the Holding Company and Executive, except that this Agreement
shall not affect or operate to reduce any benefit or compensation inuring to the
Executive of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Holding Company and their respective successors and assigns.
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14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
16. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
17. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Delaware,
unless otherwise specified herein.
18. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the Executive within
fifty (50) miles from the location of the Institution, in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that Executive shall be entitled to seek specific performance of his
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of the Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of all back-pay, including salary,
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bonuses and any other cash compensation, fringe benefits and any compensation
and benefits due Executive under this Agreement.
19. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the Holding Company, if Executive is successful pursuant to a
legal judgment, arbitration or settlement.
20. INDEMNIFICATION.
The Holding Company shall provide Executive (including his heirs, executors
and administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, and shall indemnify Executive (and
his heirs, executors and administrators) to the fullest extent permitted under
Delaware law against all expenses and liabilities reasonably incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved by reason of his having been a director or officer of the Holding
Company (whether or not he continues to be a director or officer at the time of
incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgments, court costs and attorneys' fees and
the cost of reasonable settlements.
21. SUCCESSOR TO THE HOLDING COMPANY.
The Holding Company shall require any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Institution or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Holding Company's obligations under this Agreement, in the same manner and to
the same extent that the Holding Company would be required to perform if no such
succession or assignment had taken place.
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SIGNATURES
IN WITNESS WHEREOF, FIRSTFED AMERICA BANCORP, INC. has caused this
Agreement to be executed and its seal to be affixed hereunto by its duly
authorized officer and its directors, and Executive has signed this Agreement,
on the ____ day of ____, 199_.
ATTEST: FIRSTFED AMERICA BANCORP, INC.
________________________ By: __________________________________
_______________ _______________
Secretary Chairman of the Board, President
and Chief Executive Officer
For the Entire Board of Directors
[SEAL]
WITNESS:
________________________ By: __________________________________
_______________
Executive
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Exhibit 10.6
FORM OF
FIRST FEDERAL SAVINGS BANK OF AMERICA
TWO YEAR CHANGE IN CONTROL AGREEMENT
This AGREEMENT is made effective as of __________, 199_ by and among
First Federal Savings Bank of America (the "Institution"), a federally chartered
savings bank, with its principal administrative office at One North Main Street,
Fall River, Massachusetts 02720, _____________ ("Executive"), and FIRSTFED
AMERICA BANCORP, INC. (the "Holding Company"), a corporation organized under the
laws of the State of Delaware which is the holding company of the Institution.
WHEREAS, the Institution recognizes the substantial contribution
Executive has made to the Institution and wishes to protect Executive's position
therewith for the period provided in this Agreement; and
WHEREAS, Executive has agreed to serve in the employ of the
Institution.
NOW, THEREFORE, in consideration of the contribution and
responsibilities of Executive, and upon the other terms and conditions
hereinafter provided, the parties hereto agree as follows:
1. TERM OF AGREEMENT.
-----------------
The term of the First Federal Savings Bank of America Two Year Change
in Control Agreement (the "Agreement") shall be deemed to have commenced as of
the date first above written and shall continue for a period of twenty-four (24)
full calendar months thereafter. Commencing on the first anniversary date of
this Agreement and continuing at each anniversary date thereafter, the Board of
Directors of the Institution ("Board") may extend the Agreement for an
additional year. The Board will review the Agreement and Executive's
performance annually for purposes of determining whether to extend the
Agreement, and the results thereof shall be included in the minutes of the
Board's meeting.
2. CHANGE IN CONTROL.
-----------------
(a) Upon the occurrence of a Change in Control of the Institution or
the Holding Company (as herein defined) followed at any time during the term of
this Agreement by the termination of Executive's employment, other than for
Cause, as defined in Section 2(c) hereof, the provisions of Section 3 shall
apply. Upon the occurrence of a Change in Control, Executive shall have the
right to elect to voluntarily terminate his employment at any time during the
term of this Agreement following any demotion, loss of title, office or
significant authority, reduction in his annual compensation or benefits, or
relocation of his principal place of employment by more than 25 miles from its
location immediately prior to the Change in Control; provided, however, the
Executive may consent in writing to any such demotion, loss, reduction or
relocation. The effect of any written consent of the Executive under this
Section 2 (a) shall be strictly limited to the terms specified in such written
consent.
<PAGE>
(b) For purposes of this Agreement, a "Change in Control" of the
Institution or Holding Company shall mean an event of a nature that: (i) would
be required to be reported in response to Item 1 of the current report on Form
8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); or (ii)
results in a Change in Control of the Institution or the Holding Company within
the meaning of the Home Owners' Loan Act of 1933, as amended, the Federal
Deposit Insurance Act and the Rules and Regulations promulgated by the Office of
Thrift Supervision ("OTS") (or its predecessor agency), as in effect on the date
hereof (provided, that in applying the definition of change in control as set
forth under the rules and regulations of the OTS, the Board shall substitute its
judgment for that of the OTS); or (iii) without limitation such a Change in
Control shall be deemed to have occurred at such time as (A) any "person" (as
the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of voting securities of the Institution or the Holding
Company representing 25% or more of the Institution's or the Holding Company's
outstanding voting securities or right to acquire such securities except for any
voting securities of the Institution purchased by the Holding Company and any
voting securities purchased by any employee benefit plan of the Institution or
the Holding Company, or (B) individuals who constitute the Board on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least three-quarters of
the directors comprising the Incumbent Board, or whose nomination for election
by the Holding Company's stockholders was approved by the same Nominating
Committee serving under an Incumbent Board, shall be, for purposes of this
clause (B), considered as though he were a member of the Incumbent Board, or (C)
a plan of reorganization, merger, consolidation, sale of all or substantially
all the assets of the Institution or the Holding Company or similar transaction
occurs in which the Institution or Holding Company is not the resulting entity;
provided, however, that such an event listed above will be deemed to have
occurred or to have been effectuated upon the receipt of all required regulatory
approvals not including the lapse of any statutory waiting periods.
(c) Executive shall not have the receive termination benefits pursuant
to Section 3 hereof upon Termination for Cause. The term "Termination for
Cause" shall mean termination because of Executive's personal dishonesty,
incompetence, willful misconduct, any breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, willful violation
of any law, rule or regulation (other than traffic violations or similar
offenses) or final cease-and-desist order or material breach of any provision of
this Agreement. Notwithstanding the foregoing, Executive shall not be deemed to
have been Terminated for Cause unless and until there shall have been delivered
to him a Notice of Termination which shall include a copy of a resolution duly
adopted by the affirmative vote of not less than a majority of the members of
the Board at a meeting of the Board called and held for that purpose (after
reasonable notice to Executive and an opportunity for him, together with
counsel, to be heard before the Board), finding that in the good faith opinion
of the Board, Executive was guilty of conduct justifying Termination for Cause
and specifying the particulars thereof in detail. Executive shall not have the
right to receive compensation or
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other benefits for any period after Termination for Cause. During the period
beginning on the date of the Notice of Termination for Cause pursuant to Section
4 hereof through the Date of Termination, stock options and related limited
rights granted to Executive under any stock option plan shall not be exercisable
nor shall any unvested awards granted to Executive under any stock benefit plan
of the Institution, the Holding Company or any subsidiary or affiliate thereof
vest. At the Date of Termination, such stock options and related limited rights
and such unvested awards shall become null and void and shall not be exercisable
by or delivered to Executive at any time subsequent to such Date of Termination
for Cause.
3. TERMINATION BENEFITS.
--------------------
(a) Upon the occurrence of a Change in Control, followed at any time
during the term of this Agreement by termination of the Executive's employment
due to: (1) Executive's dismissal or (2) Executive's voluntary termination
pursuant to Section 2(a), unless such termination is due to Termination for
Cause, the Institution and the Holding Company shall pay Executive, or in the
event of his subsequent death, his beneficiary or beneficiaries, or his estate,
as the case may be, a sum equal to two (2) times Executive's average annual
compensation for the five most recent taxable years that Executive has been
employed by the Institution or such lesser number of years in the event that
Executive shall have been employed by the Institution for less than five years,
such average annual compensation shall include any bonuses, and any other
compensation paid or to be paid to Executive in any such year, the amount of
benefits paid or accrued to Executive pursuant to any employee benefit plan
maintained by the Institution or Holding Company in any such year and the amount
of any contributions made or to be made on behalf of Executive pursuant to any
employee benefit plan maintained by the Institution or the Holding Company in
any such year. At the election of Executive, which election is to be made
prior to a Change in Control, such payment shall be made in a lump sum. In the
event that no election is made, payment to Executive will be made on a monthly
basis in approximately equal installments during the remaining term of this
Agreement.
(b) Upon the occurrence of a Change in Control of the Institution or
the Holding Company followed at any time during the term of this Agreement by
Executive's voluntary or involuntary termination of employment, other than for
Termination for Cause, the Institution shall cause to be continued life, medical
and disability coverage substantially identical to the coverage maintained by
the Institution or Holding Company for Executive prior to his severance, except
to the extent such coverage may be changed in its application to all Institution
or Holding Company employees on a nondiscriminatory basis. Such coverage and
payments shall cease upon the expiration of twenty four (24) full calendar
months from the Date of Termination.
(c) Notwithstanding the preceding paragraphs of this Section 3, in no
event shall the aggregate payments or benefits to be made or afforded to
Executive under said paragraphs (the "Termination Benefits") constitute an
"excess parachute payment" under Section 280G of the Internal Revenue Code of
1986, as amended, or any successor thereto, and in order to avoid such a result
Termination Benefits will be reduced, if necessary, to an amount (the
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"Non-Triggering Amount"), the value of which is one dollar ($1.00) less than an
amount equal to three (3) times Executive's "base amount," as determined in
accordance with said Section 280G. The allocation of the reduction required
hereby among the Termination Benefits provided by the preceding paragraphs of
this Section 3 shall be determined by Executive.
4. NOTICE OF TERMINATION.
---------------------
(a) Any purported termination by the Institution or by Executive in
connection with a Change in Control shall be communicated by Notice of
Termination to the other party hereto. For purposes of this Agreement, a
"Notice of Termination" shall mean a written notice which shall indicate the
specific termination provision in this Agreement relied upon and shall set forth
in reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice
of Termination (which, in the instance of Termination for Cause, shall not be
less than thirty (30) days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination, the Date of Termination shall
be the date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute in connection with a Change in
Control, in the event that the Executive is terminated for reasons other than
Termination for Cause, the Institution will continue to pay Executive his full
compensation in effect when the notice giving rise to the dispute was given
(including, but not limited to his annual salary) and continue him as a
participant in all compensation, benefit and insurance plans in which he was
participating when the notice of dispute was given, until the earlier of: (1)
the resolution of the dispute in accordance with this Agreement; or (2) the
expiration of the remaining term of this Agreement as determined as of the Date
of Termination.
5. SOURCE OF PAYMENTS.
------------------
It is intended by the parties hereto that all payments provided in
this Agreement shall be paid in cash or check from the general funds of the
Institution. Further, the Holding Company guarantees such payment and provision
of all amounts and benefits due hereunder to Executive and, if such amounts and
benefits due from the Institution are not timely paid or provided by the
Institution, such amounts and benefits shall be paid or provided by the Holding
Company.
