<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 3, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
VOLUME I
------------------------
VERMILION BANCORP, INC.
(Exact name of registrant as specified in its articles of incorporation)
<TABLE>
<S> <C> <C>
DELAWARE 6711 37-1363755
(State or other jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or organization) Industrial Classification Code Number) Identification No.)
</TABLE>
------------------------
714 NORTH VERMILION STREET
DANVILLE, ILLINOIS 61832
(217) 442-0270
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------
MERRILL G. NORTON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
VERMILION BANCORP, INC.
714 NORTH VERMILION STREET
DANVILLE, ILLINOIS 61832
(217) 442-0270
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPY TO:
JOHN P. SOUKENIK, ESQ.
STEPHEN M. EGE, ESQ.
Elias, Matz, Tiernan & Herrick L.L.P.
734 15th Street, N.W.
12th Floor
Washington, D.C. 20005
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF AMOUNT PURCHASE PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED TO BE REGISTERED PER SHARE OFFERING PRICE(1) FEE
<S> <C> <C> <C> <C>
Common Stock, $.01 par value per
share.......................... 396,750 shares(2) $10.00 $3,967,500 $1,202.27
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Includes shares that may be issued in the event of a 15% increase in the
maximum size of the offering.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE AS MAY
BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(a)
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
VERMILION BANCORP, INC.
Cross Reference Sheet Showing Location in the Prospectus of Information
Required by Items of Form S-1
<TABLE>
<CAPTION>
REGISTRATION STATEMENT ITEM AND CAPTION PROSPECTUS HEADINGS
- ----------------------------------------------------------------- ------------------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus........................ Front Cover Page
2. Inside Front and Outside Back Cover Page of
Prospectus............................................ Inside Front and Outside Back Cover Pages
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges............................. Summary; Risk Factors
4. Use of Proceeds....................................... Use of Proceeds
5. Determination of Offering Price....................... The Conversion--Stock Pricing and Number of Shares to
be Issued
6. Dilution.............................................. Not applicable
7. Selling Security Holders.............................. Not applicable
8. Plan of Distribution.................................. Front Cover Page; The Conversion-- Subscription
Offering;--Community Offering;--Syndicated Community
Offering
9. Description of Securities to be Registered............ Restrictions on Acquisition of the Company and the
Bank; Description of Capital Stock of the Company;
Description of Capital Stock of the Bank.
10. Interests of Named Experts and Counsel................ Not applicable
11. Information with Respect to the Registrant............ Front Cover Page; Vermilion Bancorp, Inc., American
Savings Bank; Dividend Policy; American Savings Bank
Statements of Operations; Management's Discussion
and Analysis of Financial Condition and Results of
Operations; Business of the Bank; Regulation;
Management of the Company; Management of the Bank;
The Conversion; Description of Capital Stock of the
Company; Financial Statements
12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities........................ Not applicable
</TABLE>
<PAGE>
PROSPECTUS
VERMILION BANCORP, INC.
(PROPOSED HOLDING COMPANY FOR AMERICAN SAVINGS BANK OF DANVILLE)
345,000 SHARES OF COMMON STOCK (ANTICIPATED MAXIMUM)
$10.00 PER SHARE
Vermilion Bancorp, Inc. (the "Company"), a Delaware corporation, is offering
up to 345,000 shares of its common stock, par value $0.01 per share (the "Common
Stock"), in connection with the conversion of American Savings Bank of Danville
from an Illinois-chartered mutual savings bank to an Illinois-chartered stock
savings bank (in its mutual or stock form, as applicable, "American" or the
"Bank") pursuant to the Bank's plan of conversion (the "Plan" or "Plan of
Conversion"). Under certain circumstances, the Company may increase the amount
of Common Stock offered hereby to 396,750 shares. See Note 4 to the table below.
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 referred to herein as the "Conversion."
Nontransferable rights to subscribe for the Common Stock have been granted,
in descending order of priority, to (i) depositors of the Bank as of July 31,
1995 ("Eligible Account Holders"), (ii) the Company's and the Bank's Employee
Stock Ownership Plan (the "ESOP"), (iii) depositors of the Bank as of December
31, 1996 ("Supplemental Eligible Account Holders") and (iv) depositors of the
Bank as of February , 1997 ("Other Voting Members"), all subject to the
limitations and restrictions described herein (the "Subscription Offering").
SUBSCRIPTION RIGHTS ARE NOT TRANSFERABLE. Subject to the other limitations
described herein, the Company also may offer the shares of Common Stock not
subscribed for in the Subscription Offering, if any, for sale in a community
offering ("Community Offering") and, if necessary, in a syndicated community
offering ("Syndicated Community Offering") (the Subscription Offering, Community
Offering and Syndicated Community Offering are referred to herein collectively
as the "Offerings"). All shares issued and sold in the Conversion will be sold
at the same price. Shares purchased by the ESOP will be financed from a loan
made to the ESOP by the Company, which loan will have a repayment term of [TEN]
years and an interest rate of %.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY EACH
PROSPECTIVE INVESTOR, SEE "RISK FACTORS" ON PAGE 18.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, THE FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC")
THE OFFICE OF BANKS AND REAL ESTATE OF THE STATE OF ILLINOIS (THE
"COMMISSIONER"), OR ANY OTHER FEDERAL AGENCY OR STATE SECURITIES
COMMISSION, NOR HAS SUCH COMMISSION, OFFICE OR OTHER AGENCY
OR COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The Subscription Offering will terminate at , Central Time,
on March , 1997 (the "Subscription Expiration Date") unless extended by the
Bank and the Company, [WITH REGULATORY APPROVAL.] The Community Offering or any
Syndicated Community Offering must be completed within 45 days after the close
of the Subscription Offering, or , 1997, unless extended by the Bank
and the Company [WITH REGULATORY APPROVAL.] No single extension can exceed [90]
days. Orders submitted are irrevocable until the completion of the Conversion;
provided that, if the Conversion is not completed within the 45-day period
referred to above, unless such period has been extended, all subscribers will
have their funds returned promptly with interest, and all withdrawal
authorizations will be cancelled. Any extension of the Offerings will be
conducted in accordance with the terms described herein. See "The
Conversion--Subscription Offering and Subscription Rights." The Plan sets forth
various purchase limitations which are applicable in the Offering. See "The
Conversion--Subscription Offering and Subscription Rights," "--Community
Offering" and "--Limitations on Common Stock Purchases."
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENT AGENCY. THESE SECURITIES ARE NOT GUARANTEED BY THE
<PAGE>
COMPANY OR THE BANK OR ANY OTHER ENTITY AND NO REPRESENTATION AS TO THE FUTURE
VALUE OF THE SHARES IS MADE.
The Company intends to apply to have the Common Stock listed on the National
Daily Quotation Service "pink sheets" published by the National Quotation
Bureau, Inc. Prior to the Offerings, there has not been a public market for the
Common Stock. Moreover, because of the limited size of the Offerings and the
anticipated concentrated ownership of the Common Stock, it is unlikely that an
active and liquid trading market for the Common Stock will develop and there can
be no assurance that the Common Stock will trade at or above the purchase price
in the Offerings. See "Risk Factors--Absence of Market For Common Stock."
FOR ADDITIONAL INFORMATION ON HOW TO SUBSCRIBE FOR COMMON STOCK, PLEASE CALL
THE STOCK CONVERSION CENTER AT (217) .
<TABLE>
<CAPTION>
ESTIMATED FEES AND OTHER
EXPENSES, INCLUDING ESTIMATED
SUBSCRIPTION UNDERWRITING NET
PRICE(1) COMMISSIONS(2) PROCEEDS(3)
<S> <C> <C> <C>
Minimum Per Share........................................... $10.00 $1.04 $8.96
Midpoint Per Share.......................................... $10.00 $0.90 $9.10
Maximum Per Share........................................... $10.00 $0.81 $9.19
Maximum, as adjusted, Per Share............................. $10.00 $0.72 $9.28
Total Minimum(1)............................................ $2,550,000 $264,000 $2,286,000
Total Midpoint(1)........................................... $3,000,000 $271,000 $2,729,000
Total Maximum(1)............................................ $3,450,000 $278,000 $3,172,000
Total Maximum, as adjusted(4)............................... $3,967,500 $287,000 $3,680,500
</TABLE>
(1) Determined in accordance with an independent appraisal prepared by RP
Financial, LC. ("RP Financial"), dated November 15, 1996, which states that
the estimated pro forma market value of the Common Stock ranged from
$2,550,000 to $3,450,000 (the "Estimated Price Range"), or between 255,000
and 345,000 shares of Common Stock at a fixed price of $10.00 per share
("Purchase Price"). Upon conclusion of the Offerings, RP Financial will
issue an updated appraisal which will determine the final valuation of the
Common Stock and the number of shares to be issued. In the event the
aggregate Purchase Price of the shares of Common Stock is below the minimum
of the Estimated Price Range or more than 15% above the maximum of such
range, purchasers may be resolicited subject to approval of any change in
the Estimated Price Range by the Commissioner and, if required, the FDIC.
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 expected fixed expenses of $234,000 and fees to be
paid to Trident Securities, Inc. ("Trident" or the "Agent") in connection
with the Subscription and Community Offerings. Trident is not obligated to
purchase any shares of Common Stock in the Offerings. Such fees paid to the
Agent may be deemed to be underwriting fees. See "The Conversion--Marketing
Arrangements." The actual fees and expenses may vary from the estimates. See
"Pro Forma Data."
(3) Actual net proceeds may vary substantially from estimated amounts depending
on the number of shares sold in the Offerings and other factors. Includes
the purchase of shares of Common Stock by the ESOP, which will be funded by
a loan from the Company to the ESOP and, which initially will be deducted
from the Company's stockholders' equity. For the effects of such purchase,
see "Capitalization" and "Pro Forma Data."
(4) Gives effect to a 15% increase in the Estimated Price Range. See "The
Conversion--Stock Pricing and Number of Shares to be Issued" and
"--Limitations on Common Stock Purchases."
------------------------
TRIDENT SECURITIES, INC.
---------------
The date of this Prospectus is February , 1997
<PAGE>
[MAP]
<PAGE>
SUMMARY OVERVIEW
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED IN THE
PROSPECTUS AND IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND
CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES APPEARING ELSEWHERE HEREIN.
<TABLE>
<S> <C>
The Bank:....................... American Savings Bank of Danville is an Illinois-chartered
mutual savings bank.
The Company:.................... Vermilion Bancorp, Inc. is a Delaware corporation and a
proposed one-bank holding company.
Plan of Conversion:............. Pursuant to the Plan of Conversion, the Bank will convert
to an Illinois-chartered stock form savings bank and
become a subsidiary of the Company. See "The Conversion."
The Offerings:.................. The Bank is offering a minimum of 255,000 shares and a
maximum of 345,000 shares of Common Stock. The maximum
number of shares sold in the Offerings may be increased to
up to 396,750 shares without a resolicitation of
subscribers. The Subscription Offering is expected to
terminate at , Central Time, on March , 1997. See
"The Conversion--Subscription Offering and Subscription
Rights." The Community Offering or any Syndicated
Community Offering may be commenced at any time during the
Subscription Offering and, if commenced, must be completed
within 45 days after the close of the Subscription
Offering, or , 1997, unless extended by the
Bank and the Company with regulatory approval.
Purchase Price:................. The shares of Common Stock are being offered at a purchase
price of $10.00 per share.
Plan of Distribution:........... Subject to the limitations and restrictions described
herein, shares of Common Stock are being offered in the
Subscription Offering in descending order of priority to
(i) Eligible Account Holders; (ii) the ESOP; (iii)
Supplemental Eligible Account Holders; and (iv) Other
Voting Members. The Company also may offer shares of
Common Stock not subscribed for in the Subscription
Offering, if any, for sale in a Community Offering and, if
necessary, in the Syndicated Community Offering.
Purchase Limitations:........... The Plan sets forth various purchase limitations.
Generally, each Eligible Account Holder, Supplemental
Eligible Account Holder or Other Voting Member (or persons
exercising Subscription Rights through a single account)
may purchase up to $50,000 of Common Stock in the
Subscription Offering, provided, however, that no person,
together with associates or persons acting in concert with
such person, may purchase in the aggregate more than
$150,000 of the Common Stock. The minimum purchase is 25
shares. See "The Conversion--Subscription Offering and
Subscription Rights," "--Community Offering" and
"--Limitations on Common Stock Purchases."
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
Independent Valuation:.......... The shares of Common Stock to be issued in the Offering
will be issued at an aggregate Purchase Price which is
determined in accordance with an independent appraisal
prepared by RP Financial. See "The Conversion--Stock
Pricing and Number of Shares to be Issued."
Use of Proceeds:................ The Company will purchase capital stock of the Bank in
exchange for 75% of the net proceeds. The Company intends
to use a portion of the net proceeds retained by it to
make a loan directly to the ESOP to enable the ESOP to
purchase Common Stock. The remaining net proceeds retained
by the Company will initially be invested primarily in
short-term deposits and investment grade, short- to
intermediate-term marketable securities. Funds received by
the Bank from the Company's purchase of its capital stock
will be used for general business purposes. See "Use of
Proceeds."
Market for Common Stock:........ Upon completion of the Offerings, the Company intends to
apply to have the Common Stock listed on the National
Daily Quotation Service "pink sheets" published by the
National Quotation Bureau, Inc. See "Market for the Common
Stock."
Benefits of Conversion to The Company's directors and executive officers will
Management:................... receive certain additional benefits as a result of the
Conversion. See "Management--Employment Agreements,"
"--Benefits-- Employee Stock Ownership Plan and Trust,"
"--Stock Option Plan" and "--Recognition and Retention
Plan."
Risk Factors:................... See "Risk Factors" for a discussion of certain factors
that should be considered by prospective investors.
Board of Directors' The Board of Directors unanimously recommends that
Recommendation:............... depositors entitled to vote on the Plan vote "FOR" the
Plan. THE BOARD MAKES NO RECOMMENDATIONS REGARDING THE
SUITABILITY OF AN INVESTMENT IN THE COMMON STOCK.
</TABLE>
5
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following selected consolidated financial and other data of the Bank
does not purport to be complete and should be read in conjunction with, and is
qualified in its entirety by, the more detailed financial information, including
the Consolidated Financial Statements of the Bank and Notes thereto, contained
elsewhere herein.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets............................................. $ 35,459 $ 33,977 $ 33,198 $ 33,591 $ 33,904
Cash and cash equivalents................................ 789 571 699 1,288 2,234
Interest-bearing time deposits........................... 99 99 694 1,181 2,168
Securities:
Available for sale..................................... 2,222 1,486
Held to maturity....................................... 861 2,556 4,354 7,183 8,911
Mortgage-backed securities held to maturity.............. 3,476 4,260 4,851 5,899 3,668
Loans, net............................................... 26,936 23,954 21,627 18,235 18,056
Premises and equipment................................... 467 495 468 483 500
Federal Home Loan Bank of Chicago stock, at cost......... 269 255 236 236 230
Deposits................................................. 30,724 31,331 30,698 31,158 31,640
Federal Home Loan Bank advances.......................... 2,000 -- -- -- --
Total equity capital..................................... 2,355 2,442 2,341 2,185 2,012
Full Service offices..................................... 1 1 1 1 1
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Total interest income.......................................... $ 2,634 $ 2,375 $ 2,279 $ 2,390 $ 2,724
Total interest expense......................................... 1,778 1,588 1,355 1,521 1,999
--------- --------- --------- --------- ---------
Net interest income.......................................... 856 787 924 869 725
Provision for losses on loans.................................. 80 13 105 8 49
--------- --------- --------- --------- ---------
Net interest income after provision for losses on loans........ 776 774 819 861 676
Non-interest income............................................ 45 51 49 82 99
Non-interest expenses.......................................... 889(1) 710 700 763 677
--------- --------- --------- --------- ---------
Income (loss) before taxes..................................... (68) 115 168 180 98
Provision for income taxes..................................... 3 15 13 59 21
--------- --------- --------- --------- ---------
Net income (loss).............................................. $ (71) $ 100 $ 155 $ 121 $ 77
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
- ------------------------
(1) Includes a special assessment of $206,000 to recapitalize the SAIF.
6
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
OTHER DATA:
Profitability:
Return on average assets.................................. (0.20 (5) 0.29% 0.46% 0.36% 0.23%
Return on average equity.................................. (2.89 (5) 4.18 6.86 5.78 3.95
Interest rate spread for period(1)........................ 2.17 2.11 2.59 2.42 1.91
Net interest margin(2).................................... 2.48 2.39 2.83 2.64 2.16
Non-interest expenses to average assets................... 2.49 2.08 2.13 2.26 2.00
Average interest-earning assets to
average interest-bearing liabilities.................... 106.05 104.04 104.78 104.81 104.12
Capital Ratios:
Average equity to average assets............................ 6.90 7.02 6.76 6.22 5.79
Total risk-based capital to risk-weighted assets........ 15.33 15.03 16.44 16.02 14.61
Asset Quality:
Non-performing assets to total assets(4).................... 0.93 0.64 0.26 1.64 0.54
Net chargeoffs (recoveries) to average loans................ 0.04 0.03 0.76 (0.01) 0.07
Allowance for loan losses to total loans.................... 0.53 0.31 0.29 0.60 0.55
Allowance for loan losses to non-performing loans........... 43.60 34.26 73.26 19.78 54.40
</TABLE>
- ------------------------
(1) The interest rate spread represents the difference between the average yield
on interest-earning assets and the average rate paid on interest-bearing
liabilities.
(2) The net interest margin represents net interest income divided by average
interest-earning assets.
(3) The efficiency ratio is non-interest expense divided by the sum of net
interest income plus non-interest income.
(4) Non-performing assets include non-accrual loans, accruing loans delinquent
90 days or more and real estate owned.
(5) When calculated without the special SAIF assessment, the return on average
assets and the return on average equity would have been 0.24% and 3.01%,
respectively.
7
<PAGE>
SUMMARY
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION
AND THE CONSOLIDATED FINANCIAL STATEMENTS OF THE BANK AND NOTES THERETO
APPEARING ELSEWHERE IN THIS PROSPECTUS.
<TABLE>
<S> <C>
Vermilion Bancorp, Inc.:..... The Company is a Delaware corporation organized for the
purpose of becoming the holding company for the Bank.
Immediately following the Conversion, the only significant
assets of the Company will be the capital stock of the Bank
and the net Conversion proceeds retained by the Company. See
"Business of the Bank" and "Regulation--The Company."
American Savings Bank of
Danville:.................. The Bank is an Illinois-chartered mutual savings bank
headquartered in Danville, Illinois. At September 30, 1996,
the Bank had $35.5 million of total assets, $30.7 million of
total deposits and $2.4 million of equity. The Bank reported
a net loss of $71,000 during the year ended September 30,
1996, due to a $155,000, net of tax, increase in deposit
insurance expense resulting from a special one-time assess-
ment to recapitalize the Savings Association Insurance Fund
("SAIF"). The Bank reported net income of $100,000 and
$155,000 during the years ended September 30, 1995 and 1994,
respectively. At September 30, 1996, the Bank exceeded all
regulatory capital requirements.
Operating characteristics of the Bank in recent years
include the following:
PROFITABILITY. For the years ended September 30, 1996 and
1995, the Bank had net income (loss) of ($71,000) and
$100,000, respectively. However, if the non-interest expense
of $206,000 associated with the special SAIF assessment is
excluded, the Bank's net income for fiscal 1996 would have
been $84,000. The Bank's net income is primarily dependent
on its net interest income, the difference between interest
income on interest-earning assets and interest expense
noninterest-bearing liabilities. Net interest income after
provision for loan losses totalled $776,000 and $774,000 for
the years ended September 30, 1996 and 1995, respectively.
The interest rate spreads for the years ended September 30,
1996 and 1995 were 2.17% and 2.11%, respectively. The Bank's
return on assets has been relatively stable during the
periods presented, amounting on an annualized basis to
(0.20)% (0.24% excluding the affect of the special SAIF
assessment) and 0.29% for the years ended September 30, 1996
and 1995, respectively.
NONINTEREST EXPENSE. The Bank's profitability has been
enhanced by management's emphasis on operating efficiency.
The Bank's ratio of noninterest expense (excluding the
special SAIF assessment) to average the total assets
amounted to 1.92% for the year ended September 30, 1996 and
averaged 2.10% for the two years ended September 30, 1996.
ASSET QUALITY. Management of the Bank believes that good
asset quality is the key to long-term financial strength
and, as a result, the
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
Bank's loan portfolio is intended to maintain asset quality
and control credit risk. In accordance with this approach,
the Bank has predominantly emphasized single-family
residential real estate loans, which comprised 79.1% of
total loans, net at September 30, 1996. As of such date,
total non-performing assets constituted $328,000 or 0.93% of
total assets.
STRONG CAPITAL POSITION. At September 30, 1996, the Bank had
total retained earnings of $2.4 million and exceeded all of
its regulatory capital requirements, with tier I leverage
capital, tier I risk-based capital and total risk-based
capital ratios of 6.69%, 14.45% and 15.33%, respectively, as
compared to the minimum requirements of 4.0%, 4.0% and 8.0%,
respectively. Assuming that 345,000 shares of Common Stock
are sold in the Offerings and that the Company retains 25%
of the net proceeds after reduction to reflect the Com-
pany's funding obligations under the ESOP, the Bank's pro
forma tier I leverage, tier I risk-based and total
risk-based capital ratios at September 30, 1996 would be
7.50%, 20.74% and 17.56%, respectively. See "Regulatory
Capital Requirements."
INTEREST RATE RISK. The Bank's management measures interest
rate risk using gap and net portfolio value analyses. As of
September 30, 1996, the Bank's interest-earning assets less
interest-bearing liabilities maturing or repricing within
one year as a percentage of total interest-earning assets
was a negative 29.41%. At September 30, 1996, the Bank had a
three-year cumulative negative gap of 37.14%. As a result, a
significant increase in market interest rates would affect
the Bank's results of operations adversely. As of September
30, 1996, $2.8 million of the Bank's $27.1 million in loans
outstanding were to mature or reprice within one year or
less. See "Risk Factors--Potential Effects of Changes in
Interest Rates" and "Management's Discussion and Analysis of
Financial Condition and Operating Results--Asset and
Liability Management".
COMMUNITY ORIENTATION. The Bank historically has been
committed to meeting the financial needs of its community.
Management believes the Bank can provide a range of personal
and business financial services, and yet at the same time
provide such services on a personalized and efficient basis.
The Bank's deposits are insured by the SAIF, which is
administered by the FDIC, to the maximum extent permitted by
law. The Bank is subject to examination and comprehensive
regulation by the Commissioner. The Commissioner is the
Bank's chartering authority and primary regulator. In
addition, the Bank is subject to examination and regulation
by the FDIC. The Bank is a member of the Federal Home Loan
Bank ("FHLB") of Chicago.
Dividends:................... Subject to regulatory and other considerations, the Company
intends to establish an annual cash dividend policy
following the Conversion. Although the Board of Directors of
the Company has not made any decision as to the amount of
cash dividends it will pay, it anticipates that the first
dividend will be paid during the first quarter of fiscal
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
1998. However, declarations of dividends by the Board of
Directors will depend upon a number of factors, including
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 assurance can be given that dividends will in
fact be paid on the Common Stock or that, if paid, such
dividends will not be reduced or eliminated in future
periods. See "Dividend Policy."
The Conversion and the
Subscription and
Community Offerings:....... The Board of Directors of the Bank has unanimously adopted
the Plan of Conversion, pursuant to which the Bank is
converting from an Illinois-chartered mutual savings bank to
an Illinois-chartered stock savings bank, all the common
stock of which will be acquired by the Company in exchange
for 75% of the net Conversion proceeds. The Commissioner has
approved the Plan of Conversion and the FDIC has issued its
conditional non-objection thereto, in each case subject to
approval of the Bank's members at a special meeting
("Special Meeting") to be called for this purpose on March
, 1997. See "The Conversion--General." In addition, the
Company has applied to the Board of Governors of the Federal
Reserve System ("Federal Reserve Board" or "FRB") to become
a bank holding company. The Conversion will enhance the
Bank's ability to access the capital markets, its ability to
engage in acquisitions, facilitate the Bank's traditional
business as a thrift lender and enhance its ability to
increase originations of commercial business loans and
consumer loans. See "The Conversion--Purposes of
Conversion."
The Board of Directors of the Bank is not making any
recommendation in connection with the purchase of the shares
of Common Stock offered hereby. Any decision made with
respect to an investment in the Common Stock should be made
only after a careful review of this Prospectus.
Common Stock is first being offered in the Subscription
Offering with nontransferable subscription rights being
granted, in the following order of priority, to: (i)
depositors of the Bank with account balances of $50.00 or
more as of July 31, 1995 (Eligible Account Holders);
(ii) the ESOP; (iii) depositors of the Bank with account
balances of $50.00 or more as of December 31, 1996
(Supplemental Eligible Account Holders); and (iv) depositors
of the Bank as of March , 1997 (Other Voting Members).
Subscription rights will expire if not exercised by ,
Central Time, on March , 1997, unless extended. Subject to
the prior rights of holders of subscription rights, Common
Stock not subscribed for in the Subscription Offering also
may be offered in a Community Offering. The Community
Offering may be commenced at any time during the
Subscription Offering or subsequent thereto. It is
anticipated that any shares not subscribed for in the
Subscription and Community Offerings will be offered in a
Syndicated Community Offering. The Company reserves the
absolute right to reject or accept any orders in the
Community Offering or the
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Syndicated Community Offering, in whole or in part. See "The
Conversion--Subscription Offering and Subscription Rights"
and
"--Community Offering." The Bank has engaged Trident as a
financial advisor and marketing agent, and Trident has
agreed to use its best efforts to solicit subscriptions and
purchase orders for Common Stock in the Offerings.
Restrictions on Transfer
of Subscription Rights
and Shares:................ Prior to the completion of the Conversion, no person may
transfer or enter into any agreement or understanding to
transfer the legal or beneficial ownership of the
subscription rights issued under the Plan or the shares of
Common Stock to be issued upon their exercise. Each person
exercising subscription rights will be required to certify
that a purchase of Common Stock is solely for the
purchaser's own account and that there is no agreement or
understanding regarding the sale or transfer of such shares.
THE COMPANY AND THE BANK WILL PURSUE ANY AND ALL LEGAL AND
EQUITABLE REMEDIES IN THE EVENT OF THE TRANSFER OF
SUBSCRIPTION RIGHTS AND WILL NOT HONOR ORDERS KNOWN BY THEM
TO INVOLVE THE TRANSFER OF SUCH RIGHTS. See "The
Conversion--Restrictions on Transfer of Subscription Rights
and Shares."
Purchase Limitations:........ The minimum purchase is 25 shares. In general, with the
exception of the ESOP, each Eligible Account Holder,
Supplemental Eligible Account Holder or Other Voting Member
(or persons exercising Subscription Rights through a single
account) may purchase in his capacity as such in the
Subscription Offering up to $50,000 of Common Stock, and no
person, together with associates of and persons acting in
concert with such person, may purchase in the Conversion, in
the aggregate, more than $150,000 of Common Stock. 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
purchase limitation may be increased to up to a maximum of
5% of the shares sold in the Offerings at the sole
discretion of the Company and the Bank. See "The
Conversion--Limitations on Common Stock Purchases." In the
event of an oversubscription, shares will be allocated in
accordance with the Plan. See "The Conversion-- Subscription
Offering and Subscription Rights" and "--Community
Offering."
Stock Pricing and Number of
Shares to be Issued in the
Conversion:................ The aggregate purchase price of the Common Stock to be
issued in the Conversion is required to be consistent with
an independent appraisal of the estimated pro forma market
value of the Common Stock following Conversion. RP
Financial, an independent appraiser, has advised the Bank
that in its opinion, dated as of November 15, 1996, the
Estimated Price Range ranged from $2,550,000 to $3,450,000
with a midpoint of $3,000,000. THIS 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
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NOR CAN ANY ASSURANCE BE GIVEN THAT PURCHASERS OF THE COMMON
STOCK IN THE CONVERSION WILL BE ABLE TO SELL SUCH SHARES
AFTER THE CONVERSION AT OR ABOVE THE PURCHASE PRICE.
All shares of Common Stock issued in the Conversion will be
sold at the Purchase Price, as determined by the Bank and
approved by the Company. The actual number of shares to be
issued in the Conversion will be based upon the final
updated valuation of the estimated pro forma market value of
the Common Stock, giving effect to the Conversion, at the
completion of the Offerings. The number of shares to be
issued is expected to range from a minimum of 255,000 shares
to a maximum of 345,000 shares. To the extent that the
number of shares of Common Stock issued in the Offerings
exceeds the minimum number of shares, pro forma
stockholders' equity per share will be reduced. See "Pro
Forma Data." Subject to approval of the Commissioner and the
FDIC, the Estimated Price Range may be increased or
decreased to reflect market and economic conditions prior to
the completion of the Conversion, and under such
circumstances the Company may increase or decrease the
number of shares of Common Stock to be issued in the
Conversion. 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 "Pro Forma Data," and "The Conversion--Stock Pricing and
Number of Shares to be Issued."
Benefits of Conversion to
Management:................ GENERAL. In connection with the Conversion, the Company's
directors and executive officers as a group (including
purchases by any associates of or groups acting in concert
with such persons) (5 persons) have indicated that they
intend to purchase 65,000 shares of Common Stock, or 18.8%
of the Common Stock at the maximum of the Estimated Price
Range.
THE ESOP. The ESOP intends to purchase an aggregate of 8.0%
of the shares of Common Stock offered in the Conversion
($204,000 and $276,000 of Common Stock, respectively, based
on the issuance of the minimum of 255,000 shares and the
maximum of 345,000 shares or $317,400 based on the issuance
of 396,750 shares, at 15% above the maximum of the Estimated
Price Range). For additional information, see
"Management--Benefits--Employee Stock Ownership Plan and
Trust."
EMPLOYMENT AGREEMENT. An employment agreement with the
Bank's chief executive officer provides for benefits and
cash payments in the event of 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 acquire the Company or the
Bank. See "Management--Employment Agreement."
STOCK OPTION PLAN. Following consummation of the Conversion,
the Company intends to submit for stockholder consideration
a stock
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option plan for the benefit of the directors, officers and
key employees of the Company and the Bank (the "Stock Option
Plan"), pursuant to which the Company intends to reserve a
number of authorized but unissued shares of Common Stock
equal to an aggregate of 10% of the Common Stock issued in
the Conversion (34,500 shares at the maximum of the
Estimated Price Range, 39,675 shares at 15% above the
maximum of the Estimated Price Range) for issuance pursuant
to stock options and stock appreciation rights. The Company
currently intends to submit the Stock Option Plan to
stockholders at a meeting to be held not earlier than six
months after the Conversion. While no consideration has been
given to the number of shares granted to any employee or
director under the Stock Option Plan, any allocation will be
consistent with applicable Federal regulations. Under
current Federal regulations, any plan approved by
stockholders within one year of the consummation of the
Conversion is required to limit grants (i) to any employee
to 25% or less of the shares available under the Stock
Option Plan and (ii) to any non-employee director
individually to 5% or less and to all such non-employee
directors to 30% in the aggregate of the shares available
under the Stock Option Plan. The value of any options
granted under the Stock Option Plan will be determined based
on the increase, if any, in the market value of the Common
Stock compared over the exercise price of the options. The
exercise price of any options granted under the Stock Option
Plan will be not less than fair market value on the date of
grant. See "Management-- Benefits--Stock Option Plan."
RECOGNITION AND RETENTION PLAN. Following consummation of
the Conversion, the Company intends to submit for
stockholder consideration a Recognition and Retention Plan
for the benefit of the directors and officers of the Company
and the Bank (the "Recognition Plan"). It is expected that
the Recognition Plan will be submitted to stockholders for
approval at the same time as the Stock Option Plan.
Upon the receipt of such approval, the Recognition Plan is
expected to purchase a number of shares of Common Stock
either from the Company or in the open market equal to an
aggregate of 4% of the Common Stock issued in the Conversion
(13,800 shares at the maximum of the Estimated Price Range).
While no consideration has been given to the number of
shares to be awarded to any employee or director under the
Recognition Plan, any allocation will be consistent with
applicable Federal regulations. Under current Federal
regulations, any such plan approved by stockholders within
one year of the consummation of the Conversion is required
to limit grants (i) to any employee to 25% or less of the
shares available under the Recognition Plan and (ii) to any
non-employee director individually to 5% or less and to all
such non-employee directors to 30% in the aggregate of the
shares available under the Recognition Plan.
Assuming that the Purchase Price is the value of shares
awarded under the Recognition Plan, the maximum value of
awards to an employee would be $25,500, $30,000, $34,500 and
$39,675, respectively, assuming the issuance of shares at
the minimum, midpoint,
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maximum and 15% above the maximum of the Estimated Price
Range and the maximum value of awards to a non-employee
director would be $5,100, $6,000, $6,900 and $7,935,
respectively, at the minimum, midpoint, maximum and 15%
above the maximum of the Estimated Price Range. The actual
value of any awards made under the Recognition Plan will
depend upon, among other factors, the market value of the
Common Stock at the time of award and upon payment. All
awards under the Recognition Plan shall vest over a period
of time, but generally not in excess of 20% per year. See
"Management-- Benefits--Recognition and Retention Plan."
Federal and State Income
Tax Consequences
of Conversion:............. The Company has received an opinion from its special
counsel, Elias, Matz, Tiernan & Herrick L.L.P., Washington,
D.C., to the effect that the Conversion will qualify as a
reorganization within the meaning of Section 368(a)(1)(F) of
the Internal Revenue Code of 1986, as amended (the "Code").
The Company has also received an opinion from Geo. S. Olive
& Co. LLC, to the effect that the Conversion will be
tax-free to the Company, the Bank, Eligible Account Holders
and Supplemental Eligible Account Holders for Illinois tax
purposes. See "The Conversion--Tax Aspects."
Use of Proceeds:............. Net proceeds from the sale of the Common Stock are estimated
to be between $2.3 million and $3.2 million, depending on
the number of shares sold and the expenses of the
Conversion. See "Pro Forma Data." The Company will purchase
all of the capital stock of the Bank to be issued upon
Conversion in exchange for 75% of the net proceeds. The
Company intends to use a portion of the net proceeds
retained by it to make a loan directly to the ESOP to enable
the ESOP to purchase up to 8.0% of the Common Stock in the
Conversion. See "Management--Benefits--Employee Stock
Ownership Plan and Trust." The remaining net proceeds
retained by the Company will initially be invested primarily
in short-term deposits and investment grade, short- to
intermediate-term marketable securities. Funds received by
the Bank from the Company's purchase of its capital stock
will be used for general business purposes, including the
funding of Loans. See "Use of Proceeds."
Risk Factors:................ See "Risk Factors" for a discussion of certain factors that
should be considered by prospective investors.
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RISK FACTORS
THE FOLLOWING 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.
DEPENDENCE ON LOCAL MARKET AREA AND ECONOMY
To date, substantially all of the Bank's lending and deposit activities have
been concentrated in the Danville, Illinois area including Vermilion County,
Illinois. The Vermilion County market has experienced stable population over the
first-half of the decade after experiencing a steady decline in its population
over the previous two decades. Vermilion County's building permits have also
increased over a similar period, averaging $27.1 million from 1990-1995 after
averaging only $11.9 million annually from 1985-1989. [INCOME LEVELS IN
VERMILION COUNTY ARE LOWER THAN IN ILLINOIS AND THE UNITED STATES, GENERALLY,
WITH PER CAPITA INCOME GROWTH LESS OVER THE FIRST FIVE YEARS OF THE DECADE THAN
ILLINOIS OR THE UNITED STATES AND MEDIAN HOUSEHOLD INCOME DECLINING DURING SUCH
PERIOD COMPARED TO GROWTH IN ILLINOIS AND THE NATION.] The market is dominated
by the manufacturing industry and government, which accounts for approximately
of all jobs in Vermilion County; however, unemployment levels in Vermilion
County, although stable, have exceeded state and national levels during the
1990s. The Vermilion County market area also had a much lower median rent level
and a much lower median housing value than the rest of the state and country.
Vermilion County has a very competitive financial institution market
dominated by commercial banks. As of June 30, 1995, the Bank's market area
included 13 commercial banks with 27 offices, three thrift institutions with
four offices and 18 credit unions with 18 offices which compete with the Bank
for deposits and loans. The Bank had a 3.2% share of the total financial
institution deposits for Vermilion County as of June 30, 1995. Many of the
Bank's competitors have substantially greater resources and lending limits than
the Bank and may offer certain services that the Bank does not or cannot
provide. The profitability of the Bank depends upon its continued ability to
compete successfully in its market area. See "Business of the
Bank--Competition."
POTENTIAL LOW RETURN ON EQUITY FOLLOWING CONVERSION; UNCERTAINTY AS TO FUTURE
GROWTH OPPORTUNITIES.
For the years ended September 30, 1996 and 1995, the Bank's ratio of equity
to assets was 6.9% and 7.0%, respectively. The Company's equity position will be
significantly increased as a result of the Conversion. On a pro forma basis as
of September 30, 1996, assuming the sale of Common Stock at the midpoint of the
Estimated Price Range, the Company's ratio of equity to assets would be 12.5%.
The Company's ability to leverage this capital will be significantly affected by
industry competition for loans and deposits. The Company currently anticipates
that it will take time to prudently deploy such capital. As a result, the
Company's return on equity initially is expected to be below the industry
average after the Conversion, and no assurance can be given that the Company's
return on equity will achieve the industry average level at any time in the
future.
POTENTIAL EFFECTS OF CHANGES IN INTEREST RATES
The operations of the Bank are substantially dependent on its net interest
income, which is the difference between the interest income earned on its
interest-earning assets and the interest expense paid on its interest-bearing
liabilities. Like most savings institutions, the Bank's earnings are affected by
changes in market interest rates and other economic factors beyond its control.
If an institution's interest-earning assets have longer effective maturities
than its interest-bearing liabilities, the yield on the institution's
interest-earning assets generally will adjust more slowly than the cost of its
interest-bearing liabilities and, as a result, the institution's net interest
income generally would be adversely affected by material and prolonged increases
in interest rates and positively affected by comparable declines in interest
rates. The Bank has sought to reduce the vulnerability of its operations to
changes in interest rates by managing the
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nature and composition of its interest rate sensitive assets and liabilities.
However, at September 30, 1996, the Bank's total interest-bearing liabilities
which were estimated to mature or reprice within one year exceeded the Bank's
total interest-earning assets with the same characteristics by $10.4 million, or
29.4%, of the Bank's total assets. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Asset and Liability Management,"
"--Results of Operations -Interest Expense."
The Bank's deposits have included a relatively high amount of certificates
of deposit ("certificate"), which are generally higher costing and more
interest-rate sensitive than "core" deposits. At September 30, 1996, $23.8
million, or 77.3% of the Bank's total deposits were comprised of certificates
and $17.0 million, or 55.4% of the Banks total deposits consisted of
certificates which are scheduled to mature within one year. Certificates
generally are costlier and a more volatile source of funds than transaction
accounts. In addition, certificates are more likely to be invested in other
instruments than are transaction accounts. Notwithstanding the foregoing,
management believes that most of its certificates will remain at the Bank upon
maturity. The Bank does not accept brokered deposits. See "Business of the
Bank--Sources of Funds--Deposits."
In addition to affecting interest income and expense, changes in interest
rates also can affect the value of the Bank's interest-earning assets, which are
comprised of fixed and adjustable-rate instruments, and the ability to realize
gains from the sale of such assets. Generally, the value of fixed-rate
instruments fluctuates inversely with changes in interest rates.
Changes in interest rates also can affect the average life of loans and
mortgage-backed securities. Decreases in interest rates generally result in
increased prepayments of loans and mortgage-backed securities as borrowers
refinance to reduce borrowing costs, which may subject the Bank to reinvestment
risk to the extent that it is not able to reinvest such prepayments at rates
which are comparable to the rates on the maturing loans or securities. See
generally "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Asset and Liability Management."
PENDING LITIGATION AGAINST BANK
[ON DECEMBER 30, 1992, A FORMER EMPLOYEE FILED A LAWSUIT AGAINST THE BANK
WHICH INVOLVES VARIOUS ACCUSATIONS. A SUMMARY JUDGMENT HAS BEEN ISSUED BY THE
COURT IN FAVOR OF THE BANK ON EACH COUNT WITH THE EXCEPTION OF ONE. BASED ON THE
CURRENT STATUS OF THE LITIGATION, THE BANK'S ATTORNEYS HAVE ADVISED THAT WHILE
THEY ARE UNABLE TO EXPRESS AN OPINION AS TO THE ULTIMATE DISPOSITION OF THE
CLAIM, THEY BELIEVE THAT IT IS UNLIKELY THAT THE FORMER EMPLOYEE WILL PREVAIL IN
THE REMAINING COUNT. NO ACCRUAL FOR LOSS FROM THIS ACTION HAS BEEN RECOGNIZED IN
THE ACCOMPANYING FINANCIAL STATEMENTS.]
IMPORTANCE OF SENIOR MANAGEMENT
The president and chief executive officer of the Bank is, and the president
and chief executive officer of the Company will be Merrill G. Norton. Mr. Norton
has served in that capacity at the Bank since 1992 and has had and, after the
consummation of the Conversion, will continue to have a significant role in the
development and management of the Bank. The loss of his services could have an
adverse effect on the Bank.
CERTAIN ANTI-TAKEOVER PROVISIONS
PROVISIONS IN THE COMPANY'S GOVERNING INSTRUMENTS AND DELAWARE LAW. Certain
provisions of the Company's Certificate of Incorporation and Bylaws, as well as
certain provisions in Delaware law, will assist the Company in maintaining its
status as an independent publicly owned corporation. Provisions in the Company's
Certificate of Incorporation and Bylaws provide for, among other things,
supermajority voting on certain matters, a staggered board of directors,
noncumulative voting for directors, limits on the calling of special meetings
and, for a period of five years following the Conversion, limits on acquiring
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voting shares in excess of 10% of the outstanding Common Stock. The above
provisions may discourage potential proxy contests and other potential takeover
attempts, particularly those which have not been negotiated with the Board of
Directors, and thus, generally may serve to perpetuate current management. See
"Restrictions on Acquisition of the Company and the Bank." In addition, such
provisions may result in the Company being deemed to be less attractive to a
potential acquirer and/or might result in stockholders receiving a lesser amount
of consideration for their shares of Common Stock than otherwise could have been
available.
VOTING CONTROL OF DIRECTORS AND OFFICERS. Directors and executive officers
of the Company expect to purchase approximately 65,000 shares or 18.8% of the
shares of Common Stock outstanding based upon the maximum of the Estimated Price
Range. Three of the Company's directors will act as trustees of the ESOP and in
such capacity are also expected to immediately control the voting of the shares
of Common Stock issued in the Conversion through the ESOP, at least until an
allocation has been made under the ESOP. At the maximum of the Estimated Price
Range, the trustees of the ESOP would initially control the voting of 27,600
shares, or 8.0%, of Common Stock issued in the Conversion. Under the terms of
the ESOP, after an allocation has been made, the unallocated shares will be
voted by the trustees in the same proportion as the allocated shares are voted
by the ESOP participants. Assuming that 345,000 shares of Common Stock are
issued in the Offerings, that directors and executive officers of the Company
purchase 65,000 shares of Common Stock in the Offerings, that 27,600 unallocated
shares are held by the ESOP, that 13,800 shares of Common Stock have been
acquired by the Recognition Plan in the open market and that directors and
executive officers of the Company acquire 34,500 shares of Common Stock out of
authorized but unissued shares upon the exercise of options under the Stock
Option Plan, directors and executive officers would control 140,900 shares of
Common Stock or 37.1% of the then-outstanding shares. Management's potential
voting control could, together with additional stockholder support, preclude or
make more difficult takeover attempts that certain stockholders deem to be in
their best interest and may tend to perpetuate existing management.
PROVISIONS OF EMPLOYMENT AGREEMENT. In connection with the Conversion, the
Company and the Bank plan to enter into an employment agreement with Mr. Norton
which will provide for benefits and cash payments in the event of a change in
control of the Company or the Bank and under certain other circumstances. 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
upon compensation levels at September 30, 1996, in the event of a termination of
employment following a change in control of the Company or the Bank, Mr. Norton
would receive $149,200 in cash severance. See "Management-- Employment
Agreement."
ABSENCE OF MARKET FOR COMMON STOCK
The Company and the Bank have never issued capital stock. The Company
intends to apply to have the Common Stock listed on the National Daily Quotation
Service "pink sheets" published by the National Quotation Bureau, Inc. The
development of a public trading market depends upon the existence of willing
buyers and sellers, the presence of which is not within the control of the
Company or the Bank. Because there can be no assurance that buyers and sellers
of the Company's Common Stock can be readily matched, investors may wish to
consider the potential illiquid and long-term nature of an investment in the
Common Stock. Because of the limited size of the Offerings and the anticipated
concentrated ownership of the Common Stock, it is unlikely that an active and
liquid trading market for the Common Stock will develop, or once developed, will
continue, and there can be no assurance that purchasers of the Common Stock will
be able to sell their shares at or above the Purchase Price. The absence of a
liquid and active trading market, or the discontinuance thereof, may have an
adverse effect on both the price and the liquidity of the Common Stock. See
"Market for the Common Stock."
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INCREASED EMPHASIS ON CONSUMER AND COMMERCIAL BUSINESS LENDING
During fiscal 1995, the Bank implemented a policy under which it began to
increase its origination of consumer and commercial business loans. Such loans
generally have shorter terms and higher interest rates than traditional mortgage
loans. However, such lending generally involves more credit risk than
traditional single-family residential lending because of the type and nature of
the collateral. As of September 30, 1996 consumer and commercial business loans
amounted to $2.6 million or 9.5% and $334,000 or 1.23%, respectively of the
Bank's total net loan portfolio. As of September 30, 1996, $49,000 or 1.9% of
the Bank's consumer loans were non-performing and none of its commercial
business loans was non-performing. See "Business of the Bank--Lending
Activities--Consumer Loans," "--Commercial Loans" and "--Asset Quality."
REGULATORY OVERSIGHT AND POSSIBLE LEGISLATION
The Bank is subject to extensive regulation, supervision and examination by
the Commissioner, as its chartering authority and by the FDIC, which is its
primary federal regulator and which insures its deposits up to applicable
limits. The Bank is a member of the FHLB System and is also subject to certain
limited regulations promulgated by the Board of Governors of the Federal Reserve
System ("Federal Reserve"). As the holding company of the Bank, the Company also
will be subject to regulation and oversight by the Federal Reserve. Such
regulation and supervision govern the activities in which an institution can
engage and are intended primarily for the protection of the insurance fund and
depositors. Regulatory authorities have been granted extensive discretion in
connection with their supervisory and enforcement activities which are intended
to strengthen the financial condition of the banking and thrift industries,
including the imposition of restrictions on the operation of an institution, the
classification of assets by the institution and the adequacy of an institution's
allowance for loan losses. Any change in such regulation and oversight, whether
by the Commissioner, the FDIC, the Federal Reserve or Congress, could have a
material impact on the Company, the Bank and their respective operations. See
"REGULATION."
On September 30, 1996, the Deposit Insurance Funds Act of 1996 ("Insurance
Act") was enacted into law. Among other things, the Insurance Act authorizes the
FDIC to impose a special assessment on each depository institution with
SAIF-assessable deposits so that the SAIF may achieve its designated reserve
ratio. The Bank's assessment was $206,000 on a pre-tax basis, and was accrued
during the quarter ended September 30, 1996. In addition, the Insurance Act
provides for the merger of the BIF and the SAIF into the Deposit Insurance Fund
on January 1, 1999, but only if no insured depository institution is a savings
association on that date. As a result of the enactment of the Insurance Act, it
is contemplated that beginning January 1, 1997 the Bank's deposit insurance
premium will be reduced from $2.30 per $1,000 of deposits to $0.645 per $1,000.
Legislation is proposed periodically providing for a comprehensive reform of
the banking and thrift industries. It is uncertain when or if any of this type
of legislation will be passed, and, if passed, in what form the legislation
would be passed. As a result, management cannot accurately predict the possible
impact of such legislation on the Bank.
ESOP AND RECOGNITION PLAN EXPENSE
In November 1993, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 93-6 entitled "Employers'
Accounting for Employee Stock Ownership Plans" ("SOP 93-6"). SOP 93-6, among
other things, changes the measure of compensation expense recorded by employers
for leveraged ESOPs from the cost of ESOP shares to the fair value of ESOP
shares. Under SOP 93-6, the Company will recognize compensation cost equal to
the fair value of the ESOP shares during the periods in which they become
committed to be released. To the extent that the fair value of the Common Stock
appreciates, the Company will recognize increased compensation expense as the
ESOP shares are committed for release. See "Management's Discussion and Analysis
of Financial Condition and
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Results of Operations--Recent Accounting Pronouncements." In addition, it is
anticipated that the Recognition Plan will purchase shares of Common Stock equal
to 4.0% of the shares issued in the Conversion. Both the ESOP and the
Recognition Plan will increase employee compensation expense in the future. See
"Pro Forma Data" and "Management--Benefits."
POSSIBLE DILUTIVE EFFECT OF ISSUANCE OF ADDITIONAL SHARES
If the Recognition Plan is approved by stockholders of the Company, the
Recognition Plan intends to acquire an amount of Common Stock equal to 4.0% of
the shares of Common Stock issued in the Conversion. Such shares of Common Stock
may be acquired in the open market with funds provided by the Company or from
authorized but unissued shares of Common Stock. In the event that the
Recognition Plan acquires authorized but unissued shares of Common Stock from
the Company, the interests of existing stockholders will be diluted. The
issuance of authorized but unissued shares of Common Stock to such plan in an
amount equal to 4.0% of the Common Stock issued in the Conversion would dilute
the voting interests of existing stockholders by approximately 3.9%, and net
income per share and stockholders' equity per share would be decreased by a
corresponding amount. See "Pro Forma Data" and
"Management--Benefits--Recognition and Retention Plan."
If the Stock Option Plan is approved by stockholders of the Company, the
Company intends to reserve for future issuance pursuant to such plan a number of
authorized shares of Common Stock equal to an aggregate of 10.0% of the Common
Stock issued in the Conversion (34,500 shares, based on the issuance of the
maximum 345,000 shares). Shares issued under such plan could dilute the
interests of existing stockholders. The issuance of the total number of shares
available under such plan would dilute the voting interests of existing
stockholders by approximately 9.1%, and net income per share and stockholders'
equity per share would be decreased by a corresponding amount. See "Pro Forma
Data" and "Management--Benefits--Stock Option Plan."
NO OPINION OR RECOMMENDATION BY THE AGENT
The Company and the Bank have engaged Trident to consult with and advise
them with respect to the Conversion and to assist, on a best efforts basis, in
connection with the solicitation of subscriptions and purchase orders for shares
of Common Stock in the Offerings. Trident has not prepared or delivered any
opinion or recommendation with respect to the suitability of the Common Stock or
the appropriateness of the amount of Common Stock to be issued in the
Conversion. The engagement of Trident by the Company and the Bank and the work
performed thereunder should not be construed by purchasers of the Common Stock
as constituting an opinion or recommendation relating to such investment and
should not be construed as a verification of the accuracy or completeness of the
information contained in this Prospectus.
VERMILION BANCORP, INC.
The Company is a Delaware corporation organized 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 in the Conversion. The Company has applied for
the approval of the Federal Reserve Board and the Commissioner, to be the
holding company for the Bank. Upon consummation of the Conversion, the Company's
business will consist of being the holding company for the Bank and the Company
will have no significant assets other than the shares of the Bank's common stock
acquired in the Conversion and 25% of the net proceeds of the Conversion
retained by the Company, a portion of which will be used to fund the loan to the
ESOP, and will have no significant liabilities. See "Use of Proceeds." 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 who are also
officers of the Bank but
19
<PAGE>
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 or
changes its business in the future.
Management believes that the holding company structure will provide the
Company with additional flexibility to diversify its business activities, should
it decide to do so, through existing or newly formed subsidiaries, or through
acquisitions of or mergers with other financial institutions or financial
services related companies. Although there are no current arrangements,
understandings or agreements, written or oral, regarding any such opportunities
or transactions, the Company will be in a better 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 initial activities of
the Company are anticipated to be funded by the proceeds to be retained by the
Company and earnings thereon or, alternatively, through dividends from the Bank.
See "Dividend Policy."
The Company's executive office is located at the home office of the Bank at
714 North Vermilion Street, Danville, Illinois 61832, and its telephone number
is (217) 442-0270.
AMERICAN SAVINGS BANK
The Bank is an Illinois-chartered, SAIF-insured mutual savings bank
conducting business from a single office located in Danville, Illinois. At
September 30, 1996, the Bank had total assets of $35.5 million, total deposits
of $30.7 million and equity of $2.4 million.
The Bank's principal business has been, and continues to be, attracting
deposits from its customers and investing such funds in residential real estate
loans and other loans. At September 30, 1996, the Bank's net loan portfolio
totalled $26.9 million, or 75.8% of the Bank's assets. In addition to its
lending activities, the Bank also has a securities portfolio consisting of
mortgage-backed securities and other investment securities. The Bank's
mortgage-backed securities portfolio totalled $3.5 million, or 9.9% of the
Bank's total assets at September 30, 1996, and its other investment securities
portfolio amounted to $3.1 million, or 8.7% of total assets at such date.
Traditionally, the Bank's principal source of funds has come from deposits. At
September 30, 1996, the Bank had total deposits of $30.7 million, of which $7.0
million or 22.8% consisted of core deposits which include savings and retirement
accounts, NOW accounts and money market investment accounts ("MMIA").
The Bank and its predecessor have been serving Danville, Illinois since
1888. In 1994, the Bank converted to an Illinois-chartered savings bank from an
Illinois- chartered savings and loan association. The Bank is a
community-oriented financial institution which offers a variety of financial
services to meet the needs of its community. The existing management of the Bank
believes that it is in the best interests of the Bank as well as the Company and
its stockholders for the Bank to remain an independent financial institution.
The Bank is subject to examination and comprehensive regulation by the
Commissioner, which is the Bank's chartering authority and primary regulator.
The Bank is also subject to regulation by the FDIC, as the administrator of the
SAIF, and to certain reserve requirements established by the FRB. The Bank is a
member of the FHLB of Chicago, which is one of the 12 regional banks comprising
the FHLB System, and is subject to regulations applicable to members of the FHLB
of Chicago.
The Bank's executive office is located at 714 North Vermilion Street,
Danville, Illinois 61832 and its telephone number is (217) 442-0270.
20
<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 $2.3 million
and $3.2 million ($3.7 million in the event of an increase in the Estimated
Price Range by 15%). See "Pro Forma Data" and "The Conversion--Stock Pricing and
Number of Shares to be Issued" as to the assumptions used to arrive at such
amounts. None of the assets of the Company or the Bank will be distributed in
order to effect the Conversion other than to pay expenses incident thereto.
The Company will purchase all of the capital stock of the Bank to be issued
upon Conversion in exchange for 75% of the net proceeds. Based upon the
Estimated Price Range, between $1.7 million and $2.4 million ($2.8 million in
the event of an increase in the Estimated Price Range by 15%) will be received
by the Bank from the net proceeds of the Conversion in exchange for capital
stock of the Bank. The Company intends to use a portion of the net proceeds it
retains to make a loan directly to the ESOP to enable the ESOP to purchase up to
8.0% of the Common Stock in the Conversion. Based upon the issuance of 255,000
shares and 345,000 shares at the minimum and maximum of the Estimated Price
Range, respectively, the loan to the ESOP would be $204,000 and $276,000,
respectively, and $317,400 in the event of an increase in the Estimated Price
Range by 15%. See "Management--Benefits--Employee Stock Ownership Plan and
Trust." The balance of the net proceeds retained by the Company will be
initially invested primarily in short-term deposits and investment grade,
short-term marketable securities. Giving effect to the anticipated purchase of
capital stock of the Bank and the loan to the ESOP, the balance of the net
proceeds retained by the Company would be between $367,500 and $517,000
($602,850 in the event of an increase in the Estimated Price Range by 15%). Net
proceeds retained by the Company may facilitate the Company's ability to pay
dividends in the future. See "Dividend Policy."
Funds received by the Bank from the Company's purchase of its capital stock
will be used for general business purposes, including the funding of loans.
Neither the Company nor the Bank has any pending agreements or understandings,
written or oral, regarding acquisitions of any specific financial services
institutions or companies nor have criteria been established to identify
potential candidates for acquisition.
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. Declarations of dividends by the Board of Directors, if
any, will depend upon a number of factors, including 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. Subject to
regulatory and other considerations, the Company intends to establish an annual
cash dividend policy. Although the Board of Directors of the Company has not
made any decision as to the amount of cash dividends it will pay, it anticipates
that the first dividend will be paid during the first quarter of fiscal 1998.
However, no assurances can be given that any dividends will be paid or, once
commenced, will continue to be paid at the same rate.
The Company is subject to the requirements of Delaware law, which generally
permits the payment of dividends out of surplus, except when (1) the corporation
is insolvent or would thereby be made insolvent, or (2) the declaration or
payment thereof would be contrary to any restrictions contained in the articles
of incorporation. Upon consummation of the Conversion, the Company's surplus is
expected to be between $367,500 and $517,000, depending on the number of shares
issued in the Offerings. See "Capitalization." If there is no surplus available
for dividends, a Delaware corporation may pay dividends out of its net profits
for the then current or the preceding fiscal year or both, except that no
dividend may be paid if the corporation's assets are exceeded by its liabilities
or if its net assets are less than the amount which would be needed, under
certain circumstances, to satisfy any preferential rights of stockholders.
21
<PAGE>
Dividends from the Company may depend in part upon receipt of dividends from
the Bank because the Company initially will have no source of income other than
dividends from the Bank, earnings from the investment of proceeds from the sale
of Common Stock retained by the Company and interest payments with respect to
the Company's loan to the ESOP. The Bank will not be permitted to pay dividends
to the Company if its capital would be reduced below the amount required for the
liquidation account of the Bank. See "The Conversion--Liquidation Rights." Under
Illinois law, a savings bank is required to maintain at all times total capital
of not less than 3% of total assets. Prior approval of the Commissioner is
required before any dividends on capital stock that exceed 50% of a savings
bank's net profits that year may be declared in that calendar year. Moreover, as
a condition to the Commissioner's approval, the Company is subject to a net
worth maintenance agreement which requires it to infuse equity capital into the
Bank as needed to maintain the core capital of the Bank at a level of no less
than 6% of total assets. See "Regulations--The Bank--Capital Requirements."
Section 38 of the Federal Deposit Insurance Act ("FDIA") also would prohibit the
Bank from making a dividend if it were "undercapitalized" or if such dividend
would result in the institution becoming "undercapitalized."
MARKET FOR THE COMMON STOCK
The Company and the Bank have never issued capital stock, and, consequently,
there is no established market for the Common Stock at this time. The Company
intends to apply to have the Common Stock listed on the National Daily Quotation
Service "pink sheets" published by the National Quotations Bureau, Inc. The
development of a liquid public market depends on the existence of willing buyers
and sellers, the presence of which is not within the control of the Company or
the Bank. The number of active buyers and sellers of the Common Stock at any
particular time may be limited, especially in view of the limited size of the
Offerings and the anticipated concentrated ownership of the Common Stock. Under
such circumstances, investors in the Common Stock could have difficulty
disposing of their shares and should not view the Common Stock as a short-term
investment. Investors should consider that it is unlikely that an active and
liquid trading market for the Common Stock will develop or that, if developed,
it will continue, and there can be no assurance that persons purchasing shares
of Common Stock will be able to sell them at or above the Purchase Price.
22
<PAGE>
CAPITALIZATION
The following table presents the historical consolidated capitalization of
the Bank at September 30, 1996, and the pro forma consolidated capitalization of
the Company after giving effect to the Conversion, based upon the sale of the
number of shares shown below and the other assumptions set forth under "Pro
Forma Data."
<TABLE>
<CAPTION>
COMPANY--PRO FORMA
BASED UPON SALE AT $10.00 PER SHARE
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
396,750
255,000 300,000 345,000 SHARES(1)
THE BANK -- SHARES SHARES SHARES (15% ABOVE
HISTORICAL (MINIMUM OF (MIDPOINT OF (MAXIMUM OF MAXIMUM OF
CAPITALIZATION RANGE) RANGE) RANGE) RANGE)
------------- ------------ ------------ ------------ -----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
FHLB advances............................. $ 2,000 $ 2,000 $ 2,000 $ 2,000 $ 2,000
Deposits(2)............................... 30,724 30,724 30,724 30,724 30,724
------------- ------------ ------------ ------------ -----------
Total deposits and borrowings........... $ 32,724 $ 32,724 $ 32,724 $ 32,724 $ 32,724
------------- ------------ ------------ ------------ -----------
------------- ------------ ------------ ------------ -----------
Stockholders' equity:
Preferred Stock, $0.01 par value,
400,000 shares authorized; none to be
issued................................ $ $ $ $ $
Common Stock, $0.01 par value, 1,600,000
shares authorized; shares to be issued
as reflected(3)......................... -- 3 3 3 4
Additional paid-in capital(3)............. -- 2,283 2,726 3,169 3,677
Retained earnings(4)...................... 2,370 2,370 2,370 2,370 2,370
Net unrealized loss on securities
available for sale...................... (15) (15) (15) (15) (15)
Less:
Common Stock acquired by the ESOP(5).... -- (204) (240) (276) (317)
Common Stock acquired by the Recognition
Plan(6)............................... -- (102) (120) (138) (159)
------------- ------------ ------------ ------------ -----------
Total stockholders' equity (equity at
September 30, 1996)..................... $ 2,355 $ 4,335 $ 4,724 $ 5,113 $ 5,560
------------- ------------ ------------ ------------ -----------
------------- ------------ ------------ ------------ -----------
</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% to
reflect changes in market and financial 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. Total deposits and borrowings do
not reflect the anticipated loan from the Company to the ESOP, which loan
will not be reflected as a liability on the Company's consolidated
statements of financial condition.
(3) The sum of par value and additional paid-in capital accounts equals the net
Conversion proceeds. No effect has been given to the issuance of additional
shares of Common Stock pursuant to the Stock Option Plan expected to be
adopted by the Company and presented for stockholder approval at a special
meeting of stockholders to be held not earlier than six months following the
Conversion. If the plan is approved by stockholders, an amount equal to 10%
of the shares of Common Stock issued in
23
<PAGE>
the Conversion will be reserved for issuance upon the exercise of options to
be granted under the Stock Option Plan. See "Pro Forma Data" and
"Management--Benefits--Stock Option Plan." The issuance of common stock
pursuant to the exercise of options under the Stock Option Plan will result
in the dilution of existing stockholders' interests by approximately 9.1%.
(4) The retained earnings of the Bank will be substantially restricted after the
Conversion. See "The Conversion--Liquidation Rights."
(5) Assumes that 8% of the shares offered for sale in the Conversion will be
purchased by the ESOP. The Common Stock acquired by the ESOP is reflected as
a reduction of stockholders' equity. Assumes the funds used to acquire the
ESOP shares will be borrowed from the Company. See "Management --
Benefits--Employee Stock Ownership Plan and Trust."
(6) Gives effect to the Recognition Plan which is expected to be adopted by the
Company and presented to stockholders for approval at a special meeting of
stockholders to be held not earlier than six months following the
Conversion. No shares will be purchased by the Recognition Plan in the
Conversion. If the Recognition Plan is approved by stockholders, the
Recognition Plan intends to acquire an amount of Common Stock equal to 4% of
the shares of Common Stock issued in the Conversion, or 10,200, 12,000,
13,800 and 15,870 shares at the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Price Range, respectively. The table assumes that
stockholder approval has been obtained and that such shares are purchased on
the open market by the Company at the Purchase Price. The Common Stock so
acquired by the Recognition Plan is reflected as a reduction in
stockholders' equity. If the shares are purchased at prices higher or lower
than the Purchase Price, such purchases would have a greater or lesser
impact, respectively, on stockholders' equity. If the Recognition Plan
purchases authorized but unissued shares from the Company, such issuance
would dilute the voting interests of existing stockholders by approximately
3.9%. See "Pro Forma Data" and "Management--Benefits--Recognition and
Retention Plan."
24
<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 $2.3 million and $3.2 million (or $3.7 million
in the event the Estimated Price Range is increased by 15%) based upon the
following assumptions: (i) 100% of the shares of Common Stock will be sold in
the Subscription Offering and Community Offering; (ii) fixed Conversion expenses
will be approximately $234,000 and (iii) Trident will be paid a variable expense
based on the number of shares sold of $29,700, $37,000, $44,200 and $52,500 at
the minimum, midpoint, maximum and maximum, as adjusted, of the Estimated Price
Range, respectively. Actual Conversion expenses may vary from those estimated.
See "The Conversion--Marketing Arrangements."
Pro forma net income and stockholders' equity have been calculated for the
year ended September 30, 1996 as if the Common Stock to be issued in the
Offerings had been sold at the beginning of the year and the net proceeds had
been invested at 5.69%, which represents the yield on one-year U.S. Government
securities at September 30, 1996. The use of this interest rate is viewed to be
more relevant in the current rate environment than the use of an arithmetic
average of the weighted average yield earned by the Bank on its interest-earning
assets and the weighted average rate paid on its deposits during such periods
(as required by Federal regulations). The effect of withdrawals from deposit
accounts for the purchase of Common Stock has not been reflected. A combined
effective Federal and state income tax rate of 34% has been assumed for the
year, resulting in an after-tax yield of 3.76% during the year ended September
30, 1996. Historical and pro forma per share amounts have been calculated by
dividing historical and pro forma amounts by the indicated number of shares of
Common Stock, as adjusted to give effect to the shares committed to be released
during the period by the ESOP, with respect to the net income per share
calculations. See footnotes 4 and 6 to the Pro Forma Data tables. No effect has
been given in the pro forma stockholders' equity calculations for the assumed
earnings on the net proceeds. As discussed under "Use of Proceeds," the Company
intends to retain 25% of the net Conversion proceeds and will use a portion of
such retained proceeds to make a loan directly to the ESOP to enable the ESOP to
purchase up to 8.0% of the Common Stock in the Conversion.
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 stockholders' equity represents the difference
between the stated amount of assets and liabilities of the Company computed in
accordance with generally accepted accounting principles ("GAAP"). The pro forma
stockholders' equity is not intended to represent the fair market value of the
Common Stock and may be different than amounts that would be available for
distribution to stockholders in the event of liquidation. No effect has been
given in the tables to the possible issuance of additional shares equal to 10%
of the Common Stock to be reserved for future issuance pursuant to the Stock
Option Plan to be adopted by the Board of Directors of the Company, 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 TO THE BAD DEBT RESERVE.] See "Management--Benefits--Stock Option Plan" and
"The Conversion--Liquidation Rights." The tables below give effect to the
Recognition Plan, which is expected to be presented (together with the Stock
Option Plan) to stockholders for approval at a meeting of stockholders which is
expected to be held not earlier than six months following completion of the
Conversion. If the Recognition Plan is approved by stockholders, the Recognition
Plan intends to acquire an amount of Common Stock equal to 4% of the shares of
Common Stock issued in the Conversion, either through open market purchases or
from authorized but unissued shares of Common Stock. The tables below assume
that stockholder approval has been obtained and that the shares acquired by the
Recognition Plan are purchased in the open market at $10.00 per share. There can
be no assurance that stockholder approval of the Recognition Plan will be
obtained, that the shares will be purchased in the open market, or that the
purchase price will be $10.00 per share.
25
<PAGE>
The following tables summarize historical consolidated data of the Bank and
pro forma data of the Company at the year ended September 30, 1996 based on
assumptions set forth above and in the tables and should not be used as a basis
for projections of market value of the Common Stock following the Conversion.
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED SEPTEMBER 30, 1996
-----------------------------------------------------
<S> <C> <C> <C> <C>
255,000 300,000 345,000 396,750
SHARES SOLD SHARES SOLD SHARES SOLD SHARES SOLD
AT $10.00 AT $10.00 AT $10.00 AT $10.00
PER SHARE PER SHARE PER SHARE PER SHARE (15%
(MINIMUM (MIDPOINT (MAXIMUM ABOVE MAXIMUM
OF RANGE) OF RANGE) OF RANGE) OF RANGE)(9)
----------- ----------- ----------- --------------
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Gross proceeds........................................... $ 2,550 $ 3,000 $ 3,450 $ 3,968
Less offering expenses................................... 264 271 278 287
----------- ----------- ----------- --------------
Estimated net Conversion proceeds...................... 2,286 2,729 3,172 3,681
Less: Common Stock acquired by ESOP.................... (204) (240) (276) (317)
Common Stock to be acquired by the Recognition
Plan................................................. (102) (120) (138) (159)
----------- ----------- ----------- --------------
----------- ----------- ----------- --------------
Estimated adjusted net proceeds(1)....................... 1,980 2,369 2,758 3,205
Net income (loss):
Historical............................................. $ (71)(8) $ (71)(8) $ (71)(8) $ (71)(8)
Pro forma adjustments:
Income on adjusted net proceeds(1)................... 74 89 104 121
ESOP(2).............................................. (13) (16) (18) (21)
Recognition Plan(3).................................. (13) (16) (18) (21)
----------- ----------- ----------- --------------
Pro forma.......................................... $ (23) $ (14) $ (3) $ 8
----------- ----------- ----------- --------------
----------- ----------- ----------- --------------
Net income (loss) per share(4):
Historical............................................. $ (0.30) $ (0.26) $ (0.22) $ (0.19)
Pro forma adjustments:
Income on adjusted net proceeds(1)................... $ 0.31 $ 0.32 $ 0.32 $ 0.33
ESOP(2).............................................. (0.05) (0.06) (0.06) (0.06)
Recognition Plan(3).................................. (0.05) (0.06) (0.06) (0.06)
----------- ----------- ----------- --------------
Pro forma net income per share..................... $ (0.09) $ (0.06) $ (0.02) $ 0.02
----------- ----------- ----------- --------------
----------- ----------- ----------- --------------
Pro forma price/earnings ratio
Number of shares used in net income per share
calculations(4)........................................ 236,640 278,400 320,160 368,184
Stockholders' equity:
Historical............................................. $ 2,355 $ 2,355 $ 2,355 $ 2,355
Estimated net Conversion proceeds...................... 2,286 2,729 3,172 3,681
Less: Common Stock acquired by ESOP(2)................. (204) (240) (276) (317)
Common Stock to be acquired by the Recognition
Plan(3).............................................. (102) (120) (138) (159)
----------- ----------- ----------- --------------
Pro forma stockholders' equity(6).................... $ 4,335 $ 4,724 $ 5,113 $ 5,560
----------- ----------- ----------- --------------
----------- ----------- ----------- --------------
Stockholders' equity per share(7):
Historical............................................. $ 9.24 $ 7.85 $ 6.83 $ 5.94
Estimated net Conversion proceeds...................... 8.96 9.10 9.19 9.28
Less: Common Stock acquired by ESOP(2)................... (0.80) (0.80) (0.80) (0.80)
Common Stock to be acquired by the Recognition
Plan(3).............................................. (0.40) (0.40) (0.40) (0.40)
----------- ----------- ----------- --------------
Pro forma stockholders' equity per share(3)(5)(6).... $ 17.00 $ 15.75 $ 14.82 $ 14.02
----------- ----------- ----------- --------------
Pro forma price to book ratio(7)......................... 58.82% 63.49% 67.48% 71.33%
----------- ----------- ----------- --------------
----------- ----------- ----------- --------------
</TABLE>
26
<PAGE>
- ------------------------
(1) Estimated adjusted net proceeds consist of the estimated net Conversion
proceeds, minus (i) the proceeds attributable to the purchase by the ESOP
and (ii) the value of the shares to be purchased by the Recognition Plan,
subject to stockholder approval, after the Conversion at an assumed price of
$10.00 per share.
(2) It is assumed that 8% of the shares of Common Stock issued in the Conversion
will be purchased by the ESOP. For purposes of this table, the funds used to
acquire such shares are assumed to have been borrowed by the ESOP from the
Company. The Company intends to make [QUARTERLY] contributions to the ESOP
over a [TEN]-year period in an amount at least equal to the principal and
interest requirement (which interest rate shall be %) of the debt. The
pro forma net income assumes (i) that the ESOP expense for each respective
period is equivalent to the principal payment for the respective period and
was made at the end of each respective period; (ii) that 2,040, 2,400, 2,760
and 3,174 shares were committed to be released with respect to the year
ended September 30, 1996, at the minimum, midpoint, maximum and 15% above
the maximum of the Estimated Price Range, respectively; and (iii) in
accordance with SOP 93-6, only the ESOP shares committed to be released
during the respective period were considered outstanding for purposes of the
net income per share calculations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Recent Accounting
Pronouncements" and "Management--Benefits--Employee Stock Ownership Plan and
Trust."
(3) The adjustment is based upon the assumed purchases by the Recognition Plan
of 10,200, 12,000, 13,800 and 15,870 shares at the minimum, midpoint,
maximum and 15% above the maximum of the Estimated Price Range, assuming
that: (i) stockholder approval of the Recognition Plan has been received;
(ii) the shares were acquired by the Recognition Plan at the beginning of
the period in open market purchases at the Purchase Price; and (iii) the
amortized expense for the year ended September 30, 1996 was 20% of the
amount contributed. If the Recognition Plan purchases authorized but
unissued shares instead of making open market purchases, the voting
interests of existing stockholders would be diluted by approximately 3.9%
and pro forma net income (loss) per share for the year ended September 30,
1996 would be $(0.8), $(0.03), $0.01 and $0.03, and pro forma stockholders'
equity per share at September 30, 1996 would be $16.73, $15.53, $14.63 and
$13.86, at the minimum, midpoint, maximum and 15% above the maximum of the
Estimated Price Range, respectively. See "Management--Benefits--Recognition
and Retention Plan."
(4) Net income per share computations are determined by taking the number of
shares assumed to be sold in the Conversion and, in accordance with SOP
93-6, subtracting the ESOP shares which have not been committed for release
during the respective period. See Note 2 above.
(5) No effect has been given to the issuance of additional shares of Common
Stock pursuant to the Stock Option Plan. If the Stock Option Plan is
approved by stockholders, an amount equal to 10% of the Common Stock issued
in the Conversion, or 25,500, 30,000, 34,500 and 39,675 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 Plan. The issuance of Common
Stock pursuant to the exercise of options under such plan will result in the
dilution of existing stockholders' interests. Assuming stockholder approval
of the Stock Option Plan, that all the options were exercised at the end of
the period at an exercise price of $10.00 per share, and that the
Recognition Plan purchases shares in the open market at the Purchase Price,
pro forma net gain (loss) per share for the year ended September 30, 1996
would be $(0.05), $(0.01), $0.03 and
27
<PAGE>
$0.05, and pro forma stockholders' equity per share at September 30, 1996
would be $16.36, $15.22, $14.38 and $13.65, in each case, at the minimum,
midpoint, maximum and 15% above the maximum of the Estimated Price Range,
respectively.
(6) The retained earnings of the Bank will be substantially restricted after the
Conversion. See "Dividend Policy" and "The Conversion--Liquidation Rights."
(7) Based on the number of shares sold in the Conversion.
(8) Except for the special SAIF assessment, the Bank's net income for the year
ended September 30, 1996 would have been $84,000. If the Bank's net income
for the year ended had been $84,000, pro forma net income for the year ended
September 30, 1996 would have been $132,000, $141,000, $152,000 and $162,000
and pro forma net income per share would have been $0.56, $0.51, $0.47 and
$0.44 at the minimum, midpoint, maximum and 15% above the maximum of the
Estimated Price Range, respectively. See "Management's Discussion and
Analysis of Financial Condition and Results of Operation--Results of
Operation."
28
<PAGE>
REGULATORY CAPITAL REQUIREMENTS
Under FDIC regulations, depository institutions such as the Bank are
required to maintain a minimum ratio of qualifying total capital to total assets
and off-balance sheet instruments, as adjusted to reflect their relative credit
risks, of 8.0%. At least one-half of total capital is to be comprised of common
equity, retained earnings, non-cumulative perpetual preferred stock and a
limited amount of cumulative perpetual preferred stock, less goodwill and other
intangibles ("Tier 1 capital"). The remainder of total capital may consist of a
limited amount of subordinated debt, other preferred stock, certain other
instruments and a limited amount of general reserves for loan losses ("Tier 2
capital").
The FDIC also has established an additional capital adequacy guideline
referred to as the Tier 1 leverage capital ratio, which measures the ratio of
Tier 1 capital to total assets less goodwill. Although the most highly-rated
depository institutions will be required to maintain a minimum Tier 1 leverage
capital ratio of 3.0%, most depository institutions will be required to maintain
Tier 1 leverage capital ratios of 4.0% to 5.0% or more. The actual required
ratio will be based on the FDIC's assessment of the individual depository
institution's asset quality, earnings performance, interest-rate risk and
liquidity. Although the FDIC has not advised the Bank of a specific Tier 1
leverage capital ratio requirement, management of the Bank believes that for
purposes of complying with applicable federal regulations, the required Tier 1
leverage capital ratio for the Bank will be 4.0%, based upon published
regulatory criteria for establishing such minimum. There can be no assurance
that the Bank will not be required by the FDIC to maintain a higher Tier 1
leverage capital ratio.
The Federal Reserve Board has established guidelines regarding the capital
adequacy of bank holding companies, such as the Company. These requirements are
substantially similar to those adopted by the FDIC for depository institutions,
as set forth above. See generally "Regulation--The Company--Capital
Requirements" and "--The Bank--Capital Requirements."
29
<PAGE>
Set forth below is a summary of the Bank's compliance with the applicable
capital standards as of September 30, 1996 on a historical basis and the
Company's and the Bank's compliance with applicable capital standards on a pro
forma basis assuming that the indicated number of shares were sold by the
Company as of such date and receipt by the Bank of 75% of net Conversion
proceeds. Proceeds have been assumed to be invested in interest-earning assets
which have a 50% risk-weighting.
<TABLE>
<CAPTION>
PRO FORMA AT SEPTEMBER 30, 1996 BASED ON
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
255,000 SHARES 345,000 SHARES
HISTORICAL AT (MINIMUM OF RANGE) 300,000 SHARES (MAXIMUM OF RANGE)
SEPTEMBER 30, 1996 (MIDPOINT OF RANGE)
-------------------------- -------------------------- -------------------------- --------------------------
<CAPTION>
PERCENT PERCENT PERCENT PERCENT
AMOUNT OF ASSETS(1) AMOUNT OF ASSETS(1) AMOUNT OF ASSETS(1) AMOUNT OF ASSETS(1)
----------- ------------- ----------- ------------- ----------- ------------- ----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
THE COMPANY:
Tier 1
risk-weighted
level........... -- -- % $ 4,351 25.01% $ 4,740 26.95% $ 5,129 28.84%
Requirement..... -- -- 696 4.00% 704 4.00% 711 4.00%
Excess.......... -- -- $ 3,655 21.01% $ 4,036 22.95% $ 4,418 24.84%
Tier 1 adjusted
total level..... -- -- $ 4,351 11.63% $ 4,730 12.53% $ 5,129 13.42%
Requirement..... -- -- 1,123 3.00% 1,134 3.00% 1,146 3.00%
Excess.......... -- -- $ 3,228 8.63% $ 3,606 9.53% $ 3,983 10.42%
Total risk-based
level........... -- -- $ 4,494 25.84% $ 4,883 27.76% $ 5,272 29.65%
Requirement..... -- -- 1,392 8.00% 1,407 8.00% 1,423 8.00%
Excess.......... -- -- $ 3,102 17.84% $ 3,476 19.76% $ 3,849 21.65%
THE BANK:
Tier 1
risk-weighted
level........... $ 2,371 14.45% $ 3,780 21.96% $ 4,058 23.36% $ 4,336 24.74%
Requirement..... 656 4.00% 688 4.00% 695 4.00% 701 4.00%
Excess.......... $ 1,715 10.45% $ 3,092 17.96% $ 3,363 19.36% $ 3,635 20.74%
Tier 1 adjusted
total level..... $ 2,371 6.69% $ 3,780 10.20% $ 4,058 10.86% $ 4,336 11.50%
Requirement(2).. 1,418 4.00% 1,482 4.00% 1,495 4.00% 1,508 4.00%
Excess.......... $ 953 2.69% $ 2,298 6.20% $ 2,563 6.86% $ 2,828 7.50%
Total risk-based
level........... $ 2,514 15.33% $ 3,923 22.79% $ 4,201 24.19% $ 4,479 25.56%
Requirement..... 1,312 8.00% 1,377 8.00% 1,389 8.00% 1,402 8.00%
Excess.......... $ 1,202 7.33% $ 2,546 14.79% $ 2,812 16.19% $ 3,077 17.56%
<CAPTION>
<S> <C> <C>
396,750 SHARES
(MAXIMUM AS ADJUSTED)
--------------------------
PERCENT
AMOUNT OF ASSETS(1)
----------- -------------
<S> <C> <C>
THE COMPANY:
Tier 1
risk-weighted
level........... $ 5,576 30.98%
Requirement..... 720 4.00%
Excess.......... $ 4,856 26.98%
Tier 1 adjusted
total level..... $ 5,576 14.42%
Requirement..... 1,160 3.00%
Excess.......... $ 4,416 11.42%
Total risk-based
level........... $ 5,718 31.76%
Requirement..... 1,440 8.00%
Excess.......... $ 4,278 23.76%
THE BANK:
Tier 1
risk-weighted
level........... $ 4,655 26.29%
Requirement..... 708 4.00%
Excess.......... $ 3,947 22.29%
Tier 1 adjusted
total level..... $ 4,655 12.24%
Requirement(2).. 1,522 4.00%
Excess.......... $ 3,133 8.24%
Total risk-based
level........... $ 4,798 27.10%
Requirement..... 1,416 8.00%
Excess.......... $ 3,382 19.10%
</TABLE>
- ------------------------
(1) Average or risk-weighted assets, as appropriate.
(2) Reflects the minimum FDIC requirements. The FDIC could require the Bank to
hold a Tier 1 leverage ratio of up to 5.0%.
30
<PAGE>
AMERICAN SAVINGS BANK OF DANVILLE AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
The following Consolidated Statement of Income of the Bank for each of the
years in the two-year period ended September 30, 1996 have been audited by Geo.
S. Olive & Co. LLC, independent certified public accountants, whose report
thereon appears elsewhere herein. This Consolidated Statement of Income should
be read in conjunction with the Consolidated Financial Statements and related
notes included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER
30,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Interest income:
Loans receivable......................................................... $ 2,118 $ 1,757
Investment securities.................................................... 449 538
Deposits with financial institutions..................................... 67 80
--------- ---------
Total interest income.................................................. 2,634 2,375
--------- ---------
Interest expense:
Deposits................................................................... 1,671 1,588
FHLB advance............................................................... 107 0
--------- ---------
Total interest expense..................................................... 1,778 1,588
--------- ---------
Net interest income........................................................ 856 787
Provision for losses on loans............................................ 80 13
--------- ---------
Net interest income after provisions for for losses on loans............... 776 774
--------- ---------
Non-interest income:
Loan fees................................................................ 12 11
Net realized gains on sales of securities available for sale............. -- 1
Other income............................................................. 33 39
--------- ---------
Total non-interest income.............................................. 45 51
--------- ---------
Non-interest expenses:
Salaries and employee benefits........................................... 276 297
Net occupancy expenses................................................... 97 95
Data processing fees..................................................... 40 39
Deposit insurance expense................................................ 277 71
Printing and office supplies............................................. 16 17
Legal and professional fees.............................................. 36 43
Advertising and promotion................................................ 29 28
Director fees............................................................ 41 41
Other expenses........................................................... 77 79
--------- ---------
Total non-interest expenses............................................ 889 710
--------- ---------
Income (Loss) Before Income Tax............................................ (68) 115
Income tax expense....................................................... 3 15
--------- ---------
Net income (loss)........................................................ $ (71) $ 100
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to Consolidated Financial Statements.
31
<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 operating results of the Bank depend primarily upon its net
interest income, which is determined by the difference between interest income
on interest-earning assets, which consist principally of loans, investment
securities and other investments, and interest expense on interest-bearing
liabilities, which consist principally of deposits. The Bank's net income also
is affected by its provision for loan losses, as well as the level of its
non-interest income, including loan fees and other income and its non-interest
expenses, including salaries and employee benefits, occupancy expense, federal
deposit insurance premiums, director fees, data processing fees, legal and
professional fees, and other expenses.
ASSET AND LIABILITY MANAGEMENT
The ability to maximize net interest income is largely dependent upon the
achievement of a positive interest rate spread that can be sustained during
fluctuations in prevailing interest rates. Interest rate sensitivity is a
measure of the difference between amounts of interest-earning assets and
interest-bearing liabilities which either reprice or mature within a given
period of time. The difference, or the interest rate repricing "gap," provides
an indication of the extent to which an institution's interest rate spread will
be affected by changes in interest rates. A gap is considered positive when the
amount of interest-rate sensitive assets exceeds the amount of interest-rate
sensitive liabilities, and is considered negative when the amount of
interest-rate sensitive liabilities exceeds the amount of interest-rate
sensitive assets during a given time period. Generally, during a period of
rising interest rates, a negative gap within shorter maturities would adversely
affect net interest income, while a positive gap within shorter maturities would
result in an increase in net interest income, and during a period of falling
interest rates, a negative gap within shorter maturities would result in an
increase in net interest income while a positive gap within shorter maturities
would have the opposite effect. As of September 30, 1996, the amount of the
Bank's interest-bearing liabilities which were estimated to mature or reprice
within one year exceeded the Bank's interest-earning assets with the same
characteristics by $10.4 million or 29.4% of the Bank's total assets.
The Bank's actions with respect to interest rate risk and its
asset/liability gap management are reviewed periodically by the Bank's Board of
Directors. As part of the Board's review, it sets interest rate risk targets and
reviews the Bank's current composition of assets and liabilities in light of the
prevailing interest rate environment.
The Bank has historically emphasized the origination of fixed-rate long-term
residential real estate loans for retention in its portfolio. At September 30,
1996, $15.4 million or 56.8% of the Bank's total loan portfolio consisted of
one-to-four-family fixed-rate long-term residential mortgage loans. Although the
Bank anticipates that a substantial portion of its loan portfolio will continue
to consist of fixed-rate long-term loans, the Bank has limited the term of such
loans originated since 1983 to no more than 20 years with a substantial majority
of such loans having a term of 15 years or less. The Bank has also attempted to
mitigate the interest rate risk of holding a significant portion of fixed-rate
loans in its portfolio through the origination of one-to-four family fixed-rate
balloon loans with terms of one or three years. At the end of a balloon loan's
term, the entire balance is due. The borrower has the option of repaying the
loan on the due date or, subject to satisfying the Bank's underwriting criteria,
accepting the modified loan rate which is then offered by the Bank for such
loans. The Bank has generally offered rates on such modified loans at 1/4 of 1%
to 1/2 of 1% higher than rates then offered on its new balloon residential real
estate loans. Modified balloon loans are amortized over the remaining life of
the original amortization period. At September 30, 1996, $5.6 million or 20.7%
of the Bank's total loan portfolio consisted of one-to-four family fixed-rate
balloon loans.
32
<PAGE>
In addition, in 1995 the Bank increased its originations of consumer loans
and commercial business loans due to their generally shorter terms and higher
yields than residential mortgage loans. At September 30, 1996, such loans
totalled $2.9 million or 10.8% of the Bank's total loan portfolio. The Bank has
also invested new funds or reinvested funds from maturing securities into
shorter-term securities and variable-rate mortgage-backed securities in order to
increase the interest-rate sensitivity of its assets. As of September 30, 1996,
the Bank had $1.7 million of variable-rate mortgage-backed securities and had
$2.7 million of investments in various and federal agency government securities
with terms to maturity of less than five years. As of September 30, 1996, $2.2
million of the Bank's investment securities portfolio were classified as
available for sale, which will permit the Bank to sell such securities if deemed
appropriate in response to, among other things, changes in interest rates.
The Bank's deposits have included a relatively high amount of certificates,
which are generally higher costing and more interest-rate sensitive than "core"
deposits. At September 30, 1996, $23.8 million, or 77.3% of the Bank's total
deposits were comprised of certificates and $17.0 million, or 55.4% of the Banks
total deposits consisted of certificates which are scheduled to mature within
one year. Certificates generally are costlier and a more volatile source of
funds than transaction accounts. In addition, certificates are more likely to be
invested in other instruments than are transaction accounts. Notwithstanding the
foregoing, management believes that most of its certificates will remain at the
Bank upon maturity. The Bank does not accept brokered deposits. See "Business of
the Bank--Sources of Funds--Deposits."
33
<PAGE>
The following table summarizes the anticipated maturities or repricing of
the Bank's interest-earning assets and interest-bearing liabilities as of
September 30, 1996 based on the information and assumptions set forth in the
notes below.