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6. 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 Institution and Executive,
except that this Agreement shall not affect or operate to reduce any benefit or
compensation inuring to Executive of a kind elsewhere provided. No provision of
this Agreement shall be interpreted to mean that Executive is subject to
receiving fewer benefits than those available to him without reference to this
Agreement.
Nothing in this Agreement shall confer upon Executive the right to
continue in the employ of Institution or shall impose on the Institution any
obligation to employ or retain Executive in its employ for any period.
7. NO ATTACHMENT.
-------------
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive, the Institution and their respective successors and assigns.
8. MODIFICATION AND WAIVER.
-----------------------
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have
been waived, nor shall there be any estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party charged
with such waiver or estoppel. No such written waiver shall be deemed a
continuing waiver unless specifically stated therein, and each such waiver shall
operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as to any act
other than that specifically waived.
9. REQUIRED REGULATORY PROVISIONS.
------------------------------
(a) The board of directors may terminate Executive's employment at any
time, but any termination by the board of directors, other than Termination for
Cause, shall not prejudice Executive's right to compensation or other benefits
under this Agreement. Executive shall not have the right to receive
compensation or other benefits for any period after Termination for Cause as
defined in Section 2 hereinabove.
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(b) If Executive is suspended from office and/or temporarily
prohibited from participating in the conduct of the Institution's affairs by a
notice served under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance
Act (12 U.S.C. Section 1818(e)(3) or (g)(1)), the Institution's obligations
under this contract shall be suspended as of the date of service, unless stayed
by appropriate proceedings. If the charges in the notice are dismissed, the
Institution may in its discretion (i) pay Executive all or part of the
compensation withheld while their contract obligations were suspended and (ii)
reinstate (in whole or in part) any of the obligations which were suspended.
(c) If Executive is removed and/or permanently prohibited from
participating in the conduct of the Institution's affairs by an order issued
under Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act (12 U.S.C.
Section 1818(e)(4) or (g)(1)), all obligations of the Institution under this
contract shall terminate as of the effective date of the order, but vested
rights of the contracting parties shall not be affected.
(d) If the Institution is in default as defined in Section 3(x)(1) of
the Federal Deposit Insurance Act, all obligations of the Institution under this
contract shall terminate as of the date of default, but this paragraph shall not
affect any vested rights of the contracting parties.
(e) All obligations under this contract shall be terminated, except to
the extent determined that continuation of the contract is necessary for the
continued operation of the institution: (i) by the Director of the Office of
Thrift Supervision (or his or her designee) at the time the Federal Deposit
Insurance Corporation enters into an agreement to provide assistance to or on
behalf of the Institution under the authority contained in Section 13(c) of the
Federal Deposit Insurance Act; or (ii) by the Director of the Office of Thrift
Supervision (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 Institution or when the Institution is determined by the Director to be
in an unsafe or unsound condition. Any rights of the parties that have already
vested, however, shall not be affected by such action.
(f) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
Section 1828(k) and any rules and regulations promulgated thereunder.
10. REINSTATEMENT OF BENEFITS UNDER SECTION 9(b).
--------------------------------------------
In the event Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Institution's affairs by a notice described
in Section 9(b) hereof (the "Notice") during the term of this Agreement and a
Change in Control, as defined herein, occurs, the Institution will assume its
obligation to pay and Executive will be entitled to receive all of the
termination benefits provided for under Section 3 of this Agreement upon the
Institution's receipt of a dismissal of charges in the Notice of Termination.
6
<PAGE>
11. SEVERABILITY.
------------
If, for any reason, any provision of this Agreement, or any part of
any provision, is held invalid, such invalidity shall not affect any other
provision of this Agreement or any part of such provision not held so invalid,
and each such other provision and part thereof shall to the full extent
consistent with law continue in full force and effect.
12. HEADINGS FOR REFERENCE ONLY.
---------------------------
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement. In addition, references to the
masculine shall apply equally to the feminine.
13. GOVERNING LAW.
-------------
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of Delaware but only to the
extent not preempted by Federal law.
14. ARBITRATION.
-----------
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Institution's main office, in accordance
with the rules of the American Arbitration Association then in effect. Judgment
may be entered on the arbitrator's award in any court having jurisdiction;
provided, however, that Executive shall be entitled to seek specific performance
of his right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
15. PAYMENT OF COSTS AND LEGAL FEES.
-------------------------------
All reasonable costs and legal fees paid or incurred by Executive
pursuant to any dispute or question of interpretation relating to this Agreement
shall be paid or reimbursed by the Institution (which payments are guaranteed by
the Holding Company pursuant to Section 5 hereof) if Executive is successful on
the merits pursuant to a legal judgment, arbitration or settlement.
16. INDEMNIFICATION.
---------------
The Institution shall provide Executive (including his or her legal
representatives, successors and assigns) with coverage under a standard
directors' and officers' liability insurance policy at its expense, or in lieu
thereof, shall indemnify Executive (including his or her legal representatives,
successors and assigns) for reasonable costs and expenses incurred by Executive
in defending or settling any judicial or administrative proceeding, or
threatened
7
<PAGE>
proceeding, whether civil, criminal or otherwise, including any appeal or other
proceeding for review.
Indemnification by the Institution shall be made only upon the final
judgment on the merits in the favor of Executive, in case of settlement, in case
of final judgment against Executive or in the case of final judgment in favor of
Executive other than on the merits, if a majority of the disinterested directors
of the Institution determine Executive was acting in good faith within the scope
of Executive's employment or authority in accordance with 12 C.F.R. Section
545.121(c)(iii).
Any such indemnification of Executive must conform with the notice
provisions of 12 C.F.R. Section 545.121(c)(iii) to indemnify Executive to the
fullest for such expenses and liabilities to include, but not be limited to,
judgments, court costs and attorneys' fees and the cost of reasonable
settlements, such settlements to be approved by the Board of Directors of the
Institution, if such action is brought against Executive in his or her capacity
as a officer or director of the Institution, however, shall not extend to
matters as to which Executive is finally adjudged to be liable for willful
misconduct in the performance of his or her duties.
17. SUCCESSOR TO THE INSTITUTION.
----------------------------
The Institution shall require any successor or assignee, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Institution, expressly and
unconditionally to assume and agree to perform the Institution's obligations
under this Agreement, in the same manner and to the same extent that the
Institution would be required to perform if no such succession or assignment had
taken place.
8
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, First Federal Savings Bank of America and FIRSTFED
AMERICA BANCORP, INC. have caused this Agreement to be executed by their duly
authorized officers, and Executive has signed this Agreement, on the ____ day of
_______, 199_.
ATTEST: FIRST FEDERAL SAVINGS BANK
OF AMERICA
_______________________________ By: ___________________________
____________ ________________
Secretary President and Chief Executive
Officer
SEAL
ATTEST: FIRSTFED AMERICA BANCORP, INC.
(Guarantor)
______________________________ By: ___________________________
____________ ________________
Secretary President and
Chief Executive Officer
SEAL
WITNESS:
______________________________ ___________________________
_____________
Executive
9
<PAGE>
EXHIBIT 10.7
FORM OF
FIRSTFED AMERICA BANCORP, INC.
TWO YEAR CHANGE IN CONTROL AGREEMENT
This AGREEMENT is made effective as of ____________, 199_, by and
between FIRSTFED AMERICA BANCORP, INC. (the "Holding Company"), a corporation
organized under the laws of the State of Delaware, with its office at One North
Main Street, Fall River, Massachusetts and __________________ ("Executive").
The term "Institution" refers to First Federal Savings Bank of America, the
wholly-owned subsidiary of the Holding Company or any successor thereto.
WHEREAS, the Holding Company recognizes the substantial contribution
Executive has made to the Holding Company and wishes to protect his position
therewith for the period provided in this Agreement; and
WHEREAS, Executive has agreed to serve in the employ of the Holding Company
or an affiliate thereof.
NOW, THEREFORE, in consideration of the contribution and responsibilities
of Executive, and upon the other terms and conditions hereinafter provided, the
parties hereto agree as follows:
1. TERM OF AGREEMENT.
-----------------
The period of this Agreement shall be deemed to have commenced as of the
date first above written and shall continue for a period of twenty-four (24)
full calendar months thereafter. Commencing on the date of the execution of this
Agreement, the term of this Agreement shall be extended for one day each day
until such time as the board of directors of the Holding Company (the "Board")
or Executive elects not to extend the term of the Agreement by giving written
notice to the other party in accordance with Section 4 of this Agreement, in
which case the term of this Agreement shall be fixed and shall end on the third
anniversary of the date of such written notice.
2. CHANGE IN CONTROL.
-----------------
(a) Upon the occurrence of a Change in Control of the Holding Company (as
herein defined) followed at any time during the term of this Agreement by the
termination of Executive's employment, the provisions of Section 3 shall apply.
Upon the occurrence of a Change in Control, Executive shall have the right to
elect to voluntarily terminate his employment at any time during the term of
this Agreement following any demotion, loss of title, office or significant
authority, reduction in annual compensation or material reduction in benefits,
or relocation of his principal place of employment by more than 25 miles from
its location immediately prior to the Change in Control unless such termination
is because of death or termination for Cause.
<PAGE>
(b) For purposes of this Agreement, a "Change in Control" of the
Institution or Holding Company shall mean an event of a nature that: (i) would
be required to be reported in response to Item 1(a) of the Current Report on
Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a
Change in Control of the Institution or the Holding Company within the meaning
of the Home Owners' Loan Act of 1933 and the Rules and Regulations promulgated
by the Office of Thrift Supervision ("OTS") (or its predecessor agency), as in
effect on the date hereof (provided, that in applying the definition of change
in control as set forth under the rules and regulations of the OTS, the Board
shall substitute its judgment for that of the OTS); or (iii) without limitation
such a Change in Control shall be deemed to have occurred at such time as (A)
any "person" (as the term is used in Sections 13(d) and 14(d) of the Exchange
Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Institution or the
Holding Company representing 20% or more of the Institution's or the Holding
Company's outstanding securities except for any securities of the Institution
purchased by the Holding Company in connection with the conversion of the
Institution to the stock form and any securities purchased by any employee
benefit plan of the Institution, or (B) individuals who constitute the Board on
the date hereof (the "Incumbent Board") cease for any reason to constitute at
least a majority thereof, provided that any person becoming a director
subsequent to the date hereof whose election was approved by a vote of at least
three-quarters of the directors comprising the Incumbent Board, or whose
nomination for election by the Holding Company's stockholders was approved by
the same Nominating Committee serving under an Incumbent Board, shall be, for
purposes of this clause (B), considered as though he were a member of the
Incumbent Board, or (C) a plan of reorganization, merger, consolidation, sale of
all or substantially all the assets of the Institution or the Holding Company or
similar transaction occurs in which the Institution or Holding Company is not
the resulting entity, or (D) a proxy statement is distributed soliciting proxies
from stockholders of the Holding Company, by someone other than the current
management of the Holding Company, seeking stockholder approval of a plan of
reorganization, merger or consolidation of the Holding Company or Institution
with one or more corporations as a result of which the outstanding shares of the
class of securities then subject to such plan or transaction are exchanged for
or converted into cash or property or securities not issued by the Institution
or the Holding Company shall be distributed, or (E) a tender offer is made for
20% or more of the voting securities of the Institution or Holding Company then
outstanding.