<TABLE>
<CAPTION>
MORE THAN
SIX TO MORE THAN THREE YEARS
WITHIN SIX TWELVE ONE YEAR TO TO FIVE OVER FIVE
MONTHS MONTHS THREE YEARS YEARS YEARS TOTAL
----------- ---------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Interest-earning assets:
Securities(1)(2)....................... $ 894 $ 303 $ 743 $ 782 $ 630 $ 3,352
Loans, net(3).......................... 1,989 1,955 6,215 5,666 11,242 27,067
Interest-bearing deposits(4)........... 429 99 528
Mortgage-backed securities............. 835 1,228 846 391 176 3,476
----------- ---------- ----------- ----------- ----------- ---------
Total interest-earning assets........ $ 4,147 $ 3,486 $ 7,903 $ 6,839 $ 12,048 $ 34,423
----------- ---------- ----------- ----------- ----------- ---------
----------- ---------- ----------- ----------- ----------- ---------
Interest-bearing liabilities:
Deposits(5):
NOW accounts........................... 102 103 206 -- -- 411
Money market investment accounts....... 260 261 522 -- -- 1,043
Savings accounts....................... 232 233 930 932 -- 2,327
Retirement accounts.................... 152 152 604 604 1,511 3,023
Certificates........................... 10,051 6,527 6,385 791 -- 23,754
----------- ---------- ----------- ----------- ----------- ---------
Total interest-bearing deposits...... 10,797 7,276 8,647 2,327 1,511 30,558
----------- ---------- ----------- ----------- ----------- ---------
Advances from FHLB....................... -- -- 2,000 -- -- 2,000
----------- ---------- ----------- ----------- ----------- ---------
Total interest-bearing
liabilities...................... $ 10,797 $ 7,276 $ 10,647 $ 2,327 $ 1,511 $ 32,558
----------- ---------- ----------- ----------- ----------- ---------
----------- ---------- ----------- ----------- ----------- ---------
Excess (deficiency) of interest-earning
assets over interest-bearing
liabilities............................ $ (6,650) $ (3,790) $ (2,744) $ 4,512 $ 10,537 $ 1,865
Cumulative excess (deficiency) of
interest-earning assets over
interest-bearing liabilities........... $ (6,650) $ (10,440) $ (13,184) $ (8,672) $ 1,865
Cumulative excess (deficiency) of
interest-earning assets over
interest-bearing liabilities as a
percent of total assets................ (18.75)% (29.44)% (37.18 )% (24.46 )% 5.26%
</TABLE>
- ------------------------
(1) Reflects repricing, contractual maturity or anticipated call date.
(2) Includes securities available for sale and held to maturity and excludes
mortgage-backed securities.
(3) Fixed-rate loans, including balloon loans, are included in the periods in
which they are scheduled to be repaid, based on scheduled amortization,
adjusted to take into account estimated prepayments. Adjustable-rate loans
are included in the periods in which interest rates are next scheduled to
reset, adjusted to take into account estimated prepayments.
(4) Includes interest-bearing demand and interest-bearing time deposits.
(5) Adjusted to reflect various decay rate assumptions.
34
<PAGE>
Certain assumptions are contained in the above table which affect the
presentation therein. Although certain assets and liabilities may have similar
maturities or periods of repricing, they may react in different degrees to
changes in market interest rates. The interest rates on certain types of assets
and liabilities may fluctuate in advance of changes in market interest rates,
while interest rates of other types of assets and liabilities lag behind changes
in market interest rates. Certain assets, such as adjustable-rate loans, have
features which restrict changes in interest rates on a short-term basis and over
the life of the asset. In the event of a change in interest rates, prepayment
and early withdrawal levels would likely deviate significantly from those
assumed in calculating the table.
NET PORTFOLIO VALUE. Although interest rate sensitivity gap is a useful
measurement and contributes toward effective asset and liability management, it
is difficult to predict the effect of changing interest rates based solely on
that measure. Therefore, the Bank's Board of Directors also monitors its
interest rate sensitivity through the use of the net portfolio value model
produced by the Commissioner which 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 Commissioner produces such estimates utilizing its own model,
based upon data submitted on the Bank's Call Reports on a quarterly basis. The
Commissioner's model assumes estimated loan prepayment rates, reinvestment rates
and deposit decay rates. See "Regulation--The Savings Bank." The following table
sets forth the Bank's NPV as of September 30, 1996 (the latest available
analysis produced by the Commissioner) as calculated by the Commissioner.
<TABLE>
<CAPTION>
NPV AS % OF PORTFOLIO
VALUE OF ASSETS
CHANGE (IN BASIS NET PORTFOLIO VALUE --------------------------
POINTS) ------------------------------------- NPV
IN INTEREST RATES(1) AMOUNT $ CHANGE % CHANGE RATIO CHANGE (1)
- ----------------------- --------- ----------- ------------- ----- -------------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
+400 $ 1,221 $ (1,702) (58)% 3.77 (448)
+300 1,615 (1,308) (45) 4.88 (337)
+200 2,054 (869) (30) 6.06 (219)
+100 2,498 (425) (15) 7.21 (104)
0 2,923 -- -- 8.25 --
-100 2,722 (201) (7) 7.54 (71)
-200 3,115 192 7 8.48 23
-300 2,839 (84) (3) 7.73 (52)
-400 3,018 95 3 8.11 (14)
</TABLE>
- ------------------------
(1) Assumes an instantaneous and permanent uniform change in interest rates at
all maturities.
Management of the Bank believes that the assumptions used by it to evaluate
the vulnerability of the Bank's operations to changes in interest rates
approximate actual experience and considers them reasonable; however, the
interest rate sensitivity of the Bank's assets and liabilities and the estimated
effects of changes in interest rates on the Bank's net interest income and NPV
indicated in the above tables could vary substantially if different assumptions
were used or actual experience differs from the historical experience on which
they are based. In addition, the interest rate characteristics of certain of the
Bank's assets and liabilities impact the results of the above table.
CHANGES IN FINANCIAL CONDITION
GENERAL. Total assets of the Bank increased by $1.5 million, or 4.4%, to
$35.5 million at September 30, 1996 from $34.0 million at September 30, 1995.
The increase in total assets during 1996 was due primarily to a $3.0 million
increase in loans which was partially offset by a $1.7 million decrease in
investment securities.
35
<PAGE>
CASH AND CASH EQUIVALENTS. Cash and cash equivalents, which consist of
interest-bearing demand deposits at other institutions, increased by $218,000,
or 38.2%, to $789,000 at September 30, 1996 compared to $571,000 at September
30, 1995. The increase in cash and cash equivalents during fiscal 1996 was
primarily the result of maturities and repayments of investment securities. At
September 30, 1996, cash and cash equivalents amounted to 2.2% of the Bank's
total assets. Cash and cash equivalents may be utilized to fund deposit
withdrawals or as a source of funds for new loan originations or for the
purchase of investment or mortgage-backed securities.
LOANS, NET. The Bank's loans, net, amounted to $26.9 million at September
30, 1996, a $3.0 million, or 12.5%, increase over loans, net, at September 30,
1995. Such increase was due primarily to new originations of residential
mortgage loans and increased originations of consumer loans.
INVESTMENT SECURITIES. The Bank's investment securities amounted to $6.6
million at September 30, 1996 compared to $8.3 million at September 30, 1996.
The decrease in investment securities during fiscal 1996 was due to maturities
and repayments of investment securities.
DEPOSITS. The Bank's total deposits amounted to $30.7 million at September
30, 1996 compared to $31.3 million at September 30, 1995. During 1996, before
interest credited, the Bank's total deposits decreased by $1.9 million.
FEDERAL HOME LOAN BANK ADVANCES. The Bank's total advances from the FHLB of
Chicago amounted to $2.0 million at September 30, 1996. The proceeds from these
advances were used to fund growth in the Bank's loan portfolio during 1996. The
Bank had no such advances at September 30, 1995.
RESULTS OF OPERATIONS
The Bank reported a net loss of $71,000 during the year ended September 30,
1996 and net income of $100,000 during the year ended September 30, 1995. The
primary reason for the net loss reported in fiscal 1996 was the increase in
deposit insurance expense from $71,000 in fiscal 1995 to $277,000 in fiscal 1996
due to a special assessment of $206,000. See Risk Factors--Regulatory Oversight
and Possible Legislation. Excluding the special assessment, the Bank would have
had net income of $74,000 tax effect, a decrease of $16,000 or 16.00% compared
to net income for fiscal 1995. The primary reason for that decrease was an
increase of $27,000, those items were partially offset by an increase of $67,000
in provisions for losses on loans coupled with an $18,000 charge to the Bank's
income tax expense to charnging the rate applied to deferred income tax items.
These increases in expense were partially offset by a $69,000 increase in the
Bank's net interest income.
36
<PAGE>
AVERAGE BALANCES, NET INTEREST INCOME AND YIELDS EARNED AND RATES PAID. The
following table presents for the periods indicated the total dollar amount of
interest income from average interest-earning assets and the resultant yields,
as well as the total dollar amount of interest expense on average interest-
bearing liabilities and the resultant rates, and the net interest margin. The
table does not reflect any effect of income taxes. All average balances are
based on average monthly balances during the periods.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------
AT SEPTEMBER 30,
1996 1996 1995
----------------- --------------------------------- ----------------------
YIELD/ AVERAGE YIELD/ AVERAGE
RATE BALANCE INTEREST RATE BALANCE INTEREST
----------------- --------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans, net................................. 8.17% $ 25,869 $ 2,118 8.19% $ 22,399 $ 1,757
Securities and interest-bearing
deposits(1)............................ 5.56 4,861 271 5.57 6,051 336
Mortgage-backed securities............... 6.99 3,811 245 6.43 4,510 282
--------- ----------- --------- -----------
Total interest-earning assets.......... 7.72 34,541 2,634 7.63 32,960 2,375
----------- -----------
Non-interest-earning assets.............. 1,117 1,112
--------- ---------
Total assets........................... $ 35,658 $ 34,072
--------- ---------
--------- ---------
Interest-bearing liabilities:
Deposits:
NOW accounts............................. 1.42% $ 469 $ 10 2.13 $ 516 $ 13
Money market investment accounts......... 2.75 1,355 38 2.80 1,685 55
Savings and retirement accounts.......... 4.58 5,161 236 4.57 5,124 234
Certificates............................. 5.81 23,672 1,387 5.86 23,842 1,286
--------- ----------- --------- -----------
Total deposits......................... 5.41 30,657 1,671 5.45 31,167 1,588
FHLB advances.............................. 5.83 1,917 107 5.58 -- --
--------- ----------- --------- -----------
Total interest-bearing liabilities..... 5.43 32,574 1,778 5.46 31,167 1,588
----------- -----------
Non-interest bearing liabilities............. 624 513
--------- ---------
Total liabilities.......................... 33,198 31,680
Equity capital............................... 2,460 2,392
--------- ---------
Total liabilities and equity capital..... $ 35,658 $ 34,072
--------- ---------
--------- ---------
Net interest income; interest rate
spread(2).................................. 2.29% $ 856 2.17% $ 787
------ ----------- --------- -----------
------ ----------- --------- -----------
Net interest margin(3)....................... 2.48%
---------
---------
Ratio of interest-earning assets to average
interest-bearing liabilities............... 105.67 106.05%
------ ---------
------ ---------
<CAPTION>
YIELD/
RATE
---------
<S> <C>
Interest-earning assets:
Loans, net................................. 7.84%
Securities and interest-bearing
deposits(1)............................ 5.55
Mortgage-backed securities............... 6.25
Total interest-earning assets.......... 7.21
Non-interest-earning assets..............
Total assets...........................
Interest-bearing liabilities:
Deposits:
NOW accounts............................. 2.52
Money market investment accounts......... 3.26
Savings and retirement accounts.......... 4.57
Certificates............................. 5.39
Total deposits......................... 5.10
FHLB advances.............................. --
Total interest-bearing liabilities..... 5.10
Non-interest bearing liabilities.............
Total liabilities..........................
Equity capital...............................
Total liabilities and equity capital.....
Net interest income; interest rate
spread(2).................................. 2.11%
Net interest margin(3)....................... 2.39%
---------
---------
Ratio of interest-earning assets to average
interest-bearing liabilities............... 104.04%
---------
---------
</TABLE>
- ------------------------
(1) Includes securities available for sale and held to maturity and excludes
mortgage-backed securities.
(2) Interest rate spread represents the difference between the weighted average
yield on interest-earning assets and the weighted average rate on
interest-bearing liabilities.
(3) Net interest margin is net interest income divided by average
interest-earning assets.
RATE/VOLUME ANALYSIS. The following table describes the extent to which
changes in interest rates and changes in volume of interest-related assets and
liabilities have affected the Bank's interest income and interest expense during
the periods indicated. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to
(i) changes in volume (change in volume multiplied by prior year rate), (ii)
changes in rate (change in rate multiplied by prior year volume),
37
<PAGE>
and (iii) total change in rate and volume. The combined effect of changes in
both rate and volume has been allocated proportionately to the change due to
rate and the change due to volume.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------
1996 VS. 1995
-------------------------------------
INCREASE
(DECREASE)
DUE TO TOTAL
---------------------- INCREASE
RATE VOLUME (DECREASE)
--------- ----------- -------------
<S> <C> <C> <C>
(IN THOUSANDS)
INTEREST-EARNING ASSETS:
Loans, net......................................................................... $ 80 $ 281 $ 361
Securities(1)...................................................................... 1 (66) (65)
Mortgage-backed securities......................................................... 8 (45) (37)
--- ----- -----
Total change in interest income.................................................... 89 170 259
--- ----- -----
INTEREST-BEARING LIABILITIES:
Deposits:
NOW accounts..................................................................... (2) (1) (3)
Money market investment accounts................................................. (7) (10) (17)
Savings and retirement accounts.................................................. -- 2 2
Certificates..................................................................... 110 (9) 101
FHLB advances...................................................................... -- 107 107
--- ----- -----
Total change in interest expense................................................... 101 89 190
--- ----- -----
Net change in net interest income.................................................... $ (12) $ 81 $ 69
--- ----- -----
--- ----- -----
</TABLE>
- ------------------------
(1) Includes securities available for sale and held to maturity and
interest-bearing deposits. Does not include mortgage-backed securities.
NET INTEREST INCOME. Net interest income is determined by interest rate
spread (I.E., the difference between the yields earned on its interest-earning
assets and the rates paid on its interest-bearing liabilities) and the relative
amounts of interest-earning assets and interest-bearing liabilities. The Bank's
average interest-rate spread was 2.17% and 2.11% during the years ended
September 30, 1996 and 1995, respectively. The Bank's interest-rate spread was
2.29% at September 30, 1996. The Bank's net interest margin (I.E., net interest
income as a percentage of average interest-earning assets) was 2.48% and 2.39%
during the years ended September 30, 1996 and 1995 respectively.
Net interest income increased by $68,000, or 8.6%, during the year ended
September 30, 1996 to $856,000 compared to $788,000 for the year ended September
30, 1995. The reason for such increase in net interest income in fiscal 1996 was
a $259,000 increase in interest income which more than offset a $190,000
increase in interest expense.
INTEREST INCOME. Total interest income increased by $259,000 or 10.9% in
the year ended September 30, 1996. Interest income on loans amounted to $2.1
million in fiscal 1996 compared to $1.8 million in fiscal 1995. The average
balance of the Bank's total loans increased by $3.5 million, or 15.5%, in fiscal
1996 compared to fiscal 1995 and the average yield earned on loans increased by
35 basis points (with 100 basis points being equal to 1.0%). Interest income on
mortgage-backed securities decreased by $37,000 or 13.1% in fiscal 1996 compared
to fiscal 1995 due primarily to an $699,000 or 15.5% decrease in the average
balance of the mortgage-backed securities portfolio. Interest income on
securities and interest-bearing deposits decreased by $65,000, or 19.3%, in
fiscal 1996 compared to fiscal 1995 due to a $1.2 million, or 19.7%, decrease in
the average balance of the securities and interest-bearing deposits portfolio
which was slightly offset by a 2 basis point increase in the average yield
earned.
38
<PAGE>
INTEREST EXPENSE. The primary component of interest expense during all
periods presented is interest on deposits. Total interest expense increased by
$190,000, or 12.0%, during the year ended September 30, 1996 compared to the
year ended September 30, 1995. The increase was due primarily to a $107,000
interest expense on FHLB advances outstanding during fiscal 1996 compared to no
such expense during fiscal 1995 and a $101,000 increase in interest expense on
certificates in fiscal 1996 compared to fiscal 1995, which more than offset a
$20,000 aggregate decrease in interest expense on NOW accounts and money market
investment accounts. Certificates constituted 77.3% of the Bank's total deposits
at September 30, 1996 compared to 77.6% at September 30, 1995. The average
balance of the Bank's certificates remained relatively stable during fiscal
years 1996 and 1995, while the average cost of certificates increased by 47
basis points in fiscal 1996.
PROVISIONS FOR LOSSES ON LOANS. Provisions for losses on loans are charged
to earnings to bring the total allowance for loan losses to a level considered
appropriate by management based on a methodology implemented by the Bank which
is designed to assess, among other things, experience, the volume and type of
lending conducted by the Bank, overall portfolio mix, the amount of the Bank's
classified assets (see "Business of the Bank--Asset Quality"), the status of
past due principal and interest payments, loan-to-value ratios of loans in the
Bank's loan portfolio, general economic conditions, particularly as they relate
to the Bank's market area, and other factors related to the collectibility of
the Bank's loan portfolio. Management of the Bank assesses the allowance for
loan losses on a monthly basis and will make provisions for loan losses as
deemed appropriate by management in order to maintain the adequacy of the
allowance for loan losses.
The Bank's provisions for loan losses increased to $80,000 in fiscal 1996,
compared to $13,000 in fiscal 1995. At September 30, 1996, the Bank's allowance
for loan losses amounted to 43.6% of total non-performing loans and to 0.5% of
[TOTAL] loans receivable.
NON-INTEREST INCOME. Non-interest income decreased $6,000 or 11.6% for the
year ended September 30, 1996 compared to the year ended September 30, 1995.
Non-interest income was negatively affected in fiscal 1996 by a $6,000 decrease
in insurance commissions. Such decreases were partially offset by a $1,000
increase in loan fees in fiscal 1996 compared to fiscal 1995.
NON-INTEREST EXPENSES. Total non-interest expenses were $889,000 in the
year ended September 30, 1996 which amounted to a $180,000 or 25.3% increase
compared to the year ended September 30, 1995. The primary reason for the
increase was the $206,000 increase in deposit insurance expense, due to a
special assessment required by federal law to recapitalize the SAIF. Excluding
this assessment, the Bank's non-interest expenses would have decreased by
$27,000 or 3.8%. The only other significant changes in the Bank's non-interest
expenses for fiscal 1996 were a $21,000 or 7.0% decrease in salaries and
employee benefits and a $7,000 or 15.6% decrease in legal and professional fees.
Future non-interest expense may be effected by litigation and compensation
expenses. See "Risk Factors--Pending Litigation Against Bank" and "--ESOP and
Recognition Plan Expense."
INCOME TAXES. In the year ended September 30, 1996, the Bank recognized a
$3,000 tax expense even though it recognized a net loss during the year. This
was primarily attributable to a change in the income tax rate applied to the
Bank's net deferred tax assets. Under generally accepted accounting principles,
the Bank is required to apply the tax rate to its deferred income tax items at
which it expects to be paying when those temporary differences reverse. This
change had the effect of reducing the Bank's net deferred income tax asset by
approximately $18,000 and increasing income tax expense by the same amount.
Accordingly, prior to making this change, the Bank's income tax benefit for the
year ended September 30, 1996 would have been $15,000 compared to income tax
expense of $15,000 in the year ended September 30, 1995.
39
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Bank's liquidity, represented by cash and cash equivalents, is a product
of its operating, investing and financing activities. The Bank's primary sources
of funds are deposits, amortization, prepayments and maturities of outstanding
loans and mortgage-backed securities, maturities of investment securities and
other short-term investments and funds provided from operations. While scheduled
payments from the amortization of loans and mortgage-backed securities and
maturing investment securities and short-term investments are relatively
predictable sources of funds, deposit flows and loan prepayments are greatly
influenced by general interest rates, economic conditions and competition. In
addition, the Bank invests excess funds in overnight deposits and other
short-term interest-earning assets which provide liquidity to meet lending
requirements. The Bank has been able to generate sufficient cash through its
deposits and has had a limited use of borrowings as a source of funds during the
past five years. As of September 30, 1996, the Bank had the ability to borrow up
to $17.0 million from the FHLB.
Liquidity management is both a daily and long-term function of business
management. Excess liquidity is generally invested in short-term investments
such as overnight deposits. On a longer-term basis, the Bank maintains a
strategy of investing in various lending products as described in greater detail
under "Business of the Bank--Lending Activities." The Bank uses its sources of
funds primarily to meet its ongoing commitments, to pay maturing savings
certificates and savings withdrawals, fund loan commitments and maintain a
portfolio of mortgage-backed and investment securities. At September 30, 1996
the total approved loan commitments outstanding amounted to $1.2 million. At the
same date, the Bank had commitments of $23,000 under unused letters of credit.
Certificates scheduled to mature in one year or less at September 30, 1996
totalled $17.0 million. Management believes that a significant portion of
maturing deposits will remain with the Bank. The Bank anticipates that even with
interest rates at lower levels than have been experienced in recent years, which
has caused a disintermediation of funds, it will continue to have sufficient
funds together with borrowings, to meet its current commitments.
Federally-insured state-chartered banks are required to maintain minimum
levels of regulatory capital. Under current FDIC regulations, insured
state-chartered banks generally must maintain (i) a ratio of Tier 1 leverage
capital to total assets of at least 3.0% (4.0% to 5.0% for all but the most
highly rated banks) and (ii) a ratio of Tier 1 capital to risk weighted assets
of at least 4.0% and a ratio of total capital risk weighted assets of at least
8.0%. At September 30, 1996, the Bank was in compliance with applicable
regulatory capital requirements.
The following reflects the Bank's actual levels of regulatory capital and
applicable regulatory capital requirements at September 30, 1996.
<TABLE>
<CAPTION>
REQUIRED ACTUAL EXCESS
---------------------- -------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT
----------- --------- --------- --------- ----------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Tier 1 leverage capital ratio........................... 3.0% $ 1,064 6.669% $ 2,371 3.69% $ 307
Risk-based capital ratios:
Tier 1.............................................. 4.0 656 14.45 2,371 10.45 1,715
Total............................................... 8.0 1,312 15.33 2,514 7.33 1,202
</TABLE>
The Company, as a separately incorporated holding company, will have no
significant operations other than serving as sole stockholder of the Bank. On an
unconsolidated basis, the Company initially will have no paid employees. The
Company's assets will consist of its investment in the Bank, the Company's loan
to the Bank's ESOP and 25% of the net proceeds retained from the Conversion, and
its sources of income will consist primarily of earnings from the investment of
such funds as well as any dividends from the Bank. The only expenses expected to
be incurred initially by the Company will relate to its reporting obligations
under the Securities Exchange Act of 1934, as amended ("Exchange Act"), and
related expenses as a publicly traded company. The Company will be directly
reimbursed by the Bank for all such
40
<PAGE>
expenses. Upon consummation of the Conversion, management believes that the
Company will have adequate liquidity available to respond to liquidity demands.
IMPACT OF NEW ACCOUNTING STANDARDS
ACCOUNTING FOR IMPAIRMENT OF LOANS. In 1993 the Financial Accounting
Standards Board ("FASB") issued SFAS No. 114 ("SFAS 114") entitled "Accounting
by Creditors for Impairment of a Loan." The purpose of SFAS 114 is to eliminate
inconsistencies in the accounting among different types of creditors for loans
with similar collection problems by requiring a single method of measuring
impaired loans. Formally restructured loans and loans evaluated as groups or
pools of homogeneous loans (e.g., single family residences) are excluded from
SFAS 114. In October, 1994, FASB issued SFAS No. 118 ("SFAS 118"), "Accounting
by Creditors for Impairment of a Loan--Income Recognition and Disclosures." SFAS
118 amends the disclosure requirements in SFAS 114 to require information about
the recorded investment in certain impaired loans and about how a creditor
recognizes interest income related to those impaired loans. The Bank adopted
SFAS 114 and 118 as of October 1, 1995. Management does not anticipate such
adoption will have a material impact on the earnings or financial condition of
the Bank.
DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL STATEMENTS. In 1991, FASB issued
SFAS No. 107 ("SFAS 107") entitled "Disclosures About Fair Value of Financial
Statements." This statement requires disclosure of fair value information about
financial instruments, whether or not recognized on the balance sheet, for which
it is practicable to estimate that value. SFAS 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements.
The Bank adopted SFAS 107 for the year ended September 30, 1995.
ACCOUNTING FOR CERTAIN SECURITIES. In 1993, FASB issued SFAS No. 115 ("SFAS
115"), "Accounting for Certain Investments in Debt and Equity Securities." SFAS
115 generally requires that debt and equity securities that have readily
determinable fair values be carried at fair value unless they are classified as
held to maturity. Securities can be classified as held to maturity and carried
at amortized cost only if the reporting entity has a positive intent and ability
to hold those securities to maturity. If not classified as held to maturity,
such securities must be classified as trading securities or securities available
for sale and are carried at their market value. The unrealized gains and losses
on securities available for sale are to be excluded from earnings and reported
as a net amount as a separate component of stockholders' equity. Unrealized
gains and losses on trading securities are to be included in earnings. The
statement became effective for fiscal years beginning after December 15, 1993.
SFAS 115 was adopted by the Bank on October 1, 1994. At that date, investment
securities with carrying value of $1.8 million were reclassified as available
for sale. This reclassification resulted in a net decrease in equity of $12,000.
On November 28, 1994, the FDIC changed its policy relating to the treatment
of unrealized gains and losses on securities available for sale in accordance
with SFAS 115. Under the new policy, unrealized gains and losses are excluded
for purposes of calculating regulatory capital. The change in FDIC policy
resulted in an increase in regulatory capital of approximately $15,000 at
September 30, 1996 and a decrease in regulatory capital of $1,000 at September
30, 1995.
On November 15, 1995, the FASB issued its Special Report for SFAS No. 115,
"A Guide to Implementation of Statement 115 on Accounting for Certain
Investments in Debt and Equity Securities." The Special Report provides that,
concurrent with the initial adoption of this implementation guidance but no
later than December 31, 1995, an enterprise may reassess the appropriateness of
the classification of all securities held at that time and account for any
resulting reclassifications at fair value. Reclassification from the held to
maturity category that result from this one-time reassessment (which must be
made on a single date) will not call into question the intent of an enterprise
to hold debt securities to maturity in the future. In accordance with such
Special Report, on December 31, 1995, the Bank transferred certain
41
<PAGE>
securities included in its held to maturity portfolio which, at the date of
transfer, had a carrying value and fair value of $1.6 million to its available
for sale portfolio.
ACCOUNTING FOR CONTRIBUTIONS MADE. In 1993, the FASB also issued SFAS No.
116 ("SFAS 116") entitled "Accounting for Contributions Received and
Contributions Made." Generally, contributions made, including unconditional
pledges, are recognized as expense in the period made, at the fair value. The
fair value of an unconditional promise to give cash shall be measured on a
discounted cash flow basis. This provision of SFAS 116 became effective for the
Bank beginning October 1, 1995 and did not have a material impact on earnings or
financial condition of the Bank as a result of adoption.
DISCLOSURES ABOUT FINANCIAL INSTRUMENTS. In 1994, the FASB issued SFAS No.
119, "Disclosure about Derivative Financial Instruments and Fair Value of
Financial Instruments." This Statement defines derivative financial instruments
as futures, swaps, option contracts or other financial instruments with similar
characteristics and is effective for the Bank's September 30, 1995 financial
statements. The Bank has not entered into these types of contracts and,
accordingly, management believes that the adoption of this Statement will not
have a material impact on the financial statements of the Company.
ACCOUNTING FOR LONG LIVED ASSETS. In 1995, the FASB issued SFAS No. 121,
"Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of." This Statement establishes accounting standards for the impairment
of long-lived assets, certain identifiable intangibles, and goodwill related to
those aspects to be held and used and for long-lived assets and certain
identifiable intangibles to be disposed of. This Statement is effective for the
Bank on October 1, 1996. Management believes that the adoption of this Statement
will not have a material impact on the earnings or financial statements of the
Company.
ACCOUNTING FOR MORTGAGE SERVICING RIGHTS. In 1995, the FASB also issued
SFAS No. 122, "Accounting for Mortgage Servicing Rights." This Statement amends
SFAS No. 65, "Accounting for Certain Mortgage Banking Activities," to require
that a mortgage banking enterprise recognize as separate assets rights to
service mortgage loans for others, however those services are acquired. This
statement became effective for the Company on October 1, 1996. Management
believes that adoption of this Statement will not have a material impact on the
earnings of the Company.
ACCOUNTING FOR STOCK-BASED COMPENSATION. In October 1995, the FASB issued
SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, establishing financial
accounting and reporting standards for stock-based employee compensatin plans.
This statement encourages all entities to adopt a new method of accounting to
measure compensation cost of all employee stock compensation plans based on the
estimated fair value of the award at the date it is granted. Companies are,
however, allowed to continue to measure compensation cost for those plans using
the intrinsic value based method of accounting, which generally does not result
in compensation expense recognition for most plans. Companies that elect to
remain with the existing accounting are required to disclose in a footnote to
the financial statements pro forma net income and, if presented, earnings per
share, as if this Statement had been adopted. The accounting requirements of
this Statement are effective for transactions entered into in fiscal years that
begin after December 15, 1995; however, companies are required to disclose
information for awards granted in their first fiscal year beginning after
December 15, 1994. For the Bank, accounting requirements will begin to apply for
transaction entered into on or after October 1, 1996. In 1994, the FASB issued
an Exposure Draft ("ED") of a proposed SFAS, "Accounting for Stock-Based
Compensation." The FASB decided to require expanded disclosures rather than
recognition of compensation cost for fixed, at the money, options rather than
recognition of compensation expense as was originally proposed in the ED. The
FASB will develop an approach to accounting for employee stock options and other
equity instruments issued to employers based on the estimated fair value of
instruments at the date they are granted. The FASB will encourage employers to
adopt that method. However, employers would be permitted to continue to follow
APB No. 25 and would be required to disclose in notes to financial statements
the pro forma effects on their net income and earnings per share of the new
accounting method.
42
<PAGE>
In November 1993, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants ("AcSEC") issued SOP 93-6,
"Employers' Accounting for Employee Stock Ownership Plans," which is effective
for fiscal years beginning after December 15, 1993. SOP 93-6 will apply to the
Bank for its fiscal year ending [September 30, 1997. SOP 93-6 requires the
application of its guidance for shares acquired by ESOPs after December 31,
1992, but not yet committed to be released as of the beginning of the year SOP
93-6 is adopted. SOP 93-6 will, among other things, change the measure of
compensation expense recorded by employers for leveraged ESOPs from the cost of
ESOP shares to the fair value of ESOP shares. Under SOP 93-6 the Company will
recognize compensation cost equal to the fair value of the ESOP shares during
the periods in which they become committed to be released. To the extent that
the fair value of the Bank's ESOP shares differ from the cost of such shares,
this differential will be charged or credited to equity. Employers with
internally leveraged ESOPs will not report the loan receivable from the ESOP as
an asset and will not report the ESOP debt as a liability. See "Management of
the Bank--Benefit Plans--Employee Stock Ownership Plan and Trust."
DISCLOSURE OF CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES. AcSEC has issued
SOP 94-6, "Disclosure of Certain Significant Risks and Uncertainties." The SOP
requires reporting entities to include in their financial statements disclosures
about the nature of their operations and the use of estimates in the preparation
of financial statements. In addition, if specified disclosure criteria are met,
it requires entities to make disclosure about: (i) amounts reported in the
financial statements or in the notes that are particularly sensitive to change
in the near term (for example, inventory subject to rapid technological
obsolescence, valuation allowances for commercial and real estate loans and
amounts reported for long-term contracts); and (ii) concentrations in the volume
of business transacted with a particular customer, supplier, lender, grantor or
contributor; in revenue from particular products, services or fund-raising
events; in the available sources of supply materials, labor or services, or of
licenses or other rights in the entity's operations; or in the market of
geographic area in which an entity conducts its operations. The SOP became
effective for the Company for the fiscal year ending September 30, 1996.
IMPACT OF INFLATION AND CHANGING PRICES
The Financial Statements of the Bank and related notes presented herein have
been prepared in accordance with generally accepted accounting principles
("GAAP") which require the measurement of financial position and operating
results in terms of historical dollars, without considering changes in the
relative purchasing power of money over time due to inflation.
Unlike most industrial companies, substantially all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates have a more significant impact on a financial institution's
performance than the effects of general levels of inflation. Interest rates do
not necessarily move in the same direction or in the same magnitude as the
prices of goods and services, since such prices are affected by inflation to a
larger extent than interest rates. In the current interest rate environment,
liquidity and the maturity structure of the Bank's assets and liabilities are
critical to the maintenance of acceptable performance levels.
43
<PAGE>
BUSINESS OF THE BANK
GENERAL
American is a traditional, community oriented Illinois savings bank. The
Bank is primarily engaged in attracting deposits from the general public and
using those funds to originate loans. The Bank's primary lending emphasis has
been, and continues to be, loans secured by first and second liens on
single-family (one-to-four units) residences located in the Bank's primary
market area which consists of the area within a fifty mile radius of Danville,
Illinois. The Bank also originates consumer loans (including home improvement
and vehicle loans), loans for the construction of single-family homes, loans
secured by commercial real estate and multi-family (over four units) residential
properties and commercial business loans. Residential mortgage loans originated
by the Bank since 1984 have generally been retained in its portfolio. The Bank
also originates FHA-insured home improvement loans. In 1995, the Bank began
making smaller non-FHA-insured home improvement loans, increased its
originations of consumer loans (primarily vehicle loans) and commercial business
loans, due to their generally shorter terms and higher yields than residential
mortgage loans.
In addition to its deposit gathering and lending activities, the Bank
invests in mortgage-backed securities, all of which are issued or guaranteed by
U.S. Government agencies and government sponsored enterprises, as well as U.S.
Treasury and federal government agency obligations and other investment
securities. At September 30, 1996, the Bank's mortgage-backed securities
amounted to $3.5 million, or 9.9% of total assets, all of which are designated
as held to maturity. As of that same date, its other investment securities
portfolio amounted to $3.1 million, or 8.7% of total assets, with $861,000 of
such securities classified as held to maturity and the remaining $2.2 million
classified as available for sale.
LENDING ACTIVITIES
LOAN PORTFOLIO COMPOSITION. The following table sets forth the composition
of the Bank's loan portfolio by type of loan at the dates indicated:
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
------------------------------------------------------
<S> <C> <C> <C> <C>
1996 1995
-------------------------- --------------------------
<CAPTION>
PERCENT OF PERCENT OF
BALANCE TOTAL BALANCE TOTAL
--------- --------------- --------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Type of Loan:
Real estate mortgage loans:
One-to-four family.................................... $ 21,419 79.13% 19,181 79.53%
Multi-family.......................................... 1,236 4.57 1,157 4.80
Commercial real estate................................ 781 2.89 669 2.77
Real estate sold on contract............................ 374 1.38 415 1.72
Real estate construction loans.......................... 342 1.26 163 0.68
Commercial business loans............................... 334 1.23 242 1.00
Consumer loans.......................................... 2,581 9.54 2,291 9.50
--------- ------ --------- ------
Total loans............................................... 27,067 100.00% 24,118 100.00%
--------- ------ --------- ------
------ ------
Plus:
Deferred loan costs..................................... 38 --
Less:
Undisbursed portion of loans............................ 26 89
Allowance for loan losses............................... 143 74
Unearned interest....................................... -- 1
--------- ---------
Total loans, net.......................................... $ 26,936 $ 23,954
--------- ---------
--------- ---------
</TABLE>
44
<PAGE>
CONTRACTUAL PRINCIPAL REPAYMENTS AND INTEREST RATES. The following table
sets forth certain information at September 30, 1996 regarding the dollar amount
of loans maturing in the Bank's total loan portfolio, based on the contractual
terms to maturity, before giving effect to net items. Loans having no stated
schedule of repayments and no stated maturity are reported as due in one year or
less.
<TABLE>
<CAPTION>
OVER ONE
ONE YEAR THROUGH OVER FIVE
OR LESS FIVE YEARS YEARS TOTAL
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Real estate mortgage loans:
One-to-four family mortgage loans.................................. $ 1,475 $ 6,226 $ 13,718 $ 21,419
Multi-family....................................................... 84 392 760 1,236
Commercial real estate............................................. 155 229 397 781
Real estate sold on contract......................................... 104 43 227 374
Real estate construction loans....................................... 342 -- -- 342
Commercial business loans............................................ 45 248 41 334
Consumer Loans....................................................... 738 1,043 800 2,581
----------- ----------- ----------- ---------
Total loans...................................................... $ 2,943 $ 8,181 $ 15,943 $ 27,067
----------- ----------- ----------- ---------
----------- ----------- ----------- ---------
</TABLE>
The following table sets forth the dollar amount of all loans, before net
items, due one year after September 30, 1996 which have fixed interest rates or
which have floating or adjustable interest rates. Balloon resets.
<TABLE>
<CAPTION>
FLOATING OR
ADJUSTABLE
FIXED RATES RATES TOTAL
----------- --------------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Real estate mortgage loans:
One-to-four family.................................................... $ 14,420 $ 5,524 $ 19,944
Multi-family.......................................................... 1,001 151 1,152
Commercial real estate................................................ 516 110 626
Real estate sold on contract............................................ 270 -- 270
Real estate construction loans.......................................... -- -- --
Commercial business loans............................................... 289 -- 289
Consumer loans.......................................................... 1,843 -- 1,843
----------- ------ ---------
Total loans......................................................... $ 18,339 $ 5,785 $ 24,124
----------- ------ ---------
----------- ------ ---------
</TABLE>
Scheduled contractual amortization of loans does not reflect the expected
term of the Bank's loan portfolio. The average life of loans is substantially
less than their contractual terms because of prepayments and due-on-sale
clauses, which give the Bank the right to declare a conventional loan
immediately due and payable in the event, among other things, that the borrower
sells the real property subject to the mortgage and the loan is not repaid. The
average life of mortgage loans tends to increase when current mortgage loan
rates are higher than rates on existing mortgage loans and, conversely, decrease
when rates on existing mortgage loans are lower than current mortgage loan rates
(due to refinancings of adjustable-rate and fixed-rate loans at lower rates).
Under the latter circumstances, the weighted average yield on loans decreases as
higher-yielding loans are repaid or refinanced at lower rates.
45
<PAGE>
LOAN ORIGINATION. The following table shows total loans originated and
repaid during the periods indicated. During the periods indicated, no loans were
purchased or sold.
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Net loans, beginning balance............................................ $ 23,954 $ 21,626
Loan originations:
Real estate mortgage loans:
One-to-four family.................................................... 5,293 3,667
Multi-family.......................................................... 235 68
Commercial real estate................................................ 155 262
Real estate construction loans.......................................... 801 344
Commercial business loans............................................... 71 263
Consumer loans.......................................................... 2,180 1,558
--------- ---------
Total loan originations............................................. 8,735 6,162
Loan principal reductions............................................... 5,785 3,803
Increase (decrease) due to other items, net(1).......................... 32 (31)
--------- ---------
Net increase in loan portfolio.......................................... 2,982 2,328
--------- ---------
Loans receivable, net end of period..................................... $ 26,936 $ 23,954
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(1) Includes changes in undisbursed portion of loans, allowance for loan losses,
deferred loan fees and unearned interest.
The lending activities of the Bank are subject to written underwriting
standards and loan origination procedures established by the Bank's Board of
Directors and management. Applications for residential mortgage loans are taken
by one of the Bank's officers at the Bank's office or submitted to the Bank by
mail. The process of underwriting loans and obtaining appropriate documentation,
such as credit reports, appraisals, employment verification and other
documentation is undertaken by the Bank's loan department. The Bank generally
requires that a property appraisal be obtained in connection with all new
mortgage loans. Property appraisals generally are performed by an independent
appraiser from a list approved by the Bank's Board of Directors. American
requires that title insurance (or receipt of an abstract opinion) and hazard
insurance be maintained on all security properties and that flood insurance be
maintained if the property is within a designated flood plain.
Residential mortgage loan applications are primarily developed from
advertising, referrals from real estate brokers and builders, existing customers
and walk-in customers. Commercial real estate and commercial business loan
applications are obtained primarily from previous borrowers, direct
solicitations by Bank personnel, as well as referrals. Consumer loans originated
by the Bank are obtained primarily through existing customers. In addition, the
Bank uses a small group of pre-approved dealers to assist it in the generation
of home improvement loans.
Most loan approvals are considered by the Bank's loan committee (the "Loan
Committee"), consisting of the Bank's president, assistant vice president and
each of the outside members of the Bank's board of directors. Generally, real
estate mortgage loans of $100,000 or less may be reviewed and approved by at
least two members of the Loan Committee. All other real estate loans require the
approval of a majority of the Bank's Board of Directors. Any non-real estate
loan in an amount up to $10,000 may be approved by one Loan Committee member and
any one loan officer or assistant loan officer. Share loans may be approved by
any elected Bank officer, loan officer or Loan Committee member and all other
loans within the Loan Committee lending limits must be approved by at least two
Loan Committee members. Loans
46
<PAGE>
exceeding the Loan Committee limitations must be reviewed and approved by the
full Board of Directors of the Bank. The Bank also has established aggregate
loan limitations which generally apply to larger loans and groups of loans made
to one borrower. No loan or group of loans to any one borrower may (1) exceed
$500,000 or (2) excluding first mortgage and share loans, exceed $100,000 (with
such loans in excess of $20,000 required to be secured).
SINGLE-FAMILY RESIDENTIAL LOANS. Substantially all of the Bank's
one-to-four family residential mortgage loans consist of conventional loans.
Conventional loans are loans that are neither insured by the Federal Housing
Administration ("FHA") or partially guaranteed by the Department of Veterans
Affairs ("VA"). Virtually all of the Bank's one-to-four family residential
mortgage loans are secured by properties and are originated under terms and
documentation which permit their sale to the Federal Home Loan Mortgage
Corporation ("FHLMC"), or the Federal National Mortgage Association ("FNMA").
Sales of residential mortgage loans have been insignificant to date. As of
September 30, 1996, $21.4 million, or 79.1%, of the Bank's total loans consisted
of one-to-four family residential mortgage loans.
The Bank's residential mortgage loans are generally either fixed-rate loans
or shorter-term balloon loans. The Bank does not offer adjustable-rate
one-to-four family residential mortgage loans. Fixed-rate loans generally have
maturities ranging from 10 to 20 years and are fully amortizing with monthly
loan payments sufficient to repay the total amount of the loan with interest by
the end of the loan term. At September 30, 1996, $15.8 million, or 69.9%, of the
Bank's one-to-four family residential mortgage loans were fixed-rate loans with
terms of from 10 to 30 years. At September 30, 1996, the weighted average
remaining term to maturity of the Bank's fixed-rate, single-family residential
mortgage loans was approximately 10.5 years. Substantially all of the Bank's
fixed-rate, one-to-four family residential mortgage loans contain due-on-sale
clauses, which permit the Bank to declare the unpaid balance to be due and
payable upon the sale or transfer of any interest in the property securing the
loan. The Bank generally enforces such due-on-sale clauses, but may waive the
clause in certain circumstances.
The balloon loans currently offered by the Bank have terms of one or three
years, but an amortization schedule of up to 30 years. At the end of a balloon
loan's term, the entire balance of the loan is due. The borrower has the option
of repaying the loan on the due date or, subject to satisfying the Bank's
underwriting criteria, accepting the modified loan rate which is then offered by
the Bank for such loans. The Bank has generally offered rates on such modified
loans at 1/4 of 1% to 1/2 of 1% higher than rates then offered on its new
balloon residential real estate loans. Modified loans are amortized over the
remaining life of the original amortization period. At September 30, 1996, $5.6
million or 26.1% of the Bank's one-to-four family residential mortgage loans
were balloon loans.
Balloon loans decrease the risks associated with changes in interest rates
but involve other risks. If a borrower renews the loan at a higher interest
rate, the loan payment by the borrower increases, thereby increasing the
potential for default. As with fixed-rate loans, as interest rates increase, the
marketability of the underlying collateral property may be adversely affected by
higher interest rates. The Bank believes the ability to adjust the rates of
these loans to reflect either a rising or falling interest rate environment more
than compensates for risks associated with changing customer payments.
For one-to-four family residential first mortgage loans the Bank's maximum
LTV ratio generally is 80%, and is based on the lesser of sales price or
appraised value. On such loans with a LTV ratio of over 85%, private mortgage
insurance ("PMI") is required on the amount of the loan in excess of 80% of
value. The amount of an owner-occupied residential first mortgage loan is
limited to $300,000 and the amount of an investment residential first mortgage
loan is $250,000.
The Bank offers home equity loans secured by second mortgages. These second
mortgage loans have been made to borrowers who have first mortgages held by the
Bank or customers with substantial other business with the Bank. The Bank placed
second mortgages on many properties to comply with FHA insurance requirements
which currently require such a lien for loans of over $7,500. For most of the
Bank's second mortgage loans, the Bank either holds the first mortgage or the
second mortgage is FHA insured.
47
<PAGE>
The Bank holds the first mortgage on approximately 90% of the properties
securing its second mortgage portfolio which are not FHA-insured loans. A second
mortgage loan generally has a fixed rate of interest and a term of six months.
MULTI-FAMILY RESIDENTIAL AND COMMERCIAL REAL ESTATE LOANS. At September 30,
1996, the Bank had $2.0 million in outstanding loans secured by multi-family
residences or commercial real estate. Such loans comprised 7.5% of the Bank's
total loan portfolio at September 30, 1996 and all have either fixed rates of
interest or are balloon loans. Generally, fees of 50 basis points to 1% of the
principal loan balances are charged to the borrower upon closing. The Bank also
obtains personal guarantees of the principals as additional security for any
multi-family residential or commercial real estate loan.
At September 30, 1996, the Bank had $1.2 million in outstanding loans
secured by multi-family residences, all of which were apartment buildings. The
Bank's underwriting standards generally provide for terms of up to 20 years with
amortization of principal over the term of the loan and LTV ratios of not more
than 75%. At September 30, 1996, the Bank had 17 loans secured by multi-family
residences with an average balance of $72,700. As of that date none of the
multi-family loans was non-performing loans.
At September 30, 1996, the Bank had $781,000 in outstanding loans secured by
commercial real estate, primarily retail office and farmland. The Bank's
underwriting standards generally provide for terms of up to ten years with
amortization of principal over the term of the loans and LTV ratios of not more
than 70%. At September 30, 1996, the Bank had 14 loans secured by commercial
real estate with an average balance of $55,800. As of that date, two of the
Bank's commercial real estate loans totaling $93,000 or 27.8% were
non-performing loans.
The Bank evaluates various aspects of multi-family residential and
commercial real estate loan transactions in an effort to mitigate risk to the
extent possible. In underwriting these loans, consideration is given to the
stability of the property's cash flow history, future operating projections,
current and projected occupancy, position in the market, location and physical
condition. The underwriting analysis also includes credit checks and a review of
the financial condition of the borrower and guarantor, if applicable. An
appraisal report is prepared by a state-licensed or certified appraiser
commissioned by the Bank to substantiate property values for every multi-family
and commercial real estate loan transaction. All appraisal reports are reviewed
by the Bank prior to the closing of the loan.
Multi-family residential and commercial real estate lending entails
different and significant risks when compared to one-to-four family residential
lending because such loans often involve large loan balances to single borrowers
and because the payment experience on such loans is typically dependent on the
successful operation of the rental units or business. These risks can also be
significantly affected by supply and demand conditions in the local market for
apartments, offices or other commercial space. The Bank attempts to minimize its
risk exposure by limiting such lending to experienced businessmen, only
considering properties with existing operating performance which can be
analyzed, requiring conservative debt coverage ratios and periodically
monitoring the operation and physical condition of the collateral. In most cases
commercial real estate loans are made to business people who are also operating
the tenant businesses.
CONSTRUCTION LOANS. As of September 30, 1996, the Bank's construction loans
amounted to $342,000, or 1.3% of the Bank's total loan portfolio. The Bank
originated $801,000 of single-family construction loans to individuals during
the year ended September 30, 1996. A substantial majority of the Bank's
construction loans have consisted of loans to construct single-family residences
although the Bank will also consider construction loans for small apartment
buildings.
The Bank makes construction loans to individuals and, on rare occasions, to
developers for one-to-four family residences. Normally these loans are
construction/permanent loans which require no payments of principal during the
construction period. Interest on the construction loan is normally paid during
or at the close of construction period. Following the construction period (which
is typically no longer than 6 months), the loan converts to a permanent loan
with monthly amortization of principal and interest.
48
<PAGE>
Construction loans to individuals for single-family residential properties
generally have the same LTV ratio requirements as applicable to loans for
one-to-four family residences. Loans to developers are limited to no more than
two active projects. Disbursements of funds during construction are conditioned
upon the completion of a specified percentage of construction.
Construction financing is generally considered to involve a higher degree of
risk of loss 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 and the estimated cost (including interest) of construction. During
the construction phase, a number of factors could result in delays and cost
overruns. If the estimate of value proves to be inaccurate, the Bank may be
confronted, at or prior to the maturity of the loan, with a project, when
completed, having a value which is insufficient to assure full repayment. Loans
on lots may run the risk of adverse zoning changes, environmental or other
restrictions on future use. As of September 30, 1996, none of the Bank's
construction loans was considered non-performing.
CONSUMER LOANS. The Bank offers consumer loans in order to provide a full
range of retail financial services to its customers. However, substantially all
of such loans are either home improvement, automobile or share loans. At
September 30, 1996 $2.6 million, or 9.5%, of the Bank's total loan portfolio was
comprised of consumer loans. The Bank originates substantially all of such loans
in its primary market area. Originations of consumer loans by the Bank amounted
to $2.3 million in 1996 compared to $1.6 million and $868,000 in 1995 and 1994,
respectively. The primary reason for the increase in consumer loan originations
in 1995 and 1996 was the Bank's determination to increase its portfolio of
automobile and other vehicle loans due to their generally higher yields and
shorter terms to maturity compared to mortgage loans. Loans secured by vehicles
are made directly to customers and the Bank has no direct relationship with
dealers.
For loans secured by vehicles either new or less than two model years old,
the Bank's maximum LTV
ratio is the lower of 90% of the purchase price or 100% of the balance due after
trade-in allowances and the maximum loan amount is $30,000. For loans secured by
vehicles at least two but less than six model years old, the amount of the loan
may not exceed the lowest of 75% of the purchase price, 100% of the maximum NADA
Official Used Car Guide value or 100% of the balance due after trade-in and
allowances. However, loans on such vehicles may not in any case exceed $20,000.
The Board has granted management the authority to exceed LTV ratios and other
terms on vehicle loans if they are noted in subsequent monthly reports to the
Board. As of September 30, 1996, the Bank had $435,000 of loans secured by
vehicles.
Share loans are secured by the balance in the borrower's account with the
Bank. These loans generally have interest rates 2% above the rate paid on the
account balance and the principal of the loan may not exceed 90% of the account
balance. As of September 30, 1996, the Bank had $202,000 of share loans.
A substantial portion of the Bank's consumer loans outstanding totaling $1.2
million at September 30, 1996 are FHA-insured home improvement loans. These
loans are 90% insured by the FHA subject to the limitations of the Bank's FHA
Title I insurance coverage reserve account. The available balance at September
30, 1996 was $349,000.
Consumer finance loans generally involve more credit risk than mortgage
loans because of the type and nature of the collateral and, in certain cases,
the absence of collateral. In addition, consumer lending collections are
dependent on the borrower's continuing financial stability, and thus are more
likely to be adversely affected by job loss, divorce, illness and personal
bankruptcy. In many cases, any repossessed collateral for a defaulted consumer
financial loan will not provide an adequate source of repayment of the
outstanding loan balance because of improper repair and maintenance or
depreciation of the underlying security. The remaining deficiency often does not
warrant further substantial collection efforts against the borrower. As of
September 30, 1996, $49,000 or [1.9%] of the Bank's consumer loans were
considered non-performing. See "Risk Factors -Increased Emphasis on Consumer
Lending."
49
<PAGE>
COMMERCIAL BUSINESS LOANS. The Bank began offering commercial business
loans in March 1995. At September 30, 1996, the Bank's commercial business loans
amounted to $334,000 or 1.2% of the Bank's total loan portfolio. The Bank's
commercial business loans are generally made to its current customers on a
secured or unsecured basis and involve a wide range of business purposes. These
loans generally have terms of between six months to one year. Notes either
require a single payment at the end of their term or have amortizing payments of
principal and interest for periods of up to five years. Any two loan committee
members may approve a loan of this type in an amount up to $20,000. Any
unsecured loan in excess of $20,000 must be approved by the Board of Directors.
The Bank generally obtains personal guarantees from the principals of the
borrower with respect to all commercial loans. The Bank had nine commercial
business loans as of September 30, 1996 with an average loan balance on that
date of $37,000. As of September 30, 1996, none of the Bank's commercial
business loans was non-performing.
Commercial business lending generally entails significantly greater risk
than the risks involved with more traditional real estate lending. The repayment
of commercial business loans typically is dependent on the successful operation
and income stream of the borrower. Such risks can be significantly affected by
economic conditions.
LOANS-TO-ONE BORROWER LIMITATIONS. The Illinois Savings Bank Act imposes
limitations on the aggregate amount of loans that an Illinois chartered savings
bank can make to any one borrower. Under the Illinois Savings Bank Act the
permissible amount of loans-to-one borrower is the greater of $500,000 (for a
savings bank meeting its minimum capital requirements) or 20% of a savings
bank's total capital plus general loan loss reserves. In addition, a savings
bank may make loans in an amount equal to an additional 10% of the savings
bank's capital plus general loan loss reserves if the loans are 100% secured by
readily marketable collateral. Under Illinois law, a savings bank's capital
consists of capital stock and noncumulative perpetual preferred stock, related
paid-in capital, retained earnings and other forms of capital deemed to be
qualifying capital by the FDIC. At September 30, 1996, the Bank's limit on
loans-to-one borrower under the Illinois Savings Bank Act was $500,000. At
September 30, 1996, the Bank's five largest groups of loans-to-one borrower
ranged from $459,000 to $235,000, with largest single loan in such groups being
a $229,000 loan secured by a ten-unit apartment building. Each of the five
largest groups of borrowers has several loans from the Bank generally a
combination of loans secured by investment properties and a residence as well as
smaller secured and unsecured personal loans. A substantial portion of each
large group of loans is secured by real estate. At September 30, 1996, all of
such loans were performing in accordance with their terms.
ASSET QUALITY
GENERAL. As a part of the Bank's efforts to improve its asset quality, it
has developed and implemented an asset classification system. All of the Bank's
assets are subject to periodic review under the classification system and assets
with classifications of above normal risk of collection are reported to and
reviewed by the Board monthly. Quarterly reports to the Board classify the
totals of all loan assets by risk classification.
When a borrower fails to make a required payment on a loan, the Bank
attempts to cure the deficiency by contacting the borrower and seeking payment.
Contacts are generally made by mail within ten days after a payment is due. In
most cases, deficiencies are cured promptly. If a delinquency continues, late
charges are assessed and additional efforts are made to collect the loan. While
the Bank generally prefers to work with borrowers to resolve such problems, when
the account becomes 120 days delinquent, the Bank institutes foreclosure or
other proceedings, as necessary, to minimize any potential loss.
As a matter of policy the Bank evaluates individual loans past due 90 days
or more to determine if current payments being collected or underlying
collateral security justifies the accrual of additional interest. See Note 1 of
the Notes to Consolidated Financial Statements.
50
<PAGE>
Real estate acquired by the Bank as a result of foreclosure or by
deed-in-lieu of foreclosure and loans deemed to be in-substance foreclosed under
GAAP are classified as real estate owned until sold. Pursuant to SOP 92-3 issued
by the AICPA in April 1992, which provides guidance on determining the balance
sheet treatment of foreclosed assets in annual financial statements for periods
ending on or after December 15, 1992, there is a rebuttable presumption that
foreclosed assets are held for sale and such assets are recommended to be
carried at the lower of fair value minus estimated costs to sell the property,
or cost (generally the balance of the loan on the property at the date of
acquisition). After the date of acquisition, all costs incurred in maintaining
the property are expensed and costs incurred for the improvement or development
of such property are capitalized up to the extent of their net realizable value.
Although, as of September 30, 1996, the Bank had no real estate owned, it is its
policy to comply with the guidance set forth in SOP 92-3.
Under GAAP, the Bank is required to account for certain loan modifications
or restructurings as "troubled debt restructurings." In general, the
modification or restructuring of a debt constitutes a troubled debt
restructuring if the Bank for economic or legal reasons related to the
borrower's financial difficulties grants a concession to the borrower that the
Bank would not otherwise consider under current market conditions. Debt
restructurings or loan modifications for a borrower do not necessarily always
constitute troubled debt restructurings, however, and troubled debt
restructurings do not necessarily result in non-accrual loans. As of September
30, 1996, the Bank had no loans deemed to be troubled debt restructurings. See
the table below under "--Non-Performing Assets and Troubled Debt
Restructurings."
DELINQUENT LOANS. The following table sets forth information concerning
delinquent loans at the dates indicated in dollar amounts and as a percentage of
each category of the Bank's loan portfolio. The amounts presented represent the
total outstanding principal balances of the related loans, rather than the
actual payment amounts which are past due.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------------------------------------------------
<S> <C> <C> <C> <C>
30-89 DAYS 90 DAYS OR MORE
------------------------------ ------------------------------
<CAPTION>
PERCENT OF PERCENT OF
AMOUNT LOAN CATEGORY AMOUNT LOAN CATEGORY
----------- ----------------- ----------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Real estate mortgage loans:
One-to-four family........................................... $ 287 1.3% $ 186 0.9%
Multi-family................................................. -- -- -- --
Commercial real estate....................................... -- -- 93 8.3
Construction................................................... -- -- -- --
Commercial business loans...................................... -- -- -- --
Consumer loans................................................. 18 0.7 49 1.9
----- -----
Total...................................................... $ 305 $ 328
----- -----
----- -----
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
--------------------------------------------------------------
<S> <C> <C> <C> <C>
30-89 DAYS 90 DAYS OR MORE
------------------------------ ------------------------------
<CAPTION>
PERCENT OF PERCENT OF
AMOUNT LOAN CATEGORY AMOUNT LOAN CATEGORY
----------- ----------------- ----------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Real estate mortgage loans:
One-to-four family........................................... $ 308 1.6% $ 210 1.1%
Multi-family................................................. -- -- -- --
Commercial real estate....................................... 97 10.7 -- --
Construction................................................... -- -- -- --
Commercial business loans...................................... -- -- -- --
Consumer loans................................................. 17 0.7 6 0.3
----- -----
Total...................................................... $ 422 $ 216
----- -----
----- -----
</TABLE>
51
<PAGE>
NON-PERFORMING ASSETS. The following table sets forth the amounts and
categories of the Bank's non-performing assets at the dates indicated. The Bank
did not have any troubled debt restructuring at any of the dates presented.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
------------------------
<S> <C> <C>
1996 1995
----------- -----------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Non accruing loans:
Real estate mortgage loans:
One-to-four family..................................................... $ 74 $ 70
Multi-family........................................................... -- --
Commercial real estate................................................. -- --
Real estate construction loans........................................... -- --
Commercial business loans................................................ -- --
Consumer loans........................................................... -- --
----- -----
Total non-accruing loans............................................. $ 74 $ 70
----- -----
Accruing loans greater than 90 days delinquent:
Real estate mortgage loans:
One-to-four family..................................................... 112 140
Multi-family........................................................... -- --
Commercial real estate................................................. 93 --
Real estate construction loans........................................... -- --
Commercial business loans................................................ -- --
Consumer loans........................................................... 49 6
----- -----
Total accruing loans greater than 90 days delinquent................. 254 146
----- -----
Total non-performing loans........................................... 328 216
Real estate owned........................................................ -- --
----- -----
Total non-performing assets.............................................. $ 328 $ 216
----- -----
----- -----
Total non-performing loans as a percentage of total loans................ 1.21% 0.90%
----- -----
----- -----
Total non-performing assets as a percentage of total assets.............. 0.93% 0.64%
</TABLE>
For the year ended September 30, 1996, approximately $ in gross
interest income would have been recorded on loans accounted for on a non-accrual
basis if such loans had been current in accordance with their original terms and
had been outstanding throughout the year or since origination if held for part
of the year. For the year ended September 30, 1996, $ was included in
net income for these loans.
OTHER CLASSIFIED ASSETS. Federal regulations require that the Bank classify
its assets on a regular basis. In addition, in connection with examinations of
insured institutions, federal examiners have authority to identify problem
assets and, if appropriate, classify them in their reports of examination. There
are three classifications for problem assets: "substandard," "doubtful" and
"loss." Substandard assets have one or more defined weaknesses and are
characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. Doubtful assets have
the weaknesses of substandard assets with the additional characteristic that the
weaknesses make collection or liquidation in full, on the basis of currently
existing facts, conditions and values questionable, and there is a high
possibility of loss. An asset classified loss is considered uncollectible and of
such little value that continuance as an asset of the institution is not
warranted.
52
<PAGE>
At September 30, 1996, the Bank had $288,000 of assets classified
substandard, $37,000 of assets classified doubtful and $15,000 classified as
loss. At such date, the aggregate of the Bank's classified assets amounted to
1.0% of total assets.
ALLOWANCE FOR LOAN LOSSES. The Bank's policy is to establish reserves to
absorb losses on loans based on management's continuing review and evaluation of
the portfolio and its judgment as to the impact of economic conditions on the
portfolio. The allowance for losses on loans is maintained at a level believed
adequate by management to absorb potential losses in the portfolio. Management's
determination of the adequacy of the allowance is based on an evaluation of the
past loss experience, changes in the composition of the portfolio and the
current conditions and amount of loans outstanding. The allowance is increased
by provisions for loan losses which are charged against income. As shown in the
table below, at September 30, 1996, the Bank's allowance for loan losses
amounted to 43.6% and 0.5% of the Bank's non-performing loans and total loans
receivable, respectively.
Effective December 21, 1993, the FDIC, in conjunction with the Office of the
Comptroller of the Currency, the Office of Thrift Supervision ("OTS") and the
Federal Reserve Board, issued the Policy Statement regarding an institution's
allowance for loan and lease losses. The Policy Statement, which reflects the
position of the issuing regulatory agencies and does not necessarily constitute
GAAP, includes guidance (i) on the responsibilities of management for the
assessment and establishment of an adequate allowance and (ii) for the agencies'
examiners to use in evaluating the adequacy of such allowance and the policies
utilized to determine such allowance. The Policy Statement also sets forth
quantitative measures for the allowance with respect to assets classified
substandard and doubtful and with respect to the remaining portion of an
institution's loan portfolio. Specifically, the Policy Statement sets forth the
following quantitative measures which examiners may use to determine the
reasonableness of an allowance: (i) 50% of the portfolio that is classified
doubtful; (ii) 15% of the portfolio that is classified substandard; and (iii)
for the portions of the portfolio that have not been classified (including loans
designated special mention), estimated credit losses over the upcoming 12 months
based on facts and circumstances available on the evaluation date. While the
Policy Statement sets forth this quantitative measure, such guidance is not
intended as a "floor" or "ceiling." The review of the Policy Statement did not
result in a material adjustment to the Bank's policy for establishing loan
losses.
The following table describes the activity related to the Bank's allowance
for possible loan losses for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER
30,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
<CAPTION>
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Balance at beginning of period............................................ $ 74 $ 67
Charge-offs............................................................... (12) (10)
Recoveries................................................................ 1 4
--------- ---------
Net charge-offs........................................................... (11) (6)
Provision for losses on loans............................................. 80 13
--------- ---------
Balance at end of period.................................................. $ 143 $ 74
--------- ---------
--------- ---------
Allowance for loan losses as a percentage
of total loans outstanding.............................................. 0.53% 0.31%
Allowance for loan losses as a percentage
of total non-performing loans........................................... 43.60% 34.26%
Ratio of net charge-offs to average loans outstanding..................... 0.04% 0.03%
</TABLE>
53
<PAGE>
The following table presents an allocation of the allowance for loan losses
by the categories indicated and the percentage that loans in each category bear
to total loans. This allocation is used by management to assist in its
evaluation of the Bank's loan portfolio. It should be noted that allocations are
no more than estimates and are subject to revisions as conditions change. Based
upon historical loss experience and the Bank's assessment of its loan portfolio,
all of the Bank's allowance for loan losses have been allocated to the
categories of loans indicated. Allocations of these loans are based primarily on
the creditworthiness of each borrower. In addition, general allocations are also
made to each category based upon, among other things, the current and future
impact of economic conditions on the loan portfolio taken as a whole. Losses on
loans made to consumers are reasonably predictable based on the prior loss
experience and a review of current economic conditions.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
------------------------------------------------------
<S> <C> <C> <C> <C>
1996 1995
-------------------------- --------------------------
<CAPTION>
PERCENT OF PERCENT OF
LOANS IN EACH LOANS IN EACH
CATEGORY TO CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
----------- ------------- ----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Real estate mortgage loans:
One-to-four family........................................... $ 98 79.13 $ 53 79.53%
Multi-family................................................. -- 4.57 -- 4.80
Commercial real estate....................................... -- 2.89 -- 2.77
Real estate sold on contract................................... 4 1.38 4 1.72
Real estate construction loans................................. -- 1.26 -- 0.68
Commercial business loans...................................... 3 1.23 -- 1.00
Consumer loans................................................. 38 9.54 17 9.50
----- ------ --- ------
Total...................................................... $ 143 100.00% $ 74 100.00%
----- ------ --- ------
----- ------ --- ------
</TABLE>
Management of the Bank presently believes that its allowance for loan losses
is adequate to cover any potential losses in the Bank's loan portfolio. However,
future adjustments to this allowance may be necessary, and the Bank's results of
operations could be adversely affected if circumstances differ substantially
from the assumptions used by management in making its determinations in this
regard.
INVESTMENT ACTIVITIES.
GENERAL. Interest income from mortgage-backed securities and investment
securities generally provides the second largest source of income to the Bank
after interest on loans. The Bank's Board of Directors has authorized investment
in U.S. Government and agency securities, obligations of the FHLB, and
mortgage-backed securities issued by FNMA, FHLMC and the Government National
Mortgage Association ("GNMA") as well as by certain state, county and municipal
securities. The Bank's objective is to use such investments to reduce interest
rate risk, enhance yields on assets and provide liquidity. On September 30,
1996, the Bank's investment securities portfolio amounted to $6.6 million,
including an net unrealized loss of $20,000, with respect to its securities
available for sale.
MORTGAGE-BACKED SECURITIES. As of September 30, 1996, the Bank's
mortgage-backed securities amounted to $3.5 million, or 9.9% of total assets.
The Bank's mortgage-backed securities portfolio provides a means of investing in
housing-related mortgage instruments without the costs associated with
originating mortgage loans for portfolio retention and with limited credit risk
of default which arises in holding a portfolio of loans to maturity.
Mortgage-backed securities (which also are known as mortgage participation
certificates or pass-through certificates) represent a participation interest in
a pool of single-family or multi-family mortgages. The principal and interest
payments on mortgage-backed securities are passed from the mortgage originators,
as servicer, through intermediaries (generally U.S. Government agencies and
government-sponsored enterprises) that pool and repackage the participation
interests in the
54
<PAGE>
form of securities, to investors such as the Bank. Such U.S. Government agencies
and government sponsored enterprises, which guarantee the payment of principal
and interest to investors, primarily include the FHLMC, the FNMA and the GNMA.
The FHLMC is a public corporation chartered by the U.S. Government and owned
by the 12 FHLBs and federally insured savings institutions. The FHLMC issues
participation certificates backed principally by conventional mortgage loans.
The FHLMC guarantees the timely payment of interest and the ultimate return of
principal on participation certificates. The FNMA is a private corporation
chartered by the U.S. Congress with a mandate to establish a secondary market
for mortgage loans. The FNMA guarantees the timely payment of principal and
interest on FNMA securities. FHLMC and FNMA securities are not backed by the
full faith and credit of the United States, but because the FHLMC and the FNMA
are U.S. Government-sponsored enterprises, these securities are considered to be
among the highest quality investments with minimal credit risks. The GNMA is a
government agency within the Department of Housing and Urban Development which
is intended to help finance government-assisted housing programs. GNMA
securities are backed by FHA-insured and VA-guaranteed loans, and the timely
payment of principal and interest on GNMA securities are guaranteed by the GNMA
and backed by the full faith and credit of the U.S. Government. Because the
FHLMC, the FNMA and the GNMA were established to provide support for low- and
middle-income housing, there are limits to the maximum size of loans that
qualify for these programs which limit currently is $207,000.
Mortgage-backed securities typically are issued with stated principal
amounts, and the securities are backed by pools of mortgages that have loans
with interest rates that are within a range and have varying maturities. The
underlying pool of mortgages can be composed of either fixed-rate or
adjustable-rate loans. As a result, the risk characteristics of the underlying
pool of mortgages, (i.e., fixed rate or adjustable rate) as well as prepayment
risk, are passed on to the certificate holder. The life of a mortgage-backed
pass-through security thus approximates the life of the underlying mortgages.
The Bank's mortgage-backed securities portfolio includes investments in
mortgage-backed securities backed by ARMs or securities which otherwise have an
adjustable rate feature.
Mortgage-backed securities generally yield less than the loans which
underlie such securities because of their payment guarantees or credit
enhancements which offer nominal credit risk. In addition, mortgage-backed and
related securities are more liquid than individual mortgage loans and may be
used to collateralize borrowings of the Bank in the event that the Bank
determined to utilize borrowings as a source of funds. Mortgage-backed
securities issued or guaranteed by the FNMA or the FHLMC (except interest-only
securities or the residual interests in CMOs) are weighted at no more than 20.0%
for risk-based capital purposes, compared to a weight of 50.0% to 100.0% for
residential loans. See "Regulation-- The Bank--Capital Requirements."
As of September 30, 1996, all of the Bank's $3.5 million of mortgage-backed
securities were classified as held to maturity. See Note 3 of the Notes to
Consolidated Financial Statements.
At September 30, 1996, the weighted average contractual maturity of the
Bank's fixed-rate mortgage-backed securities was approximately 2.0 years. The
actual maturity of a mortgage-backed security may be less than its stated
maturity due to prepayments of the underlying mortgages. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Asset
and Liability Management." Prepayments that are faster than anticipated may
shorten the life of the security and adversely affect its yield to maturity. The
yield is based upon the interest income and the amortization of any premium or
discount related to the mortgage-backed security. In accordance with GAAP,
premiums and discounts are amortized over the estimated lives of the loans,
which decrease and increase interest income, respectively. The prepayment
assumptions used to determine the amortization period for premiums and discounts
can significantly affect the yield of the mortgage-backed security, and these
assumptions are reviewed periodically to reflect actual prepayments. Although
prepayments of underlying mortgages depend on many factors, including the type
of mortgages, the coupon rate, the age of mortgages, the
55
<PAGE>
geographical location of the underlying real estate collateralizing the
mortgages and general levels of market interest rates, the difference between
the interest rates on the underlying mortgages and the prevailing mortgage
interest rates generally is the most significant determinant of the rate of
prepayments.
During periods of rising mortgage interest rates, if the coupon rates of the
underlying mortgages are less than the prevailing market interest rates offered
for mortgage loans, refinancings generally decrease and slow the prepayment of
the underlying mortgages and the related securities. Conversely, during periods
of falling mortgage interest rates, if the coupon rates of the underlying
mortgages exceed the prevailing market interest rates offered for mortgage
loans, refinancing generally increases and accelerates the prepayment of the
underlying mortgages and the related securities. Under such circumstances, the
Bank may be subject to reinvestment risk because to the extent that the Bank's
mortgage-related securities amortize or prepay faster than anticipated, the Bank
may not be able to reinvest the proceeds of such repayments and prepayments at a
comparable rate.
SECURITIES. The Bank's investments in investment securities other than
mortgage-backed securities consist primarily of securities issued by the U.S.
Treasury and federal government agency obligations except for $361,000 of
securities all of which are general obligations of Illinois municipalities. As
of September 30, 1996, $2.2 million of such securities portfolio were classified
available for sale. The remaining $861,000 of the Bank's investment securities
portfolio were classified as held to maturity. The Bank attempts to maintain a
high degree of liquidity in its investment securities portfolio and generally
does not invest in securities with terms to maturity exceeding ten years. As of
September 30, 1996, the estimated weighted average life of the Bank's investment
securities portfolio was 2.91 years.
The following table sets forth certain information regarding the Bank's
investment securities at the dates indicated.
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------------------------------------------
<S> <C> <C> <C> <C>
1996 1995
------------------------------ ------------------------------
<CAPTION>
AMORTIZED COST MARKET VALUE AMORTIZED COST MARKET VALUE
--------------- ------------- --------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Available for sale:
U.S. Treasury..................................... $ 250 $ 253 $ 198 $ 199
Federal agencies.................................. 1,992 1,969 1,286 1,287
------ ------ ------ ------
Total available for sale........................ $ 2,242 $ 2,222 $ 1,484 $ 1,486
------ ------ ------ ------
------ ------ ------ ------
Held to maturity:
Federal agencies.................................. $ 500 $ 499 $ 2,196 $ 2,157
State and municipal............................... 361 355 360 353
Mortgage-backed securities........................ 3,476 3,473 4,260 4,256
------ ------ ------ ------
Total held to maturity.......................... $ 4,337 $ 4,327 $ 6,816 $ 6,766
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
56
<PAGE>
The following table sets forth certain information regarding the maturities
of the Bank's investment securities at September 30, 1996.
<TABLE>
<CAPTION>
CONTRACTUALLY MATURING
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
UNDER WEIGHTED 1-5 WEIGHTED 6-10 WEIGHTED OVER
1 YEAR AVERAGE YIELD YEARS AVERAGE YIELD YEARS AVERAGE YIELD 10 YEARS
--------- ------------- --------- ------------- ----- ------------- -----------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Available for sale:
U.S. Treasury........................ $ -- % $ 253 6.13% $ -- % $ --
Federal agencies..................... 604 6.53 1,365 5.88
--------- --------- ----- -----
Total available for sale........... 604 1,618
--------- --------- ----- -----
Held to maturity:
Federal agencies..................... 500 4.32
State and municipal.................. 165 4.65 196
Mortgage-backed securities........... 2,063 6.98 1,237 6.67 55 9.11 121
--------- --------- ----- -----
Total held to maturity............. 2,563 1,237 220 317
--------- --------- ----- -----
Total investment securities........ $ 3,167 $ 2,855 $ 220 $ 317
--------- --------- ----- -----
--------- --------- ----- -----
<CAPTION>
<S> <C> <C>
WEIGHTED
AVERAGE
YIELD TOTAL
------------- ---------
<S> <C> <C>
Available for sale:
U.S. Treasury........................ % $ 253
Federal agencies..................... 1,969
---------
Total available for sale........... 2,222
---------
Held to maturity:
Federal agencies..................... 500
State and municipal.................. 4.85 361
Mortgage-backed securities........... 9.52 3,476
---------
Total held to maturity............. 4,337
---------
Total investment securities........ $ 6,559
---------
---------
</TABLE>
In addition, as a member of the FHLB of Chicago the Bank is required to
maintain an investment in stock of the FHLB of Chicago equal to the greater of
1% of the Bank's outstanding home mortgage related assets or 5% of its
outstanding advances from the FHLB of Chicago. As of September 30, 1996, the
Bank's investment in stock of the FHLB of Chicago amounted to $269,000. During
the year ended September 30, 1996, the Bank received $18,000 in dividends on its
FHLB stock. No ready market exists for such stock, which is carried at par
value.
SOURCES OF FUNDS
GENERAL. The Bank's principal source of funds for use in lending and for
other general business purposes has traditionally come from deposits obtained
through the Bank's single retail office. The Bank also derives funds from
amortization and prepayments of outstanding loans and mortgage-related
securities, and from maturing investment securities. Loan repayments are a
relatively stable source of funds, while deposit inflows and outflows are
significantly influenced by general interest rates and money market conditions.
The Bank has made limited use of borrowings to supplement its deposits as a
source of funds.
DEPOSITS. The Bank's current deposit products include savings accounts,
retirement savings accounts, NOW accounts, MMIA, certificates ranging in terms
from six months to five years and noninterest-bearing personal and business
checking accounts.
The Bank's deposits are obtained primarily from residents in its Primary
Market Area. The Bank attracts local deposit accounts by offering a wide variety
of accounts, competitive interest rates and a convenient location and convenient
service hours. The Bank utilizes traditional marketing methods to attract new
customers and savings deposits, including print and broadcast advertising and
direct mailings. However, the Bank does not solicit funds through deposit
brokers nor does it pay any brokerage fees if it accepts such deposits.
The Bank has been competitive in the types of accounts and in interest rates
it has offered on its deposit products but does not necessarily seek to match
the highest rates paid by competing institutions. With the decline in interest
rates paid on deposit products, the Bank in recent years has experienced limited
disintermediation of deposits into competing investment products. See "Risk
Factors--Potential Effects of Changes in Interest Rates." See generally Note 7
of the Notes to Consolidated Financial Statements.
57
<PAGE>
The following table sets forth certain information relating to the Bank's
deposits by type, as of the dates indicated.
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1996 1995
--------------------------------------- ---------------------------------------
<CAPTION>
PERCENT OF WEIGHTED PERCENT OF WEIGHTED
TOTAL AVERAGE TOTAL AVERAGE
AMOUNT DEPOSITS NOMINAL RATE AMOUNT DEPOSITS NOMINAL RATE
--------- ----------- --------------- --------- ----------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Transaction accounts:
NOW accounts........................ $ 577 1.88% 1.42% $ 625 1.99% 2.09%
Money market investment accounts.... 1,043 3.39 2.75 1,432 4.57 3.30
Savings and retirement accounts..... 5,350 17.42 4.58 4,965 15.85 4.57
--------- ----------- --------- -----------
Total transaction accounts........ 6,970 22.69 7,022 22.41
--------- ----------- --------- -----------
Certificates of deposit:
Within 1 year....................... 16,995 55.32 6.02 14,134 45.12 5.73
1-2 years........................... 4,369 14.22 5.85 7,681 24.52 6.84
2-3 years........................... 1,599 5.20 5.51 1,856 5.92 5.63
3-4 years........................... 293 0.95 6.50 339 1.08 5.07
4-5 years........................... 498 1.62 5.95 299 0.95 7.00
--------- ----------- --------- -----------
Total certificate accounts........ 23,754 77.31 5.81 24,309 77.59 5.87
--------- ----------- --------- -----------
Total deposits.................... $ 30,724 100.00% $ 31,331 100.00%
--------- ----------- --------- -----------
--------- ----------- --------- -----------
</TABLE>
The following table sets forth information relating to the Bank's deposit
flows during the periods shown:
<TABLE>
<CAPTION>
AT OR FOR THE YEAR
ENDED
SEPTEMBER 30,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Net deposits (withdrawals) before interest credited................ $ (1,877) $ (567)
Interest credited.................................................. 1,270 1,200
--------- ---------
Total increase (decrease) in deposits.......................... $ (607) $ 633
--------- ---------
--------- ---------
</TABLE>
The following table shows the interest rate and maturity information for the
Bank's certificates at September 30, 1996.
<TABLE>
<CAPTION>
MATURITY DATE
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ONE YEAR
INTEREST RATE OR LESS OVER 1-2 YEARS OVER 2-3 YEARS OVER 3-4 YEARS OVER 4-5 YEARS TOTAL
- ----------------------------- --------- --------------- --------------- --------------- --------------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
4.50 to 4.99%................ $ 200 $ -- $ -- $ -- $ -- $ 200
5.00 to 5.99%................ 9,450 2,835 1,586 -- 274 14,145
6.00 to 6.99%................ 4,265 1,534 13 293 224 6,329
7.00 to 7.10%................ 3,080 -- -- -- -- 3,080
--------- ------ ------ ----- ----- ---------
Total...................... $ 16,995 $ 4,369 $ 1,599 $ 293 $ 498 $ 23,754
--------- ------ ------ ----- ----- ---------
--------- ------ ------ ----- ----- ---------
</TABLE>
58
<PAGE>
The following table sets for the maturities of the Bank's certificates
having principal amounts of $100,000 or more at September 30, 1996.
<TABLE>
<CAPTION>
MATURITY PERIOD AMOUNT
- ------------------------------------------------------------------------------ ---------------
<S> <C>
(IN THOUSANDS)
Three months or less.......................................................... $ 723
Over three through six months................................................. 656
Over six through twelve months................................................ 913
Over twelve months............................................................ 483
------
Total certificates of deposit with balances of $100,00 or more............ $ 2,775
------
------
</TABLE>
BORROWINGS. The Bank may obtain advances from the FHLB of Chicago upon the
security of the common stock it owns in that bank and certain of its residential
mortgage loans and securities held to maturity, provided certain standards
related to creditworthiness have been met. Such advances are made pursuant to
several credit programs, each of which has its own interest rate and range of
maturities. Prior to fiscal 1996, the Bank had not used such borrowings during
the most recent five-year period.
The following table sets forth the amounts of the Bank's borrowings and the
weighted average rates for the year ended September 30, 1996. The Bank had no
borrowings during the year ended September 30, 1995.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
SEPTEMBER 30, 1996
---------------------
<S> <C>
(DOLLARS IN
THOUSANDS)
FHLB advances:
Average balance outstanding during the period.......................... $ 1,917
------
------
Maximum amount outstanding at any month-end during the period.......... $ 2,000
------
------
Balance outstanding at end of period................................... $ 2,000
------
Weighted average interest rate during the period....................... 5.58%
Weighted average interest rate at the end of period.................... 5.83%
------
------
</TABLE>
SUBSIDIARIES
The Bank currently has one subsidiary, G.B.W. Service Corporation ("GBW").
GBW's primary activities are the collection of premiums on credit life and
credit disability insurance policies and the collection of interest on certain
real estate sales contracts. The Bank's investment totalled $118,000 as of
September 30, 1996.
LEGAL PROCEEDINGS
The Bank is involved in routine legal proceedings occurring in the ordinary
course of business which, in the aggregate, are believed by management to be
immaterial to the financial condition of the Bank. [ON DECEMBER 30, 1992, A
FORMER EMPLOYEE FILED A LAWSUIT AGAINST THE BANK WHICH INVOLVES VARIOUS
ACCUSATIONS. A SUMMARY JUDGMENT HAS BEEN ISSUED BY THE COURT IN FAVOR OF THE
BANK ON EACH COUNT WITH THE EXCEPTION OF ONE. BASED ON THE CURRENT STATUS OF THE
LITIGATION, THE BANK'S ATTORNEYS HAVE ADVISED THAT WHILE THEY ARE UNABLE TO
EXPRESS AN OPINION AS TO THE ULTIMATE DISPOSITION OF THE CLAIM, THEY BELIEVE
THAT IT IS UNLIKELY THAT THE FORMER EMPLOYEE WILL PREVAIL IN THE REMAINING
COUNT. NO ACCRUAL FOR LOSS FROM THIS ACTION HAS BEEN RECOGNIZED IN THE
ACCOMPANYING FINANCIAL STATEMENTS.]
59
<PAGE>
COMPETITION
The Bank faces strong competition both in attracting deposits and making
real estate loans. Its most direct competition for deposits has historically
come from other savings institutions, credit unions and commercial banks located
in its market area including many large financial institutions which have
greater financial and marketing resources available to them. As of June 30,
1996, the Bank's total deposits ranked sixth out of 17 commercial banks and
savings associations operating in Vermilion County, Illinois. In addition, as of
that same date, there were also 18 credit unions operating in Vermilion County.
While each of such institutions, as of June 30, 1995, had total deposits of less
than $20 million, including 15 with total deposits of less than $10 million, in
the aggregate they provide strong competition for the Bank, especially in the
consumer lending area. In addition, during times of high interest rates, the
Bank has faced significant competition for investors' funds from short-term
money market securities, mutual funds and other corporate and government
securities. The ability of the Bank to attract and retain savings deposits
depends on its ability to generally provide a rate of return, liquidity and risk
comparable to that offered by competing investment opportunities.
The Bank experiences strong competition for real estate loans principally
from other savings institutions, commercial banks and mortgage banking
companies. The Bank competes for loans principally through the interest rates
and loan fees it charges, the efficiency and quality of services it provides
borrowers and the convenient locations of its branch office network. Competition
may increase as a result of the continuing reduction of restrictions on the
interstate operations of financial institutions.
EMPLOYEES
The Bank had eight full-time employees and two part-time employees as of
September 30, 1996. None of these employees is represented by a collective
bargaining agreement. The Bank believes that it enjoys excellent relations with
its personnel.
OFFICES AND PROPERTIES
At September 30, 1996, the Bank conducted business from a single office
located in Danville, Illinois.
The following table sets forth certain information relating to the Bank's
office at September 30, 1996.
<TABLE>
<CAPTION>
NET BOOK VALUE OF PREMISES
OWNED OR AND EQUIPMENT AT DEPOSITS AT
LOCATION LEASED SEPTEMBER 30, 1996 SEPTEMBER 30, 1996
- ------------------------------------------------------- ----------- --------------------------- ------------------
<S> <C> <C> <C>
(IN THOUSANDS)
Main Office:
714 North Vermilion Street Owned $ 467 $ 30,726
Danville, Illinois 61832
</TABLE>
60
<PAGE>
REGULATION
SET FORTH BELOW IS A BRIEF DESCRIPTION OF THOSE LAWS AND REGULATIONS WHICH,
TOGETHER WITH THE DESCRIPTIONS OF OTHER LAWS AND REGULATIONS CONTAINED ELSEWHERE
HEREIN, ARE DEEMED MATERIAL TO AN INVESTOR'S UNDERSTANDING OF THE EXTENT TO
WHICH THE COMPANY AND THE BANK ARE REGULATED. THE DESCRIPTION OF THESE LAWS AND
REGULATIONS, AS WELL AS DESCRIPTIONS OF LAWS AND REGULATIONS CONTAINED ELSEWHERE
HEREIN, DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO APPLICABLE LAWS AND REGULATIONS.
THE COMPANY
Financial institutions and their holding companies are extensively regulated
under federal and state law by various regulatory authorities including the
Federal Reserve Board, the FDIC and the Commissioner. The financial performance
of the Company and the Bank may be affected by such regulation, although the
extent to which they may be affected cannot be predicted with a high degree of
certainty.
Federal and state laws and regulations generally applicable to financial
institutions and their holding companies regulate, among other things, the scope
of business, investments, reserves against deposits, capital levels relative to
operations, the nature and amount of collateral for loans, the establishment of
branches, mergers, consolidations and dividends. The system of supervision and
regulation applicable to the Company and the Bank establishes a comprehensive
framework for their operations and is intended primarily for the protection of
the FDIC's deposit insurance funds and the depositors of the Bank, rather than
the stockholders of the Company.
The following references to material statutes and regulations affecting the
Company and the Bank are brief summaries thereof and are qualified in their
entirety by reference to such statutes and regulations. Any change in applicable
law or regulations may have a material effect on the business of the Company and
the Bank.
THE BANK
GENERAL. The Bank is an Illinois-chartered savings bank, the deposit
accounts of which are insured by the SAIF of the FDIC. As a SAIF-insured,
Illinois-chartered savings bank, the Bank is subject to the examination,
supervision, reporting and enforcement requirements of the Commissioner, as the
chartering authority for Illinois savings banks, and the FDIC, as administrator
of the SAIF, and to the statutes and regulations administered by the
Commissioner and the FDIC governing such matters as capital standards, mergers,
establishment of branch offices, subsidiary investments and activities and
general investment authority. The Bank is required to file reports with the
Commissioner and the FDIC concerning its activities and financial condition and
will be required to obtain regulatory approvals prior to entering into certain
transactions, including mergers with, or acquisitions of, other financial
institutions.
The Commissioner and the FDIC have extensive enforcement authority over
Illinois-chartered savings banks, such as the Bank. This enforcement authority
includes, among other things, the ability to issue cease-and-desist or removal
orders, to assess civil money penalties and to initiate injunctive actions. In
general, these enforcement actions may be initiated for violations of laws and
regulations and unsafe and unsound practices.
The Commissioner has established a schedule for the assessment of
"supervisory fees" upon all Illinois savings banks to fund the operations of the
Commissioner. These supervisory fees are computed on the basis of each savings
bank's total assets (including consolidated subsidiaries) and are payable at the
end of each calendar quarter. A schedule of fees has also been established for
certain filings made by Illinois savings banks with the Commissioner. The
Commissioner also assesses fees for examinations conducted by the Commissioner's
staff, based upon the number of hours spent by the Commissioner's staff
performing the examination. During the fiscal year ended September 30, 1996, the
Bank paid approximately $11,000 in supervisory fees and expenses.
61
<PAGE>
The system of regulation and supervision applicable to the Bank establishes
a comprehensive framework for its operations and is intended primarily for the
protection of the FDIC's deposit insurance funds and the depositors of the Bank.
Changes in the regulatory framework could have a material adverse effect on the
Bank and its operations which, in turn, could have a material adverse effect on
the Holding Company.
CAPITAL REQUIREMENTS. Under the Illinois Savings Bank Act ("ISBA") and the
regulations of the Commissioner, an Illinois savings bank must maintain a
minimum level of total capital equal to the higher of 3% of total assets or the
amount required to maintain insurance of deposits by the FDIC. The Commissioner
has the authority to require an Illinois savings bank to maintain a higher level
of capital if the Commissioner deems such higher level necessary based on the
savings bank's financial condition, history, management or earnings prospects.
FDIC-insured institutions are required to follow certain capital adequacy
guidelines which prescribe minimum levels of capital and require that
institutions meet certain risk-based and leverage capital requirements. Under
the FDIC capital regulations, an FDIC-insured institution is required to meet
the following capital standards: (i) "Tier 1 capital", for all but the most
highly rated institutions in an amount not less than 4% of total assets; (ii)
"Tier 1 capital" in an amount not less than 4% of risk-weighted assets; and
(iii) "total capital" in an amount not less than 8% of risk-weighted assets.
FDIC-insured institutions in the strongest financial and managerial
condition (with a composite rating of "1" under the Uniform Financial
Institutions Rating System established by the Federal Financial Institutions
Examination Council) are required to maintain "Tier 1 capital" equal to at least
3% of total assets ( the "leverage limit" requirement). For all other
FDIC-insured institutions, the minimum leverage limit requirement is 3% of total
assets plus at least an additional 100 to 200 basis points. Tier 1 capital is
defined to include the sum of common stockholders' equity, noncumulative
perpetual preferred stock (including any related surplus), and minority
interests in consolidated subsidiaries, minus all intangible assets (other than
qualifying servicing rights, qualifying purchased credit-card relationships and
qualifying supervisory goodwill), certain identified losses (as defined in the
FDIC's regulations) and investments in certain subsidiaries.