(c) Executive shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term "Termination
for Cause" shall mean termination because of Executive's personal dishonesty,
incompetence, willful misconduct, any breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, willful violation
of any law, rule, regulation (other than traffic violations or similar offenses)
or final cease and desist order, or any material breach of this Agreement.
Notwithstanding the foregoing, Executive shall not be deemed to have been
Terminated for Cause unless and until there shall have been delivered to him a
copy of a resolution duly adopted by the affirmative vote of not less than
three-fourths of the members of the Board at a meeting of the Board called and
held for that purpose (after reasonable notice to Executive
2
<PAGE>
and an opportunity for him, together with counsel, to be heard before the
Board), finding that in the good faith opinion of the Board, Executive was
guilty of conduct justifying Termination for Cause and specifying the
particulars thereof in detail. Executive shall not have the right to receive
compensation or other benefits for any period after Termination for Cause.
During the period beginning on the date of the Notice of Termination for Cause
pursuant to Section 4 hereof through the Date of Termination, stock options and
related limited rights granted to Executive under any stock option plan shall
not be exercisable nor shall any unvested awards granted to Executive under any
stock benefit plan of the Institution, the Holding Company or any subsidiary or
affiliate thereof, vest. At the Date of Termination, such stock options and
related limited rights and any such unvested awards shall become null and void
and shall not be exercisable by or delivered to Executive at any time subsequent
to such Termination for Cause.
3. TERMINATION BENEFITS.
--------------------
(a) Upon the occurrence of a Change in Control, followed at any time
during the term of this Agreement by the voluntary or involuntary termination of
Executive's employment, other than for Termination for Cause, the Holding
Company shall be obligated to pay Executive, or in the event of his subsequent
death, his beneficiary or beneficiaries, or his estate, as the case may be, a
sum equal to two (2) times Executive's average annual compensation for the five
most recent taxable years that Executive has been employed by the Institution or
such lesser number of years in the event that Executive shall have been employed
by the Institution for less than five years. Such annual compensation shall
include base salary, commissions, bonuses, contributions on behalf of Executive
to any pension and profit sharing plan, severance payments, director or
committee fees and fringe benefits paid or to be paid to the Executive during
such years. At the election of Executive which election is to be made prior to a
Change in Control, such payment shall be made in a lump sum. In the event that
no election is made, payment to Executive will be made on a monthly basis in
approximately equal installments during the remaining term of this Agreement.
(b) Upon the occurrence of a Change in Control of the Institution or the
Holding Company followed at any time during the term of this Agreement by
Executive's termination of employment, other than for Termination for Cause, the
Holding Company shall cause to be continued life, medical and disability
coverage substantially identical to the coverage maintained by the Institution
for Executive prior to his severance, except to the extent such coverage may be
changed in its application to all Institution employees. Such coverage and
payments shall cease upon expiration of twenty-four (24) full calendar months
following the Date of Termination.
(c) Notwithstanding the preceding paragraphs of this Section 3, in the
event that:
(i) the aggregate payments or benefits to be made or afforded to
Executive, which are deemed to be parachute payments as defined
in Section 280G of the Internal Revenue Code of 1986, as amended
(the "Code") or any
3
<PAGE>
successor thereof, (the "Termination Benefits") would be deemed
to include an "excess parachute payment" under Section 280G of
the Code; and
(ii) if such Termination Benefits were reduced to an amount (the "Non-
Triggering Amount"), the value of which is one dollar ($1.00)
less than an amount equal to three (3) times Executive's "base
amount," as determined in accordance with said Section 280G and
the Non-Triggering Amount less the product of the marginal rate
of any applicable state and federal income tax and the Non-
Triggering Amount would be greater than the aggregate value of
the Termination Benefits (without such reduction) minus (i) the
amount of tax required to be paid by the Executive thereon by
Section 4999 of the Code and further minus (ii) the product of
the Termination Benefits and the marginal rate of any applicable
state and federal income tax,
then the Termination Benefits shall be reduced to the Non-Triggering Amount. The
allocation of the reduction required hereby among the Termination Benefits shall
be determined by the Executive.
4. NOTICE OF TERMINATION.
---------------------
(a) Any purported termination by the Holding Company, or by Executive
shall be communicated by Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of Termination for Cause, shall not be less than
thirty (30) days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Holding Company will
continue to pay Executive his full compensation in effect when the notice giving
rise to the dispute was given (including, but not limited to his current annual
salary) and continue him as a participant in all compensation, benefit and
insurance plans in which he
4
<PAGE>
was participating when the notice of dispute was given, until the dispute is
finally resolved in accordance with this Agreement. Amounts paid under this
Section 4(c) are in addition to all other amounts due under this Agreement and
shall not be offset against or reduce any other amounts due under this
Agreement.
5. SOURCE OF PAYMENTS.
------------------
It is intended by the parties hereto that all payments provided in this
Agreement shall be paid in cash or check from the general funds of the Holding
Company. Further, the Holding Company guarantees such payment and provision of
all amounts and benefits due hereunder to Executive and, if such amount and
benefits due from the Institution are not timely paid or provided by the
Institution, such amounts and benefits shall be paid and provided by the Holding
Company.
6. 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 Holding Company and Executive,
except that this Agreement shall not affect or operate to reduce any benefit or
compensation inuring to Executive of a kind elsewhere provided. No provision of
this Agreement shall be interpreted to mean that Executive is subject to
receiving fewer benefits than those available to him without reference to this
Agreement.
Nothing in this Agreement shall confer upon Executive the right to continue
in the employ of the Holding Company or shall impose on the Holding Company any
obligation to employ or retain Executive in its employ for any period.
7. NO ATTACHMENT.
-------------
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit
of, Executive, the Holding Company and their respective successors and assigns.
8. MODIFICATION AND WAIVER.
-----------------------
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
5
<PAGE>
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.
9. REINSTATEMENT OF BENEFITS UNDER INSTITUTION AGREEMENT.
-----------------------------------------------------
In the event Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Institution's affairs by a notice described
in Section 9(b) of the Change in Control Agreement between Executive and the
Institution dated ___________, 199_ (the "Institution Agreement") during the
term of this Agreement and a Change in Control, as defined herein, occurs the
Holding Company will assume its obligation to pay and Executive will be entitled
to receive all of the termination benefits provided for under Section 3 of the
Institution Agreement upon the notification of the Holding Company of the
Institution's receipt of a dismissal of charges in the Notice.
10. EFFECT OF ACTION UNDER INSTITUTION AGREEMENT.
---------------------------------------------
Notwithstanding any provision herein to the contrary, to the extent that
payments and benefits are paid to or received by Executive under the Institution
Agreement between Executive and Institution, the amount of such payments and
benefits paid by the Institution will be subtracted from any amount due
simultaneously to Executive under similar provisions of this Agreement.
11. SEVERABILITY.
-------------
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
12. HEADINGS FOR REFERENCE ONLY.
---------------------------
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement. In addition, references herein to the
masculine shall apply to both the masculine and the feminine.
6
<PAGE>
13. GOVERNING LAW.
-------------
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of Delaware.
14. ARBITRATION.
-----------
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Holding Company, in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that Executive shall be entitled to seek specific performance of his
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
15. PAYMENT OF LEGAL FEES.
---------------------
All reasonable legal fees paid or incurred by Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the Holding Company if Executive is successful pursuant to a
legal judgment, arbitration or settlement.
16. INDEMNIFICATION.
---------------
The Holding Company shall provide Executive (including his heirs, executors
and administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, or in lieu thereof, shall indemnify
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under Delaware law and as provided in the Holding Company's
certificate of incorporation against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been a director
or officer of the Holding Company (whether or not he continues to be a director
or officer at the time of incurring such expenses or liabilities), such expenses
and liabilities to include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements.
17. SUCCESSOR TO THE HOLDING COMPANY.
--------------------------------
The Holding Company shall require any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Institution or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Holding Company's obligations under this Agreement, in the same manner and to
the same extent that the Holding Company would be required to perform if no such
succession or assignment had taken place.
7
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, FIRSTFED AMERICA BANCORP, INC. has caused this
Agreement to be executed by its duly authorized officer, and Executive has
signed this Agreement, on the ______ day of __________, 199_.
ATTEST: FIRSTFED AMERICA BANCORP, INC.
_____________________________ By: ___________________________
__________________ ___________________________
Secretary President and Chief Executive
Officer
WITNESS:
_____________________________ ___________________________
___________________
Executive
Seal
8
<PAGE>
Exhibit 10.8
FIRST FEDERAL SAVINGS BANK OF AMERICA
EMPLOYEE SEVERANCE COMPENSATION PLAN
PLAN PURPOSE
The purpose of the First Federal Savings Bank of America Employee
Severance Compensation Plan is to assure for First Federal Savings Bank of
America (the "Bank") the services of Employees of the Bank in the event of a
Change in Control (capitalized terms are defined in section 2.1) of FIRSTFED
AMERICA BANCORP, INC. (the "Holding Company") or the Bank. The benefits
contemplated by the Plan recognize the value to the Bank of the services and
contributions of the Employees of the Bank and the effect upon the Bank
resulting from the uncertainties of continued employment, reduced Employee
benefits, management changes and relocations that may arise in the event of a
Change in Control of the Bank or the Holding Company. The Bank's and the
Holding Company's Boards of Directors believe that it is in the best interests
of the Bank and the Holding Company to provide Employees of the Bank who have
been with the Bank for a minimum of one year with such benefits in order to
defray the costs and changes in Employee status that could follow a Change in
Control. The Board of Directors believes that the Plan will also aid the Bank
in attracting and retaining highly qualified individuals who are essential to
its success and the Plan's assurance of fair treatment of the Bank's Employees
will reduce the distractions and other adverse effects on Employees' performance
in the event of a Change in Control.
ARTICLE I
ESTABLISHMENT OF PLAN
1.1 Establishment of Plan
---------------------
As of the Effective Date of the Plan as defined herein, the Bank
hereby establishes an employee severance compensation plan to be known as the
"First Federal Savings Bank of America Employee Severance Compensation Plan."
The purposes of the Plan are as set forth above.
1.2 Applicability of Plan
---------------------
The benefits provided by this Plan shall be available to all Employees
of the Bank, who, at or after the Effective Date, meet the eligibility
requirements of Article III, except for those executive officers who have
entered into, or who enter into in the future, and continue to be subject to an
employment or change in control agreement with the Employer.
<PAGE>
1.3 Contractual Right to Benefits
-----------------------------
This Plan establishes in each Participant a contractual right in
consideration for meeting the eligibility requirements of the Plan, to the
benefits to which each Participant is entitled hereunder, enforceable by the
Participant against the Employer, Bank, or both.
ARTICLE II
DEFINITIONS AND CONSTRUCTION
2.1 Definitions
-----------
Whenever used in the Plan, the following terms shall have the meanings
set forth below.
(a) "Annual Compensation" of a Participant means and includes only
regular wages, and salary during the most recent 12 months ended the date as of
which Annual Compensation is to be determined, which are or would be includable
in the gross income of the Participant receiving the same for federal income tax
purposes.
(b) "Bank" means First Federal Savings Bank of America or any
successor as provided for in Article VII hereof.
(c) "Change in Control" of the Bank or Holding Company shall mean an
event of a nature that; (i) would be required to be reported in response to Item
1 of the current report on Form 8-K, as in effect on the date hereof, pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange
Act"); or (ii) results in a Change in Control of the Bank or the Holding Company
within the meaning of the Home Owners' Loan Act of 1933, as amended, and the
Rules and Regulations promulgated by the Office of Thrift Supervision (the
"OTS") (or its predecessor agency), as in effect on the date hereof (provided,
that in applying the definition of change in control as set forth under the
Rules and Regulations of the OTS, the Board shall substitute its judgment for
that of the OTS); or (iii) without limitation such a Change in Control shall be
deemed to have occurred at such time as (A) any "person" (as the term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Bank or the Holding Company representing 20% or
more of the Bank's or the Holding Company's outstanding securities except for
any securities of the Bank purchased by the Holding Company in connection with
the conversion of the Bank to the stock form and any securities purchased by any
tax-qualified employee benefit plan of the Bank; or (B) individuals who
constitute the Board on the date hereof (the "Incumbent Board") cease for any
reason to constitute at least a majority thereof, provided that any person
becoming a director subsequent to the date hereof whose election was approved by
a vote of at least three-quarters of the directors comprising the Incumbent
Board, or whose nomination for election by the Holding Company's stockholders
was approved by the same Nominating Committee serving under an Incumbent Board,
shall be, for purposes of this clause (B), considered as though he were a member
of the Incumbent Board; or (C) a plan of
2
<PAGE>
reorganization, merger, consolidation, sale of all or substantially all the
assets of the Bank or the Company or similar transaction occurs in which the
Bank or Holding Company is not the resulting entity; provided, however, that
such an event listed above will be deemed to have occurred or to have been
effectuated upon the receipt of all required regulatory approvals not including
the lapse of any statutory waiting periods; or (D) solicitations of shareholders
of the Holding Company, by someone other than the current management of the
Holding Company, seeking stockholder approval of a plan of reorganization,
merger or consolidation of the Holding Company or Bank or similar transaction
with one or more corporations as a result of which the outstanding shares of the
class of securities then subject to the plan or transaction are exchanged for or
converted into cash or property or securities not issued by the Bank or the
Holding Company shall be distributed; or (E) a tender offer is made for 20% or
more of the voting securities of the Bank or the Holding Company.
(d) "Disability" as it regards a particular Participant has the same
meaning as in any long term disability plan ("LTD Plan") maintained by the Bank
by which such Participant is covered, in the absence of such a LTD Plan,
"Disability" means the permanent and total inability by reason of mental or
physical infirmity, or both, of an employee to perform the work customarily
assigned to him. Additionally, a medical doctor selected or approved by the
Board of Directors must advise the Board that it is either not possible to
determine if or when such Disability will terminate or that it appears probable
that such Disability will be permanent during the remainder of said employees
lifetime.
(e) "Disqualified Individual" means an individual who is an employee
or independent contractor of the corporation and is, with respect to the
corporation, (i) a shareholder, (ii) an officer, or (iii) a highly compensated
individual, as all of these terms, including Disqualified Individual, are
defined under Section 280G or the Code.
(f) "Effective Date" means the date the Plan is approved by the Board
of Directors of the Bank, or such other date as the Board shall designate in its
resolution approving the Plan.
(g) "Employee" means any Employee of the Bank or any subsidiary
thereof who has completed at least one Year of Service with the Bank, or any
subsidiary thereof, provided, however, that any Employee who is covered or
hereinafter becomes covered by an employment contract or change in control
agreement with the Employer shall not be considered to be an Employee for
purposes of this Plan.
(h) "Expiration Date" means a date ten (10) years from the Effective
Date unless earlier terminated pursuant to Section 8.2 or extended pursuant to
Section 8.1.
(i) "Employer" means the Bank or a subsidiary of the Bank or a parent
of the Bank which has adopted the Plan pursuant to Article VI hereof.
(j) "Holding Company" means FIRSTFED AMERICA BANCORP, INC., the
holding company of the Bank.
3
<PAGE>
(k) "Just Cause" shall mean termination because of Participant's
personal dishonesty, incompetence, willful misconduct, any breach of fiduciary
duty involving personal profit, intentional failure to perform stated duties,
willful violation of any law, rule or regulation (other than traffic violations
or other similar offenses) or any final cease-and desist order.
(l) "Leave of Absence" and "LOA" mean (i) the taking of an authorized
or approved leave of absence under the provisions of the federal Family and
Medical Leave Act ("FMLA"), (ii) any state law providing qualitatively similar
benefits as the FMLA, or (iii) a leave of absence authorized under the policies
of the Bank. "Leave of Absence" and "LOA" are defined in this paragraph for the
exclusive purposes of this Plan.
(m) "Payment" means the payment of severance compensation as provided
in Article IV hereof.
(n) "Participant" means an Employee who meets the eligibility
requirements of Article III.
(o) "Plan" means the First Federal Savings Bank of America Employee
Severance Compensation Plan.
(p) "Year of Service" means each consecutive 12 month period,
beginning with an Employee's date of hire and running without a termination of
employment in which an Employee is credited with at least one hour of service in
each of the 12 calendar months in such period. The taking of a LOA shall not
eliminate a period of time from being a Year of Service if such period of time
otherwise qualifies as such. Further if a particular 12 month period of time
would not otherwise qualify under the Plan as a Year of Service because one hour
of service is not credited during each month of such period due to the taking of
a LOA, then such period of time shall be deemed to be a Year of Service for all
other sections of this Plan.
2.2 Applicable Law
--------------
The laws of the Commonwealth of Massachusetts shall be the controlling
law in all matters relating to the Plan to the extent not preempted by Federal
law.
2.3 Severability
------------
If a provision of this Plan shall be held illegal or invalid, the
illegality or invalidity shall not affect the remaining parts of the Plan and
the Plan shall be construed and enforced as if the illegal or invalid provision
had not been included.
4
<PAGE>
ARTICLE III
ELIGIBILITY
3.1 Participation
-------------
The term Participant shall describe those Employees of the Bank who
have completed at least one Year of Service with the Bank at the time of any
termination pursuant to Section 4.2 herein. Notwithstanding the foregoing,
persons who have entered into and continue to be covered by an employment
contract or change in control agreement with the Employer shall not be entitled
to participate in this Plan.
3.2 Duration of Participation
-------------------------
A Participant shall cease to be a Participant in the Plan when the
Participant ceases to be an Employee of the Bank or the Holding Company, unless
such Participant is entitled to a Payment as provided in the Plan. A
Participant entitled to receipt of a Payment shall remain a Participant in this
Plan until the full amount of such Payment has been paid to the Participant.
ARTICLE IV
PAYMENTS
4.1 Right to Payment
----------------
A Participant shall be entitled to receive from the Bank or the
Holding Company, but not both, a Payment in the amount provided in Section 4.3
if there has been a Change in Control of the Bank or the Holding Company and if,
within one (1) year thereafter, the Participant's employment by the Bank or the
Holding Company shall terminate for any reason specified in Section 4.2, whether
the termination is voluntary or involuntary. A Participant shall not be
entitled to a Payment if termination occurs by reason of death, voluntary
retirement, voluntary termination other than for reasons specified in Section
4.2, Disability, or for Just Cause. Each Participant shall be entitled to only
one payment under the provisions of this Plan.
4.2 Reasons for Termination
-----------------------
Following a Change in Control, a Participant shall be entitled to a
Payment if employment by the Bank or the Holding Company is terminated,
voluntarily or involuntarily, for any one or more of the following reasons
within one (1) year of the consummation of such a Change in Control:
(a) The Employer reduces the Participant's (i) base salary (or
regularly scheduled hours are increased without a pro rated increase in Base
Salary); (ii) rate of compensation in the case of hourly employees; or (iii) the
product of hourly rate of compensation on regularly scheduled hours (without
regard to overtime) as in effect
5
<PAGE>
immediately prior to the Change in Control, or as the same may have been
increased thereafter.
(b) The Employer materially changes Participant's function, duties or
responsibilities which would cause Participant's position to be one of lesser
responsibility, importance or scope with the Employer than immediately prior to
the change in control.
(c) The Employer requires the Participant to change the location of
the Participant's job or office, so that such Participant will be based at a
location more than thirty (30) miles from the location of the Participant's job
or office immediately prior to the Change in Control provided that such new
location is not closer to Participant's home.
(d) The Employer materially reduces the benefits and perquisites
available to the Participant immediately prior to the Change in Control,
provided, however, that a material reduction in benefits and perquisites
generally provided to all Employees of the Bank on a nondiscriminatory basis
would not trigger a payment pursuant to this Plan.
(e) A successor to the Bank fails or refuses to assume the Bank's
obligations under this Plan, as required by Article VII.
(f) The Bank or any successor to the Bank breaches any other
provisions of this Plan.
(g) The Employer terminates the employment of a Participant at or
after a Change in Control other than for Just Cause.
4.3 Amount of Payment
-----------------
(a) Each Participant entitled to a Payment under this Plan shall
receive from the Bank a lump sum cash payment equal to one-twelfth of Annual
Compensation for each Year of Service up to a maximum of 199% of Annual
Compensation.
(b) Notwithstanding the provision of (a) above, if a Payment to a
Participant who is a Disqualified Individual shall be in an amount which
includes an Excess Parachute Payment, the Payment hereunder to that Participant
shall be reduced to the maximum amount which does not include an Excess
Parachute Payment. The terms "Disqualified Individual" and "Excess Parachute
Payment" shall have the same meaning as defined in Section 280G of the Internal
Revenue Code of 1986, as amended, or any successor section of similar import.
The Participant shall not be required to mitigate damages on the
amount of the Payment by seeking other employment or otherwise, nor shall the
amount of such Payment be reduced by any compensation earned by the Participant
as a result of employment after termination of employment hereunder.
6
<PAGE>
4.4 Time of Payment
---------------
The Payment to which a Participant is entitled shall be paid to the
Participant by the Bank or the Holding Company or its successor, in cash and in
full, not later than twenty (20) business days after the termination of the
Participant's employment. If any Participant should die after termination of
the employment but before all amounts have been paid, such unpaid amounts shall
be paid to the Participant's named beneficiary, if living, otherwise to the
personal representative on behalf of or for the benefit of the Participant's
estate.
4.5 Suspension of Payment
---------------------
Notwithstanding the foregoing, no payments or portions thereof shall
be made under this Plan, if such payment or portion would result in the Bank
failing to meet its minimum regulatory capital requirements as required by 12
C.F.R. Section 567.2 of the Office of Thrift Supervision Regulations. Any
payments or portions thereof not paid shall be suspended until such time as
their payment would not result in a failure to meet the Bank's minimum
regulatory capital requirements. Any portion of benefit payments which have not
been suspended will be paid on an equitable basis, pro rata based upon amounts
due each Participant, among all eligible Participants.