FDIC-insured institutions also are required to adhere to certain risk-based
capital guidelines which are designed to provide a measure of capital more
sensitive to the risk profiles of individual banks. Under the risk-based capital
guidelines, capital is divided into two tiers: core (Tier 1) capital, as defined
above, and supplementary (Tier 2) capital. Tier 2 capital is limited to 100% of
core capital and includes cumulative perpetual preferred stock, perpetual
preferred stock for which the dividend rate is reset periodically based on
current credit standing, regardless of whether dividends are cumulative or non-
cumulative, mandatory convertible debt securities, term subordinated debt,
intermediate-term preferred stock and the allowance for possible loan and lease
losses. The allowance for possible loan and lease losses includable in Tier 2
capital is limited to a maximum of 1.25% of risk-weighted assets. Total capital
is the sum of Tier 1 and Tier 2 capital. The risk-based capital framework
assigns balance sheet assets to one of four broad risk categories which are
assigned risk weights ranging from 0% to 100% based primarily on the degree of
credit risk associated with the obligor. Off balance sheet items are converted
to an on-balance sheet "credit equivalent" amount utilizing certain conversion
factors. The sum of the four risk-weighted categories equals risk-weighted
assets. AT SEPTEMBER 30, 1996 THE BANK MET EACH OF ITS CAPITAL REQUIREMENTS.
DIVIDENDS. Under the ISBA, dividends may only be declared when the total
capital of the Bank is greater than that required by Illinois law. Dividends may
be paid by the Bank out of its net profits (i.e., earnings from current
operations, plus actual recoveries on loans, investments, and other assets after
deducting all current expenses, including dividends or interest on deposit
accounts, additions to reserves as may be required by the Illinois Commissioner,
actual losses, accrued dividends on preferred stock, if any, and all State and
federal taxes). The written approval of the Commissioner must be obtained,
however,
62
<PAGE>
before a savings bank having total capital of less than 6% of total assets may
declare dividends in any year in an amount in excess of 50% of its net profits
for that year. A savings bank may not declare dividends in excess of its net
profits in any year without the approval of the Commissioner. In addition,
before declaring a dividend on its capital stock, the Bank must transfer no less
than one-half of its net profits of the preceding half year to its paid-in
surplus until it shall have paid-in surplus equal to 20% of its capital stock.
Finally, the Bank will be unable to pay dividends in an amount which would
reduce its capital below the greater of (i) the amount required by the FDIC,
(ii) the amount required by the Commissioner or (iii) the amount required for
the liquidation account to be established by the Bank in connection with the
Conversion. The Commissioner and the FDIC also have the authority to prohibit
the payment of any dividends by the Bank if the Commissioner or the FDIC
determines that the distribution would constitute an unsafe or unsound practice.
For the year ended September 30, 1996, the Bank's net loss was $71,000, and the
Bank could have paid no dividends without the written approval of the
Commissioner.
FEDERAL HOME LOAN BANK SYSTEM. The Bank is a member of the FHLB System
which consists of 12 FHLBs under the jurisdiction of the Federal Housing Finance
Board ("FHFB"). As a member of the FHLB System, the Bank is required to acquire
and hold shares of capital stock of the FHLB of Chicago in an amount equal to
the greater of (i) 1.0% of the aggregate outstanding principal amount of the
Bank's aggregate unpaid loan principal, or (ii) 0.3% of the Bank's total assets.
The Bank's holdings of FHLB capital stock will be reviewed annually by the FHLB
of Chicago using calendar year-end financial data to ensure that the Bank is
holding the minimum required amount of FHLB capital stock. If the minimum amount
required is decreased, the FHLB-Chicago may in its discretion and upon
application of the Bank, retire excess shares of capital stock held by the Bank.
The Bank is in compliance with this requirement with an investment in FHLB
capital stock of $269,000 at September 30, 1996.
The FHLBs provide a central credit facility primarily for member
institutions. FHLBs make advances to member banks in accordance with each
Federal Home Loan Bank's policies and procedures established by the FHFB and the
Board of Directors of such FHLB. All long-term advances by a Federal Home Loan
Bank (advances having an original term to maturity greater than five years) must
be made only for the purpose of providing funds for residential housing finance.
Advances are made upon the note or obligation of a member bank, must be fully
secured and bear interest at a rate established by the FHFB. At September 30,
1996, the Bank had $2.0 million in advances outstanding from the FHLB of
Chicago. The Bank's aggregate outstanding advances from the FHLB of Chicago may
at no time exceed 20 times the amounts paid in by the Bank for its holding of
FHLB capital stock.
LENDING LIMITATIONS. Under the ISBA, the Bank is prohibited from making
secured or unsecured loans for business, corporate, commercial or agricultural
purposes representing in the aggregate an amount in excess of 15% of its total
assets, unless the Commissioner authorizes in writing a higher percentage limit
for such loans upon the request of an institution. In addition, the regulations
of the Commissioner prohibit the Bank from making educational loans in excess of
5% of its total assets.
The Bank is also subject to a loans-to-one borrower limitation. Under the
ISBA, the total loans and extensions of credit, both direct and indirect, by the
Bank to any person (other than the United States or its agencies, the state of
Illinois or its agencies, and any municipal corporation for money borrowed)
outstanding at one time must not exceed the greater of $500,000 or 20% of the
Bank's total capital plus general loan loss reserves. In addition to the above,
the total loans and extensions of credit, both direct and indirect, by the Bank
to any person outstanding at one time and at least 100% secured by readily
marketable collateral must not exceed the greater of $500,000 or 10% of the
Bank's total capital plus general loan loss reserves.
BROKERED DEPOSITS; REGULATION OF DEPOSIT RATES. Under applicable laws and
regulations, an insured depository institution may be restricted in obtaining,
directly or indirectly, funds by or through any "deposit broker," as defined,
for deposit into one or more deposit accounts at the institution. The term
"deposit broker" generally includes any person engaged in the business of
placing deposits, or facilitating
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the placement of deposits, of third parties with insured depository institutions
or the business of placing deposits with insured depository institutions for the
purpose of selling interests in those deposits to third parties. Under FDIC
regulations, well-capitalized institutions are subject to no brokered deposit
limitations, while adequately capitalized institutions are able to accept, renew
or roll over brokered deposits only (i) with a waiver from the FDIC and (ii)
subject to the limitation that they do not pay an effective yield on any such
deposit which exceeds by more than (a) 75 basis points the effective yield paid
on deposits of comparable size and maturity in such institution's normal market
area for deposits accepted in its normal market area or (b) by 120% for retail
deposits and 130% for wholesale deposits, respectively, of the current yield on
comparable maturity U.S. Treasury obligations for deposits accepted outside the
institution's normal market area. Undercapitalized institutions are not
permitted to accept brokered deposits and may not solicit deposits by offering
an effective yield that exceeds by more than 75 basis points the prevailing
effective yields on insured deposits of comparable maturity in the institution's
normal market area or in the market area in which such deposits are being
solicited. AT SEPTEMBER 30, 1996, THE BANK WAS AN ADEQUATELY CAPITALIZED
INSTITUTION WHICH WAS NOT SUBJECT TO RESTRICTIONS ON BROKERED DEPOSITS WITHIN
THE MEANING OF THESE REGULATIONS AND HAD NO BROKERED DEPOSITS. SEE
"BUSINESS--SOURCES OF FUNDS--DEPOSITS."
An institution that is not well-capitalized, even if meeting minimum capital
requirements, may not solicit deposits by offering interest rates that are
significantly higher than the relevant local or national rate as determined
under the regulations.
COMMUNITY REINVESTMENT ACT REQUIREMENTS. The FDIC, the Federal Reserve
Board, the Office of Thrift Supervision and the OCC have jointly issued a final
rule (the "Final Rule") under the Community Reinvestment Act (the "CRA"). The
Final Rule eliminates the existing CRA regulation's twelve assessment factors
and substitutes a performance based evaluation system. The Final Rule will be
phased in over a period of time and become fully effective by July 1, 1997.
Under the Final Rule, an institution's performance in meeting the credit needs
of its entire community, including low- and moderate-income areas, as required
by the CRA, will generally be evaluated under three tests: the "lending test,"
the "investment test," and the "service test." A "small bank," defined to
include one with less than $250 million in assets, is subject to a special test,
involving consideration of loan to deposit ratio, the percentage of loans
located in the institution's "assessment area", the degree of lending to persons
of different income levels and to business and farms of different sizes,
geographic distribution of loans, and responsiveness to complaints about its
performance in meeting local credit needs. As an alternative, institutions may
submit a "strategic plan" approved by the FDIC. These tests and standards are
applied in a "performance context." The performance context includes information
on income levels, housing stock and costs in the local area, any information
about lending, investment and service opportunities in the area, the
association's product offerings and business strategy, the institution's
capacity and constraints, past performance and performance of similarly situated
lenders, and written comments placed in the association's public file.
Institutions receive a rating of "outstanding", "satisfactory", "needs to
improve" or "substantial noncompliance." These ratings are made publicly
available and are used when applications are filed with the agency to branch,
relocate an office, merge with or acquire other institutions, among other
transactions. BASED UPON A REVIEW OF THE FINAL RULE, MANAGEMENT OF THE COMPANY
DOES NOT ANTICIPATE THAT THE NEW CRA REGULATIONS WILL ADVERSELY AFFECT THE BANK.
THE COMPANY
GENERAL. Upon consummation of the Conversion, the Company will become the
sole stockholder of the Bank. As such, the Holding Company will be a bank
holding company. As a bank holding company, the Company will be required to
register with, and will become subject to regulation by, the Federal Reserve
Board under the BHCA. In accordance with Federal Reserve Board policy, the
Company will be expected to act as a source of financial strength to the Bank
and to commit resources to support the Bank in circumstances where the Company
might not do so absent such policy. Under the BHCA, the Company will be subject
to periodic examination by the Federal Reserve Board and will be required to
file periodic
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reports of its operations and such additional information as the Federal Reserve
Board may require. Because the Bank is chartered under Illinois law, the Company
will also be subject to registration with, and regulation by, the Commissioner
under the ISBA.
The BHCA requires prior Federal Reserve Board approval for, among other
things, the acquisition by a bank holding company of direct or indirect
ownership or control of more than five percent of the voting shares or
substantially all the assets of any bank, or for a merger or consolidation of a
bank holding company with another bank holding company. With certain exceptions,
the BHCA prohibits a bank holding company from acquiring direct or indirect
ownership or control of voting shares of any company which is not a bank or bank
holding company and from engaging directly or indirectly in any activity other
than banking or managing or controlling banks or performing services for its
authorized subsidiaries. A bank holding company may, however, engage in or
acquire an interest in a company that engages in activities which the Federal
Reserve Board has determined by regulation or order to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto.
A bank holding company is a legal entity separate and distinct from its
subsidiary bank or banks. Normally, the major source of a holding company's
revenue is dividends a holding company receives from its subsidiary banks. The
right of a bank holding company to participate as a stockholder in any
distribution of assets of its subsidiary banks upon their liquidation or
reorganization or otherwise is subject to the prior claims of creditors of such
subsidiary banks. The subsidiary banks are subject to claims by creditors for
long-term and short-term debt obligations, including substantial obligations for
federal funds purchased and securities sold under repurchase agreements, as well
as deposit liabilities. Under the Financial Institutions Reform, Recovery and
Enforcement Act of 1989, in the event of a loss suffered by the FDIC in
connection with a banking subsidiary of a bank holding company (whether due to a
default or the provision of FDIC assistance), other banking subsidiaries of the
holding company could be assessed for such loss.
Federal laws limit the transfer of funds by a subsidiary bank to its holding
company in the form of loans or extensions of credit, investments or purchases
of assets. Transfers of this kind are limited to ten percent of a bank's capital
and surplus with respect to each affiliate and to twenty percent to all
affiliates in the aggregate, and are also subject to certain collateral
requirements. These transactions, as well as other transactions between a
subsidiary bank and its holding company, must also be on terms substantially the
same as, or at least as favorable as, those prevailing at the time for
comparable transactions with non-affiliated companies or, in the absence of
comparable transactions, on terms or under circumstances, including credit
standards, that would be offered to, or would apply to, non-affiliated
companies.
CAPITAL REQUIREMENTS. The Federal Reserve Board has adopted capital
adequacy guidelines for bank holding companies (on a consolidated basis)
substantially similar to those of the FDIC for the Bank. ON A PRO FORMA BASIS
ASSUMING CONSUMMATION OF THE CONVERSION, THE COMPANY'S PRO FORMA TIER 1 AND
TOTAL CAPITAL WOULD SIGNIFICANTLY EXCEED THE FEDERAL RESERVE BOARD'S CAPITAL
ADEQUACY REQUIREMENTS.
OTHER REGULATIONS
FDICIA. FDICIA was enacted on December 19, 1991. In addition to providing
for the recapitalization of BIF, FDICIA represents a comprehensive and
fundamental change to banking supervision. FDICIA imposes relatively detailed
standards and mandates the development of additional regulations governing
nearly every aspect of the operations, management and supervision of banks and
bank holding companies like the Company and the Bank.
As required by FDICIA, and subsequently amended by the Riegle Community
Development and Regulatory Improvement Act of 1994, the federal banking
regulators have adopted (effective August 9, 1995) interagency guidelines
establishing standards for safety and soundness for depository institutions on
matters such as internal controls, loan documentation, credit underwriting,
interest-rate risk exposure, asset growth, and compensation and other benefits
(the "Guidelines"). In addition, the federal banking regulators have proposed
asset quality and earnings standards to be added to the Guidelines. The agencies
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expect to request a compliance plan from an institution whose failure to meet
one or more of the standards is of such severity that it could threaten the safe
and sound operation of the institution. FDIC regulations enacted under FDICIA
also require all depository institutions to be examined annually by the banking
regulators and depository institutions having $500 million or more in total
assets to have an annual independent audit, an audit committee comprised solely
of outside directors, and to hire outside auditors to evaluate the institution's
internal control structure and procedures and compliance with laws and
regulations relating to safety and soundness. The FDIC, in adopting the
regulations, reiterated its belief that every depository institution, regardless
of size, should have an annual independent audit and an independent audit
committee.
FDICIA requires the banking regulators to take prompt corrective action with
respect to depository institutions that fall below certain capital levels and
prohibits any depository institution from making any capital distribution that
would cause it to be considered undercapitalized. Regulations establishing five
capital categories of well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically undercapitalized
became effective December 19, 1992. Institutions that are not adequately
capitalized may be subjected to a broad range of restrictions on their
activities and will be required to submit a capital restoration plan which, to
be accepted by the regulators, must be guaranteed in part by any company having
control of the institution. Only well capitalized institutions and adequately
capitalized institutions receiving a waiver from the FDIC will be permitted to
accept brokered deposits, and only those institutions eligible to accept
brokered deposits may provide pass-through deposit insurance for participants in
employee benefit plans. In other respects, FDICIA provides for enhanced
supervisory authority, including greater authority for the appointment of a
conservator or receiver for undercapitalized institutions.
A range of other regulations adopted as a result of FDICIA include
requirements applicable to closure of branches; additional disclosures to
depositors with respect to terms and interest rates applicable to deposit
accounts; requirements for the banking agencies to adopt uniform regulations for
extensions of credit secured by real estate; modification of accounting
standards to conform to generally accepted accounting principles including the
reporting of off-balance sheet items and supplemental disclosure of estimated
fair market value of assets and liabilities in financial statements filed with
the banking regulators; increased penalties in making or failing to file
assessment reports with the FDIC; greater restrictions on extensions of credit
to directors, officers and principal stockholders; and increased reporting
requirements on agricultural loans and loans to small businesses.
As required by FDICIA, the FDIC has established a risk-based assessment
system for the deposit insurance provided to depositors at depository
institutions whereby assessments to each institution are calculated upon the
probability that the insurance fund will incur a loss with respect to the
institution, the likely amount of such loss, and the revenue needs of the
insurance fund. Under the system, deposit insurance premiums are based upon an
institution's assignment to one of three capital categories and a further
assignment to one of three supervisory subcategories within each capital
category. The result is a nine category assessment system with initial
assessment rates ranging from twenty-three cents to thirty-one cents per one
hundred dollars of deposits in an institution. The classification of an
institution into a category will depend, among other things, on the results of
off-site surveillance systems, capital ratio, and CAMEL rating (a supervisory
rating of capital, asset quality, management, earnings, and liquidity).
THE CDR ACT. On September 23, 1994, the Riegle Community Development and
Regulatory Improvement Act of 1994 (the "CDR Act") was enacted. The CDR Act
includes more than 50 regulatory relief provisions designed to streamline the
regulatory process for banks and thrifts and to eliminate certain duplicative
regulations and paperwork requirements established after, and largely as a
result of, the savings and loan debacle. Well run community banks with less than
$250 million in assets will be examined every 18 months rather than annually.
The application process for forming a bank holding company has been greatly
reduced. Also, the requirement that call report data be published in local
newspapers has been eliminated.
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The CDR Act establishes dual programs and provides funding in the amount of
$382 million to provide for development services, lending and investment in
distressed urban and rural areas by community development financial institutions
and banks. In addition, the CDR Act includes provisions relating to flood
insurance reform, money laundering, regulation of high-cost mortgages, and small
business and commercial real estate loan securitization.
THE BRANCHING ACT. On September 29, 1994, the Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1994 (the "Branching Act") was enacted.
Under the Branching Act, beginning September 29, 1995, adequately capitalized
and adequately managed bank holding companies will be allowed to acquire banks
across state lines, without regard to whether the transaction is prohibited by
state law; however, they will be required to maintain the acquired institutions
as separately chartered institutions. Any state law relating to the minimum age
of target banks (not to exceed five years) will be preserved. Under the
Branching Act, the Federal Reserve Board will not be permitted to approve any
acquisition if, after the acquisition, the bank holding company would control
more than 10% of the deposits of insured depository institutions nationwide or
30% or more of the deposits in the state where the target bank is located. The
Federal Reserve Board could approve an acquisition, notwithstanding the 30%
limit, if the state waives the limit either by statute, regulation or order of
the appropriate state official.
In addition, under the Branching Act beginning on June 1, 1997, banks will
be permitted to merge with one another across state lines and thereby create a
main bank with branches in separate states. After establishing branches in a
state through an interstate merger transaction, the bank could establish and
acquire additional branches at any location in the state where any bank involved
in the merger could have established or acquired branches under applicable
federal or state law.
The responsible federal agency will not be permitted to approve any merger
if, after the merger, the resulting entity would control more than 10% of the
deposits of insured depository institutions nationwide or 30% or more of the
deposits in any state affected by the merger. The responsible agency could
approve a merger, notwithstanding the 30% limit, if the home state waives the
limit either by statute, regulation or order of the appropriate state official.
Under the Branching Act, states may adopt legislation permitting interstate
mergers before June 1, 1997. In contrast, states may adopt legislation before
June 1, 1997, subject to certain conditions, opting out of interstate branching.
If a state opts out of interstate branching, no out-of-state bank may establish
a branch in that state through an acquisition or de novo, and a bank whose home
state opts out may not participate in an interstate merger transaction. Illinois
has adopted legislation permitting interstate mergers beginning on June 1, 1997.
RECENT DEVELOPMENTS AFFECTING DEPOSIT INSURANCE PREMIUMS
On September 30, 1996, the Deposit Insurance Funds Act of 1996 ("Insurance
Act") was enacted into law. Among other things, the Insurance Act authorizes the
FDIC to impose a special assessment on each depository institution with
SAIF-assessable deposits so that the SAIF may achieve its designated reserve
ratio. The Bank's assessment was $206,000 on a pre-tax basis, and was accrued
during the quarter ended September 30, 1996. In addition, the Insurance Act
provides for the merger of the BIF and the SAIF into the Deposit Insurance Fund
on January 1, 1999, but only if no insured depository institution is a savings
association on that date. As a result of the enactment of the Insurance Act, it
is contemplated that beginning January 1, 1997 the Bank's deposit insurance
premium will be reduced from $2.30 per $1,000 of deposits to $0.645 per $1,000.
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FEDERAL AND STATE TAXATION
FEDERAL TAXATION
GENERAL. The Company and the Bank are subject to the corporate tax
provisions of the Code, as well as certain additional provisions of the Code
which apply to thrift and other types of financial institutions. 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 Company and
the Bank.
FISCAL YEAR. The Company will file its federal income tax return on a
September 30 year end basis.
METHOD OF ACCOUNTING. The Bank maintains its books and records for federal
income tax purposes using the accrual method of accounting. The accrual method
of accounting generally requires that items of income be recognized when all
events have occurred that establish the right to receive the income and the
amount of income can be determined with reasonable accuracy, and that items of
expense be deducted at the later of (i) the time when all events have occurred
that establish the liability to pay the expense and the amount of such liability
can be determined with reasonable accuracy or (ii) the time when economic
performance with respect to the item of expense has occurred.
BAD DEBT RESERVES. Savings institutions, such as the Bank, which meet
certain definitional tests primarily relating to their assets and the nature of
their businesses, are permitted to establish a reserve for bad debts and to make
annual additions to the reserve. These additions may, within specified formula
limits, be deducted in arriving at the institution's taxable income. For
purposes of computing the deductible addition to its bad debt reserve, the
institution's loans are separated into "qualifying real property loans" (i.e.,
generally those loans secured by certain interests in real property) and all
other loans ("non-qualifying loans"). The deduction with respect to
non-qualifying loans must be computed under the experience method as described
below. The following formulas may be used to compute the bad debt deduction with
respect to qualifying real property loans: (i) actual loss experience, or (ii) a
percentage of taxable income. Reasonable additions to the reserve for losses on
non-qualifying loans must be based upon actual loss experience and would reduce
the current year's addition to the reserve for losses on qualifying real
property loans, unless that addition is also determined under the experience
method. The sum of the additions to each reserve for each year is the
institution's annual bad debt deduction.
Under the experience method, the deductible annual addition to the
institution's bad debt reserves is the amount necessary to increase the balance
of the reserve at the close of the taxable year to the greater of (a) the amount
which bears the same ratio to loans outstanding at the close of the taxable year
as the total net bad debts sustained during the current and five preceding
taxable years bear to the sum of the loans outstanding at the close of the six
years, or (b) the lower of (i) the balance of the reserve account at the close
of the Bank's "base year," which was its tax year ended December 31, 1987, or
(ii) if the amount of loans outstanding at the close of the taxable year is less
than the amount of loans outstanding at the close of the base year, the amount
which bears the same ratio to loans outstanding at the close of the taxable year
as the balance of the reserve at the close of the base year bears to the amount
of loans outstanding at the close of the base year.
Under the percentage of taxable income method, the bad debt deduction equals
8% of taxable income determined without regard to that deduction and with
certain adjustments. The availability of the percentage of taxable income method
permits a qualifying savings institution to be taxed at a lower effective
Federal income tax rate than that applicable to corporations in general. This
resulted generally in an effective Federal income tax rate payable by a
qualifying savings institution fully able to use the maximum deduction permitted
under the percentage of taxable income method, in the absence of other factors
affecting taxable income, of 31.3% exclusive of any minimum tax or environmental
tax (as compared to 34% for corporations generally). For tax years beginning on
or after January 1, 1993, the maximum corporate tax rate was increased to 35%,
which increased the maximum effective federal income
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tax rate payable by a qualifying savings institution fully able to use the
maximum deduction to 32.2%. Any savings institution at least 60% of whose assets
are qualifying assets, as described in the Code, will generally be eligible for
the full deduction of 8% of taxable income. As of December 31, 1995, 93.6% of
the assets of the Bank were "qualifying assets" as defined in the Code, and the
Bank anticipates that at least 60% of its assets will continue to be qualifying
assets in the immediate future. If this ceases to be the case, the institution
may be required to restore some portion of its bad debt reserve to taxable
income in the future.
Under the percentage of taxable income method, the bad debt deduction for an
addition to the reserve for qualifying real property loans cannot exceed the
amount necessary to increase the balance in this reserve to an amount equal to
6% of such loans outstanding at the end of the taxable year. The bad debt
deduction is also limited to the amount which, when added to the addition to the
reserve for losses on non-qualifying loans, equals the amount by which 12% of
deposits at the close of the year exceeds the sum of surplus, undivided profits
and reserves at the beginning of the year. Based on experience, it is not
expected that these restrictions will be a limiting factor for the Bank in the
foreseeable future. In addition, the deduction for qualifying real property
loans is reduced by an amount equal to all or part of the deduction for
non-qualifying loans.
At September 30, 1996, the Federal income tax reserves of the Bank included
$1.0 million for which no Federal income tax has been provided. Because of these
Federal income tax reserves and the liquidation account to be established for
the benefit of certain depositors of the Bank in connection with the conversion
of the Bank to stock form, the retained earnings of the Bank are substantially
restricted.
Pursuant to certain legislation which was recently enacted and which will be
effective for tax years beginning after 1995, a small thrift institution (one
with an adjusted basis of assets of less than $500 million), such as the Bank,
would no longer be permitted to make additions to its tax bad debt reserve under
the percentage of taxable income method. Such institutions would be permitted to
use the experience method in lieu of deducting bad debts only as they occur.
Such legilsation will require the Bank to realize increased tax liability over a
period of at least six years, beginning in 1996. Specifically, the legislation
will require a small thrift institution to recapture (i.e., take into income)
over a multi8-year period the blaance of its bad debt reserves in excess of the
lesser of (i) the balance of such reserves as of the end of its last taxable
year ending before 1988 or (ii) an amount that would have been the balance of
such reserves had the institution always computed its additions to its reserves
using the experience method. The recapture requirement would be suspended for
each of two successive taxable years beginning January 1, 1996 in which the Bank
originates an amount of certain kinds of residential loans which in the
aggregate are equal to or greater than the average of the principal amounts of
such loans made by the Bank during its six taxable years preceding 1996. It is
anticipated that any recapture of the Bank's bad debt reserves accumulated after
1987 would not have a material adverse effect on the Bank's financial condition
and results of operations.
DISTRIBUTIONS. If the Bank were to distribute cash or property to its sole
stockholder, and the distribution was treated as being from its accumulated bad
debt reserves, the distribution would cause the Bank to have additional taxable
income. A distribution is deemed to have been made from accumulated bad debt
reserves to the extent that (a) the reserves exceed the amount that would have
been accumulated on the basis of actual loss experience, and (b) the
distribution is a "non-qualified distribution." A distribution with respect to
stock is a non-qualified distribution to the extent that, for federal income tax
purposes, (i) it is in redemption of shares, (ii) it is pursuant to a
liquidation of the institution, or (iii) in the case of a current distribution,
together with all other such distributions during the taxable year, it exceeds
the institution's current and post-1951 accumulated earnings and profits. The
amount of additional taxable income created by a non-qualified distribution is
an amount that when reduced by the tax attributable to it is equal to the amount
of the distribution.
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MINIMUM TAX. The Code imposes an alternative minimum tax at a rate of 20%.
The alternative minimum tax generally applies to a base of regular taxable
income plus certain tax preferences ("alternative minimum taxable income" or
"AMTI") and is payable to the extent that tax calculated on AMTI in excess of an
exemption amount exceeds the regular tax liability. The Code provides that an
item of tax preference is the excess of the bad debt deduction allowable for a
taxable year pursuant to the percentage of taxable income method over the amount
allowable under the experience method. Other items of tax preference that
constitute AMTI include (a) tax-exempt interest on newly issued (generally,
issued on or after August 8, 1986) private activity bonds other than certain
qualified bonds and (b) 75% of the excess (if any) of (i) adjusted current
earnings as defined in the Code, over (ii) AMTI (determined without regard to
this preference and prior to reduction by net operating losses).
NET OPERATING LOSS CARRYOVERS. A financial institution may carry back net
operating losses ("NOLs") to the preceding three taxable years and forward to
the succeeding 15 taxable years. This provision applies to losses incurred in
taxable years beginning after 1986. At September 30, 1996, the Bank had no NOL
carryforwards for Federal income tax purposes.
AUDIT BY IRS. The Bank's Federal income tax returns for taxable years
through September 30, 199 have been closed for the purpose of examination by the
Internal Revenue Service.
STATE AND LOCAL TAXATION.
STATE OF ILLINOIS. The Company and the Bank will file a combined Illinois
income tax return. For Illinois income tax purposes, they are taxed at an
effective rate equal to 7.2% of Illinois Taxable Income. For these purposes,
"Illinois Taxable Income" generally means federal taxable income, subject to
certain adjustments (including the addition of interest income on state and
municipal obligations and the exclusion of interest income on United States
Treasury obligations). The exclusion of income on United States Treasury
obligations has the effect of reducing Illinois taxable income. The Company is
also required to file an annual report with and pay an annual franchise tax to
the State of Illinois.
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.
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MANAGEMENT
MANAGEMENT OF THE COMPANY
The Board of Directors is divided into three classes, each of which contains
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. Ewbank and
Ingram has a term of office expiring at the first annual meeting of
stockholders, a second class, consisting of Messrs. Busby and Norton has a term
of office expiring at the second annual meeting of stockholders and a third
class, consisting of Mr. Meyer 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."
The following individuals are executive officers of the Company and hold the
offices set forth below opposite their names.
<TABLE>
<CAPTION>
EXECUTIVE POSITION HELD WITH COMPANY
- ---------------------------------------------- ----------------------------------------------
<S> <C>
Thomas B. Meyer............................... Chairman of the Board
Merrill G. Norton............................. President and Chief Executive Officer
William T. Ingram............................. 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 by a majority vote of stockholders.
Since the formation of the Company, none of the executive officers,
directors or other personnel has received remuneration from the Company.
Information concerning the principal occupations, employment and compensation of
the directors and officers of the Company during the past five years is set
forth under "--Management of the Bank" and "--Executive Officers Who Are Not
Directors." Directors and executive officers of the Company initially will not
be compensated by the Company but will serve and be compensated by the Bank. It
is not anticipated that separate compensation will be paid to directors and
officers of the Company until such time as such persons devote significant time
to the separate management of the Company's affairs, which is not expected to
occur until the Company becomes actively engaged in additional businesses other
than holding the stock of the Bank. The Company may determine that such
compensation is appropriate in the future.
MANAGEMENT OF THE BANK
The following table sets forth certain information regarding the Board of
Directors of the Bank.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE(1) POSITIONS HELD WITH THE BANK SINCE
- ----------------------------------------------- ----------- ----------------------------------------------- -----------
<S> <C> <C> <C>
Thomas B. Meyer 51 Chairman of the Board 1972
Merrill G. Norton 50 Director, President and Chief 1992
Executive Officer
Carl W. Busby 67 Director 1993
Robert L. Ewbank 64 Director 1983
William T. Ingram 56 Director/Secretary 1990
</TABLE>
- ------------------------
(1) As of December 31, 1995.
Set forth below is information with respect to the principal occupations
during at least the last five years for the directors of the Bank.
THOMAS B. MEYER Mr. Meyer is an attorney in private practice in Danville,
Illinois. He has served as Chairman of the Board since 1992.
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MERRILL G. NORTON Mr. Norton has served as the Bank's president and chief
executive officer since 1992. He was the sole proprietor of Merrill G. Norton,
C.P.A. from 1973 to 1992.
CARL W. BUSBY Mr. Busby is an auctioneer, farm and real estate appraiser
and agriculture real estate salesman. He is the president and owner with his
wife of Busby Farms, Inc. and Busby Land and Auction Co., Inc.
DR. ROBERT L. EWBANK Dr. Ewbank has been a medical consultant since 1995
when he retired from his oral and maxillofacial surgery practice in Danville,
Illinois.
WILLIAM T. INGRAM Mr. Ingram operates a number of businesses in the
Danville, Illinois area, including Automobile Diagnostics, Quick Air Freight,
Ingram's Quicklube and Ingram's Apartments.
COMMITTEES AND MEETINGS OF THE BOARD OF THE BANK
The Bank's Board of Directors holds regular meetings on the third Wednesday
of each month, as well as special meetings as necessary. The Board of Directors
held 15 meetings (including three special meetings) held in the fiscal year
ended September 30, 1996. The Board has established various committees to which
it has delegated certain responsibilities, including a nominating committee,
investment committee, audit committee, promotion and advertising committee and
interest rate risk/asset liability committee. No director attended fewer than
75% of the total number of Board meetings and meetings of Board committees on
which he served during the fiscal year ended September 30, 1996.
DIRECTORS' COMPENSATION
Members of the Bank's Board of Directors receive $400 per month plus $300
per special meeting attended. Board fees are subject to adjustment by the Board
of Directors annually. Each of the Bank's directors also serves on GBW's board
of directors and receives a monthly fee of $50 for such service. In addition to
fees paid to directors for Board meetings, the Bank's directors are expected to
participate in the Stock Option Plan and Recognition Plan. See
"--Benefits--Stock Option Plan" and "--Recognition and Retention Plan."
SUMMARY COMPENSATION TABLE
The following table sets forth a summary of certain information concerning
the compensation paid by the Bank for services rendered in all capacities during
the year ended September 30, 1996 to the President and Chief Executive Officer
of the Bank. No other executive officers of the Bank had total annual
compensation in excess of $100,000 during fiscal 1996.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
----------------------------------------
ANNUAL COMPENSATION
--------------------------------------------- AWARDS
OTHER ----------------------------------------
NAME AND ANNUAL RESTRICTED SECURITIES
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) STOCK UNDERLYING OPTIONS
- ------------------------ --------- --------- ----------- --------------------- --------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Merrill G. Norton
President and Chief
Executive Officer..... 1996 $ 74,613 $ -0- -- -- --
<CAPTION>
PAYOUTS
-------------
NAME AND LTIP ALL OTHER
PRINCIPAL POSITION PAYOUTS COMPENSATION
- ------------------------ ------------- -------------
<S> <C> <C>
Merrill G. Norton
President and Chief
Executive Officer..... -- $ 6,700(2)
</TABLE>
- ------------------------
(1) Does not include amounts attributable to miscellaneous benefits received by
the named executive officer. In the opinion of management of the Bank, the
costs to the Bank of providing such benefits to the named executive officer
during the year ended September 30, 1996 did not exceed the lesser of
$50,000 or 10% of the total of annual salary and bonus reported for the
individual.
(2) Consists of $6,700 allocated by the Bank on behalf of Mr. Norton pursuant to
the Bank's 401(k) plan.
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<PAGE>
EMPLOYMENT AGREEMENTS
The Bank intends to enter into an employment agreement with Mr. Norton upon
consummation of the Conversion. The Bank intends to agree to employ Mr. Norton
for a term of three years in his current position at an initial base salary of
$76,000. The agreement is terminable with or without cause by the Bank. The
officer shall have no right to compensation or other benefits pursuant to the
employment agreement for any period after voluntary termination or termination
by the Bank for cause, provided, however, that (i) in the event that the Bank
fails to comply with any material provision of the employment agreement he shall
be entitled to severance payments equal to his annual salary multiplied by three
or (ii) if certain adverse actions are taken with respect to the officer's
employment following a Change in Control of the Company, as defined, Mr. Norton
will be entitled to cash severance payments equal to his average annual
compensation at the date of termination multiplied by three. A Change in Control
of the Company is generally defined in the employment agreement to mean a change
in control of a nature that would be required to be reported in response to Item
6(c) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange
Act of 1934, as amended. Mr. Norton's employment agreement provides that in the
event that any payments to be paid thereunder are deemed to constitute "excess
parachute payments" and, therefore, subject to an excise tax under Section 4999
of the Code, the amount of severance shall be reduced to an amount that will not
result in any excess parachute payments. Mr. Norton's agreement also provides
that in the event of Mr. Norton's disability, retirement or death during the
term of the agreement, Mr. Norton or his estate will receive payments equal to
the amount of compensation for 12 months at his then current base salary.
Based upon compensation levels at September 30, 1996, in the event of a
termination of employment following a Change in Control, Mr. Norton would
receive $149,200 in cash severance.
Although the above-described employment agreement could increase the cost of
any acquisition of control of the Company, management of the Company does not
believe that the terms thereof would have a significant anti-takeover effect.
BENEFITS
401(K) PROFIT SHARING PLAN. The Bank maintains a 401(k) profit sharing plan
(the "401(k) Plan"). The 401(k) Plan is designed to promote the future economic
welfare of the employees of the Bank and to encourage employee savings. Employee
deferrals of salary and employer contributions made under the 401(k) Plan,
together with the income thereon, are accumulated in individual accounts
maintained in trust on behalf of the employee participants, and is made
available to the employee participants upon retirement and under certain other
circumstances as provided in the 401(k) Plan. Since employee deferrals of salary
and employer contributions made under the 401(k) Plan are made on a tax deferred
basis, employee participants are able to enjoy significant income tax savings by
participating in the 401(k) Plan. Employees are also permitted to direct the
investment of their accounts among five mutual funds.
An employee of the Bank becomes eligible to participate in the 401(k) Plan
after he or she completes a year of service (provided he or she is at least age
21). A year of service is a 12 consecutive month period in which the employee
works at least 1,000 hours for the Bank. An employee will become a participant
in the 401(k) Plan on the first day of the month coinciding with or next
following the date he or she satisfies the eligibility requirements.
Participants may elect to defer amounts of up to 15% of their annual
compensation to the 401(k) Plan, subject to certain limits imposed by law. Each
year the Bank may make a discretionary matching contribution equal to a
percentage of compensation deferred and may make additional discretionary
contributions. [UPON CONSUMMATION OF THE CONVERSION, THE BANK EXPECTS TO
TERMINATE THE MATCHING PROVISION OF THE 401(K) PLAN.] The Bank may also make
discretionary profit sharing contributions, allocated to eligible employees on
the basis of relative compensation.
[THE 401(K) PLAN WAS AMENDED ON , 1996 TO PERMIT PARTICIPANTS IN
THE PLAN TO DIRECT THE ADMINISTRATOR TO INVEST THEIR VESTED ACCOUNT BALANCES
INTO AN EMPLOYEE STOCK FUND WHICH WILL BE INVESTED IN
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<PAGE>
SHARES OF COMMON STOCK OF THE COMPANY. HOWEVER, NO 401(K) PLAN PARTICIPANT MAY
PURCHASE MORE THAN $50,000 IN AGGREGATE VALUE OF THE COMMON STOCK IN THE
CONVERSION (SUBJECT TO THE OVERALL PURCHASE LIMITATIONS) THROUGH THE 401(K)
PLAN'S SUBSCRIPTION RIGHTS.] A participant's ability to direct all or some of
his vested account to purchase Common Stock in the Subscription Offering will be
dependent upon such individual being an Eligible Account Holder, Supplemental
Eligible Account Holder or Other Member. During 1996, the Bank contributed
$19,000 to the 401(k) Plan, $6,700 of which was for the benefit of Mr. Norton.
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST. The Company has established the
ESOP for employees of the Company and the Bank to become effective upon the
consummation of the Conversion. Full-time employees of the Company and the Bank
who have been credited with at least 1,000 hours of service during a 12-month
period and who have attained age 21 are eligible to participate in the ESOP.
As part of the Conversion, in order to fund the purchase of up to 8.0% of
the Common Stock to be issued in the Conversion, or 27,600 shares assuming
shares are sold at the maximum of the Estimated Price Range, it is anticipated
that the ESOP will borrow funds from the Company. It is anticipated that such
loan will equal 100% of the aggregate purchase price of the Common Stock
acquired by the ESOP. The loan to the ESOP will be repaid principally from the
Company's contributions to the ESOP over a period of ten years, and the
collateral for the loan will be the Common Stock purchased by the ESOP. The
interest rate for the ESOP loan is expected to be %. The Company may, in any
plan year, make additional discretionary contributions for the benefit of plan
participants in either cash or shares of Common Stock, which may be acquired
through the purchase of outstanding shares in the market or from individual
stockholders, upon the original issuance of additional shares by the Company or
upon the sale of treasury shares by the Company. Such purchases, if made, would
be funded through additional borrowing by the ESOP or additional contributions
from the Company. The timing, amount and manner of future contributions to the
ESOP will be affected by various factors, including prevailing regulatory
policies, the requirements of applicable laws and regulations and market
conditions.
Shares purchased by the ESOP with the proceeds of the loan will be held in a
suspense account and released on a pro rata basis as debt service payments are
made. Discretionary contributions to the ESOP and shares released from the
suspense account will be allocated among participants on the basis of
compensation. Forfeitures will be reallocated among remaining participating
employees and may reduce any amount the Company might otherwise have contributed
to the ESOP. Participants will vest in their right to receive their account
balances within the ESOP at the rate of 25% per year. In the case of a "change
in control," as defined, however, participants will become immediately fully
vested in their account balances. Benefits may be payable upon retirement, early
retirement, disability or separation from service. The Company's contributions
to the ESOP are not fixed, so benefits payable under the ESOP cannot be
estimated.
Messrs. Meyer, Ingram and Norton will serve as trustees of the ESOP. Under
the ESOP, the trustees must vote all allocated shares held in the ESOP in
accordance with the instructions of the participating employees, and allocated
shares for which employees do not give instructions, and unallocated shares,
will be voted in the same ratio on any matter as to those shares for which
instructions are given.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations-- Recent Accounting Pronouncements" for a discussion of SOP 93-6,
which changes the measure of compensation expense recorded by employers for
leveraged ESOPs from the cost of ESOP shares to the fair value of ESOP shares.
GAAP requires that any third party borrowing by the ESOP be reflected as a
liability on the Company's statement of financial condition. Since the ESOP is
borrowing from the Company, such obligation is not treated as a liability, but
will be excluded from stockholders' equity. If the ESOP purchases newly-issued
shares from the Company, total stockholders' equity would neither increase nor
74
<PAGE>
decrease, but per share stockholders' equity and per share net earnings would
decrease because of the increase in the number of outstanding shares as those
shares become committed to be released.
The ESOP will be subject to the requirements of Employee Retirement Income
Security Act of 1974, as amended, and the regulations of the IRS and Department
of Labor thereunder.
STOCK OPTION PLAN. Following the Conversion, the Board of Directors of the
Company intends to submit the Stock Option Plan for approval to stockholders at
a special meeting of stockholders, which is expected to be held not earlier than
six months following consummation of the Conversion. No options shall be awarded
under the Stock Option Plan unless stockholder approval is obtained.
The Stock Option Plan will be designed to attract and retain qualified
personnel in key positions, provide officers and key employees with a
proprietary interest in the Company as an incentive to contribute to the success
of the Company and reward key employees for outstanding performance and the
attainment of targeted goals. The Stock Option Plan will also be designed to
retain qualified directors for the Company. The Stock Option Plan will provide
for the grant of incentive stock options intended to comply with the
requirements of Section 422 of the Code ("incentive stock options"),
non-incentive or compensatory stock options and stock appreciation rights
(collectively "Awards"). Awards will be available for grant to directors and key
employees of the Company and any subsidiaries, except that directors will not be
eligible to receive incentive stock options. If stockholder approval is
obtained, it is expected that options to acquire shares of Common Stock will be
awarded to key employees of the Company and the Bank and directors of the
Company in accordance with applicable regulations. Regulations which apply to
the Stock Option Plan and the Recognition Plan 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 Stock Option Plan will be administered and interpreted by a committee of
the Board of Directors ("Committee") which will be "disinterested" pursuant to
applicable regulations under the Federal securities laws. Unless sooner
terminated, the Stock Option 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.
Under the Stock Option Plan, the Committee will determine which officers and
key employees will be granted options, whether such options will be incentive or
compensatory options, the number of shares subject to each option, whether such
options may be exercised by delivering other shares of Common Stock and when
such options become exercisable. The per share exercise price of an incentive
and compensatory stock option shall be required to be at least equal to the fair
market value of a share of Common Stock on the date the option is granted.
Stock options shall become vested and exercisable in the manner specified by
the Committee, which shall not be faster than 20% per year, beginning one year
from the date of grant. Each stock option or portion thereof shall be
exercisable at any time on or after it vests and is exercisable until ten years
after its date of grant or three months after the date on which the optionee's
employment terminates, unless extended by the Committee to a period not to
exceed one year from such termination. However, failure to exercise incentive
stock options within three months after the date on which the optionee's
employment terminates may result in adverse tax consequences to the optionee.
Stock options are non-transferable except by will or the laws of descent and
distribution.
Under the Stock Option Plan, the Committee will be authorized to grant
rights to optionees ("stock appreciation rights") under which an optionee may
surrender any exercisable incentive stock option or compensatory stock option or
part thereof in return for payment by the Company to the optionee of cash or
Common Stock in an amount equal to the excess of the fair market value of the
shares of Common Stock subject to option at the time over the option price of
such shares, or a combination of cash and Common Stock. Stock appreciation
rights may be granted concurrently with the stock options to which they relate
or at any time thereafter which is prior to the exercise or expiration of such
options.
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<PAGE>
The number of options to be granted to non-employee directors will be
specifically set forth in the Stock Option Plan and will be granted upon
approval of the Stock Option Plan by stockholders. Such stock options to
directors will become vested and exercisable under the same terms as options
granted by the Committee to officers and employees. If an optionee dies or
terminates service due to disability, while serving as an employee or
non-employee director, all unvested options are accelerated. Under such
circumstances, the optionee or, as the case may be, the optionee's executors,
administrators, legatees or distributees, shall have the right to exercise all
unexercised options during the 12-month period following termination due to
disability or death, provided no option will be exercisable within six months
after the date of grant or more than ten years from the date it was granted.