ARTICLE V
OTHER RIGHTS AND BENEFITS NOT AFFECTED
5.1 Other Benefits
--------------
Neither the provisions of this Plan nor the Payment provided for
hereunder shall reduce any amounts otherwise payable, or in any way diminish the
Participant's rights as an Employee of the Bank or the Holding Company, whether
existing now or hereafter, under any benefit, incentive, retirement, stock
option, stock bonus, stock ownership or any employment agreement or other plan
or arrangement.
5.2 Employment Status
-----------------
This Plan does not constitute a contract of employment or impose on
the Participant or the Participant's Employer any obligation to retain the
Participant as an employee or Officer, to change the status of the Participant's
employment, or to change the Employer's policies regarding termination of
employment.
ARTICLE VI
PARTICIPATING EMPLOYERS
6.1 Upon approval by the Board of Directors of the Bank, this Plan
may be adopted by any Subsidiary or Parent of the Bank. Upon such adoption, the
Subsidiary or Parent shall become an Employer hereunder and the provisions of
the Plan shall be fully applicable to the Employees of that Subsidiary or
Parent. The term "Subsidiary" means any
7
<PAGE>
corporation in which the Bank, directly or indirectly, holds a majority of the
voting power of its outstanding shares of capital stock. The term "Parent"
means any corporation which holds a majority of the voting power of the Bank's
outstanding shares of capital stock.
ARTICLE VII
SUCCESSOR TO THE BANK
7.1 The Bank shall require any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank, expressly and
unconditionally to assume and agree to perform the Bank's obligations under this
plan, in the same manner and to the same extent that the Bank would be required
to perform if no such succession or assignment had taken place.
ARTICLE VIII
DURATION, AMENDMENT AND TERMINATION
8.1 Duration
--------
If a Change in Control has not occurred, this Plan shall expire as of
the Expiration Date, unless sooner terminated as provided in Section 8.2, or
unless extended for an additional period or periods by resolution adopted by the
Board of Directors of the Bank.
Notwithstanding the foregoing, if a Change in Control occurs this Plan
shall continue in full force and effect, and shall not terminate or expire until
such date as all Participants who become entitled to Payments hereunder shall
have received such Payments in full.
8.2 Amendment and Termination
-------------------------
The Plan may be terminated or amended in any respect by resolution
adopted by a majority of the Board of Directors of the Bank, unless a Change in
Control has previously occurred. If a Change in Control occurs, the Plan no
longer shall be subject to amendment, change, substitution, deletion, revocation
or termination in any respect whatsoever.
8.3 Form of Amendment
-----------------
The form of any proper amendment or termination of the Plan shall be a
written instrument signed by a duly authorized officer or officers of the Bank,
certifying that the amendment or termination has been approved by the Board of
Directors. A proper amendment of the Plan automatically shall effect a
corresponding amendment to each Participant's rights hereunder. A proper
termination of the Plan automatically shall effect a termination of all
Participants' rights and benefits hereunder.
8
<PAGE>
8.4 No Attachment
-------------
(a) Except as required by law, no right to receive payments under this
Plan 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 such action shall be null, void,
and of no effect.
(b) This Plan shall be binding upon, and inure to the benefit of,
Employee and the Bank and their respective successors and assigns.
ARTICLE IX
LEGAL FEES AND EXPENSES
9.1 All reasonable legal fees and other expenses paid or incurred by
a party hereto pursuant to any dispute or question of interpretation relating to
this Plan shall be paid or reimbursed by the Bank or the Holding Company if a
Participant is found to have made a claim which is not without merit pursuant to
any legal judgment, arbitration or settlement.
ARTICLE X
REQUIRED PROVISIONS
10.1 The Bank may terminate the Employee's employment at any time,
but any termination by the Bank, other than Termination for Cause, shall not
prejudice Employee's right to compensation or other benefits under this
Agreement. Employee shall not have the right to receive compensation or other
benefits for any period after termination for Just Cause as defined in Section
2.1 hereinabove.
10.2 If the Employee is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
Section 1818(e)(3) or (g)(1), the Bank's obligations under this contract shall
be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the Bank may in its
discretion (i) pay the Employee all or part of the compensation withheld while
their contract obligations were suspended and (ii) reinstate (in whole or in
part) any of the obligations which were suspended.
10.3 If the Employee is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
Section 1818(e)(4) or (g)(1), all obligations of the Bank under this contract
shall terminate as of the effective date of the order, but vested rights of the
contracting parties shall not be affected.
10.4 If the Bank is in default as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act, 12 U.S.C. Section 1813(x)(1), all obligations of
the Bank under this contract shall
9
<PAGE>
terminate as of the date of default, but this paragraph shall not affect any
vested rights of the contracting parties.
10.5 All obligations of the Bank under this contract shall be
terminated, except to the extent determined that continuation of the contract is
necessary for the continued operation of the institution, (i) by the Director of
the OTS (or his designee) or the Federal Deposit Insurance Corporation ("FDIC"),
at the time FDIC enters into an agreement to provide assistance to or on behalf
of the Bank under the authority contained in Section 13(c) of the Federal
Deposit Insurance Act, 12 U.S.C. Section 1823(c); or (ii) by the Director of the
OTS (or his designee) at the time the Director (or his designee) approves a
supervisory merger to resolve problems related to the operations of the Bank or
when the Bank is determined by the Director to be in an unsafe or unsound
condition. Any rights of the parties that have already vested, however, shall
not be affected by such action.
10.6 Any payments made to a Participant pursuant to this Agreement,
or otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
Section 1828(k) and any rules and regulations promulgated thereunder.
ARTICLE XI
ADMINISTRATIVE PROVISIONS
11.1 Plan Administrator. The administrator of the Plan shall be
-------------------
under the supervision of the Board of Directors of the Bank or a Committee
appointed by the Board (the "Board"). It shall be a principal duty of the Board
to see that the Plan is carried out in accordance with its terms, for the
exclusive benefit of persons entitled to participate in the Plan without
discrimination among them. The Board will have full power to administer the
Plan in all of its details subject, however, to the requirements of ERISA. For
this purpose, the Board's powers will include, but will not be limited to, the
following authority, in addition to all other powers provided by this Plan: (a)
to make and enforce such rules and regulations as it deems necessary or proper
for the efficient administration of the Plan; (b) to interpret the Plan, its
interpretation thereof in good faith to be final and conclusive on all persons
claiming benefits under the Plan; (c) to decide all questions concerning the
Plan and the eligibility of any person to participate in the Plan; (d) to
compute the amount of Payment that will be payable to any Participant or other
person in accordance with the provisions of the Plan, and to determine the
person or persons to whom such benefits will be paid; (e) to authorize
Payments; (f) to appoint such agents, counsel, accountants, consultants and
actuaries as may be required to assist in administering the Plan; and (g) to
allocate and delegate its responsibilities under the Plan and to designate other
persons to carry out any of its responsibilities under the Plan, any such
allocation, delegation or designation to be by written instrument and in
accordance with Section 405 of ERISA.
11.2 Named fiduciary. The Board will be a "named fiduciary" for
----------------
purposes of Section 402(a)(1) of ERISA with authority to control and manage the
operation and administration of the Plan, and will be responsible for complying
with all of the reporting and disclosure requirements of Part 1 of Subtitle B of
Title I of ERISA.
10
<PAGE>
11.3 Claims and review procedures.
-----------------------------
(a) Claims procedure. If any person believes he is being denied any
-----------------
rights or benefits under the Plan, such person may file a claim in writing
with the Board. If any such claim is wholly or partially denied, the Board
will notify such person of its decision in writing. Such notification will
be written in a manner calculated to be understood by such person and will
contain (i) specific reasons for the denial, (ii) specific reference to
pertinent Plan provisions, (iii) a description of any additional material
or information necessary for such person to perfect such claim and an
explanation of why such material or information is necessary and (iv)
information as to the steps to be taken if the person wishes to submit a
request for review. Such notification will be given within 90 days after
the claim is received by the Board (or within 180 days, if special
circumstances require an extension of time for processing the claim, and if
written notice of such extension and circumstances is given to such person
within the initial 90 day period). If such notification is not given
within such period, the claim will be considered denied as of the last day
of such period and such person may request a review of his claim.
(b) Review procedure. Within 60 days after the date on which a
-----------------
person receives a written notice of a denied claim (or, if applicable,
within 60 days after the date on which such denial is considered to have
occurred) such person (or his duly authorized representative) may (i) file
a written request with the Board for a review of his denied claim and of
pertinent documents and (ii) submit written issues and comments to the
Board. The Board will notify such person of its decision in writing. Such
notification will be written in a manner calculated to be understood by
such person and will contain specific reasons for the decision as well as
specific references to pertinent Plan provisions. The decision on review
will be made within 60 days after the request for review is received by the
Board (or within 120 days, if special circumstances require an extension of
time for processing the requests such as an election by the Board to hold a
hearing, and if written notice of such extension and circumstances is given
to such person within the initial 60 day period). If the decision on
review is not made within such period, the claim will be considered denied.
11.4 Nondiscriminatory exercise of authority. Whenever, in the
----------------------------------------
administration of the Plan, any discretionary action by the Board is required,
the Board shall exercise its authority in a nondiscriminatory manner so that all
persons similarly situated will receive substantially the same treatment.
11.5 Indemnification of Board. The Bank will indemnify and defend to the
-------------------------
fullest extent permitted by law any person serving on the Board or as a member
of a committee designated as Board (including any person who formerly served as
a Board member or as a member of such committee) against all liabilities,
damages, costs and expenses (including attorneys fees and amounts paid in
settlement of any claims approved by the Bank) occasioned by any act or omission
to act in connection with the Plan, if such act or omission is in good faith.
11
<PAGE>
11.6 "Plan Year" means the period beginning on the Effective Date and
-----------
ending on July 2, 1997 and the 12 consecutive-month period ending each year
thereafter.
11.7 Benefits solely from general assets. The benefits provided hereunder
------------------------------------
will be paid solely from the general assets of the Bank. Nothing herein will be
construed to require the Bank or the Board to maintain any fund or segregate any
amount for the benefit of any Participant, and no Participant or other person
shall have any claim against, right to, or security or other interest in, any
fund, account or asset of the Bank from which any payment under the Plan may be
made.
Having been adopted by its Board of Directors on __________________, 1996, this
Plan is executed by its duly authorized officers this ____ the day of
____________________, 1996.
Attest FIRST FEDERAL SAVINGS BANK
OF AMERICA
________________________________ By: ___________________________
Secretary
Having been adopted by its Board of Directors on _______________, 1996,
this Plan is executed by its duly authorized officers this ____ day of
_________________, 1996.
Attest FIRSTFED AMERICA BANCORP, INC.
___________________________ _____________________________
Secretary
12
<PAGE>
Exhibit 10.9
FIRST FEDERAL SAVINGS BANK OF AMERICA
EMPLOYEE SEVERANCE COMPENSATION PLAN
PLAN PURPOSE
The purpose of the First Federal Savings Bank of America Employee
Severance Compensation Plan is to assure for First Federal Savings Bank of
America (the "Bank") the services of Employees of the Bank in the event of a
Change in Control (capitalized terms are defined in section 2.1) of FIRSTFED
AMERICA BANCORP, INC. (the "Holding Company") or the Bank. The benefits
contemplated by the Plan recognize the value to the Bank of the services and
contributions of the Employees of the Bank and the effect upon the Bank
resulting from the uncertainties of continued employment, reduced Employee
benefits, management changes and relocations that may arise in the event of a
Change in Control of the Bank or the Holding Company. The Bank's and the
Holding Company's Boards of Directors believe that it is in the best interests
of the Bank and the Holding Company to provide Employees of the Bank who have
been with the Bank for a minimum of one year with such benefits in order to
defray the costs and changes in Employee status that could follow a Change in
Control. The Board of Directors believes that the Plan will also aid the Bank
in attracting and retaining highly qualified individuals who are essential to
its success and the Plan's assurance of fair treatment of the Bank's Employees
will reduce the distractions and other adverse effects on Employees' performance
in the event of a Change in Control.
ARTICLE I
ESTABLISHMENT OF PLAN
1.1 Establishment of Plan
---------------------
As of the Effective Date of the Plan as defined herein, the Bank
hereby establishes an employee severance compensation plan to be known as the
"First Federal Savings Bank of America Employee Severance Compensation Plan."
The purposes of the Plan are as set forth above.
1.2 Applicability of Plan
---------------------
The benefits provided by this Plan shall be available to all Employees
of the Bank, who, at or after the Effective Date, meet the eligibility
requirements of Article III, except for those executive officers who have
entered into, or who enter into in the future, and continue to be subject to an
employment or change in control agreement with the Employer.
<PAGE>
1.3 Contractual Right to Benefits
-----------------------------
This Plan establishes in each Participant a contractual right in
consideration for meeting the eligibility requirements of the Plan, to the
benefits to which each Participant is entitled hereunder, enforceable by the
Participant against the Employer, Bank, or both.
ARTICLE II
DEFINITIONS AND CONSTRUCTION
2.1 Definitions
-----------
Whenever used in the Plan, the following terms shall have the meanings
set forth below.
(a) "Annual Compensation" of a Participant means and includes only
regular wages, and salary during the most recent 12 months ended the date as of
which Annual Compensation is to be determined, which are or would be includable
in the gross income of the Participant receiving the same for federal income tax
purposes.
(b) "Bank" means First Federal Savings Bank of America or any
successor as provided for in Article VII hereof.
(c) "Change in Control" of the Bank or Holding Company shall mean an
event of a nature that; (i) would be required to be reported in response to Item
1 of the current report on Form 8-K, as in effect on the date hereof, pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange
Act"); or (ii) results in a Change in Control of the Bank or the Holding Company
within the meaning of the Home Owners' Loan Act of 1933, as amended, and the
Rules and Regulations promulgated by the Office of Thrift Supervision (the
"OTS") (or its predecessor agency), as in effect on the date hereof (provided,
that in applying the definition of change in control as set forth under the
Rules and Regulations of the OTS, the Board shall substitute its judgment for
that of the OTS); or (iii) without limitation such a Change in Control shall be
deemed to have occurred at such time as (A) any "person" (as the term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Bank or the Holding Company representing 20% or
more of the Bank's or the Holding Company's outstanding securities except for
any securities of the Bank purchased by the Holding Company in connection with
the conversion of the Bank to the stock form and any securities purchased by any
tax-qualified employee benefit plan of the Bank; or (B) individuals who
constitute the Board on the date hereof (the "Incumbent Board") cease for any
reason to constitute at least a majority thereof, provided that any person
becoming a director subsequent to the date hereof whose election was approved by
a vote of at least three-quarters of the directors comprising the Incumbent
Board, or whose nomination for election by the Holding Company's stockholders
was approved by the same Nominating Committee serving under an Incumbent Board,
shall be, for purposes of this clause (B), considered as though he were a member
of the Incumbent Board; or (C) a plan of
2
<PAGE>
reorganization, merger, consolidation, sale of all or substantially all the
assets of the Bank or the Company or similar transaction occurs in which the
Bank or Holding Company is not the resulting entity; provided, however, that
such an event listed above will be deemed to have occurred or to have been
effectuated upon the receipt of all required regulatory approvals not including
the lapse of any statutory waiting periods; or (D) solicitations of shareholders
of the Holding Company, by someone other than the current management of the
Holding Company, seeking stockholder approval of a plan of reorganization,
merger or consolidation of the Holding Company or Bank or similar transaction
with one or more corporations as a result of which the outstanding shares of the
class of securities then subject to the plan or transaction are exchanged for or
converted into cash or property or securities not issued by the Bank or the
Holding Company shall be distributed; or (E) a tender offer is made for 20% or
more of the voting securities of the Bank or the Holding Company.
(d) "Disability" as it regards a particular Participant has the same
meaning as in any long term disability plan ("LTD Plan") maintained by the Bank
by which such Participant is covered, in the absence of such a LTD Plan,
"Disability" means the permanent and total inability by reason of mental or
physical infirmity, or both, of an employee to perform the work customarily
assigned to him. Additionally, a medical doctor selected or approved by the
Board of Directors must advise the Board that it is either not possible to
determine if or when such Disability will terminate or that it appears probable
that such Disability will be permanent during the remainder of said employees
lifetime.
(e) "Disqualified Individual" means an individual who is an employee
or independent contractor of the corporation and is, with respect to the
corporation, (i) a shareholder, (ii) an officer, or (iii) a highly compensated
individual, as all of these terms, including Disqualified Individual, are
defined under Section 280G or the Code.
(f) "Effective Date" means the date the Plan is approved by the Board
of Directors of the Bank, or such other date as the Board shall designate in its
resolution approving the Plan.
(g) "Employee" means any Employee of the Bank or any subsidiary
thereof who has completed at least one Year of Service with the Bank, or any
subsidiary thereof, provided, however, that any Employee who is covered or
hereinafter becomes covered by an employment contract or change in control
agreement with the Employer shall not be considered to be an Employee for
purposes of this Plan.
(h) "Expiration Date" means a date ten (10) years from the Effective
Date unless earlier terminated pursuant to Section 8.2 or extended pursuant to
Section 8.1.
(i) "Employer" means the Bank or a subsidiary of the Bank or a parent
of the Bank which has adopted the Plan pursuant to Article VI hereof.
(j) "Holding Company" means FIRSTFED AMERICA BANCORP, INC., the
holding company of the Bank.
3
<PAGE>
(k) "Just Cause" shall mean termination because of Participant's
personal dishonesty, incompetence, willful misconduct, any breach of fiduciary
duty involving personal profit, intentional failure to perform stated duties,
willful violation of any law, rule or regulation (other than traffic violations
or other similar offenses) or any final cease-and desist order.
(l) "Leave of Absence" and "LOA" mean (i) the taking of an authorized
or approved leave of absence under the provisions of the federal Family and
Medical Leave Act ("FMLA"), (ii) any state law providing qualitatively similar
benefits as the FMLA, or (iii) a leave of absence authorized under the policies
of the Bank. "Leave of Absence" and "LOA" are defined in this paragraph for the
exclusive purposes of this Plan.
(m) "Payment" means the payment of severance compensation as provided
in Article IV hereof.
(n) "Participant" means an Employee who meets the eligibility
requirements of Article III.
(o) "Plan" means the First Federal Savings Bank of America Employee
Severance Compensation Plan.
(p) "Year of Service" means each consecutive 12 month period,
beginning with an Employee's date of hire and running without a termination of
employment in which an Employee is credited with at least one hour of service in
each of the 12 calendar months in such period. The taking of a LOA shall not
eliminate a period of time from being a Year of Service if such period of time
otherwise qualifies as such. Further if a particular 12 month period of time
would not otherwise qualify under the Plan as a Year of Service because one hour
of service is not credited during each month of such period due to the taking of
a LOA, then such period of time shall be deemed to be a Year of Service for all
other sections of this Plan.
2.2 Applicable Law
--------------
The laws of the Commonwealth of Massachusetts shall be the controlling
law in all matters relating to the Plan to the extent not preempted by Federal
law.
2.3 Severability
------------
If a provision of this Plan shall be held illegal or invalid, the
illegality or invalidity shall not affect the remaining parts of the Plan and
the Plan shall be construed and enforced as if the illegal or invalid provision
had not been included.
4
<PAGE>
ARTICLE III
ELIGIBILITY
3.1 Participation
-------------
The term Participant shall describe those Employees of the Bank who
have completed at least one Year of Service with the Bank at the time of any
termination pursuant to Section 4.2 herein. Notwithstanding the foregoing,
persons who have entered into and continue to be covered by an employment
contract or change in control agreement with the Employer shall not be entitled
to participate in this Plan.
3.2 Duration of Participation
-------------------------
A Participant shall cease to be a Participant in the Plan when the
Participant ceases to be an Employee of the Bank or the Holding Company, unless
such Participant is entitled to a Payment as provided in the Plan. A
Participant entitled to receipt of a Payment shall remain a Participant in this
Plan until the full amount of such Payment has been paid to the Participant.
ARTICLE IV
PAYMENTS
4.1 Right to Payment
----------------
A Participant shall be entitled to receive from the Bank or the
Holding Company, but not both, a Payment in the amount provided in Section 4.3
if there has been a Change in Control of the Bank or the Holding Company and if,
within one (1) year thereafter, the Participant's employment by the Bank or the
Holding Company shall terminate for any reason specified in Section 4.2, whether
the termination is voluntary or involuntary. A Participant shall not be
entitled to a Payment if termination occurs by reason of death, voluntary
retirement, voluntary termination other than for reasons specified in Section
4.2, Disability, or for Just Cause. Each Participant shall be entitled to only
one payment under the provisions of this Plan.
4.2 Reasons for Termination
-----------------------
Following a Change in Control, a Participant shall be entitled to a
Payment if employment by the Bank or the Holding Company is terminated,
voluntarily or involuntarily, for any one or more of the following reasons
within one (1) year of the consummation of such a Change in Control:
(a) The Employer reduces the Participant's (i) base salary (or
regularly scheduled hours are increased without a pro rated increase in Base
Salary); (ii) rate of compensation in the case of hourly employees; or (iii) the
product of hourly rate of compensation on regularly scheduled hours (without
regard to overtime) as in effect
5
<PAGE>
immediately prior to the Change in Control, or as the same may have been
increased thereafter.
(b) The Employer materially changes Participant's function, duties or
responsibilities which would cause Participant's position to be one of lesser
responsibility, importance or scope with the Employer than immediately prior to
the change in control.
(c) The Employer requires the Participant to change the location of
the Participant's job or office, so that such Participant will be based at a
location more than thirty (30) miles from the location of the Participant's job
or office immediately prior to the Change in Control provided that such new
location is not closer to Participant's home.
(d) The Employer materially reduces the benefits and perquisites
available to the Participant immediately prior to the Change in Control,
provided, however, that a material reduction in benefits and perquisites
generally provided to all Employees of the Bank on a nondiscriminatory basis
would not trigger a payment pursuant to this Plan.
(e) A successor to the Bank fails or refuses to assume the Bank's
obligations under this Plan, as required by Article VII.
(f) The Bank or any successor to the Bank breaches any other
provisions of this Plan.
(g) The Employer terminates the employment of a Participant at or
after a Change in Control other than for Just Cause.