The Company intends to reserve for future issuance pursuant to the Stock
Option Plan a number of authorized shares of Common Stock equal to 10% of the
Common Stock issued in the Conversion, or 34,500 shares, based on the issuance
of 345,000 shares at the maximum of the Estimated Price Range. In the event of a
stock split, reverse stock split or stock dividend, the number of shares of
Common Stock under the Stock Option Plan, the number of shares to which any
Award relates and the exercise price per share under any option or stock
appreciation right shall be adjusted to reflect such increase or decrease in the
total number of shares of the Common Stock outstanding.
Under current provisions of the Code, the Federal income tax treatment of
incentive stock options and compensatory stock options is different. As regards
incentive stock options, an optionee who meets certain holding period
requirements will not recognize income at the time the option is granted or at
the time the option is exercised, and a Federal income tax deduction generally
will not be available to the Company at any time as a result of such grant or
exercise. With respect to compensatory stock options, the difference between the
fair market value of the shares subject to the option on the date of exercise
and the option exercise price generally will be treated as compensation income
upon exercise, and the Company will be entitled to a deduction in the amount of
income so recognized by the optionee. Upon the exercise of a stock appreciation
right, the holder will realize income for Federal income tax purposes equal to
the amount received by him, whether in cash, shares of stock or both, and the
Company will be entitled to a deduction for Federal income tax purposes in the
same amount.
Although no specific award determinations have been made, assuming the
requisite receipt of stockholder approval, the Company intends to follow Federal
criteria with respect to awards of stock options under the Stock Option Plan.
Under such criteria, awards to individual non-employee directors may not exceed
5.0% of the options available under the plan and awards to all non-employee
directors may not exceed 30% of the plan in the aggregate. Awards to any
individual employee may not exceed 25% of the shares available under the plan.
RECOGNITION AND RETENTION PLAN. Following the Conversion, the Board of
Directors of the Company intends to submit the Recognition Plan to stockholders
for approval at a special meeting of stockholders, which is expected to be held
not earlier than six months following completion of the Conversion. The
objective of the Recognition Plan will be to enable the Company to provide
directors, officers and employees with a proprietary interest in the Company as
an incentive to contribute to its success. The Recognition Plan will set forth
specific awards to be made to non-employee directors.
Assuming the receipt of stockholder approval, the Company expects to acquire
Common Stock on behalf of the Recognition Plan, in an amount equal to 4% of the
Common Stock issued in the Conversion, or 13,800 shares at the maximum of the
Estimated Price Range. These shares will be acquired through open market
purchases or from authorized but unissued shares. Although no specific award
determinations have been made, the Company intends to follow Federal criteria
for making awards under the Recognition Plan. Under such criteria, the
individual and aggregate award limitations under the Recognition Plan will be
the same as under the Stock Option Plan. See "--Stock Option Plan."
The Board of Directors of the Company will administer the Recognition Plan
as it pertains to directors and a Board Committee will administer the
Recognition Plan with respect to all other persons.
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The Committee will have the responsibility to invest all funds contributed by
the Company to the Recognition Plan. Shares of Common Stock granted pursuant to
the Recognition Plan generally will be in the form of restricted stock payable
over a period specified by the administrators, which shall not be faster than
20% per year, beginning one year from the date of the award. For accounting
purposes, compensation expense in the amount of the fair market value of the
Common Stock at the date of the grant to the recipient will be recognized PRO
RATA over the number of years during which the shares are payable. While
restricted, shares may not be sold, pledged or otherwise disposed of and are
required to be held in the Trust. But, while restricted, a recipient will be
entitled to voting and other stockholder rights. If a recipient terminates
employment for reasons other than death, disability or retirement, the recipient
will forfeit all rights to the allocated shares under restriction. If the
recipient's termination is caused by death or disability, all restrictions will
expire and all allocated shares will become unrestricted. The Board of Directors
of the Company will be authorized to terminate the Recognition Plan at any time,
and if it does so, any shares not allocated will revert to the Company.
TRANSACTIONS WITH CERTAIN RELATED PERSONS
The Bank's policy provides that all loans made by the Bank to its directors
and officers are made in the ordinary course of business, are made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons and do not
involve more than the normal risk of collectibility or present other unfavorable
features. As of September 30, 1996, none of the Bank's directors or executive
officers had aggregate loan balances in excess of $60,000. All loans made to the
Bank's directors and executive officers are made in the ordinary course of
business, without favorable terms and do not involve more than the normal risk
of collectibility.
SUBSCRIPTIONS BY DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the number of shares of Common Stock of the
Company proposed to be purchased by the Company's directors and by all directors
and executive officers as a group (including purchases by any associates of or
groups acting in concert with such persons), assuming shares of Common Stock are
issued at the maximum of the Estimated Price Range and that sufficient shares
will be available to satisfy their subscriptions.
<TABLE>
<CAPTION>
AT THE MAXIMUM
OF THE ESTIMATED PRICE RANGE(1)
----------------------------------------
<S> <C> <C> <C>
AS A PERCENT
NUMBER OF SHARES
NAME AMOUNT OF SHARES OFFERED
- -------------------------------------------------------------------------- ---------- ----------- ---------------
Thomas B. Meyer........................................................... $ 50,000 5,000 1.4%
Merrill G. Norton......................................................... 150,000 15,000 4.3
Carl W. Busby............................................................. 150,000 15,000 4.3
Robert L. Ewbank.......................................................... 150,000 15,000 4.3
William T. Ingram......................................................... 150,000 15,000 4.3
All directors and executive officers as a group (5 persons)............... $ 650,000(2) 65,000 18.8%
</TABLE>
- ------------------------
(1) Includes proposed subscriptions, if any, by associates. The ESOP intends to
acquire up to 8.0% of the Common Stock in the Conversion, or 27,600 shares
at the maximum of the Estimated Price Range, which shares are not reflected
in the amounts to be purchased by the Company's directors and officers in
the table above. In addition, this does not include awards pursuant to the
Stock Option Plan or the Recognition Plan, which will be submitted for
approval to stockholders at a meeting of stockholders expected to be held
not earlier than six months following the completion of the Conversion. See
"--Benefits--Employee Stock Ownership Plan and Trust."
(2) Includes purchases to be made by executive officers through the 401(k) Plan.
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THE CONVERSION
THE BOARD OF DIRECTORS OF THE BANK AND THE COMMISSIONER 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
APPROVAL BY THE COMMISSIONER, HOWEVER, DOES NOT CONSTITUTE A RECOMMENDATION OR
ENDORSEMENT OF THE PLAN BY SUCH AGENCY.
GENERAL
On November 6, 1996, the Bank's Board of Directors unanimously adopted the
Plan, pursuant to which the Bank will be converted from an Illinois-chartered
mutual savings bank to an Illinois-chartered stock savings bank. It is intended
that all of the common stock of the Bank to be issued in the Conversion will be
held by the Company, which is incorporated under Delaware law. The Plan has been
approved by the Commissioner, subject to, among other things, approval of the
Plan by the Bank's members. In addition, the FDIC has issued its conditional
non-objection to the Plan and the Conversion. A Special Meeting of the Bank's
members has been called for the purpose of approving the Plan, which meeting is
to be held on March , 1997.
In adopting the Plan, the Board of Directors of the Bank determined that
conversion was advisable and in the best interests of its members and the Bank,
and further determined that the interests of certain holders of its deposit
accounts in the net worth of the Bank would be equitably provided for and that
the Conversion would not have any adverse impact on the reserves and net worth
of the Bank. In determining to convert to the stock form of organization the
Board of Directors of the Bank considered a number of factors. The stock form of
organization is used by commercial banks, most business entities and thrift
institutions. The Board of Directors considered that converting will increase
the Bank's capital base and enhance its ability to support future growth. The
stock form also will facilitate the Bank's ability to engage in acquisition or
merger transactions with other entities. While the Bank currently has no
understandings, arrangements or agreements, written or oral, with any other
entity, the Board of Directors considered the continuing consolidation occurring
throughout the banking industry and concluded that converting to the stock form
may enhance the Bank's ability to engage in acquisition opportunities which may
arise in the future. The Board of Directors also considered that upon conversion
to the stock form, the Bank's employees could participate in stock-benefit
compensation plans, such as stock option and/or stock grant plans. Upon
consideration of these and other factors, the Board of Directors of the Bank
determined that converting from the mutual to the stock form was in the best
interests of the Bank.
The Company has applied for the approval of the Federal Reserve Board to
become a bank holding company and to acquire all of the common stock of the Bank
to be issued in the Conversion. The Company plans to retain 25% of the net
proceeds from the sale of the Common Stock, with all the remaining proceeds used
to purchase all of the then to be issued and outstanding capital stock of the
Bank. Based on the issuance of 345,000 shares at the Purchase Price at the
maximum of the Estimated Price Range, approximately $276,000 of the net proceeds
retained by the Company are intended to be used to loan funds to the ESOP to
enable the ESOP to purchase up to 8.0% of the shares issued in the Conversion.
The Conversion will be effected only upon completion of the sale of all of the
shares of Common Stock of the Company to be issued pursuant to the Plan.
The Plan provides generally that (i) the Bank will convert from an
Illinois-chartered mutual savings bank to an Illinois-chartered stock savings
bank and (ii) the Company will offer shares of Common Stock for sale in the
Subscription Offering to Eligible Account Holders, the ESOP, Supplemental
Eligible Account Holders, Other Voting Members, and in a concurrent Community
Offering to certain members of the general public, subject to the prior rights
of holders of subscription rights. See "--Subscription Offering and Subscription
Rights" and "--Community Offering." 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
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general public in a Syndicated Community Offering. See "--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.
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
$2,550,000 and $3,450,000, will be determined based upon an independent
appraisal 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 RP Financial,
a consulting firm experienced in the valuation and appraisal of savings
institutions. See "--Stock Pricing and Number of Shares to be Issued" for more
information as to the determination of the estimated pro forma market value of
the Common Stock.
The Plan may be amended at any time with the concurrence of the Commissioner
and the receipt of any necessary approval from the FDIC. Amendments to the Plan
will require additional approval of the Bank's members, whether such amendment
is made before or after the Special Meeting of the Bank's members called to
consider the Plan, only if required by the Commissioner and/or the FDIC. The
Plan shall terminate if the Offerings are not completed within [12] months of
the date of the Special Meeting of the Bank's members called to consider the
Plan, subject to further extension by the Commissioner. Prior to the Special
Meeting of the Bank's members to consider the Plan, the Bank's Board of
Directors may terminate the Plan without approval of the Commissioner and,
thereafter, only with the Commissioner's approval.
The following is a brief summary of the material aspects of the Conversion.
The summary is qualified in its entirety by reference to the provisions of the
Plan. A copy of the Plan is available for inspection at the Bank and at the
offices of the Office. The Plan is also filed as an Exhibit to the Registration
Statement of which this Prospectus is a part, copies of which may be obtained
from the SEC. See "Additional Information."
PURPOSES OF CONVERSION
The Bank, as an Illinois-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, most business entities and a growing number of savings
institutions. The Conversion will be important to the future growth and
performance of the institution by providing a larger capital base on which the
Bank may operate, enhanced future access to capital markets, enhanced ability to
support increased originations of commercial business loans and consumer loans
and to diversify into other financial services related activities, and enhanced
ability to render services to the public.
The holding company form of organization will provide additional flexibility
to diversify the Bank's business activities through existing or newly formed
subsidiaries, or through acquisition of other financial 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 better
position after the Conversion, subject to regulatory limitations and the
Company's financial position, to take advantage of opportunities which may
arise.
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 applicable regulatory approvals, 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
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with respect to additional offerings of securities, other than the possible
issuance of additional shares to the Recognition Plan or upon exercise of stock
options. Following 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--Management of the
Bank."
EFFECTS OF CONVERSION
GENERAL. Each depositor in a mutual savings bank has both a deposit account
in the institution and a PRO RATA ownership interest in the net worth of the
institution based upon the balance in his account, which interest may only be
realized in the event of a liquidation of the institution. However, this
ownership interest is tied to the depositor's account and has no tangible market
value separate from such deposit account. Any depositor who opens a deposit
account obtains a PRO RATA ownership interest in the net worth of the
institution without any additional payment beyond the amount of the deposit. A
depositor who reduces or closes his account receives a portion or all of the
balance in the account but nothing for his ownership interest in the net worth
of the institution, which is lost to the extent that the balance in the account
is reduced.
Consequently, mutual savings bank 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 bank 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 bank converts to stock form, permanent nonwithdrawable
capital stock is created to represent the ownership of the institution's net
worth. THE BANK'S COMMON STOCK AND THE COMMON STOCK OF THE COMPANY 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 permanent 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.
CONTINUITY. While the Conversion is being accomplished, the normal 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
Commissioner and the FDIC. After 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 the Conversion will continue
to serve as directors of the Bank after the Conversion. The Directors of the
Company will consist of individuals currently serving on the Board of Directors
of the Bank. All officers of the Bank at the time of the Conversion will retain
their positions after the Conversion.
EFFECT ON DEPOSIT ACCOUNTS. Under the Plan, each depositor in the Bank at
the time of the Conversion will automatically continue as a depositor after the
Conversion to stock form, 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.
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 of the Bank
are members of, and have voting rights in, the Bank as to all matters requiring
membership action. Upon Conversion, depositors will cease to be members and will
no longer be entitled to vote at meetings of the Bank. Upon Conversion, all
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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 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 opinions with regard to Federal and
Illinois income taxation which indicates that the adoption and implementation of
the Plan of Conversion set forth herein will not be taxable for Federal or
Illinois tax purposes to the Bank or its Eligible Account Holders or
Supplemental Eligible Account Holders or the Company, except as discussed below.
See "--Tax Aspects."
EFFECT ON LIQUIDATION RIGHTS. Were a mutual savings bank 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 receive 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 Office, 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 required to be assumed by the surviving institution.
STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED
The Plan of Conversion requires that the aggregate purchase price of the
Common Stock sold in the Offerings 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 RP Financial to make such
valuation. For its services in making such appraisal and certain other services
(including assisting the Bank in the preparation of a business plan) rendered in
connection with the Conversion, RP Financial will receive a fee of $15,000, plus
reimbursement for reasonable expenses. The Bank and the Company have agreed to
indemnify RP Financial 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 RP Financial's
liability results from its negligence or willful misconduct.
An appraisal has been made by RP Financial in reliance upon the information
contained in this Prospectus, including the Consolidated Financial Statement. RP
Financial 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 institutions
located in Illinois and other regions of the 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; and the trading market for securities of
comparable institutions and general conditions in the market for such
securities. In its review of the appraisal provided by RP Financial, the Board
of Directors reviewed the methodologies and the appropriateness of the
assumptions used by RP Financial in addition to the factors enumerated above.
On the basis of the foregoing, RP Financial has advised the Company and the
Bank that, in its opinion, dated November 15, 1996 the Estimated Price Range of
the Common Stock ranged from a minimum of $2,550,000 to a maximum of $3,450,000
with a midpoint of $3,000,000. Based upon the Estimated Price Range and the
Purchase Price of $10.00 per share for the Common Stock established by the Board
of Directors, the Company expects to issue between 255,000 and 345,000 shares of
Common Stock. The Estimated Price Range may be amended with the approval of the
Commissioner and non-objection of the FDIC, if required, if necessitated by
subsequent developments in the financial condition of
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the Company or the Bank or market conditions generally. In the event the
appraisal is updated to amend the value of the Bank below $2,550,000 or above
$3,967,500 (the maximum of the Estimated Price Range, as adjusted by 15%), such
appraisal will be filed with the SEC by post-effective amendment.
In the event the Company receives orders for Common Stock in excess of
$3,450,000 (the maximum of the Estimated Price Range) and up to $3,967,500 (the
maximum of the Estimated Price Range, as adjusted by 15%), the Company may
determine to accept all such orders. No assurances, however, can be made that
the Company will receive orders for Common Stock in excess of the maximum of the
Estimated Price Range or that, if such orders are received, that all such orders
will be accepted because the Company's final valuation and number of shares to
be issued are subject to the receipt of an updated appraisal from RP Financial
which reflects such an increase in the valuation and the approval of such
increase by the Commissioner and non-objection of the FDIC, if required. There
is no obligation or understanding on the part of management to take and/or pay
for any shares in order to complete the Conversion.
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. RP
FINANCIAL DID NOT INDEPENDENTLY VERIFY THE CONSOLIDATED FINANCIAL STATEMENT AND
OTHER INFORMATION PROVIDED BY THE BANK, NOR DID RP FINANCIAL 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.
Following commencement of the Subscription Offering, 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 396,750 shares
to reflect changes in the market and financial 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 Offering.
No sale of shares of Common Stock in the Conversion may be consummated
unless prior to such consummation RP Financial confirms that nothing of a
material nature has occurred which, taking into account all relevant factors,
would cause it to conclude that the aggregate price is materially incompatible
with the estimate of the pro forma valuation of the aggregate market value of
the Common Stock at the time of the sale of the Common Stock. If such is not the
case, a new Estimated Price Range may be set, a new Subscription and Community
Offering and/or Syndicated Community Offering may be held or such other action
may be taken as the Company and the Bank shall determine and the Commissioner
and FDIC may permit.
Depending upon market or financial conditions following the commencement of
the Subscription Offering, the total number of shares to be issued in the
Conversion may be increased or decreased without a resolicitation of
subscribers, provided that the product of the total number of shares times the
Purchase Price is not below the minimum or more than 15% above the maximum of
the Estimated Price Range. 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,
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 with interest at the Bank's passbook rate of interest,
or be permitted to modify or rescind their subscriptions). Any change in the
Estimated Price Range must be approved by the Commissioner and requires the
non-objection of the FDIC.
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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 income
and stockholders' equity on a per share basis while increasing pro forma net
income 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 income and stockholders'
equity on a per share basis while decreasing pro forma net income and
stockholders' equity on an aggregate basis. See "Pro Forma Data."
Copies of the appraisal report of RP Financial, 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."
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) Eligible
Account Holders, (2) the ESOP, (3) Supplemental Eligible Account Holders, and
(4) Other Voting Members. All subscriptions received will be subject to the
availability of Common Stock after satisfaction of all subscriptions of all
persons having prior rights in the Subscription Offering and to the maximum and
minimum purchase limitations set forth in the Plan of Conversion and as
described below under "--Limitations on Common Stock Purchases."
PRIORITY 1: ELIGIBLE ACCOUNT HOLDERS. Each Eligible Account Holder will
receive, without payment therefor, first priority, nontransferable subscription
rights to subscribe for in the Subscription Offering up to the greater of: (i)
$50,000 of Common Stock; (ii) one-tenth of one percent (0.10%) of the total
offering of shares of Common Stock; or (iii) fifteen times the product (rounded
down to the next whole number) obtained by multiplying the total number of
shares of Common Stock to be issued by a fraction, of which the numerator is the
amount of the Eligible Account Holder's qualifying deposit and the denominator
of which is the total amount of qualifying deposits of all Eligible Account
Holders, in each case on July 31, 1995 ("Eligibility Record Date"); in each case
subject to the overall purchase limitation. See "-- Limitations on Common Stock
Purchases."
If there are not sufficient shares available to satisfy all subscriptions,
shares first will be allocated among subscribing Eligible Account Holders so as
to permit each such Eligible Account Holder, to the extent possible, to purchase
a number of shares which will make his total allocation equal to the lesser of
the number of shares subscribed for or 100 shares. Any available shares
remaining after each such subscribing Eligible Account Holder has been allocated
the lesser of the number of shares subscribed for or 100 shares shall be
allocated among the subscribing Eligible Account Holders in the proportion which
the amounts of the qualifying deposits of each such subscribing Eligible Account
Holder bears to the total amount of qualifying deposits of all such subscribing
Eligible Account Holders, provided that no fractional shares shall be issued.
The submission of multiple orders by an Eligible Account Holder or other
subscriber will result in a lower deposit credit per order in the event of an
allocation.
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 July 31, 1995.
PRIORITY 2: EMPLOYEE STOCK OWNERSHIP PLAN. The ESOP will receive, without
payment therefor, second priority non-transferable subscription rights to
purchase, in the aggregate, up to 10.0% of the Common
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Stock issued in the Conversion. The subscription rights granted to the ESOP are
subject to the availability of shares after taking into account the shares
purchased by Eligible Account Holders, including any shares of Common Stock to
be issued in the Conversion as a result of an increase of up to 15% in the
maximum of the Estimated Price Range. The ESOP intends to purchase up to 8.0% of
the shares to be issued in the Conversion, or 20,400 shares and 27,600 shares,
based on the issuance of 255,000 shares and 345,000 shares, respectively.
Subscriptions by the ESOP will not be aggregated with shares of Common Stock
purchased directly by or which are otherwise attributable to any other
participants in the Subscription and Community Offerings, including
subscriptions of any of the Bank's directors, officers, employees or associates
thereof. In the event that there are not sufficient shares available to satisfy
the ESOP's purchase order, it is anticipated that the ESOP will attempt to
purchase additional shares of Common Stock in the open market in order that the
ESOP shall have purchased an aggregate of 8.0% of the shares of Common Stock
sold in the Offerings.
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: (i) $50,000 of Common Stock; (ii) one-tenth of
one percent (0.10%) of the total offering of shares of Common Stock; or (iii)
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 of which is the total
amount of qualifying deposits of all Supplemental Eligible Account Holders, in
each case on December 31, 1996; and, in all cases, subject to the overall
purchase limitation. See "--Limitations on Common Stock Purchases."
If there are not sufficient shares available to satisfy all Supplemental
Eligible Account Holders, shares first will be allocated among subscribing
Supplemental Eligible Account Holders so as to permit each such Supplemental
Eligible Account Holder, to the extent possible, to purchase a number of shares
sufficient to make his total allocation (including the number of shares, if any,
allocated to such person as an Eligible Account Holder) equal to the lesser of
the number of shares subscribed for or 100 shares. Any remaining available
shares shall be allocated among such subscribing Supplemental Eligible Account
Holders in the proportion that the amount of their respective amount of
qualifying deposits bears to the total amount of the amount of qualifying
deposits of all subscribing Supplemental Eligible Account Holders, provided that
no fractional shares shall be issued. The submission of multiple orders by a
Supplemental Eligible Account Holder or other subscriber will result in a lower
deposit credit per order in the event of an allocation.
PRIORITY 4: OTHER VOTING MEMBERS. To the extent that there are sufficient
shares remaining after satisfaction of subscriptions by Eligible Account
Holders, the ESOP, and Supplemental Eligible Account Holders, each Other Voting
Member will receive, without payment therefor, third priority, nontransferable
subscription rights to subscribe for Common Stock in the Subscription Offering
up to the greater of: (i) $50,000 of Common Stock or (ii) one-tenth of one
percent (0.10%) of the total offering of shares of Common Stock; in each case
subject to the overall purchase limitation. See "--Limitations on Common Stock
Purchases."
In the event the Other Voting Members subscribe for a number of shares of
Conversion Stock in excess of the total number of shares of Conversion Stock
remaining, available shares shall be allocated among subscribing Other Voting
Members on a PRO RATA basis in the same proportion as each Other Voting Members'
subscription bears to the total subscriptions of all subscribing Other Voting
Members.
EXPIRATION DATE FOR THE SUBSCRIPTION OFFERING. The Subscription Offering
will expire on [March ,] 1997, unless extended for up to 45 days or such
additional periods by the Bank and the Company with the approval of the
Commissioner of the Commissioner and, if required, the non-objection of the
FDIC. Subscription rights which have not been exercised prior to the
Subscription Expiration Date will become void.
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The Bank and the Company will not execute orders before the Subscription
Expiration Date and until at least the minimum number of shares of Common Stock
(255,000 shares) have been subscribed for or otherwise sold. If the Subscription
Offering is not completed within 45 days after the Subscription Expiration Date,
unless such period is extended, all funds delivered to the Bank pursuant to the
Subscription Offering will be returned promptly to the subscribers with interest
and all withdrawal authorizations will be cancelled. If an extension beyond the
45 day period following the Subscription 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.
COMMUNITY OFFERING
To the extent that shares remain available for purchase after satisfaction
of all subscriptions of Eligible Account Holders, the ESOP, Supplemental
Eligible Account Holders, and Other Voting Members, the Bank may offer shares
pursuant to the Plan to certain members of the general public, with preference
given to natural persons residing in the Bank's [LOCAL COMMUNITY] ("Preferred
Subscribers"). Such persons, together with associates of and persons acting in
concert with such persons, may purchase up to the greater of (i) $50,000 of the
Common Stock offered in the Conversion, or (ii) one-tenth of one percent (0.10%)
of the total offering of shares of Common Stock, in each case subject to the
maximum purchase limitation. See "--Limitations on Common Stock Purchases." THIS
AMOUNT MAY BE INCREASED OR DECREASED 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 SUBSCRIPTION EXPIRATION DATE. The Community Offering may be commenced at any
time during the Subscription Offering or subsequent thereto.
If there are not sufficient shares available to fill the orders of Preferred
Subscribers after completion of the Subscription and Community Offerings, such
stock will be allocated first to each Preferred Subscriber whose order is
accepted by the 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 orders remain unsatisfied in the same proportion that the unfilled
subscription of each bears to the total unfilled subscriptions of all Preferred
Subscribers whose subscription remains unsatisfied. If there are any shares
remaining after all subscriptions by Preferred Subscribers, shares will be
allocated to other members of the general public who subscribe 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 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: (a) the number of persons otherwise eligible to subscribe for shares
under the Plan who reside in such jurisdiction is small; (b) the granting of
subscription rights or the offer or sale of shares of Common Stock to such
persons would require the Company, the Bank, or their officers, directors or
employees under the laws of such jurisdiction, to register as a broker, dealer,
salesman or selling agent or to register or otherwise qualify its securities for
sale in such jurisdiction or to qualify as a foreign corporation or file a
consent to service of process in such jurisdiction; and (c) such registration or
qualification in the Company's and the Bank's judgment would be impracticable or
unduly burdensome for reasons of cost or otherwise. 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.
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MARKETING ARRANGEMENTS
The Company and the Bank have engaged Trident as a financial advisor and
marketing agent in connection with the offering of the Common Stock, and Trident
has agreed to use its best efforts to solicit subscriptions and purchase orders
for shares of Common Stock in the Offerings. Trident is a member of the National
Association of Securities Dealers, Inc. ("NASD") and an SEC-registered
broker-dealer. Trident is headquartered in Raleigh, North Carolina, and its
telephone number is (919) 781-8900. Trident will provide various services
including, but not limited to, (1) training and educating the Bank's directors,
officers and employees regarding the mechanics and regulatory requirements of
the stock sales process; (2) providing its employees to staff the Stock Sales
Center to assist the Bank's customers and internal stock purchasers and to keep
records of orders for shares of Common Stock; (3) targeting the Company's sales
efforts, including preparation of marketing materials; and (4) assisting in the
solicitation of proxies of members for use at the Special Meeting. In the event
that a selected dealers agreement is entered into in connection with a
Syndicated Community Offering, the Bank will pay a to-be negotiated fee to such
selected dealers for shares sold by any NASD member firm pursuant to a selected
dealers agreement. Fees to Trident and to any other broker-dealer may be deemed
to be underwriting fees, and Trident and such broker-dealers may be deemed to be
underwriters. Trident will also be reimbursed for its reasonable out-of-pocket
expenses in an amount not to exceed $10,000 and reasonable legal fees not to
exceed $22,500. To date, Trident has received $10,000 from the Bank as an
advance payment of its anticipated expenses.
The Company and the Bank have agreed to indemnify Trident for reasonable
costs and expenses in connection with certain claims or liabilities, including
certain claims or liabilities arising out of or based upon any untrue or alleged
untrue statement of a material fact or the omission or alleged omission of a
material fact required to be stated or necessary to make not misleading any
statements contained in the Company's Registration Statement or the Prospectus.
Directors and executive officers of the Company and the 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. Such other employees have been
instructed not to solicit offers to purchase Common Stock or provide advice
regarding the purchase of Common Stock. Questions of prospective purchasers will
be directed to executive officers or registered representatives. The Company
will rely on Rule 3a4-1 under the Exchange Act, and sales of Common Stock will
be conducted within the requirements of Rule 3a4-1, so as to permit 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 Subscription 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
order form will confirm receipt or delivery in accordance with Rule 15c2-8.
Order forms will only be distributed with a Prospectus.
To purchase shares in the Subscription and Community Offerings, an executed
order form with the required payment for each share subscribed for, or with
appropriate authorization for withdrawal from the Bank's deposit account (which
may be given by completing the appropriate blanks in the order form), must be
received by the Bank at any of its offices by [12:00 NOON, CENTRAL TIME,] on the
Subscription Expiration Date. Order forms which are not received by such time or
are altered or executed defectively or are received without full payment (or
appropriate withdrawal instructions) are not required to be accepted. In
addition, the Bank will neither accept orders submitted on photocopied or
facsimilied order forms nor order forms unaccompanied by an executed
certification form. The Company and the Bank have the right
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to waive or permit the correction of incomplete or improperly executed forms,
but do not represent that they will do so. Once received, an executed order form
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 depositors are properly identified as to their stock
purchase priority, depositors as of the Eligibility Record Date (July 31, 1995),
the Supplemental Eligibility Record Date (December 31, 1996) and/or the Voting
Record Date (March , 1997), must list all accounts on the stock order form
giving all names in each account and the account numbers.
Payment for subscriptions may be made (i) in cash if delivered in person at
the Bank, (ii) by check, bank draft or money order, or (iii) by authorization of
withdrawal from deposit accounts maintained with the Bank. Wire transfers will
not be accepted except at the discretion of the Company and the Bank. Interest
will be paid on payments made by check, bank draft or money order at the Bank's
passbook rate of interest from the date payment is received until 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.
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
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, and the remaining balance will earn
interest at the passbook rate.
If the ESOP subscribes for shares during the Subscription Offering, such
plan will not be required to pay for the shares subscribed for at the time it
subscribes, but rather, may pay for such shares of Common Stock subscribed for
by such plan 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 IRAs may use the assets of such IRAs to purchase
shares of Common Stock in the Subscription and Community Offerings, provided
that the trustee of such IRA is not 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. Subscriptions by IRAs will be credited only with the
balance of such IRA account in the event of an allocation.
Certificates representing shares of Common Stock purchased will be mailed to
purchasers at such other address as may be specified in properly completed order
forms, as soon as practicable following consummation of the sale of all shares
of Common Stock. Any certificates returned as undeliverable will be disposed of
in accordance with applicable law.
RESTRICTIONS ON TRANSFER OF SUBSCRIPTION RIGHTS AND SHARES
Pursuant to the rules and regulations of the Office, no person with
subscription rights 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.
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
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account and that he has no agreement or understanding regarding the sale or
transfer of such shares. No person may offer, or make 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 IN THE EVENT THEY BECOME AWARE OF THE TRANSFER OF SUBSCRIPTION RIGHTS
AND WILL NOT HONOR ORDERS KNOWN BY THEM TO INVOLVE THE TRANSFER OF SUCH RIGHTS.
SYNDICATED COMMUNITY OFFERING
As a final step in the Conversion, the Plan provides that, if feasible, all
shares of Common Stock not purchased in the Subscription and Community Offerings
may be offered for sale to the general public in a Syndicated Community Offering
through a syndicate of registered broker-dealers to be formed. The Bank and the
Company expect to market any shares which remain unsubscribed after the
Subscription and Community Offerings through a Syndicated Community Offering.
The Company and the Bank have the right to reject orders in whole or part in
their sole discretion in the Syndicated Community Offering. Neither the Agent
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,
the Agent has agreed to use its best efforts in the sale of shares in the
Syndicated Community Offering. In the event that a selected dealers agreement is
entered into in connection with a Syndicated Community Offering, the Bank will
pay a to-be negotiated fee to such selected dealers for shares sold by any NASD
member firm pursuant to a selected dealers agreement.
The price at which Common Stock is sold in the Syndicated Community Offering
will be determined as described above under "--Stock Pricing and Number of
Shares to be Issued." 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
$50,000 of the Common Stock offered in the Conversion, without giving effect to
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 or money order 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 12:00 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 12:00 noon of the next business day following the debit
date will send order forms and funds to the Bank for deposit in a segregated
account. If such alternative procedure is employed, purchasers' funds are not
required to be in their accounts with selected dealers until the debit date.
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
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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 and
the Bank with the approval of the Commissioner and, if required, the
non-objection of the FDIC. See "--Stock Pricing and Number of Shares to be
Issued" 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 (i) $50,000 of Common Stock,
subject to the overall limitation in (8) below, (ii) one-tenth of one
percent (0.10%) of the total offering of shares of Common Stock or (iii)
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 limitation in (8) below;
(3) The ESOP may purchase in the aggregate up to 10% of the shares of
Common Stock issued in the Conversion, including any additional shares
issued in the event of an increase in the Estimated Price Range, after
taking into account the shares purchased by Eligible Account Holders;
(4) Each Supplemental Eligible Account Holder may subscribe for and
purchase in the Subscription Offering up to the greater of (i) $50,000 of
Common Stock, subject to the overall limitation in (8) below, (ii) one-tenth
of one percent (0.10%) of the total offering of shares of Common Stock or
(iii) fifteen times the product (rounded down to the next whole number)
obtained by multiplying the total number of shares of Common Stock to be
issued by a fraction, of which the numerator is the amount of the qualifying
deposit of the Supplemental Eligible Account Holder and the denominator is
the total amount of qualifying deposits of all Supplemental Eligible Account
Holders, in each case on the Supplemental Eligibility Record Date, subject
to the overall limitation in (8) below;
(5) Each Other Voting Member may subscribe for and purchase in the
Subscription Offering up to the greater of (i) $50,000 of Common Stock,
subject to the overall limitation in (8) below, or (ii) one-tenth of one
percent (0.10%) of the total offering of shares of Common Stock, subject to
the overall limitation in (8) below;
(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 the greater of
(i) $50,000 of Common Stock, subject to the overall limitation in (8) below
or (ii) one-tenth of one percent (0.10%) of the total offering of shares of
Common Stock, subject to the overall limitation in (8) below;
(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 Community Offering
up to $50,000 of Common Stock, subject to the overall limitation in (8)
below;
(8) Eligible Account Holders, Supplemental Eligible Account Holders and
Other Voting Members may purchase stock in the Community and Syndicated
Community Offerings subject to the
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purchase limitations described in (6) and (7) above, provided that, except
for the ESOP, the maximum number of shares of Common Stock subscribed for or
purchased in all categories of the Conversion by any person together with
associates of and groups of persons acting in concert with such persons,
shall not exceed $150,000 of the aggregate value of the shares of Common
Stock sold in the Conversion; and
(9) No more than 35% 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 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 Company and the Bank may be, given the opportunity
to increase their subscriptions up to the then applicable limit. In the event
that an individual purchase limitation is decreased after commencement of the
Subscription or Community Offerings, the orders of any persons who subscribed
for the maximum number of shares of Common Stock shall be decreased by the
minimum amount necessary so that such person shall be in compliance with the
maximum number of shares permitted to be subscribed for by participants. Unless
otherwise permitted by the FDIC, the Company and the Bank do not anticipate that
they would decrease the maximum purchase limitations below one-tenth of 1% of
the total shares of Common Stock permitted to be purchased in the Subscription
and Community Offerings.
The overall purchase limitation may not be reduced to less than 1.0% but the
individual amount permitted to be purchased may be reduced to less than $50,000,
subject to (2), (4) and (5) above. Each Eligible Account Holder, Supplemental
Eligible Account Holder or Other Voting Member may purchase in the Subscription
Offering $50,000 of the Common Stock offered, assuming that at least $2.6
million of Common Stock is sold in the Offerings.
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) in the event that there is an
oversubscription by Eligible Account Holders, to fill unfulfilled subscriptions
of Eligible Account Holders; (ii) to fill the ESOP's subscription of 8.0% of the
Adjusted Maximum number of shares; (iii) in the event that there is an
oversubscription by Supplemental Eligible Account Holders, to fill unfulfilled
subscriptions of Supplemental Eligible Account Holders; (iv) in the event that
there is an oversubscription by Other Voting Members, to fill unfulfilled
subscriptions of Other Voting Members; and (v) to fill unfulfilled subscriptions
in the Community Offering to the extent possible.
The term "associate" of a person is defined to mean: (i) any corporation or
other organization (other than the Company, 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% 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 a trustee
or in a similar fiduciary capacity, provided, however, such term shall not
include any employee stock benefit plan of the Company or 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 or the Company or any of their
subsidiaries.
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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.
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 net worth of the Bank as of the date of its latest statement of financial
condition contained in the final Prospectus used in connection with the
Conversion. Such liquidation account will not be reflected as an asset or
liability on the Company's or the Bank's financial statements subsequent to 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 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 passbook accounts, transaction accounts such as NOW accounts,
money market deposit accounts, and certificates of deposit, held in the Bank on
July 31, 1995 and December 31, 1996, respectively. Each Eligible Account Holder
and Supplemental Eligible Account Holder will have a PRO RATA interest in the
total liquidation account for each of his deposit accounts based on the
proportion that the balance of each such deposit account on the July 31, 1995
Eligibility Record Date or the December 31, 1996 Supplemental Eligibility Record
Date bore to the balance of qualifying deposits of all Eligible Account Holders
or Supplemental Eligible Account Holders on such dates. For deposit accounts in
existence at both the Eligibility Record Date and the Supplemental Eligibility
Record Date, separate initial subaccount balances will be determined for such
accounts on each of the Eligibility Record Date and the Supplemental Eligibility
Record Date.
If, however, on any July 31 or September 31, annual closing date of the
Bank, commencing after July 31, 1995 or December 31, 1996, the amount in any
deposit account is less than the amount in such deposit account on July 31, 1995
or December 31, 1996, or any other annual closing date, then the interest in the
liquidation account relating to such deposit account would be reduced from time
to time by the proportion of any such reduction, and such interest will cease to
exist if such deposit account is closed. In addition, no interest in the
liquidation account would ever be increased despite any subsequent increase in
the related deposit account. Any assets remaining after the above liquidation
rights of Eligible Account Holders and Supplemental Eligible Account Holders are
satisfied would be distributed to the Company as the sole stockholder of the
Bank.
TAX ASPECTS
The Bank has received an opinion of its counsel, Elias, Matz, Tiernan &
Herrick L.L.P., regarding the material effects of the Conversion for Federal
income tax purposes, which opinion states, 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 and Supplemental Eligible Account Holders upon the issuance to
them of deposit accounts in the Bank in its
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stock form plus their interests in the liquidation account in exchange for their
deposit accounts in the Bank; (iv) the tax basis of the depositors' deposit
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; and (vi) the tax
basis to the stockholders of the Common Stock of the Company purchased in the
Conversion will be the amount paid therefor 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. Geo. S. Olive & Co. LLC, has rendered
an opinion to the effect that the foregoing tax effects of the Conversion under
Illinois law are substantially the same as they are under Federal law. Certain
portions of both the Federal and the state tax opinions are based upon the
opinion of RP Financial that subscription rights issued in connection with the
Conversion will have no value.
In the opinion of RP Financial, which opinion is not binding on the IRS, 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. If the
subscription rights granted to eligible subscribers are deemed to have an
ascertainable value, receipt of such rights would be taxable probably only to
those eligible subscribers who exercise the subscription rights (either as a
capital gain or ordinary income) in an amount equal to such value and the Bank
could recognize gain on such distribution. Eligible subscribers 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.
Unlike private rulings, an opinion of counsel is not binding on the IRS and
the IRS could disagree with conclusions reached therein. In the event of such
disagreement, there can be no assurance that the IRS would not prevail in a
judicial or administrative proceeding. A copy of each of the above-referenced
opinions is included as an exhibit to the Company's registration statement on
Form S-1 as filed with the SEC.
DELIVERY OF CERTIFICATES
Certificates representing Common Stock issued in the Conversion will be
mailed by the Company's transfer agent to the persons entitled thereto at the
addresses of such persons appearing on the stock order form as soon as
practicable following consummation of the Conversion. Any certificates returned
as undeliverable will be held by the Company until claimed by persons legally
entitled thereto or otherwise disposed of in accordance with applicable law.
Until certificates for Common Stock are available and delivered to subscribers,
subscribers may not be able to sell the shares of Common Stock for which they
have subscribed, even though trading of the Common Stock may have commenced.
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 officer of the Company and 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 officer or
pursuant to a merger or similar transaction approved by the Office. 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 within this one year period 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 Company and the Bank will also be subject to the insider trading rules
promulgated pursuant to the Exchange Act.
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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 Company and the Bank after adoption of the Plan of Conversion) 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
Office. This restriction does not apply, however, to negotiated transactions
involving more than 1.0% of the Company's outstanding Common Stock or to certain
purchases of stock pursuant to an employee stock benefit plan.
The Company has no present plans with respect to any repurchase of shares of
Common Stock and will not undertake any repurchase of shares of Common Stock
within the one year period subsequent to the Conversion. Any repurchases of
Common Stock by the Company in the future will be subject to the receipt of any
necessary approvals from the Commissioner and/or the FRB and will be subject to
any applicable regulations and policies of the Commissioner and FRB.
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RESTRICTIONS ON ACQUISITION OF THE COMPANY
GENERAL
The Bank's Plan of Conversion provides for the Conversion of the Bank from
the mutual to the stock form of organization and for the concurrent formation of
a holding company. As described below, certain provisions in the Company's
Certificate of Incorporation and Bylaws, together with provisions of Delaware
law, may have anti-takeover effects. 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
GENERAL. 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 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 stockholders may receive a substantial
premium for their shares over then current market prices. As a result,
stockholders who might desire to participate in such a transaction may not have
an opportunity to do so. Such provisions will also render the removal of the
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 ACQUISITION OF VOTING STOCK AND VOTING RIGHTS. Article X of
the Company's Certificate of Incorporation provides that for a period of five
years from the date of Conversion of the Bank from the mutual to the stock form,
no person shall directly or indirectly offer to acquire or acquire the
beneficial ownership of (i) more than 10% of the issued and outstanding shares
of any class of an equity security of the Company, or (ii) any securities
convertible into, or exercisable for, any equity securities of the Company if,
assuming conversion or exercise by such person of all securities of which such
person is the beneficial owner which are convertible into, or exercisable for,
such equity securities (but of no securities convertible into, or exercisable
for, such equity securities of which such person is not the beneficial owner),
such person would be the beneficial owner of more than 10% of any class of an
equity security of the Company. The term "person" is broadly defined to prevent
circumvention of this restriction.
The foregoing restrictions do not apply to (i) any offer with a view toward
public resale made exclusively to the Company by underwriters or a selling group
acting on its behalf, (ii) any tax-qualified employee benefit plan or
arrangement established by the Company or the Bank and any trustee of such a
plan or arrangement, and (iii) any other offer or acquisition approved in
advance by the affirmative vote of two-thirds of the Company's entire Board of
Directors. In the event that shares are acquired in violation of Article X, 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 stockholders for a vote, and the Board of Directors may
cause such Excess Shares to be transferred to an independent trustee for sale on
the open market or otherwise, with the expenses of such trustee to be paid out
of the proceeds of the sale.
BOARD OF DIRECTORS. Article VII of the Certificate of Incorporation of the
Company contains provisions relating to the Board of Directors and provides,
among other things, that the Board of Directors shall be divided into three
classes as nearly equal in number as possible with the term of office of one
class expiring each year. See "Management of the Company." 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
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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.
Cumulative voting in the election of directors is prohibited by the Certificate
of Incorporation. Elimination of cumulative voting will help to ensure
continuity and stability of the Company's Board of Directors and the policies
adopted by it by making it more difficult for the holders of a relatively small
amount of the common stock to elect their nominees to the Board of Directors and
possibly by delaying, deterring, or discouraging proxy contests.
Directors may be removed only with cause at a duly constituted meeting of
stockholders called expressly for that purpose upon the vote of the holders of
not less than a majority of the total votes eligible to be cast by stockholders.
Any vacancy occurring in the Board of Directors for any reason (including an
increase in the number of authorized directors) may be filled by the affirmative
vote of a majority of the Directors then in office, though less than a quorum of
the Board, or by the sole remaining director, and a director appointed to fill a
vacancy shall serve for the remainder of the term to which the director has been
elected, and until his successor has been elected and qualified.