4.3 Amount of Payment
-----------------
(a) Each Participant entitled to a Payment under this Plan shall
receive from the Bank a lump sum cash payment equal to one-twelfth of Annual
Compensation for each Year of Service up to a maximum of 100% of Annual
Compensation.
(b) Notwithstanding the provision of (a) above, if a Payment to a
Participant who is a Disqualified Individual shall be in an amount which
includes an Excess Parachute Payment, the Payment hereunder to that Participant
shall be reduced to the maximum amount which does not include an Excess
Parachute Payment. The terms "Disqualified Individual" and "Excess Parachute
Payment" shall have the same meaning as defined in Section 280G of the Internal
Revenue Code of 1986, as amended, or any successor section of similar import.
The Participant shall not be required to mitigate damages on the
amount of the Payment by seeking other employment or otherwise, nor shall the
amount of such Payment be reduced by any compensation earned by the Participant
as a result of employment after termination of employment hereunder.
6
<PAGE>
4.4 Time of Payment
---------------
The Payment to which a Participant is entitled shall be paid to the
Participant by the Bank or the Holding Company or its successor, in cash and in
full, not later than twenty (20) business days after the termination of the
Participant's employment. If any Participant should die after termination of
the employment but before all amounts have been paid, such unpaid amounts shall
be paid to the Participant's named beneficiary, if living, otherwise to the
personal representative on behalf of or for the benefit of the Participant's
estate.
4.5 Suspension of Payment
---------------------
Notwithstanding the foregoing, no payments or portions thereof shall
be made under this Plan, if such payment or portion would result in the Bank
failing to meet its minimum regulatory capital requirements as required by 12
C.F.R. (S) 567.2 of the Office of Thrift Supervision Regulations. Any payments
or portions thereof not paid shall be suspended until such time as their payment
would not result in a failure to meet the Bank's minimum regulatory capital
requirements. Any portion of benefit payments which have not been suspended
will be paid on an equitable basis, pro rata based upon amounts due each
Participant, among all eligible Participants.
ARTICLE V
OTHER RIGHTS AND BENEFITS NOT AFFECTED
5.1 Other Benefits
--------------
Neither the provisions of this Plan nor the Payment provided for
hereunder shall reduce any amounts otherwise payable, or in any way diminish the
Participant's rights as an Employee of the Bank or the Holding Company, whether
existing now or hereafter, under any benefit, incentive, retirement, stock
option, stock bonus, stock ownership or any employment agreement or other plan
or arrangement.
5.2 Employment Status
-----------------
This Plan does not constitute a contract of employment or impose on
the Participant or the Participant's Employer any obligation to retain the
Participant as an employee or Officer, to change the status of the Participant's
employment, or to change the Employer's policies regarding termination of
employment.
ARTICLE VI
PARTICIPATING EMPLOYERS
6.1 Upon approval by the Board of Directors of the Bank, this Plan
may be adopted by any Subsidiary or Parent of the Bank. Upon such adoption, the
Subsidiary or Parent shall become an Employer hereunder and the provisions of
the Plan shall be fully applicable to the Employees of that Subsidiary or
Parent. The term "Subsidiary" means any
7
<PAGE>
corporation in which the Bank, directly or indirectly, holds a majority of the
voting power of its outstanding shares of capital stock. The term "Parent"
means any corporation which holds a majority of the voting power of the Bank's
outstanding shares of capital stock.
ARTICLE VII
SUCCESSOR TO THE BANK
7.1 The Bank shall require any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank, expressly and
unconditionally to assume and agree to perform the Bank's obligations under this
plan, in the same manner and to the same extent that the Bank would be required
to perform if no such succession or assignment had taken place.
ARTICLE VIII
DURATION, AMENDMENT AND TERMINATION
8.1 Duration
--------
If a Change in Control has not occurred, this Plan shall expire as of
the Expiration Date, unless sooner terminated as provided in Section 8.2, or
unless extended for an additional period or periods by resolution adopted by the
Board of Directors of the Bank.
Notwithstanding the foregoing, if a Change in Control occurs this Plan
shall continue in full force and effect, and shall not terminate or expire until
such date as all Participants who become entitled to Payments hereunder shall
have received such Payments in full.
8.2 Amendment and Termination
-------------------------
The Plan may be terminated or amended in any respect by resolution
adopted by a majority of the Board of Directors of the Bank, unless a Change in
Control has previously occurred. If a Change in Control occurs, the Plan no
longer shall be subject to amendment, change, substitution, deletion, revocation
or termination in any respect whatsoever.
8.3 Form of Amendment
-----------------
The form of any proper amendment or termination of the Plan shall be a
written instrument signed by a duly authorized officer or officers of the Bank,
certifying that the amendment or termination has been approved by the Board of
Directors. A proper amendment of the Plan automatically shall effect a
corresponding amendment to each Participant's rights hereunder. A proper
termination of the Plan automatically shall effect a termination of all
Participants' rights and benefits hereunder.
8
<PAGE>
8.4 No Attachment
-------------
(a) Except as required by law, no right to receive payments under this
Plan 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 such action shall be null, void,
and of no effect.
(b) This Plan shall be binding upon, and inure to the benefit of,
Employee and the Bank and their respective successors and assigns.
ARTICLE IX
LEGAL FEES AND EXPENSES
9.1 All reasonable legal fees and other expenses paid or incurred by
a party hereto pursuant to any dispute or question of interpretation relating to
this Plan shall be paid or reimbursed by the Bank or the Holding Company if a
Participant is found to have made a claim which is not without merit pursuant to
any legal judgment, arbitration or settlement.
ARTICLE X
REQUIRED PROVISIONS
10.1 The Bank may terminate the Employee's employment at any time,
but any termination by the Bank, other than Termination for Cause, shall not
prejudice Employee's right to compensation or other benefits under this
Agreement. Employee shall not have the right to receive compensation or other
benefits for any period after termination for Just Cause as defined in Section
2.1 hereinabove.
10.2 If the Employee is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
(S)1818(e)(3) or (g)(1), the Bank's obligations under this contract shall be
suspended as of the date of service, unless stayed by appropriate proceedings.
If the charges in the notice are dismissed, the Bank may in its discretion (i)
pay the Employee all or part of the compensation withheld while their contract
obligations were suspended and (ii) reinstate (in whole or in part) any of the
obligations which were suspended.
10.3 If the Employee is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
(S)1818(e)(4) or (g)(1), all obligations of the Bank under this contract shall
terminate as of the effective date of the order, but vested rights of the
contracting parties shall not be affected.
10.4 If the Bank is in default as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act, 12 U.S.C. (S)1813(x)(1), all obligations of the
Bank under this contract shall
9
<PAGE>
terminate as of the date of default, but this paragraph shall not affect any
vested rights of the contracting parties.
10.5 All obligations of the Bank under this contract shall be
terminated, except to the extent determined that continuation of the contract is
necessary for the continued operation of the institution, (i) by the Director of
the OTS (or his designee) or the Federal Deposit Insurance Corporation ("FDIC"),
at the time FDIC enters into an agreement to provide assistance to or on behalf
of the Bank under the authority contained in Section 13(c) of the Federal
Deposit Insurance Act, 12 U.S.C. (S)1823(c); or (ii) by the Director of the OTS
(or his designee) at the time the Director (or his designee) approves a
supervisory merger to resolve problems related to the operations of the Bank or
when the Bank is determined by the Director to be in an unsafe or unsound
condition. Any rights of the parties that have already vested, however, shall
not be affected by such action.
10.6 Any payments made to a Participant pursuant to this Agreement,
or otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
(S)1828(k) and any rules and regulations promulgated thereunder.
ARTICLE XI
ADMINISTRATIVE PROVISIONS
11.1 Plan Administrator. The administrator of the Plan shall be
-------------------
under the supervision of the Board of Directors of the Bank or a Committee
appointed by the Board (the "Board"). It shall be a principal duty of the Board
to see that the Plan is carried out in accordance with its terms, for the
exclusive benefit of persons entitled to participate in the Plan without
discrimination among them. The Board will have full power to administer the
Plan in all of its details subject, however, to the requirements of ERISA. For
this purpose, the Board's powers will include, but will not be limited to, the
following authority, in addition to all other powers provided by this Plan: (a)
to make and enforce such rules and regulations as it deems necessary or proper
for the efficient administration of the Plan; (b) to interpret the Plan, its
interpretation thereof in good faith to be final and conclusive on all persons
claiming benefits under the Plan; (c) to decide all questions concerning the
Plan and the eligibility of any person to participate in the Plan; (d) to
compute the amount of Payment that will be payable to any Participant or other
person in accordance with the provisions of the Plan, and to determine the
person or persons to whom such benefits will be paid; (e) to authorize
Payments; (f) to appoint such agents, counsel, accountants, consultants and
actuaries as may be required to assist in administering the Plan; and (g) to
allocate and delegate its responsibilities under the Plan and to designate other
persons to carry out any of its responsibilities under the Plan, any such
allocation, delegation or designation to be by written instrument and in
accordance with Section 405 of ERISA.
11.2 Named fiduciary. The Board will be a "named fiduciary" for
----------------
purposes of Section 402(a)(1) of ERISA with authority to control and manage the
operation and administration of the Plan, and will be responsible for complying
with all of the reporting and disclosure requirements of Part 1 of Subtitle B of
Title I of ERISA.
10
<PAGE>
11.3 Claims and review procedures.
-----------------------------
(a) Claims procedure. If any person believes he is being denied any
-----------------
rights or benefits under the Plan, such person may file a claim in writing
with the Board. If any such claim is wholly or partially denied, the Board
will notify such person of its decision in writing. Such notification will
be written in a manner calculated to be understood by such person and will
contain (i) specific reasons for the denial, (ii) specific reference to
pertinent Plan provisions, (iii) a description of any additional material
or information necessary for such person to perfect such claim and an
explanation of why such material or information is necessary and (iv)
information as to the steps to be taken if the person wishes to submit a
request for review. Such notification will be given within 90 days after
the claim is received by the Board (or within 180 days, if special
circumstances require an extension of time for processing the claim, and if
written notice of such extension and circumstances is given to such person
within the initial 90 day period). If such notification is not given
within such period, the claim will be considered denied as of the last day
of such period and such person may request a review of his claim.
(b) Review procedure. Within 60 days after the date on which a
-----------------
person receives a written notice of a denied claim (or, if applicable,
within 60 days after the date on which such denial is considered to have
occurred) such person (or his duly authorized representative) may (i) file
a written request with the Board for a review of his denied claim and of
pertinent documents and (ii) submit written issues and comments to the
Board. The Board will notify such person of its decision in writing. Such
notification will be written in a manner calculated to be understood by
such person and will contain specific reasons for the decision as well as
specific references to pertinent Plan provisions. The decision on review
will be made within 60 days after the request for review is received by the
Board (or within 120 days, if special circumstances require an extension of
time for processing the requests such as an election by the Board to hold a
hearing, and if written notice of such extension and circumstances is given
to such person within the initial 60 day period). If the decision on
review is not made within such period, the claim will be considered denied.
11.4 Nondiscriminatory exercise of authority. Whenever, in the
----------------------------------------
administration of the Plan, any discretionary action by the Board is required,
the Board shall exercise its authority in a nondiscriminatory manner so that all
persons similarly situated will receive substantially the same treatment.