Section 4.15 of the Bylaws governs nominations for election to the Board,
and provides that nominations for election to the Board of Directors may be made
by the Board of Directors or a committee thereof or by a stockholder eligible to
vote at an annual meeting of stockholders who has complied with the notice
provisions in that section. Written notice of a stockholder nomination must be
delivered to, or mailed to and received at, the principal executive offices of
the Company not less than ninety days prior to the anniversary date of the
mailing of proxy materials by the Company in connection with the immediately
preceding annual meeting, provided, however, that, with respect to the first
scheduled annual meeting following completion of the Conversion, which is
expected to be held on the third Wednesday of January 1998, nominations by the
stockholder must be so delivered or received no later than the close of business
on the third Wednesday of October 1997, notwithstanding a determination by the
Company to schedule such annual meeting at a date later than the third Wednesday
of January 1998. With respect to an election to be held at a special meeting of
stockholders for the election of directors, the notice must be delivered or
received no later than the close of business on the tenth day following the date
on which notice of such meeting is first given to stockholders. Each such notice
shall set forth: (a) the name and address of the stockholder who intends to make
the nomination and of the person or persons to be nominated; (b) a
representation that the stockholder is a holder of record of stock of the
Company entitled to vote at such meeting and intends to appear in person or by
proxy at the meeting to nominate the person or persons specified in the notice;
(c) a description of all arrangements or understandings between the stockholder
and each nominee and any arrangements or understandings between the stockholder
and each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by such
stockholders; (d) such other information regarding each nominee proposed by such
stockholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the SEC; and (e) the consent of each nominee to
serve as a director of the Company if so elected.
The provisions regarding director elections and other provisions in the
Certificate of Incorporation and Bylaws discussed herein are generally designed
to protect the ability of the Board of Directors to negotiate with the proponent
of an unfriendly or unsolicited proposal to take over or restructure the Company
by making it more difficult and time-consuming to change majority control of the
Board, whether by proxy contest or otherwise. The general effect of these
provisions will be to require generally two annual stockholders meetings,
instead of one, to effect a change in control of the Board of Directors of the
Company even if holders of a majority of the Company's capital stock believe
that a change in the composition of the Board of Directors is desirable. Because
a majority of the directors at any given time will have prior experience as
directors, these requirements will help to ensure continuity and stability of
the Company's management and policies and facilitate long-range planning for the
Company's business. The provisions relating to removal of directors and filling
of vacancies are consistent with and supportive of a classified board of
directors.
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The procedures regarding stockholder nominations will provide the Board of
Directors with sufficient time and information to evaluate a stockholder nominee
to the Board and other relevant information, such as existing stockholder
support for the nominee. The proposed procedures, however, will provide
incumbent directors advance notice of a dissident slate of nominees for
directors, and will make it easier for the Board to solicit proxies resisting
such nominees. This may make it easier for the incumbent directors to retain
their status as directors, even when certain stockholders view the dissident
nominations as in the best interests of the Company or its stockholders.
LIMITATION OF LIABILITY. Article IX of the Company's Certificate of
Incorporation provides that the personal liability of the directors and officers
of the Company for monetary damages shall be eliminated to the fullest extent
permitted by the General Corporation Law of the State of Delaware as it exists
on the effective date of the Certificate of Incorporation or as such law may be
thereafter in effect. Section 102(b)(7) of the Delaware General Corporation Law
currently provides that directors (but not officers) of corporations that have
adopted such a provision will not be so liable, except (i) for any breach of the
director's duty of loyalty to the corporation or its shareholders, (ii) for acts
or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (iii) for the payment of certain unlawful dividends
and the making of certain stock purchases or redemptions, or (iv) for any
transaction from which the director derived an improper personal benefit. This
provision would absolve directors of personal liability for negligence in the
performance of their duties, including gross negligence. It would not permit a
director to be exculpated, however, for liability for actions involving
conflicts of interest or breaches of the traditional "duty of loyalty" to the
Company and its shareholders, and it would not affect the availability of
injunctive or other equitable relief as a remedy.
If Delaware law was amended in the future to provide for greater limitations
on the personal liability of directors or to permit corporations to limit the
personal liability of officers, the provision in the Company's Certificate of
Incorporation limiting the personal liability of directors and officers would
automatically incorporate such authorities without further action by
shareholders. Similarly, if Delaware law was amended in the future to restrict
the ability of a corporation to limit the personal lability of directors, the
Company's Certificate of Incorporation would automatically incorporate such
restrictions without further action by shareholders.
Currently, the scope of the provision in the Company's Certificate of
Incorporation limiting the personal liability of directors is uncertain because
of the absence of judicial precedent interpreting similar provisions. In
addition, the SEC takes the position that similar provisions added to other
corporations' certificates of incorporation would not protect those
corporations' directors from liability for violations of the federal securities
laws. Federal banking regulators also may take the same position with respect to
violations of federal banking laws and regulations.
The provision limiting the personal liability of the Company's directors
does not eliminate or alter the duty of the Company's directors; it merely
limits personal lability for monetary damages to the maximum extent now or
hereafter permitted by the Delaware General Corporation Law. Moreover, it
currently applies only to claims against a director arising out of his role as a
director; it currently does not apply to claims arising out of his role as an
officer (if he is also an officer) or arising out of any other capacity in which
he serves because Section 102(b)(7) does not authorize such a limitation of
liability.
The provision in the Company's Certificate of Incorporation which limits the
personal liability of directors is designed to ensure that the ability of the
Company's directors to exercise their best business judgment in managing the
Company's affairs is not unreasonably impeded by exposure to the potentially
high personal costs or other uncertainties of litigation. The nature of the
tasks and responsibilities undertaken by directors of publicly-held corporations
often require such persons to make difficult judgments of great importance which
can expose such persons to personal liability, but from which they will acquire
no personal benefit. In recent years, litigation against publicly-held
corporations and their directors and officers challenging good faith business
judgments and involving no allegations of personal
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wrongdoing has become common. Such litigation regularly involves damage claims
in huge amounts which bear no relationship to the amount of compensation
received by the directors or officers, particularly in the case of directors who
are not employees of the corporation. The expense of such litigation, whether it
is well-founded or not, can be enormous. The provisions of the Certificate of
Incorporation relating to director liability is intended to reduce, in
appropriate cases, the risk incident to serving as a director and to enable the
Company to elect and retain persons most qualified to serve as directors.
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS. Article VI of
the Company's Bylaws provide that the Company shall indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was a director,
officer, employee or agent of the Company or any predecessor of the Company, or
is or was serving at the request of the Company or any predecessor of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding to the fullest extent authorized by Section 145 of the
General Corporation Law of the State of Delaware, provided that the Company
shall not be liable for any amounts which may be due in connection with a
settlement of any action, suit or proceeding effected without its prior written
consent or any action, suit or proceeding initiated by any person seeking
indemnification thereunder without its prior written consent.
Under Section 145 of the Delaware General Corporation Law as currently in
effect, other than in actions brought by or in the right of the Company, such
indemnification would apply if it was determined in the specific case that the
proposed indemnitee acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the Company and, with
respect to any criminal proceeding, if he or she had no reasonable cause to
believe that his or her conduct was unlawful. In actions brought by or in the
right of the Company, such indemnification would probably be limited to
reasonable expenses (including attorneys' fees), and would apply if it were
determined in the specific case that the proposed indemnitee acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the Company, except that no indemnification may be made with
respect to any claim, issue or matter as to which such person is adjudged liable
to the Company unless, and only to the extent that, the Delaware Court of
Chancery or the court in which that action was brought determines upon
application that, in view of all the circumstances of the case, the proposed
indemnitee is fairly and reasonably entitled to indemnity for such expenses as
the court deems proper. To the extent that any director, officer, employee or
agent of the Company has been successful on the merits or otherwise in defense
of any proceeding, he or she must be indemnified against reasonable expenses
incurred by him or her in connection therewith.
The Company's Bylaws also provide that reasonable expenses (including
attorneys' fees) incurred by a director, officer, employee or agent of the
Company in defending any civil, criminal, administrative or investigative
action, suit or proceeding described above shall be paid by the Company in
advance of the final disposition of such action, suit or proceeding as
authorized by the Board of Directors upon receipt of an undertaking by or on
behalf of such person to repay such amount if it shall ultimately be determined
that the person is not entitled to be indemnified by the Company.
AUTHORIZED SHARES AND ISSUANCE OF CAPITAL STOCK. Article IV of the
Certificate of Incorporation authorizes the issuance of 1,600,000 shares of
Common Stock with a par value of $.01 per share and 400,000 shares of preferred
stock with a par value of $0.01 per share (the "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
flexibility 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
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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 currently has no plans for the issuance of additional shares, other than
the issuance of additional shares pursuant to stock benefit plans.
Neither the Certificate of Incorporation nor the Bylaws of the Company
contain a restriction on the issuance of shares of capital stock to directors,
officers or controlling persons of the Company. Thus, stock-related compensation
plans such as the Stock Option Plan and the Recognition Plan could be adopted by
the Company without shareholder approval and shares of Company capital stock
could be issued directly to directors, officers or controlling persons without
shareholder approval. The Bylaws of the National Association of Securities
Dealers, Inc., however, generally require corporations with securities which are
quoted on the Nasdaq Stock Market to obtain shareholder approval of most stock
compensation plans for directors, officers and key employees of the corporation.
Moreover, although generally not required, shareholder approval of stock-related
compensation plans may be sought in certain instances in order to qualify such
plans for favorable federal income tax and securities law treatment under
current laws and regulations.
SPECIAL MEETINGS OF STOCKHOLDERS AND STOCKHOLDER PROPOSALS. Section 2.4 of
the Company's Bylaws provides that special meetings of the Company's
stockholders, for any purpose or purposes, may only be called by the affirmative
vote of a majority of the Board of Directors then in office.
Section 2.14 of the Company's Bylaws provides that only such business as
shall have been properly brought before an annual meeting of stockholders shall
be conducted at the annual meeting. In order to be properly brought before an
annual meeting following completion of the Conversion, business must be (a)
brought before the meeting by or at the direction of the Board of Directors or
(b) otherwise properly brought before the meeting by a stockholder who has given
timely notice thereof in writing to the Company. For stockholder proposals to be
included in the Company's proxy materials, the stockholder must comply with all
the timing and informational requirements of Rule 14a-8 of the Exchange Act.
With respect to stockholder proposals to be considered at the annual meeting of
stockholders but not included in the Company's proxy materials, the
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Company not less than 90 days prior to the
anniversary date of the mailing of proxy materials by the Company in connection
with the immediately preceding annual meeting; provided, however, that with
respect to the first scheduled annual meeting following completion of the
Conversion, which is expected to be held on the third Wednesday of January 1998,
such written notice must be received by the Company not later than the close of
business on the third Wednesday of October 1997. In connection with such first
annual meeting, stockholder nominations will be required to be received by the
Company by the aforementioned date notwithstanding a determination by the
Company to schedule such annual meeting at a date later than the third Wednesday
of January 1998. A stockholder's notice shall set forth as to each matter the
stockholder proposes to bring before the annual meeting (a) a brief description
of the business desired to be brought before the annual meeting, (b) the name
and address, as they appear on the Company's books, of the stockholder proposing
such business, (c) the class and number of shares of the Company which are
beneficially owned by the stockholder, and (d) any financial interest of the
stockholder in such business. The presiding officer of an annual meeting shall
determine and declare to the meeting whether the business was properly brought
before the meeting in accordance with the provisions of Section 2.14 and any
such business not properly brought before the meeting shall not be transacted.
The procedures regarding stockholder proposals are designed to provide the
Board with sufficient time and information to evaluate a stockholder proposal
and other relevant information, such as existing stockholder support for the
proposal. The proposed procedures, however, will give incumbent directors
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advance notice of a business proposal. This may make it easier for the incumbent
directors to defeat a stockholder proposal, even when certain stockholders view
such proposal as in the best interests of the Company or its stockholders.
AMENDMENT OF CERTIFICATE OF INCORPORATION AND BYLAWS. Article 11 of the
Company's Certificate of Incorporation generally provides that any amendment of
the Certificate of Incorporation must be first approved by a majority of the
Board of Directors and, to the extent required by law, then by the holders of a
majority of the shares of the Company entitled to vote in an election of
directors, except that the approval of 75% of the shares of the Company entitled
to vote in an election of directors is required for any amendment to Articles
VII (directors), VIII (meetings of stockholders and bylaws), IX (limitation on
liability of directors and officers), X (restrictions on acquisitions) and 11
(amendment), unless any such proposed amendment is approved by a vote of 75% of
the Board of Directors then in office.
The Bylaws of the Company may be amended by a majority of the Board of
Directors or by the affirmative vote of a majority of the total shares entitled
to vote in an election of directors, except that the affirmative vote of at
least 75% of the total shares entitled to vote in an election of directors shall
be required to amend, adopt, alter, change or repeal any provision inconsistent
with certain specified provisions of the Bylaws, unless any such proposed
amendment is approved by a vote of 75% of the Board of Directors then in office.
DELAWARE GENERAL CORPORATION LAW. In addition to the provisions contained
in the Company's Certificate of Incorporation, the Delaware General Corporation
Law includes certain provisions applicable to Delaware corporations, such as the
Company, which may be deemed to have an anti-takeover effect. Section 203 of the
Delaware General Corporation Law ("Section 203") imposes certain restrictions on
business combinations between the Company and large shareholders. Specifically,
Section 203 prohibits a "business combination" (as defined in Section 203,
generally including mergers, sales and leases of assets, issuances of securities
and similar transactions) between the Company or a subsidiary and an "interested
shareholder" (as defined in Section 203, generally the beneficial owner of 15%
or more of the Company's Common Stock) within three years after the person or
entity becomes an interested shareholder, unless (i) prior to the person or
entity becoming an interested shareholder, the business combination or the
transaction pursuant to which such person or entity became an interested
shareholder shall have been approved by the Company's Board of Directors, (ii)
upon consummation of the transaction in which the interested shareholder became
such, the interested shareholder holds at least 85% of the Company's Common
Stock (excluding shares held by persons who are both officers and directors and
shares held by certain employee benefit plans), or (iii) the business
combination is approved by the Company's Board of Directors and by the holders
of at least two-thirds of the outstanding Company Common Stock, excluding shares
owned by the interested shareholders.
One of the effects of Section 203 may be to prevent highly leveraged
takeovers, which depend upon getting access to the acquired corporation's assets
to support or repay acquisition indebtedness and certain coercive acquisition
tactics. By requiring approval of the holders of two-thirds of the shares held
by disinterested shareholders for business combinations involving an interested
shareholder, Section 203 may prevent any interested shareholder from taking
advantage of its position as a substantial, if not controlling, shareholder and
engaging in transactions with the Company that may not be fair to the Company's
other shareholders or that may otherwise not be in the best interests of the
Company, its shareholders and other constituencies.
For similar reasons, however, these provisions may make more difficult or
discourage an acquisition of the Company, or the acquisition of control of the
Company by a principal shareholder, and thus the removal of incumbent
management, because a business combination within the specified three-year
period that is not approved by a majority of the Board of Directors prior to the
transaction in which a person becomes an interested shareholder will require the
approval of the Board of Directors and the holders of two-thirds of the shares
held by disinterested shareholders. In addition, to the extent that Section 203
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discourages takeovers that would result in the change of the Company's
management, such a change may be less likely to occur.
ANTI-TAKEOVER EFFECTS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS AND
MANAGEMENT REMUNERATION ADOPTED IN THE CONVERSION
The foregoing provisions of the Certificate of Incorporation and Bylaws of
the Company could have the effect of discouraging an acquisition of the Company
or stock purchases in furtherance of an acquisition, and could accordingly,
under certain circumstances, discourage transactions which might otherwise have
a favorable effect on the price of the Company's Common Stock.
In addition, certain provisions of the proposed employment agreement with
the Company's and the Bank's President provide him with severance payments upon
his termination in connection with a change in control of the Company or the
Bank. See "Management of the Company--Employment Agreement." The foregoing
provisions may make it more difficult for companies or persons to acquire
control of the Company. Additionally, the provisions could deter offers to the
shareholders which might be viewed by such shareholders to be in their best
interests.
The Board of Directors believes that the provisions described above are
prudent and will reduce vulnerability to takeover attempts and certain other
transactions that are not negotiated with and approved by the Board of Directors
of the Company. The Board of Directors believes that these provisions are in the
best interests of the Company and its future stockholders. In the Board of
Directors' judgment, the Board of Directors is in the best position to determine
the true value of the Company and to negotiate more effectively for what may be
in the best interests of its stockholders. Accordingly, the Board of Directors
believes that it is in the best interests of the Company and its future
stockholders to encourage potential acquirors to negotiate directly with the
Board of Directors and that these provisions will encourage such negotiations
and discourage hostile 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 prices reflective of the true value of the Company and
where the transaction is in the best interests of all stockholders.
Despite the Board of Directors' belief as to the benefits to the Company's
stockholders of the foregoing provisions, these provisions also may have the
effect of discouraging a future takeover attempt in which stockholders might
receive a substantial premium for their shares over then current market prices
and may tend to perpetuate existing management. As a result, stockholders who
might desire to participate in such a transaction may not have an opportunity to
do so. The Board of Directors, however, has concluded that the potential
benefits of these provisions outweigh their possible disadvantages.
The Board of Directors of the Company and the Bank are not aware of any
effort that might be made to acquire control of the Bank or the Company.
REGULATORY RESTRICTIONS
The Change in Bank Control Act provides that no person, acting directly or
indirectly or through or in concert with one or more other persons, may acquire
control of a bank unless the FDIC has been given 60 days' prior written notice.
The Bank Company Act provides that no company may acquire "control" of a bank
without the prior approval of the Federal Reserve Board. Any company that
acquires such control becomes a bank holding company subject to registration,
examination and regulation by the Federal Reserve Board. Pursuant to federal
regulations, control of a bank is conclusively deemed to have been acquired by,
among other things, the acquisition of more than 25% of any class of voting
stock of the bank or the ability to control the election of a majority of the
directors of a bank. The Federal Reserve Board may prohibit an acquisition if
(i) it would result in a monopoly or substantially lessen competition, (ii) the
financial condition of the acquiring person might jeopardize the financial
stability of the institution, or (iii) the competence, experience or integrity
of the acquiring person indicates that it would not be in the interest of the
depositors or of the public to permit the acquisition of control by such person.
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DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
GENERAL
The Company is authorized to issue 1,600,000 shares of Common Stock having a
par value of $0.01 per share and 400,000 shares of preferred stock having a par
value of $0.01 per share (the "Preferred Stock"). The Company currently expects
to issue up to a maximum of 345,000 shares of Common Stock and no shares of
Preferred Stock in the Conversion. 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 of Conversion, all such stock will be
duly authorized, fully paid and nonassessable. Presented below is a description
of all aspects of the Company's capital stock which are deemed material to an
investment decision with respect to the Conversion.
THE COMMON STOCK OF THE COMPANY WILL REPRESENT NONWITHDRAWABLE CAPITAL, WILL
NOT BE AN ACCOUNT OF AN INSURABLE TYPE, AND WILL NOT BE INSURED BY THE FDIC.
COMMON STOCK
DISTRIBUTIONS. The Company can pay dividends if, as and when declared by
its Board of Directors, subject to compliance with limitations which are imposed
by law. See "Dividend Policy." 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. During at least
the one-year period subsequent to the Conversion, the Company will take no
action to implement any distribution of a return of excess capital to
stockholders.
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.
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. Cumulative voting
means that holders of stock of a corporation are entitled, in the election of
directors, to cast a number of votes equal to the number of shares which they
own multiplied by the number of directors to be elected Because a stockholder
entitled to cumulative voting may cast all of his votes for one nominee or
disperse his votes among nominees as he chooses, cumulative voting is generally
considered to increase the ability of minority stockholders to elect nominees to
a corporation's board of directors. Under certain circumstances, shares in
excess of 10.0% of the issued and outstanding shares of Common Stock may be
considered "Excess Shares" and, accordingly, not be entitled to vote. See
"Restrictions on Acquisitions of the Company and the Bank." If the Company
issues Preferred Stock, holders of the Preferred Stock may also possess voting
rights.
As an Illinois-chartered 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 will 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.
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
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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. The Company has
no present plans to issue Preferred Stock.
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DESCRIPTION OF CAPITAL STOCK OF THE BANK
GENERAL
The Amended and Restated Articles of Incorporation of the Bank, to be
effective upon the Conversion, authorizes the issuance of capital stock
consisting of 1,000,000 shares of common stock, par value $1.00 per share. 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 Amended and Restated
Articles of Incorporation without the approval of the Bank's stockholders. Upon
Conversion, 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 nonwithdrawable capital, will not be an account of an
insurable type, and will not be insured by the FDIC. Presented below is a
description of all aspects of the Bank's capital stock which are deemed material
to an investment decision with respect to the Conversion.
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 therefore. See "Dividend Policy" for
certain restrictions on the payment of dividends.
VOTING RIGHTS
Immediately after the Conversion, the holders of the Bank's common stock,
which consist solely of the Company, 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 and there shall be no right to cumulate votes.
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
nonassessable.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is
____________.
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EXPERTS
The consolidated financial statements of the Bank as of September 30, 1996
and 1995, and for each of the years in the two-year period ended September 30,
1996, included in the Prospectus have been audited by Geo. S. Olive & Co. LLC,
independent auditors, as stated in their report appearing elsewhere herein, and
have been so included in reliance upon the report of such firm, given upon their
authority as experts in accounting and auditing.
RP Financial 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 opinion 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 Elias, Matz,
Tiernan & Herrick L.L.P., Washington, D.C., special counsel to the Bank and the
Company. The Illinois income tax consequences of the Conversion will be passed
upon for the Bank and the Company by Geo. Olive & Co. LLC. Certain legal matters
will be passed upon for Trident by Luse Lehman Gorman Pomerenk & Schick,
Washington, D.C.
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, including
the Conversion Valuation Appraisal Report which is an exhibit to the
Registration Statement, can be examined without charge at the public reference
facilities of the SEC located at 450 Fifth Street, N.W., Washington, D.C. 20549,
and copies of such material can be obtained from the SEC at prescribed rates.
The statements contained in this Prospectus as to the contents of any contract
or other document 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 Commissioner with
respect to the Conversion. This Prospectus omits certain information contained
in that application. The Application may be examined at the office of the
Commissioner, Office of Banks and Real Estate, 205 West Randolph Street, Suite
1900, Chicago, Illinois 60606.
In connection with the Conversion, the Company will register its Common
Stock with the SEC under Section 12(g) of the Exchange Act, and, upon such
registration, the Company and the holders of its stock will become subject to
the proxy solicitation rules, reporting requirements and restrictions on stock
purchases and sales by directors, officers and greater than 10% stockholders,
the annual and periodic reporting and certain other requirements of the Exchange
Act. Under the Plan, the Company has undertaken that it will not terminate such
registration for a period of at least three years following the Conversion.
A copy of the Plan of Conversion and Articles of Incorporation and the
Bylaws of the Company and the Amended and Restated Articles of Incorporation and
Bylaws of the Bank are available without charge from the Bank. Requests for such
information should be directed to: Mr. Merrill Norton, President, American
Savings Bank of Danville, 714 North Vermilion Street, Danville, Illinois 61834.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Independent Auditor's Report............................................................................... F-2
Consolidated Balance Sheet................................................................................. F-3
Consolidated Statement of Income........................................................................... 31
Consolidated Statement of Equity Capital................................................................... F-5
Consolidated Statement of Cash Flows....................................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
The financial statements of Vermilion Bancorp, Inc. ("VBI") have been
omitted because VBI had not yet issued any stock, has no assets or liabilities,
and has not conducted any business other than of an organization nature.
All schedules are omitted as the required information is not applicable or
the information is presented in the Consolidated Financial Statements.
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
American Savings Bank of Danville
Danville, Illinois
We have audited the consolidated balance sheet of American Savings Bank of
Danville and subsidiary as of September 30, 1996 and 1995, and the related
consolidated statements of income, equity capital, and cash flows for the years
then ended. 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 described above
present fairly, in all material respects, the consolidated financial position of
American Savings Bank of Danville and subsidiary as of September 30, 1996 and
1995, and the results of their operations and their cash flows for the years
then ended, in conformity with generally accepted accounting principles.
As discussed in the notes to the consolidated financial statements, the Bank
changed its method of accounting for investment securities in 1995.
Champaign, Illinois
October 11, 1996,
except as to the subsequent
event note, which is as of
November 6, 1996
F-2
<PAGE>
AMERICAN SAVINGS BANK OF DANVILLE
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30 1996 1995
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<S> <C> <C>
ASSETS
Cash and due from banks.......................................................... $ 359,747 $ 426,372
Interest-bearing demand deposits................................................. 429,451 144,220
------------- -------------
Cash and cash equivalents.................................................... 789,198 570,592
Interest-bearing time deposits................................................... 99,000 99,000
Investment securities
Available for sale............................................................. 2,221,693 1,485,815
Held to maturity............................................................... 4,336,559 6,816,446
------------- -------------
Total investment securities.................................................. 6,558,252 8,302,261
Loans............................................................................ 27,079,584 24,028,147
Allowance for loan losses...................................................... 143,349 74,190
------------- -------------
Net loans.................................................................... 26,936,235 23,953,957
Premises and equipment........................................................... 466,928 495,251
Federal Home Loan Bank stock..................................................... 269,000 255,000
Other assets..................................................................... 340,599 300,774
------------- -------------
Total assets................................................................. $ 35,459,212 $ 33,976,835
------------- -------------
------------- -------------
LIABILITIES
Deposits
Noninterest-bearing............................................................ $ 165,593 $ 105,078
Interest-bearing............................................................... 30,558,460 31,226,360
------------- -------------
Total deposits............................................................... 30,724,053 31,331,438
Federal Home Loan Bank borrowings................................................ 2,000,000
OTHER LIABILITIES................................................................ 380,010 202,988
------------- -------------
Total liabilities............................................................ 33,104,063 31,534,426
------------- -------------
EQUITY CAPITAL
Retained earnings................................................................ 2,370,504 2,441,672
Net unrealized gain (loss) on securities available for sale...................... (15,355) 737
------------- -------------
Total equity capital......................................................... 2,355,149 2,442,409
------------- -------------
Total liabilities and equity capital......................................... $ 35,459,212 $ 33,976,835
------------- -------------
------------- -------------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
AMERICAN SAVINGS BANK OF DANVILLE
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30 1996 1995
- -------------------------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
INTEREST INCOME
Loans receivable.................................................................... $ 2,118,137 $ 1,757,456
Investment securities............................................................... 448,729 537,854
Deposits with financial institutions................................................ 67,274 80,233
------------ ------------
Total interest income........................................................... 2,634,140 2,375,543
------------ ------------
INTEREST EXPENSE
Deposits............................................................................ 1,670,717 1,588,004
Federal Home Loan Bank borrowings................................................... 107,113
------------ ------------
Total interest expense.......................................................... 1,777,830 1,588,004
------------ ------------
NET INTEREST INCOME................................................................... 856,310 787,539
Provision for losses on loans....................................................... 80,000 13,059
------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR LOSSES ON LOANS............................... 776,310 774,480
------------ ------------
NONINTEREST INCOME
Loan fees........................................................................... 11,551 10,788
Net realized gains on sales of available-for-sale securities........................ 563
Other income........................................................................ 33,343 39,426
------------ ------------
Total noninterest income........................................................ 44,894 50,777
------------ ------------
NONINTEREST EXPENSE
Salaries and employee benefits...................................................... 275,741 296,624
Net occupancy expenses.............................................................. 96,895 94,548
Data processing fees................................................................ 40,568 39,165
Deposit insurance expense........................................................... 277,093 71,039
Printing and office supplies........................................................ 15,710 16,760
Legal and professional fees......................................................... 36,569 43,305
Advertising and promotion........................................................... 28,525 28,311
Director and committee fees......................................................... 41,107 41,107
Other expenses...................................................................... 77,281 78,853
------------ ------------
Total noninterest expense....................................................... 889,489 709,712
------------ ------------
INCOME (LOSS) BEFORE INCOME TAX....................................................... (68,285) 115,545
Income tax expense.................................................................. 2,883 15,230
------------ ------------
NET INCOME (LOSS)..................................................................... $ (71,168) $ 100,315
------------ ------------
------------ ------------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
AMERICAN SAVINGS BANK OF DANVILLE
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF EQUITY CAPITAL
<TABLE>
<CAPTION>
NET UNREALIZED
GAIN
(LOSS) ON
SECURITIES
RETAINED AVAILABLE
EARNINGS FOR SALE TOTAL
------------ -------------- ------------
<S> <C> <C> <C>
BALANCES, OCTOBER 1, 1994............................................. $ 2,341,357 $ 2,341,357
Net income for 1995................................................. 100,315 100,315
Cumulative effect of change in method of accounting for
securities........................................................ $ (12,419) (12,419)
Net change in unrealized gain (loss) on securities available for
sale.............................................................. 13,156 13,156
------------ -------------- ------------
BALANCES, SEPTEMBER 30, 1995.......................................... 2,441,672 737 2,442,409
Net loss for 1996................................................... (71,168) (71,168)
Net change in unrealized gain (loss) on securities available for
sale.............................................................. (16,092) (16,092)
------------ -------------- ------------
Balances, September 30, 1996........................................ $ 2,370,504 $ (15,355) $ 2,355,149
------------ -------------- ------------
------------ -------------- ------------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
AMERICAN SAVINGS BANK OF DANVILLE
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30 1996 1995
- ------------------------------------------------------------------------------------- ------------- -----------
<S> <C> <C>
Operating Activities
Net income (loss).................................................................. $ (71,168) $ 100,315
Adjustments to reconcile net income (loss) to net cash provided by operating
activities
Provision for loan losses........................................................ 80,000 13,059
Investment securities gains...................................................... (563)
Deferred income tax.............................................................. (41,577)
Investment securities amortization (accretion), net.............................. 11,049 (15,705)
Depreciation..................................................................... 33,594 35,742
Federal Home Loan Bank stock dividend............................................ (3,600)
Net change in:
Interest receivable............................................................ (51,317) (16,370)
Interest payable............................................................... 7,652 (5,594)
Other assets................................................................... 58,567 (14,173)
Other liabilities.............................................................. 169,370 49,134
------------- -----------
Net cash provided by operating activities...................................... 196,170 142,245
------------- -----------
INVESTING ACTIVITIES
Net change in interest-bearing deposits............................................ 595,000
Purchases of securities available for sale......................................... (550,000) (671,775)
Proceeds from maturities of securities available for sale.......................... 1,394,257 700,000
Proceeds from sales of securities available for sale............................... 300,563
Proceeds from maturities of securities held to maturity............................ 867,113 590,564
Net change in loans................................................................ (3,062,278) (2,340,524)
Purchase of premises and equipment................................................. (5,271) (62,900)
Purchase of Federal Home Loan Bank stock........................................... (14,000) (15,300)
------------- -----------
Net cash used by investing activities.......................................... (1,370,179) (904,372)
------------- -----------
FINANCING ACTIVITIES
Net change in deposits............................................................. (607,385) 633,385
Proceeds of Federal Home Loan Bank borrowings...................................... 2,000,000
------------- -----------
Net cash provided by financing activities...................................... 1,392,615 633,385
------------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS.............................................. 218,606 (128,742)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR......................................... 570,592 699,334
------------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR............................................... $ 789,198 $ 570,592
------------- -----------
------------- -----------
ADDITIONAL CASH FLOWS INFORMATION
Interest paid...................................................................... $ 1,770,178 $ 1,593,598
Income tax paid.................................................................... 17,205 16,800
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
AMERICAN SAVINGS BANK OF DANVILLE AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of American Savings Bank of Danville
(the "Bank") and its wholly owned subsidiary, GBW Service Corporation (which
services contract sales of real estate), conform to generally accepted
accounting principles and reporting practices followed by the thrift industry.
The more significant of the policies are described below.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The Bank operates under a state thrift charter and provides full banking
services. As a state-chartered thrift, the Bank is subject to regulation by the
State of Illinois Office of Banks and Real Estate and the Federal Deposit
Insurance Corporation.
The Bank generates commercial, mortgage and consumer loans and receives
deposits from customers located primarily in Danville and the immediately
surrounding communities. The Bank's loans are generally secured by specific
items of collateral including real property and consumer assets. Although the
Bank has a diversified loan portfolio, a substantial portion of its debtors'
ability to honor their contracts is dependent upon economic conditions in the
Danville area.
CONSOLIDATION--The consolidated financial statements include the accounts of
the Bank and subsidiary after elimination of all material intercompany
transactions and accounts.
INVESTMENT SECURITIES--The Bank adopted Statement of Financial Accounting
Standards ("SFAS") No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND
EQUITY SECURITIES, on October 1, 1994. Debt securities are classified as held to
maturity when the Bank has the positive intent and ability to hold the
securities to maturity. Securities held to maturity are carried at amortized
cost. Debt securities not classified as held to maturity are classified as
available for sale. Securities available for sale are carried at fair value with
unrealized gains and losses reported separately in equity capital, net of tax.
Amortization of premiums and accretion of discounts are recorded as interest
income from securities. Realized gains and losses are recorded as net security
gains (losses). Gains and losses on sales of securities are determined on the
specific-identification method.
At October 1, 1994, investment securities with an approximate carrying value
of $1,799,600 were reclassified as available for sale. This reclassification
resulted in a decrease in total equity, net of taxes, of $12,419.
LOANS are carried at the principal amount outstanding. Interest income is
accrued on the principal balances of loans. The accrual of interest on impaired
loans is discontinued when, in management's opinion, the borrower may be unable
to meet payments as they become due. Interest income is subsequently recognized
only to the extent cash payments are received. Certain loan fees and direct
costs are being deferred and amortized as an adjustment of yield on the loans.
ALLOWANCE FOR LOAN LOSSES is maintained to absorb loan losses based on
management's continuing review and evaluation of the portfolio and its judgment
as to the impact of economic conditions on the portfolio. The evaluation by
management includes consideration of past loss experience, changes in the
composition of the portfolio, and the current condition and amount of loans
outstanding, and the probability of
F-7
<PAGE>
AMERICAN SAVINGS BANK OF DANVILLE AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1) NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
collecting all amounts due. Impaired loans are measured by the present value of
expected future cash flows, or the fair value of the collateral of the loan, if
collateral dependent.
PREMISES AND EQUIPMENT are carried at cost net of accumulated depreciation.
Depreciation is computed using both the straight-line and accelerated methods
based on the estimated useful lives of the assets. Maintenance and repairs are
expensed as incurred while major additions and improvements are capitalized.
Gains and losses on dispositions are included in current operations.
FEDERAL HOME LOAN BANK STOCK is a required investment for institutions that
are members of the Federal Home Loan Bank ("FHLB") system. The required
investment in the common stock is based on a predetermined formula.
INCOME TAX in the consolidated statement of income includes deferred income
tax provisions or benefits for all significant temporary differences in
recognizing income and expenses for financial reporting and income tax purposes.
The Bank files consolidated income tax returns with its subsidiary.
RECLASSIFICATIONS of certain amounts in the 1995 consolidated financial
statements have been made to conform to the 1996 presentation.
2) SUBSEQUENT EVENTS
On November 6, 1996, the Board of Directors adopted a Plan of Conversion
(the "Plan") whereby the Bank will convert from a state chartered mutual savings
bank to a state chartered stock savings bank. The Plan is subject to approval of
regulatory authorities and members at a special meeting. The stock of the Bank
will be issued to a holding company formed in connection with the conversion.
Pursuant to the Plan, shares of capital stock of the holding company are
expected to be offered initially for subscription to eligible members of the
Bank and certain other persons as of specified dates subject to various
subscription priorities as provided in the Plan. The capital stock will be
offered at a price to be determined by the Board of Directors based upon an
appraisal to be made by an independent appraisal firm. The exact number of
shares to be offered will be determined by the Board of Directors in conjunction
with the determination of the subscription price. At least the minimum number of
shares offered in the conversion must be sold. Any stock not purchased in the
subscription offering will be sold in a community offering to be commenced
simultaneously with the subscription offering.
The Plan provides that when the conversion is completed, a liquidation
account will be established in an amount equal to the retained income of the
Bank as of the date of the most recent financial statements contained in the
final conversion prospectus. The liquidation account is established to provide a
limited priority claim to the assets of the Bank to qualifying depositors at
July 31, 1995, who continue to maintain deposits in the Bank after conversion.
In the unlikely event of a complete liquidation of the Bank, and only in such
event, eligible account holders would receive from the liquidation account a
liquidation distribution based on their proportionate share of the then total
remaining qualifying deposits.
Current regulations allow the Bank to pay dividends on its stock after the
conversion if its regulatory capital would not thereby be reduced below the
amount then required for the aforementioned liquidation account. Also, capital
distribution regulations limit the Bank's ability to make capital distributions
which include dividends, stock redemptions or repurchases, cash-out mergers,
interest payments on certain convertible debt and other transactions charged to
the capital account based on its capital level and supervisory condition.
F-8
<PAGE>
AMERICAN SAVINGS BANK OF DANVILLE AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2) SUBSEQUENT EVENTS (CONTINUED)
No conversion costs have been incurred as of September 30, 1996. Costs of
conversion will be netted from proceeds of sale of common stock and recorded as
a reduction of additional paid-in capital or common stock. If the conversion is
not completed, such costs would be charged to expense.
3) INVESTMENT SECURITIES
<TABLE>
<CAPTION>
1996
----------------------------------------------------
<S> <C> <C> <C> <C>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
SEPTEMBER 30 COST GAINS LOSSES VALUE
- ------------------------------------------------------------- ------------ ----------- ----------- ------------
Available for sale
U.S. Treasury.............................................. $ 250,000 $ 3,250 $ 253,250
Federal agencies........................................... 1,992,166 5,025 $ 28,748 1,968,443
------------ ----------- ----------- ------------
Total available for sale................................. 2,242,166 8,275 28,748 2,221,693
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
Held to maturity
Federal agencies........................................... 499,798 928 498,870
State and municipal........................................ 361,177 6,759 354,418
Mortgage-back securities................................... 3,475,584 30,440 32,713 3,473,311
------------ ----------- ----------- ------------
Total held to maturity................................... 4,336,559 30,440 40,400 4,326,599
------------ ----------- ----------- ------------
Total investment securities.............................. $ 6,578,725 $ 38,715 $ 69,148 $ 6,548,292
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
</TABLE>
<TABLE>
<CAPTION>
1995
----------------------------------------------------
<S> <C> <C> <C> <C>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
SEPTEMBER 30 COST GAINS LOSSES VALUE
- ------------------------------------------------------------- ------------ ----------- ----------- ------------
Available for sale
U.S. Treasury.............................................. $ 198,274 $ 400 $ 198,674
Federal agencies........................................... 1,286,424 3,749 $ 3,032 1,287,141
------------ ----------- ----------- ------------
Total available for sale................................. 1,484,698 4,149 3,032 1,485,815
------------ ----------- ----------- ------------
Held to maturity
Federal agencies........................................... 2,196,132 2,363 41,891 2,156,604
State and municipal........................................ 360,201 7,165 353,036
Mortgage-backed securities................................. 4,260,113 36,696 40,317 4,256,492
------------ ----------- ----------- ------------
Total held to maturity................................... 6,816,446 39,059 89,373 6,766,132
------------ ----------- ----------- ------------
Total investment securities.............................. $ 8,301,144 $ 43,208 $ 92,405 $ 8,251,947
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
</TABLE>
F-9
<PAGE>
AMERICAN SAVINGS BANK OF DANVILLE AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3) INVESTMENT SECURITIES (CONTINUED)
The amortized cost and fair value of securities available for sale and held
to maturity at September 30, 1996, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because issuers may
have the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
-------------------------- --------------------------
<S> <C> <C> <C> <C>
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
------------ ------------ ------------ ------------
Within one year.......................................... $ 600,000 $ 604,341 $ 499,798 $ 498,870
One to five years........................................ 1,642,166 1,617,352
Five to ten years........................................ 165,469 162,370
After ten years.......................................... 195,708 192,048
------------ ------------ ------------ ------------
2,242,166 2,221,693 860,975 853,288
Mortgage-backed securities............................... 3,475,584 3,473,311
Totals............................................... $ 2,242,166 $ 2,221,693 $ 4,336,559 $ 4,326,599
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
There were no pledged securities at September 30, 1996 or 1995.
Proceeds from the sale of a security available for sale during 1995 were
$300,563. A gross gain of $563 was realized on the sale. There were no sales of
securities during 1996.
On December 31, 1995, the Bank transferred certain securities from held to
maturity to available for sale in accordance with a transition reclassification
allowed by the Financial Accounting Standards Board. Such securities had a
carrying value of $1,600,000 and a fair value of $1,592,598.
F-10
<PAGE>
AMERICAN SAVINGS BANK OF DANVILLE AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4) LOANS AND ALLOWANCE
<TABLE>
<CAPTION>
SEPTEMBER 30 1996 1995
- ----------------------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
Real estate mortgage loans
One-to-four family............................................................... $ 21,418,924 $ 19,181,018
Multi-family..................................................................... 1,236,140 1,157,351
Commercial real estate loans....................................................... 780,848 669,127
Real estate sold on contract....................................................... 373,846 414,915
Real estate construction loans..................................................... 341,793 163,147
Commercial business loans.......................................................... 334,376 242,147
Consumer loans..................................................................... 2,581,152 2,290,163
------------- -------------
Total loans.................................................................... 27,067,079 24,117,868
Plus
Deferred loan costs.............................................................. 38,121
Less
Undisbursed portion of loans..................................................... 25,376 89,194
Unearned interest................................................................ 240 527
------------- -------------
$ 27,079,584 $ 24,028,147
------------- -------------
------------- -------------
Allowance for loan losses
Balances, October 1.............................................................. $ 74,190 $ 67,309
Provision for losses............................................................. 80,000 13,059
Recoveries on loans.............................................................. 1,296 4,158
Loans charged off................................................................ (12,137) (10,336)
------------- -------------
Balances, September 30........................................................... $ 143,349 $ 74,190
------------- -------------
------------- -------------
</TABLE>
The Bank adopted SFAS No. 114 and No. 118, ACCOUNTING BY CREDITORS FOR
IMPAIRMENT OF A LOAN AND ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A
LOAN--INCOME RECOGNITION AND DISCLOSURES on October 1, 1995. The adoption of
SFAS No. 114 and No. 118 did not have a material impact on the Bank's financial
position or results of operations.
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheet. The unpaid principal balances of mortgage loans
serviced for others were $432,071 and $525,065 at September 30, 1996 and 1995.
5) PREMISES AND EQUIPMENT
<TABLE>
<CAPTION>
SEPTEMBER 30 1996 1995
- ------------------------------------------------------------------ ------------ ------------
<S> <C> <C>
Land.............................................................. $ 209,431 $ 209,431
Office building................................................... 568,593 568,593
Furniture and fixtures............................................ 292,129 286,858
------------ ------------
Total cost.................................................... 1,070,153 1,064,882
------------ ------------
Accumulated depreciation.......................................... (603,225) (569,631)
Net........................................................... $ 466,928 $ 495,251
------------ ------------
------------ ------------
</TABLE>
F-11
<PAGE>
AMERICAN SAVINGS BANK OF DANVILLE AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6) OTHER ASSETS AND OTHER LIABILITIES
<TABLE>
<CAPTION>
SEPTEMBER 30 1996 1995
- ---------------------------------------------------------------------- ---------- ----------
<S> <C> <C>
Other assets
Interest receivable................................................. $ 147,719 $ 96,402
Cash value of life insurance annuity................................ 53,284 58,654
Deferred income tax asset........................................... 97,963 50,888
Prepaid expenses and other.......................................... 41,633 94,830
---------- ----------
Total............................................................. $ 340,599 $ 300,774
---------- ----------
---------- ----------
Other liabilities
Interest payable on deposits........................................ $ 17,917 $ 19,982
Interest payable on borrowings...................................... 9,717
Deferred compensation payable....................................... 79,831 74,831
Federal income tax payable.......................................... 30,229 49,094
SAIF Assessment..................................................... 207,307
Other............................................................... 35,009 59,081
---------- ----------
Total............................................................. $ 380,010 $ 202,988
---------- ----------
---------- ----------
</TABLE>
7) DEPOSITS
<TABLE>
<CAPTION>
1996 1995
SEPTEMBER 30 AMOUNT AMOUNT
- --------------------------------------------------------------- ------------- -------------
<S> <C> <C>
NOW accounts................................................... $ 576,722 $ 625,170
Money market investment accounts............................... 1,043,201 1,432,051
Savings and retirement accounts................................ 5,350,222 4,964,863
Certificates................................................... 23,753,908 24,309,354
------------- -------------
Total deposits............................................. $ 30,724,053 $ 31,331,438
------------- -------------
------------- -------------
Certificates maturing in years ending September 30:
1997........................................................... $ 16,995,124
1998........................................................... 4,368,789
1999........................................................... 1,598,821
2000........................................................... 292,850
2001........................................................... 498,324
-------------
$ 23,753,908
-------------
-------------
</TABLE>
The aggregate amount of certificates of deposit with a minimum denomination
of $100,000 was approximately $2,775,000 and $2,924,000 at December 31, 1996 and
1995.
F-12
<PAGE>
AMERICAN SAVINGS BANK OF DANVILLE AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8) FEDERAL HOME LOAN BANK BORROWINGS
<TABLE>
<CAPTION>
SEPTEMBER 30 1996
- -------------------------------------------------------------------------------- ------------
<S> <C>
Federal Home Loan Bank advances:
At 6.02%; due October,1997.................................................... $ 500,000
At 5.98%; due October, 1997................................................... 500,000
At 5.66%; due November, 1997.................................................. 1,000,000
------------
Total FHLB borrowings....................................................... $ 2,000,000
------------
------------
</TABLE>
The terms of security agreements with the FHLB require the Bank to pledge as
collateral for the advances qualifying first mortgage loans in an amount equal
to at least 170 percent of the advances and all stock in the FHLB.