11.5 Indemnification of Board. The Bank will indemnify and defend to the
-------------------------
fullest extent permitted by law any person serving on the Board or as a member
of a committee designated as Board (including any person who formerly served as
a Board member or as a member of such committee) against all liabilities,
damages, costs and expenses (including attorneys fees and amounts paid in
settlement of any claims approved by the Bank) occasioned by any act or omission
to act in connection with the Plan, if such act or omission is in good faith.
11
<PAGE>
11.6 "Plan Year" means the period beginning on the Effective Date and
-----------
ending on July 2, 1997 and the 12 consecutive-month period ending each year
thereafter.
11.7 Benefits solely from general assets. The benefits provided hereunder
------------------------------------
will be paid solely from the general assets of the Bank. Nothing herein will be
construed to require the Bank or the Board to maintain any fund or segregate any
amount for the benefit of any Participant, and no Participant or other person
shall have any claim against, right to, or security or other interest in, any
fund, account or asset of the Bank from which any payment under the Plan may be
made.
Having been adopted by its Board of Directors on __________________, 1996, this
Plan is executed by its duly authorized officers this ____ the day of
____________________, 1996.
Attest FIRST FEDERAL SAVINGS BANK
OF AMERICA
________________________________ By: ___________________________
Secretary
Having been adopted by its Board of Directors on _______________, 1996,
this Plan is executed by its duly authorized officers this ____ day of
_________________, 1996.
Attest FIRSTFED AMERICA BANCORP, INC.
___________________________ _____________________________
Secretary
12
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
First Federal Savings Bank of America:
We consent to the use of our report included herein and to the reference to our
firm under the headings "EXPERTS", "LEGAL AND TAX OPINIONS", "STATE AND LOCAL
TAXATION", "TAX ASPECTS", "CONSOLIDATED STATEMENTS OF INCOME", and "EFFECTS OF
CONVERSION" in the Prospectus, which is a part of the Registration Statement on
Form S-1 for FIRSTFED AMERICA BANCORP, INC. and Form AC for First Federal
Savings Bank of America.
/s/ KPMG Peat Marwick LLP
-------------------------
KPMG Peat Marwick LLP
Boston, Massachusetts
September 24, 1996
<PAGE>
Exhibit 23.2
CONSENT
We hereby consent to the references to this firm and our opinions in
the Registration Statement on Form S-1 filed by FIRSTFED AMERICA BANCORP, INC.,
and all amendments thereto and the Application for Conversion on the Form AC
filed by First Federal Savings Bank of America (the "Bank") and all amendments
thereto, relating to the conversion of the Bank from a federally-chartered
mutual savings bank to a federally-chartered stock savings bank, the concurrent
issuance of the Bank's outstanding capital stock to FIRSTFED AMERICA BANCORP,
INC., a holding company formed for such purpose, and the offering of FIRSTFED
AMERICA BANCORP, INC.'s common stock.
MULDOON, MURPHY & FAUCETTE
/s/ Muldoon, Murphy & Faucette
Dated this 27th day of
September, 1996
<PAGE>
[LETTERHEAD OF MORRIS, NICHOLS, ARSHT & TUNNELL]
September 26, 1996
Muldoon, Murphy & Faucette
5101 Wisconsin Avenue, N.W.
Washington, DC 20016
Ladies and Gentlemen:
We hereby consent to the filing of our opinion to you concerning certain
matters of Delaware law in connection with the subscription and community
offering (the "Offering") by FIRSTFED AMERICA BANCORP, INC., a Delaware
corporation (the "Company"), of shares of its common stock, par value $.01 per
share, in draft or final form, as an exhibit to (i) the Registration Statement
filed with the Securities and Exchange Commission by the Company in connection
with the Offering, and all amendments thereto, and (ii) the Application for
Conversion filed with the Office of Thrift Supervision in connection with the
conversion of First Federal Savings Bank of America, a federally chartered
savings bank, from the mutual form of ownership to stock form of ownership, and
all amendments thereto, and to the reference to this firm in the "Legal Matters"
section of the Prospectus relating to the Offering.
Very truly yours,
/s/ Morris, Nichols, Arsht & Tunnell
<PAGE>
[LETTERHEAD OF KELLER & COMPANY, INC.]
September 27, 1996
Re: Valuation Appraisal of FIRSTFED AMERICA BANCORP,INC./
First Federal Savings Bank of America
Fall River, Massachusetts
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
references 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>
[LETTERHEAD OF KELLER & COMPANY, INC.]
September 27, 1996
Board of Directors
First Federal Savings Bank of America
One North Main Street
Fall River, MA 02720
Re: Subscription Rights -- Conversion of First Federal Savings Bank of America
Fall River, Massachusetts
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 FIRSTFED AMERICA
BANCORP, INC. ("FIRSTFED" or the "Corporation"), Fall River, Massachusetts, in
regard to the conversion of First Federal Savings Bank of America ("First
Federal") 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 First
Federal, which are to be issued to the depositors of First Federal and the other
members of First Federal and will be acquired by such recipients without cost,
will be nontransferable and of short duration and will afford the recipients the
right only to purchase shares of Common Stock at the same price as will be paid
by members of the general public in a Direct Community Offering, we are of the
opinion that:
(1) The Subscription Rights will have no ascertainable fair market value,
and;
(2) The price at which the Subscription Rights are exercisable will not be
more or less than the fair market value of the shares on the date of
the exercise.
Further, it is our opinion that the Subscription Rights will have no economic
value on the date of distribution or at the time of exercise, whether or not a
community offering takes place.
Sincerely,
KELLER & COMPANY, INC.
/s/ Michael R. Keller
Michael R. Keller
President
<PAGE>
Exhibit 24.1
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints Robert F. Stoico and Terrence M. Tyrrell as the
true and lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities to sign any or all amendments to the Application for Conversion on
Form AC and the Form S-1 Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the Office
of Thrift Supervision or the U.S. Securities and Exchange Commission,
respectively, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and things requisite and
necessary to be done as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents or his substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of Part 563b of the OTS Rules and Regulations
and the Securities Act of 1933, as amended, and any rules and regulations
promulgated thereunder, the foregoing Powers of Attorney prepared in conjunction
with the Application for Conversion on Form AC and the Form S-1 Registration
Statement have been duly signed by the following persons in the capacities and
on the dates indicated.
NAME DATE
---- ----
/s/ Robert F. Stoico September 27, 1996
- -------------------------------------
Robert F. Stoico
Director, Chairman of the Board,
President and Chief Executive Officer
(principal executive officer)
FIRSTFED AMERICA BANCORP, INC.
Director, President and
Chief Executive Officer
(principal executive officer)
First Federal Savings Bank of America
/s/ Terrence M. Tyrrell September 27, 1996
- -------------------------------------
Terrence M. Tyrrell
Senior Vice President, Chief Financial Officer
and Treasurer
(principal accounting and financial officer)
FIRSTFED AMERICA BANCORP, INC.
Senior Vice President and Treasurer
(principal accounting and financial officer)
First Federal Savings Bank of America
/s/ Gilbert C. Oliveira September 27, 1996
- -------------------------------------
Gilbert C. Oliveira
Director
FIRSTFED AMERICA BANCORP, INC.
Director and Chairman of the Board
First Federal Savings Bank of America
<PAGE>
/s/ Thomas A. Rodgers, Jr. September 27, 1996
- -------------------------------------
Thomas A. Rodgers, Jr.
Director
FIRSTFED AMERICA BANCORP, INC.
Director and Vice Chairman of the Board
First Federal Savings Bank of America
/s/ Richard W. Cederberg September 27, 1996
- --------------------------------------
Richard W. Cederberg
Director
FIRSTFED AMERICA BANCORP, INC.
Director
First Federal Savings Bank of America
/s/ John S. Holden, Jr. September 27, 1996
- -------------------------------------
John S. Holden, Jr.
Director
FIRSTFED AMERICA BANCORP, INC.
Director
First Federal Savings Bank of America
/s/ Dr. Paul A. Raymond September 27, 1996
- -------------------------------------
Dr. Paul A. Raymond
Director
FIRSTFED AMERICA BANCORP, INC.
Director
First Federal Savings Bank of America
/s/ Anthony L. Sylvia September 27, 1996
- -------------------------------------
Anthony L. Sylvia
Director
FIRSTFED AMERICA BANCORP, INC.
Director
First Federal Savings Bank of America
/s/ Stanley A. Baker September 27, 1996
- -------------------------------------
Stanley A. Baker
Director
First Federal Savings Bank of America
<PAGE>
/s/ Gerhard S. Lowenstein September 27, 1996
- -------------------------------------
Gerhard S. Lowenstein
Director
First Federal Savings Bank of America
/s/ Willard E. Olmsted September 27, 1996
- -------------------------------------
Willard E. Olmsted
Director
First Federal Savings Bank of America
/s/ Roger K. Richardson September 27, 1996
- -------------------------------------
Roger K. Richardson
Director
First Federal Savings Bank of America
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF FIRST FEDERAL SAVINGS BANK OF AMERICA AT AND FOR THE
YEAR ENDED MARCH 31, 1996 AND AT AND FOR THE THREE MONTHS ENDED JUNE 30, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> MAR-31-1996 MAR-31-1997
<PERIOD-START> APR-01-1995 APR-01-1996
<PERIOD-END> MAR-31-1996 JUN-30-1996
<CASH> 13,277 13,885
<INT-BEARING-DEPOSITS> 0 0
<FED-FUNDS-SOLD> 0 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 725 773
<INVESTMENTS-CARRYING> 31,235 28,625
<INVESTMENTS-MARKET> 31,447 28,771
<LOANS> 637,592<F1> 727,401<F1>
<ALLOWANCE> 5,607 6,445
<TOTAL-ASSETS> 723,778 802,811
<DEPOSITS> 583,750 600,584
<SHORT-TERM> 48,092 79,516
<LIABILITIES-OTHER> 18,469 18,058
<LONG-TERM> 27,049 57,132
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 46,418 47,521
<TOTAL-LIABILITIES-AND-EQUITY> 723,778 802,811
<INTEREST-LOAN> 43,757 13,295
<INTEREST-INVEST> 1,840 484
<INTEREST-OTHER> 447 106
<INTEREST-TOTAL> 46,044 13,885
<INTEREST-DEPOSIT> 23,131 6,789
<INTEREST-EXPENSE> 26,382 8,416
<INTEREST-INCOME-NET> 19,662 5,469
<LOAN-LOSSES> 2,626 1,000
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 13,672 3,847
<INCOME-PRETAX> 7,956 1,852
<INCOME-PRE-EXTRAORDINARY> 7,956 1,852
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,603 1,071
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<YIELD-ACTUAL> 2.82 2.83
<LOANS-NON> 4,045 3,702
<LOANS-PAST> 0 0
<LOANS-TROUBLED> 991 985
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 4,239 5,607
<CHARGE-OFFS> 1,288 164
<RECOVERIES> 30 2
<ALLOWANCE-CLOSE> 5,607 6,445
<ALLOWANCE-DOMESTIC> 5,607 6,445
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 787 687
<FN>
<F1>
Loans held to maturity.
</FN>
</TABLE>