9) INCOME TAX
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30 1996 1995
- ----------------------------------------------------------------------- ---------- ---------
<S> <C> <C>
Income tax expense (benefit)
Current federal...................................................... $ 44,460 $ 15,230
Deferred federal..................................................... (41,577)
---------- ---------
Total income tax expense........................................... $ 2,883 $ 15,230
---------- ---------
---------- ---------
Reconciliation of federal statutory to actual tax expense
Federal statutory income tax at 34%.................................. $ (23,217) $ 39,285
Tax exempt interest.................................................. (5,048) (10,687)
Graduated tax rates.................................................. 7,467 (11,398)
Change in tax rate applicable to deferred taxes...................... 18,404
Other................................................................ 5,277 (1,970)
---------- ---------
Actual tax expense................................................. $ 2,883 $ 15,230
---------- ---------
---------- ---------
</TABLE>
F-13
<PAGE>
AMERICAN SAVINGS BANK OF DANVILLE AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9) INCOME TAX (CONTINUED)
A cumulative net deferred tax asset is included in other assets. The
components of the asset are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30 1996 1995
- ----------------------------------------------------------------------- ---------- ---------
<S> <C> <C>
Differences in depreciation methods.................................... $ (530) $ (4,255)
Differences in accounting for loan losses.............................. 32,408 27,713
Deferred compensation.................................................. 19,958 29,185
Unrealized (gain) loss on securities available for sale................ 5,118 (380)
Deferred loan costs.................................................... (9,530)
SAIF assessment........................................................ 51,439
Other.................................................................. (900) (1,375)
---------- ---------
$ 97,963 $ 50,888
---------- ---------
---------- ---------
Assets................................................................. $ 108,923 $ 57,278
Liabilities............................................................ (10,960) (6,390)
---------- ---------
$ 97,963 $ 50,888
---------- ---------
---------- ---------
</TABLE>
There was no state income tax expense for 1996 or 1995.
Retained earnings at September 30, 1996 and 1995, include approximately
$995,000 for which no deferred income tax liability has been recognized. This
amount represents an allocation of income to bad debt deductions as of September
30, 1988, for tax purposes only. Reduction of amounts so allocated for purposes
other than tax bad debt losses or adjustments arising from carryback of net
operating losses would create income for tax purposes only, which income would
be subject to the then-current corporate income tax rate. The unrecorded
deferred income tax liability on the above amounts was approximately $338,300 at
September 30, 1996 and 1995.
10) COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business there are outstanding commitments and
contingent liabilities, such as commitments to extend credit and standby letters
of credit, which are not included in the accompanying financial statements. The
Bank's exposure to credit loss in the event of nonperformance by the other party
to the financial instruments for commitments to extend credit and standby
letters of credit is represented by the contractual or notional amount of those
instruments. The Bank uses the same credit policies in making such commitments
as it does for instruments that are included in the consolidated balance sheet.
Financial instruments whose contract amount represents credit risk at
September 30 were as follows:
<TABLE>
<CAPTION>
1996 1995
------------ ----------
<S> <C> <C>
Mortgage loan commitments at fixed rates............................ $ 1,182,000 $ 474,000
Standby letters of credit........................................... 23,000
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses 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 credit
worthiness on a case-by-case basis. The amount
F-14
<PAGE>
AMERICAN SAVINGS BANK OF DANVILLE AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10) COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
of collateral obtained, if deemed necessary by the Bank upon extension of
credit, is based on management's credit evaluation. Collateral held varies, but
may include residential real estate, income-producing commercial properties, or
other assets of the borrower.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party.
On December 30, 1992, a former employee filed a lawsuit against the Bank
which involves various accusations. A summary judgement has been issued by the
court in favor of the Bank on each count with the exception of one. Based on the
current status of the litigation, the Bank's attorneys have advised that, while
they are unable to express an opinion as to the ultimate disposition of the
claim, they believe that it is unlikely that the former employee will prevail on
the remaining count. No accrual for loss from this action has been recognized in
the accompanying financial statements.
In addition, the Bank and subsidiary are also subject to other claims and
lawsuits which arise primarily in the ordinary course of business. It is the
opinion of management that the disposition or ultimate determination of such
possible claims or lawsuits will not have a material adverse effect on the
consolidated financial position of the Bank.
11) REGULATORY CAPITAL
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate actions by the regulatory agencies that, if undertaken, could have
a 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 judgements by the regulators
about components, risk weightings, and other factors.
At September 30, 1996, the management of the Bank believes that it meets all
capital adequacy requirements to which it is subject. The most recent
notification from the regulatory agency categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. There have been no
conditions or events since that notification that management believes have
changed this categorization.
The Bank's actual and required capital amounts (in thousands) and ratios are
as follows:
<TABLE>
<CAPTION>
1996
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
REQUIRED FOR
ADEQUATE CAPITAL(1) TO BE WELL
ACTUAL CAPITALIZED(1)
-------------------- -------------------- --------------------
<CAPTION>
SEPTEMBER 30 AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
- ----------------------------------------------------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Total risk-based capital(1) (to risk-weighted assets)............ $ 2,514 15.33% $ 1,312 8.0% $ 1,640 10.0%
Tier 1 capital(1) (to risk-weighted assets)...................... 2,371 14.45% 656 4.0% 984 6.0%
Tier 1 capital(1) (to adjusted total assets)..................... 2,371 6.69% 1,418 4.0% 1,773 5.0%
</TABLE>
- ------------------------
(1) As defined by regulatory agencies
F-15
<PAGE>
AMERICAN SAVINGS BANK OF DANVILLE AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11) REGULATORY CAPITAL (CONTINUED)
The Bank's tangible capital at September 30, 1996, was $2,371,000 which was
6.69 percent of tangible assets and exceeded the required ratio of 1.5 percent.
On September 30, 1996, legislation was enacted to recapitalize the Federal
Deposit Insurance Corporation's Savings Association Insurance Fund ("SAIF") as
well as to provide regulatory relief to SAIF insured institutions. As a result
of this legislation, a special assessment was levied on all SAIF assessable
deposits outstanding on March 31, 1995, at a rate of approximately .657 percent
of deposits. Accordingly, the Bank recorded an expense related to this special
assessment of approximately $155,000 net of taxes, on the date of enactment.
12) BENEFIT PLANS
The Bank has a retirement savings Section 401(k) plan in which substantially
all employees may participate. The Bank contributes three percent of base salary
for each participant. In addition, the Bank matches 100 percent of the first
four percent of employees' base salary contributions. The Bank also matches 50
percent of the next 4 percent of base salary contributed by the participants.
The Bank's expense for the plan was approximately $19,000 for 1996 and $18,300
for 1995.
The Bank also has a deferred compensation plan for directors whereby
participating directors can elect to defer directors' fees in return for
inclusion in a deferred compensation plan which pays benefits to such
participating directors upon retirement or death. The Bank purchased a deferred
annuity, which is included in other assets, to fund the deferred compensation
plan benefits; however, this annuity is not restricted for that purpose. A
deferred compensation liability has been calculated and recorded in other
liabilities, which represents the present value of future benefits to be paid at
retirement for each participating director. Deferred compensation plan expense
included in the financial statements was $12,600 for both 1996 and 1995.
13) FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument:
CASH AND CASH EQUIVALENTS--The fair value of cash and cash equivalents
approximates carrying value.
INTEREST-BEARING TIME DEPOSITS--The fair value of interest-bearing time
deposits approximates carrying value.
SECURITIES AND MORTGAGE-BACKED SECURITIES--Fair values are based on quoted
market prices.
LOANS--For both short-term loans and variable-rate loans that reprice
frequently and with no significant change in credit risk, fair values are based
on carrying values. The fair value for other loans are estimated using
discounted cash flow analyses, using interest rates currently being offered for
loans with similar terms to borrowers of similar credit quality.
INTEREST RECEIVABLE/PAYABLE--The fair values of interest receivable/payable
approximate carrying values.
FEDERAL HOME LOAN BANK STOCK--Fair value of FHLB stock is based on the price
at which it may be resold to the FHLB.
F-16
<PAGE>
AMERICAN SAVINGS BANK OF DANVILLE AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13) FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
DEPOSITS--The fair values of noninterest-bearing, interest-bearing demand
and savings accounts are equal to the amount payable on demand at the balance
sheet date. Fair values for fixed-rate certificates of deposit are estimated
using a discounted cash flow calculation that applies interest rates currently
being offered on certificates to a schedule of aggregated expected monthly
maturities on such time deposits.
FEDERAL HOME LOAN BANK ADVANCES--The fair value of these borrowings are
estimated using a discounted cash flow calculation, based on current rates for
similar debt.
OFF-BALANCE SHEET COMMITMENTS--Commitments include commitments to originate
mortgage loans and standby letters of credit and are generally of a short-term
nature. The fair value of such commitments 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 Bank currently does not
charge a commitment fee; accordingly, no value has been assigned to the Bank's
commitments to extend credit.
THE ESTIMATED FAIR VALUES OF THE BANK'S FINANCIAL INSTRUMENTS ARE AS FOLLOWS:
<TABLE>
<CAPTION>
1996
------------------------------
<S> <C> <C>
SEPTEMBER 30 CARRYING AMOUNT FAIR VALUE
- -------------------------------------------------------------- ---------------- ------------
ASSETS
Cash and cash equivalents................................... $ 789,189 $ 789,189
Interest-bearing time deposits.............................. 99,000 99,000
Investment securities available for sale.................... 2,221,693 2,221,693
Investment securities held to maturity...................... 4,336,559 4,326,599
Loans, net.................................................. 26,936,235 27,000,354
Interest receivable......................................... 147,719 147,719
Stock in FHLB............................................... 269,000 269,000
Cash surrender value of life insurance...................... 53,284 53,284
LIABILITIES
Deposits.................................................... 30,724,053 30,852,791
FHLB borrowings............................................. 2,000,000 1,991,610
Interest payable............................................ 27,634 27,634
OFF-BALANCE SHEET ASSETS (LIABILITIES)
Commitments to extend credit................................ 0 0
Standby letters of credit................................... 0 0
</TABLE>
F-17
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
SEC filing fees................................................... $ 1,200
Illinois Commissioner filing fees................................. 10,000
NASD filing fees.................................................. 900
Printing, Postage and mailing..................................... 35,000
Legal fees and expenses........................................... 55,000
Blue Sky and expenses............................................. 7,500
Accounting Fees................................................... 40,000
Appraiser's fees and expenses..................................... 15,000
Conversion agent and transfer agent fees and expenses............. 10,000
Agent's counsel fees and out-of-pocket expenses................... 22,500
Underwriter's Expenses............................................ 10,000
Underwriter's Management Fee...................................... 22,500
Miscellaneous..................................................... 4,400
---------
Total....................................................... $ 234,000
---------
---------
</TABLE>
In addition to the foregoing expenses, the Agent will receive aggregate fees
of $29,710, $36,946, $44,183 and $52,530 at the minimum midpoint, maximum and
maximum, as adjusted, respectively, of the Estimated Price Range.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law sets forth circumstances
under which directors, officers, employees and agents may be insured or
indemnified against liability which they may incur in their capacity as such.
The Bylaws of the Company provide that the directors, officers, employees and
agents of the Company shall be indemnified to the full extent permitted by law.
Such indemnity shall extend to expenses, including attorney's fees, judgments,
fines and amounts paid in the settlement, prosecution or defense of the
foregoing actions.
Article IX of the Registrant's Certificate of Incorporation provides as
follows:
The personal liability of the directors and officers of the Corporation for
monetary damages shall be eliminated to the fullest extent permitted by the
General Corporation Law of the State of Delaware as it exists on the effective
date of this Certificate of Incorporation or as such law may be thereafter in
effect. No amendment, modification or repeal of this Article IX shall adversely
affect the rights provided hereby with respect to any claim, issue or matter in
any proceeding that is based in any respect on any alleged action or failure to
act prior to such amendment, modification or repeal.
Article VI of the Registrant's Bylaws provides as follows:
6.1 INDEMNIFICATION. The Corporation shall indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was a director,
officer, employee or agent of the Corporation or any predecessor of the
Corporation, or is or was serving at the request of the Corporation or any
predecessor of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines, and amounts paid
in settlement actually and reasonably
II-1
<PAGE>
incurred by such person in connection with such action, suit or proceeding to
the fullest extent authorized by Section 145 of the General Corporation Law of
the State of Delaware, provided that the Corporation shall not be liable for any
amounts which may be due to any person in connection with a settlement of any
action, suit or proceeding effected without its prior written consent or any
action, suit or proceeding initiated by any person seeking indemnification
hereunder without its prior written consent.
6.2 ADVANCEMENT OF EXPENSES. Reasonable expenses (including attorneys'
fees) incurred by a director, officer or employee of the Corporation in
defending any civil, criminal, administrative or investigative action, suit or
proceeding described in Section 6.1 shall be paid by the Corporation in advance
of the final disposition of such action, suit or proceeding as authorized by the
Board of Directors only upon receipt of an undertaking by or on behalf of such
person to repay such amount if it shall ultimately be determined that the person
is not entitled to be indemnified by the Corporation.
6.3 OTHER RIGHTS AND REMEDIES. The indemnification and advancement of
expenses provided by, or granted pursuant to, this Article VI shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under the Corporation's Certificate of
Incorporation, any agreement, vote of stockholders or disinterested directors or
otherwise, both as to actions in their official capacity and as to actions in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer or employee and shall inure to the
benefit of the heirs, executors and administrators of such person.
6.4 INSURANCE. Upon resolution passed by the Board of Directors, the
Corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against any liability asserted against him or incurred by him in any
such capacity or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of its Certificate of Incorporation or this Article VI.
6.5 MODIFICATION. The duties of the Corporation to indemnify and to
advance expenses to a director, officer, employee or agent provided in this
Article VI shall be in the nature of a contract between the Corporation and each
such person, and no amendment or repeal of any provision of this Article VI
shall alter, to the detriment of such person, the right of such person to the
advance of expenses or indemnification related to a claim based on an act or
failure to act which took place prior to such amendment or repeal.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Not applicable.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS 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)
<TABLE>
<C> <S>
1.1 Engagement Letter with Trident Securities, Inc.
1.2* Agency Agreement with Trident Securities, Inc.
2.0 Plan of Conversion
3.1 Certificate of Incorporation of Vermilion Bancorp, Inc.
3.2 Bylaws of Vermilion Bancorp, Inc.
3.3 Amended and Restated Articles of Incorporation of American Savings Bank
of Danville
3.4 Amended and Restated Bylaws of American Savings Bank of Danville
4.0 Form of Stock Certificate of Vermilion Bancorp, Inc.
5.0 Form of Opinion of Elias, Matz, Tiernan & Herrick L.L.P. regarding legality
of securities
8.1* Opinion of Elias, Matz, Tiernan & Herrick regarding federal tax matters
8.2* Opinion of Geo. Olive & Co., LLC regarding Illinois tax matters
8.3 Opinion of RP Financial, L.C. regarding subscription rights
10.1 Form of 1997 Stock Option Plan for Employees and Non-Employee Directors
10.2 Employment Agreement between American Savings Bank of Danville and
Merrill G. Norton
23.1 Consent of Elias, Matz, Tiernan & Herrick L.L.P. (Included in Exhibits
5.0 and 8.1, respectively)
23.2 Consent of Geo. Olive & Co. LLC
23.3 Consent of RP Financial, L.C.
24.0 Power of Attorney (included in Signature Page of this Registration Statement)
99.1* Appraisal Report of RP Financial, L.C., dated November 15, 1996
99.2* Subscription Order Form and Instructions
99.3* Return Request Card
99.4* Transmittal Letters
99.5* Question and Answer Brochure
99.6* Proxygram
99.7 Proxy Statement and Form of Proxy
</TABLE>
- ------------------------
* To be filed by amendment
(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
II-3
<PAGE>
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 the securities offered would not exceed that which was registered)
and any deviation from the low or high and 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 directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Form S-1 Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the State of Illinois on
November 29, 1996.
VERMILION BANCORP, INC.
By: /s/ MERRILL G. NORTON
-----------------------------------------
Merrill G. Norton
DIRECTOR, 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. Each person whose signature appears below
hereby makes, constitutes and appoints Merrill G. Norton his true and lawful
attorney, with full power to sign for each person and in such person's name and
capacity indicated below, and with full power of substitution, any and all
amendments to this Registration Statement, hereby ratifying and confirming such
person's signature as it may be signed by said attorney to any and all
amendments.
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ MERRILL G. NORTON
- ------------------------------ Director, President and November 29, 1996
Merrill G. Norton Chief Executive Officer
Vice President and
/s/ TERRY L. STAL Controller (principal
- ------------------------------ financial and accounting November 29, 1996
Terry L. Stal officer)
/s/ THOMAS B. MEYER
- ------------------------------ Chairman of the Board November 29, 1996
Thomas B. Meyer
/s/ CARL W. BUSBY
- ------------------------------ Director November 29, 1996
Carl W. Busby
/s/ ROBERT L. EWBANK
- ------------------------------ Director November 29, 1996
Robert L. Ewbank
/s/ WILLIAM T. INGRAM
- ------------------------------ Director November 29, 1996
William T. Ingram
II-5
<PAGE>
EXHIBIT 1.1
July 15, 1996
Board of Directors
American Savings Bank of Danville
714 North Vermilion
Danville, Illinois 61834
RE: Conversion Stock Marketing Services
Gentlemen:
This letter sets forth the terms of the proposed engagement between Trident
Securities, Inc. ("Trident") and American Savings Bank of Danville, Danville,
Illinois (the "Bank") concerning our investment banking services in connection
with the conversion of the Bank from a mutual to a capital stock form of
organization.
Trident is prepared to assist the Bank in connection with the offering of its
shares of common stock during the subscription offering and community offering
as such terms are defined in the Bank's Plan of Conversion (the "Plan"). The
specific terms of the services contemplated hereunder shall be set forth in a
definitive sales agency agreement (the "Agreement") between Trident and the Bank
to be executed on the date the offering circular/prospectus is declared
effective by the appropriate regulatory authorities. The price of the shares
during the subscription offering and community offering will be the price
established by the Bank's Board of Directors, based upon an independent
appraisal as approved by the appropriate regulatory authorities, provided such
price is mutually acceptable to Trident and the Bank.
In connection with the subscription offering and community offering, Trident
will act as financial advisor and exercise its best efforts to assist the Bank
in the sale of its common stock during the subscription offering and community
offering. Additionally, Trident may enter into agreements with other National
Association of Securities Dealers, Inc., ("NASD") member firms to act as
selected dealers, assisting in the sale of the common stock. Trident and the
Bank will determine the selected dealers to assist the Bank during the community
offering. At the appropriate time, Trident in conjunction with its counsel,
will conduct an examination of the relevant documents and records of the Bank as
Trident deems necessary and appropriate. The Bank will make all documents,
records and other information deemed necessary by Trident or its counsel
available to them upon request.
For its services hereunder, Trident will receive the following compensation and
reimbursement from the Bank:
<PAGE>
Board of Directors
July 15, 1996
Page 2
1. A commission equal to 2.00% of the aggregate dollar amount of capital
stock sold to Eligible Account Holders who reside in the Bank's
primary market area (as defined in the Plan) and a commission equal to
1.50% on sales to Eligible Account Holders residing outside of the
Bank's primary market area. No commissions shall be payable on any
shares purchased by officers, directors, employees or their associates
or any employee benefit plans.
2. A commission equal to 2.00% of the aggregate dollar amount of capital
stock sold to Supplemental Eligible Account Holders and Other Members
who reside in the Bank's primary market area and a commission equal to
1.50% of the aggregate dollar amount of capital stock sold to
Supplemental Eligible Account Holders and Other Members residing
outside of the Bank's primary market area.
3. A commission equal to 2.00% of the aggregate dollar amount of capital
stock sold in the Community Offering to residents of the Bank's
primary market area and a commission equal to 1.50% on sales to
persons residing outside of the Bank's primary market area.
4. For stock sold by other NASD member firms under selected dealer's
agreements, the commission shall not exceed a fee to be agreed upon
jointly by Trident and the Bank to reflect market requirements at the
time of the stock allocation in a Syndicated Community Offering.
5. The foregoing fees and commissions are to be payable to Trident at
closing as defined in the Agreement to be entered into between the
Bank and Trident.
6. Trident shall be reimbursed for allocable expenses incurred by them,
including legal fees, whether or not the Agreement is consummated.
Trident's out-of-pocket expenses will not exceed $10,000 and its legal
fees will not exceed $22,500. The Bank will forward to Trident a
check in the amount of $10,000 as an advance payment to defray the
allocable expenses of Trident.
It further is understood that the Bank will pay all other expenses of the
conversion including but not limited to its attorneys' fees, NASD filing fees,
and filing and registration fees and fees of either Trident's attorneys or the
attorneys relating to any required state securities
<PAGE>
Board of Directors
July 15, 1996
Page 3
law filings, telephone charges, air freight, rental equipment, supplies,
transfer agent charges, fees relating to auditing and accounting and costs of
printing all documents necessary in connection with the foregoing.
For purposes of Trident's obligation to file certain documents and to make
certain representations to the NASD in connection with the conversion, the Bank
warrants that: (a) the Bank has not privately placed any securities within the
last 18 months; (b) there have been no material dealings within the last 12
months between the Bank and any NASD member or any person related to or
associated with any such member; (c) none of the officers or directors of the
Bank has any affiliation with the NASD; (d) except as contemplated by this
engagement letter with Trident, the Bank has no financial or management
consulting contracts outstanding with any other person; (e) the Bank has not
granted Trident a right of first refusal with respect to the underwriting of any
future offering of the Bank stock; and (f) there has been no intermediary
between Trident and the Bank in connection with the public offering of the
Bank's shares, and no person is being compensated in any manner for providing
such service.
If the Agreement is entered into with respect to the common stock to be issued
in the conversion, the Agreement will provide for indemnification, which will be
in addition to any rights that Trident or any other indemnified party may have
at common law or otherwise. The indemnification provision of this paragraph
will be superseded by the indemnification provisions of the Agreement entered
into by the Bank and Trident.
This letter is merely a statement of intent and is not a binding legal agreement
except as to paragraph (6) above with regard to the obligation to reimburse
Trident for allocable expenses to be incurred prior to the execution of the
Agreement. While Trident and the Bank agree in principle to the contents hereof
and propose to proceed promptly, and in good faith, to work out the arrangements
with respect to the proposed offering, any legal obligations between Trident and
the Bank shall be only as set forth in a duly executed Agreement. Such
Agreement shall be in form and content satisfactory to Trident and the Bank, as
well as their counsel, and Trident's obligations thereunder shall be subject to,
among other things, there being in Trident's opinion no material adverse change
in the condition or obligations of the Bank or no market conditions which might
render the sale of the shares by the Bank hereby contemplated inadvisable.
<PAGE>
Board of Directors
July 15, 1996
Page 4
Please acknowledge your agreement to the foregoing by signing below and
returning to Trident one copy of this letter. Trident acknowledges receipt of
the advance payment of $10,000.
Very truly yours,
TRIDENT SECURITIES, INC.
By: /s/ R. Lee Burrows, Jr.
-----------------------
R. Lee Burrows, Jr.
Managing Director
RLB/cs
7-15-1
Agreed and accepted to this 7th day of October, 1996
AMERICAN SAVINGS BANK OF DANVILLE
By: /s/ Merrill G. Norton
---------------------
Merrill G. Norton
President
<PAGE>
EXHIBIT 2.0
PLAN OF CONVERSION
OF
AMERICAN SAVINGS BANK OF DANVILLE
<PAGE>
TABLE OF CONTENTS
SECTION
NUMBER PAGE
- ------- ----
1. Introduction. . . . . . . . . . . . . . . . . . . . . . . 1
2. Definitions . . . . . . . . . . . . . . . . . . . . . . . 2
3. General Procedure for Conversion. . . . . . . . . . . . . 6
4. Total Number of Shares and Purchase Price of
Conversion Stock . . . . . . . . . . . . . . . . . . . . 8
5. Subscription Rights of Eligible Account
Holders . . . . . . . . . . . . . . . . . . . . . . . . 9
6. Subscription Rights of the ESOP . . . . . . . . . . . . . 9
7. Subscription Rights of Supplemental
Eligible Account Holders . . . . . . . . . . . . . . . . 10
8. Subscription Rights of Other Voting Members . . . . . . . 10
9. Community Offering, Syndicated Community Offering
and Other Offerings . . . . . . . . . . . . . . . . . . 11
10. Limitations on Subscriptions and Purchases of
Conversion Stock . . . . . . . . . . . . . . . . . . . . 12
11. Timing of Subscription Offering, Manner of
Exercising Subscription Rights and Order Forms . . . . . 14
12. Payment for Conversion Stock . . . . . . . . . . . . . . 16
13. Account Holders in Nonqualified States or
Foreign Countries. . . . . . . . . . . . . . . . . . . . 17
14. Voting Rights of Stockholders . . . . . . . . . . . . . 17
15. Liquidation Account . . . . . . . . . . . . . . . . . . . 17
16. Transfer of Deposit Accounts. . . . . . . . . . . . . . . 19
17. Requirements Following Conversion for Registration,
Market Making and Stock Exchange Listing . . . . . . . . 19
18. Directors and Officers of the Savings Bank. . . . . . . . 19
19. Requirements for Stock Purchases by Directors and
Officers Following Conversion . . . . . . . . . . . . . 19
20. Restrictions on Transfer of Stock . . . . . . . . . . . . 20
21. Restrictions on Acquisition of Stock of the
Holding Company. . . . . . . . . . . . . . . . . . . . . 20
22. Adoption of Capital Stock Articles and Bylaws . . . . . . 21
23. Tax Rulings or Opinions . . . . . . . . . . . . . . . . . 21
24. Stock Compensation Plans. . . . . . . . . . . . . . . . . 21
25. Dividend and Repurchase Restrictions on Stock . . . . . . 22
26. Expenses of Conversion. . . . . . . . . . . . . . . . . . 22
27. Effective Date. . . . . . . . . . . . . . . . . . . . . . 22
28. Amendment or Termination of the Plan. . . . . . . . . . . 22
29. Interpretation. . . . . . . . . . . . . . . . . . . . . . 23
<PAGE>
PLAN OF CONVERSION
OF
AMERICAN SAVINGS BANK OF DANVILLE
1 . INTRODUCTION.
For purposes of this section, all capitalized terms have the meanings
ascribed to them in Section 2.
On November 6, 1996, the Board of Directors of American Savings Bank of
Danville adopted this Plan of Conversion which provides for the conversion of
the Savings Bank from mutual to stock form and the concurrent issuance of its
capital stock to the Holding Company. This Plan provides that non-transferable
subscription rights to purchase Conversion Stock will be offered first to
Eligible Account Holders of record as of the Eligibility Record Date, then to
the Savings Bank's ESOP, then to Supplemental Eligible Account Holders, and then
to Other Voting Members. Shares of Conversion Stock remaining unsold after the
Subscription Offering, if any, will be offered for sale to the public through a
Community Offering and/or Syndicated Community Offering, as determined by the
Board of Directors of the Savings Bank in its sole discretion.
The Conversion is intended to provide a larger capital base to support the
Savings Bank's lending and investment activities, possible diversification into
other related financial services activities and future growth through possible
acquisitions of other financial institutions. In addition, the Conversion is
intended to further enhance the Savings Bank's capabilities to serve the
borrowing and other financial needs of the communities it serves. The use of
the Holding Company will provide greater organizational flexibility and possible
diversification.
In adopting this Plan of Conversion, the Board of Directors of the Savings
Bank determined that Conversion was advisable and in the best interests of its
Members and the Savings Bank.
This Plan is subject to the approval of the Commissioner and the
non-objection of the FDIC and must be adopted, by a majority of the total
outstanding votes of Members of the Savings Bank at a Special Meeting to be
called for that purpose.
Each holder of a Deposit Account in the Savings Bank prior to Conversion
will continue to hold an account with an identical balance in the converted
Savings Bank. In addition, the converted Savings Bank will succeed to all of
the rights, interests, duties, and obligations of the present Savings Bank,
including all rights and interests in and to its assets and properties, whether
real, personal or mixed.
<PAGE>
After Conversion, the Savings Bank will continue to be regulated by the
Commissioner, as its chartering authority, and by the FDIC, which insures the
Savings Bank's deposits. After Conversion, the Holding Company will be
regulated by the Federal Reserve Board. In addition, the Savings Bank will
continue to be a member of the Federal Home Loan Bank System and all insured
savings deposits will continue to be insured by the FDIC up to the maximum
provided by law.
2. DEFINITIONS.
As used in this Plan, the terms set forth below have the following meaning:
2.1 ACTUAL PURCHASE PRICE means the price per share at which the Conversion
Stock is ultimately sold by the Holding Company to Participants in the
Subscription Offering and Persons in the Community Offering and/or Syndicated
Community Offering in accordance with the terms hereof.
2.2 AFFILIATE means a Person who, directly or indirectly, through one or
more intermediaries, controls or is controlled by or is under common control
with the Person specified.
2.3 ASSOCIATE when used to indicate a relationship between Persons, means
(i) a corporation or organization (other than the Savings Bank, a majority-owned
subsidiary of the Savings Bank or the Holding Company) of which such Person, or
members of the Person's immediate family, is a director, officer or partner or
is, directly or indirectly, the beneficial owner of 10% or more of any class of
equity securities, (ii) any trust or other estate in which such Person has a
substantial beneficial interest or as to which such Person serves as trustee or
in a similar fiduciary capacity, provided, however, that such terms shall not
include any Tax-Qualified Employee Stock Benefit Plan or Non-Tax-Qualified
Employee Stock Benefit Plan 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 has
the same legal residence as such Person or who is a director or officer of the
Savings Bank or the Holding Company or any of the subsidiaries of the foregoing.
2.4 CODE means the Internal Revenue Code of 1986, as amended.
2.5 COMMISSIONER means the Office of Banks and Real Estate of the State of
Illinois.
2.6 COMMUNITY OFFERING means the offering for sale by the Holding Company
of any shares of Conversion Stock not subscribed for in the Subscription
Offering to (i) natural persons residing in the Savings Bank's Local Community,
and then to (ii) such other Persons within or without the State of Illinois as
may be selected by the Holding Company and the Savings Bank within their sole
discretion.
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<PAGE>
2.7 CONTROL (including the terms "controlling," "controlled by," and "under
common control with") means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
2.8 CONVERSION means (i) the amendment of the Savings Bank's articles of
incorporation in mutual form to authorize the issuance of shares of capital
stock and otherwise to conform to the requirements of a stock savings bank
incorporated under the laws of the State of Illinois and applicable regulations,
(ii) the issuance of Conversion Stock by the Holding Company as provided herein
and (iii) the purchase by the Holding Company of all of the capital stock of the
Savings Bank to be issued by the Savings Bank in connection with its conversion
from mutual to stock form.
2.9 CONVERSION STOCK means the common stock of the Holding Company to be
issued and sold pursuant to the Plan of Conversion, which stock cannot and will
not be insured by the FDIC.
2.10 DEPOSIT ACCOUNT means that part of the liability of the Savings
Bank which is credited to the account of the holder thereof, including
certificates of deposit.
2.11 DIRECTOR, OFFICER AND EMPLOYEE means the terms as applied
respectively to any person who is a director, officer or employee of the Savings
Bank or any subsidiary thereof.
2.12 ELIGIBLE ACCOUNT HOLDER means any Person holding a Qualifying
Deposit at the close of business on the Eligibility Record Date.
2.13 ELIGIBILITY RECORD DATE means the date for determining Qualifying
Deposits of Eligible Account Holders and is the close of business on July 31,
1995.
2.14 ESTIMATED PRICE RANGE means the range of the estimated aggregate
pro forma market value of the total number of shares of Conversion Stock to be
issued in the Conversion, as determined by the Independent Appraiser in
accordance with Section 4 hereof.
2.15 FDIC means the Federal Deposit Insurance Corporation or any
successor thereto.
2.16 FEDERAL RESERVE BOARD means the Board of Governors of the Federal
Reserve System.
2.17 HOLDING COMPANY means the corporation organized to hold all of
the capital stock of the Savings Bank.
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<PAGE>
2.18 INDEPENDENT APPRAISER means the independent investment banking or
financial consulting firm retained by the Savings Bank to prepare an appraisal
of the estimated pro forma market value of the Conversion Stock.
2.19 LOCAL COMMUNITY means all counties in which the Savings Bank has
its home office or a branch office.
2.20 MAXIMUM PURCHASE PRICE means the price per share to be paid
initially by Participants for shares of Conversion Stock subscribed for in the
Subscription Offering and by Persons for shares of Conversion Stock ordered in
the Community Offering and/or Syndicated Community Offering.
2.21 MEMBER means any Person qualifying as a member of the Savings
Bank in accordance with its mutual articles of incorporation and bylaws and the
laws of the State of Illinois.
2.22 OFFICER means the chairman of the board of directors, president,
vice-president, secretary, treasurer or principal financial officer, comptroller
or principal accounting officer and any other person performing similar
functions with respect to any organization whether incorporated or
unincorporated.
2.23 ORDER FORM means the form or forms provided by the Savings Bank,
containing all such terms and provisions as set forth in Section 11 hereof, to a
Participant or other Person by which Conversion Stock may be ordered in the
Subscription Offering, the Community Offering and/or the Syndicated Community
Offering.
2.24 OTHER VOTING MEMBER means a Voting Member who is not an Eligible
Account Holder or Supplemental Eligible Account Holder.
2.25 PARTICIPANT means any Eligible Account Holder, Tax-Qualified
Employee Stock Benefit Plan, Supplemental Eligible Account Holder or Other
Voting Member.
2.26 PERSON means an individual, a corporation, a limited liability
company, a partnership, a limited liability partnership, an association, an
institution, a joint stock company, a trust, an unincorporated organization or a
government or any political subdivision thereof or any other organization.
2.27 PLAN AND PLAN OF CONVERSION mean this Plan of Conversion as
adopted by the Board of Directors of the Savings Bank and any amendment hereto
approved as provided herein.
2.28 PROSPECTUS means the one or more documents to be used in offering
the Conversion Stock in the Subscription Offering and, to the extent applicable,
Community
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<PAGE>
Offering and Syndicated Community Offering and for providing
information to Participants and other Persons in connection with such offerings.
2.29 QUALIFYING DEPOSIT means the aggregate balance of all Deposit
Accounts in the Savings Bank of (i) an Eligible Account Holder at the close of
business on the Eligibility Record Date, provided such aggregate balance is not
less than $50.00 and (ii) a Supplemental Eligible Account Holder at the close of
business on the Supplemental Eligibility Record Date, provided such aggregate
balance is not less than $50.00.
2.30 RESIDENT means any Person who maintains a bona fide residence
within the Local Community. To the extent the person is a corporation, a
partnership, an association, a joint stock company, a trust, an unincorporated
organization or other business entity, the principal place of business or
headquarters shall determine residency. To the extent the person is a personal
benefit plan, the residence of the beneficiary shall apply with respect to this
definition. In the case of all other benefit plans, the residence of the
trustee shall determine residency. The Holding Company and the Savings Bank may
utilize deposit or loan records or such other evidence provided to it to make a
determination as to whether a person is a bona fide resident of the Local
Community. In all cases, however, such determination shall be in the sole
discretion of the Savings Bank.
2.31 SAVINGS BANK means American Savings Bank of Danville, in its
mutual or stock form, as the sense of the reference requires.
2.32 SEC means the Securities and Exchange Commission.
2.33 SPECIAL MEETING means the Special Meeting of Members of the
Savings Bank called for the purpose of submitting this Plan to the Voting
Members for their approval, including any adjournments of such meeting.
2.34 SUBSCRIPTION OFFERING means the offering of shares of Conversion
Stock through non-transferable subscription rights to Participants pursuant to
this Plan of Conversion.
2.35 SUBSCRIPTION RIGHTS means non-transferable rights to subscribe
for Conversion Stock granted to Participants pursuant to the terms of this Plan.
2.36 SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDER means any Person, except
Directors and Officers of the Savings Bank and their Associates, holding a
Qualifying Deposit at the close of business on the Supplemental Eligibility
Record Date.
2.37 SUPPLEMENTAL ELIGIBILITY RECORD DATE means the supplemental
record date for determining Supplemental Eligible Account Holders. The
Supplemental Eligibility Record Date shall be the last day of the calendar
quarter preceding the Commissioner's
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<PAGE>
approval of the application for Conversion submitted by the Savings Bank
pursuant to this Plan of Conversion.
2.38 SYNDICATED COMMUNITY OFFERING means the offering for sale by a
syndicate of broker-dealers to the general public of shares of Conversion Stock
not purchased in the Subscription Offering and the Community Offering.
2.39 TAX-QUALIFIED EMPLOYEE STOCK BENEFIT PLAN means any defined
benefit plan or defined contribution plan, including the Employee Stock
Ownership Plan ("ESOP") established by the Holding Company and the Savings Bank
in connection with the Conversion, or any stock bonus plan, profit-sharing plan
or other plan, which is established for the benefit of the employees of the
Holding Company and the Savings Bank and which, with its related trust, meets
the requirements to be "qualified" under Section 401 of the Code as from time to
time in effect. A "Non-Tax-Qualified Employee Stock Benefit Plan" is any
defined benefit plan or defined contribution benefit plan which is not so
qualified.
2.40 VOTING MEMBER means a Person who at the close of business on the
Voting Record Date is entitled to vote as a member of the Savings Bank in
accordance with its mutual articles of incorporation and bylaws and the laws of
the State of Illinois.
2.41 VOTING RECORD DATE means the date for determining the eligibility
of Members to vote at the Special Meeting.
3. GENERAL PROCEDURE FOR CONVERSION.
(a) An Application for Conversion, including the Plan, will be submitted,
together with all requisite material, to the Commissioner for approval and the
FDIC for its non-objection. The Savings Bank also will cause notice of the
adoption of the Plan by the Board of Directors of the Savings Bank to be given
by publication in a newspaper having general circulation in each community in
which an office of the Savings Bank is located and/or by mailing a letter to
each of its Members; and will cause copies of the Plan to be made available at
each office of the Savings Bank for inspection by Members. After receipt of
notice from the Commissioner to do so, the Savings Bank will post the notice of
the filing of its Application for Conversion in each of its offices and will
again cause to be published, in accordance with the requirements of applicable
regulations of the Commissioner, a notice of the filing with the Commissioner
and the FDIC of an application to convert from mutual to stock form.
(b) Promptly following approval of the Savings Bank's Application for
Conversion by the Commissioner and the receipt of notice of non-objection from
the FDIC, this Plan will be submitted to the Members for their consideration and
approval at the Special Meeting. The Savings Bank shall mail to all Members as
of the Voting Record Date, at their last known address appearing on the records
of the Savings Bank, a form of proxy
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<PAGE>
together with, at the Savings Bank's option, a proxy statement in either long
or summary form describing the Plan which will be submitted to a vote of the
Voting Members at the Special Meeting. If the Savings Bank provides a summary
form proxy statement, the Savings Bank shall also mail to all Eligible
Account Holders and Supplemental Eligible Account Holders who are not Members
of the Savings Bank as of the Voting Record Date a letter informing them of
their right to receive a Prospectus and Order Form for the purchase of
Conversion Stock. Participants will be given the opportunity to request a
Prospectus and Order Form and other materials relating to the Conversion by
returning a postage prepaid card which will be distributed with the proxy
statement or letter. The Savings Bank may not use previously executed
general proxies from its Members to approve the Plan. If the Plan is
approved by the affirmative vote of a majority of the total outstanding votes
of Voting Members at the Special Meeting, the Savings Bank shall take all
other necessary organizational steps pursuant to applicable laws and
regulations to amend its articles and bylaws to authorize the issuance of its
capital stock to the Holding Company at the time the Conversion of the
Savings Bank to stock form is consummated.
(c) As soon as practicable after the adoption of the Plan by the Board of
Directors of the Savings Bank, the Savings Bank shall cause the Holding Company
to be incorporated and the Board of Directors of the Holding Company shall adopt
the Plan by at least a two-thirds vote. The Holding Company shall submit or
cause to be submitted to the Federal Reserve Board an application for approval
of the acquisition of the Savings Bank and a registration statement to the SEC
to register the Conversion Stock under the Securities Act of 1933, as amended,
and shall further register the Conversion Stock under any applicable state
securities laws. Upon registration and after the receipt of all required
regulatory approvals, the Conversion Stock shall be first offered for sale in a
Subscription Offering to Eligible Account Holders, the ESOP, Supplemental
Eligible Account Holders and Other Voting Members. It is anticipated that any
shares of Conversion Stock remaining unsold after the Subscription Offering will
be sold through a Community Offering and/or a Syndicated Community Offering.
The purchase price per share for the Conversion Stock shall be a uniform price
determined in accordance with Section 4 hereof. The Holding Company shall
purchase all of the capital stock of the Savings Bank with an amount of the net
proceeds received by the Holding Company from the sale of Conversion Stock as
shall be determined by the Boards of Directors of the Holding Company and the
Savings Bank and as shall be approved by the Commissioner and not objected to by
the FDIC.
(d) The Holding Company and the Savings Bank may retain and pay for the
services of financial and other advisors and investment bankers to assist in
connection with any or all aspects of the Conversion, including in connection
with the Subscription Offering, Community Offering and/or any Syndicated
Community Offering, the payment of fees to brokers and investment bankers for
assisting Persons in completing and/or submitting Order Forms. All fees,
expenses, retainers and similar items shall be reasonable.
-7-
<PAGE>
4. TOTAL NUMBER OF SHARES AND PURCHASE PRICE OF CONVERSION
STOCK.
(a) The aggregate price at which all shares of Conversion Stock shall be
sold shall be based on a pro forma valuation of the aggregate market value of
the Conversion Stock prepared by the Independent Appraiser. The valuation shall
be based on financial information relating to the Holding Company and the
Savings Bank, economic and financial conditions, a comparison of the Holding
Company and the Savings Bank with selected publicly held financial institutions
and holding companies and with comparable financial institutions and holding
companies and such other factors as the Independent Appraiser may deem to be
important. The valuation shall be stated in terms of an Estimated Price Range,
the maximum of which shall be no more than 15% above the average of the minimum
and maximum of such price range and the minimum of which shall be no more than
15% below such average. The valuation shall be updated during the Conversion as
market and financial conditions warrant and as may be required by the
Commissioner or the FDIC.
(b) Based upon the independent valuation, the Boards of Directors of the
Holding Company and the Savings Bank shall fix the Maximum Purchase Price and
the number of shares of Conversion Stock to be offered in the Subscription
Offering, Community Offering and/or Syndicated Community Offering. The Actual
Purchase Price and the total number of shares of Conversion Stock to be issued
in the Subscription Offering, Community Offering and/or Syndicated Community
Offering shall be determined by the Boards of Directors of the Holding Company
and the Savings Bank upon conclusion of such offerings in consultation with the
Independent Appraiser and any financial advisor or investment banker retained by
the Savings Bank in connection with such offerings.
(c) Subject to the approval of the Commissioner and non-objection of the
FDIC, the Estimated Price Range may be increased or decreased to reflect market
and economic conditions prior to completion of the Conversion, and under such
circumstances the Holding Company may increase or decrease the total number of
shares of Conversion Stock to be issued in the Conversion to reflect any such
change. Notwithstanding anything to the contrary contained in this Plan and
subject to any required approval of the Commissioner and non-objection of the
FDIC, no resolicitation of subscribers shall be required and subscribers shall
not be permitted to modify or cancel their subscriptions unless the gross
proceeds from the sale of the Conversion Stock issued in the Conversion are less
than the minimum or more than 15% above the maximum of the Estimated Price Range
set forth in the Prospectus. 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, the priority of share allocation shall be as set forth in this Plan.
5. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS.
(a) Subject to the limitations of Section 10 hereof, each Eligible Account
Holder shall receive, without payment, non-transferable Subscription Rights
to purchase up to the
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<PAGE>
greater of (i) $50,000 of Conversion Stock (or such maximum purchase
limitation as may be established for the Community Offering and/or Syndicated
Community Offering), (ii) one-tenth of 1% of the total offering of shares in
the Subscription Offering or (iii) 15 times the product (rounded down to the
next whole number) obtained by multiplying the total number of shares of
Conversion Stock offered in the Subscription Offering by a fraction, of which
the numerator is the amount of the Qualifying Deposits of the Eligible
Account Holder and the denominator is the total amount of all Qualifying
Deposits of all Eligible Account Holders. The allocation of Subscription
Rights to purchase shares of Conversion Stock pursuant to this Section 5(a)
shall not result in the Directors in the aggregate receiving aggregate
subscriptions equal to more than 20% of the total number of shares of
Conversion Stock sold in the Conversion.
(b) In the event of an oversubscription for shares of Conversion Stock
pursuant to Section 5(a), shares shall be allocated among subscribing Eligible
Account Holders, so as to permit each such Eligible Account Holder, to the
extent possible, to purchase a number of shares which will make his or her total
allocation equal to the lesser of the number of shares subscribed for or 100
shares. Any available shares remaining after each such subscribing Eligible
Account Holder has been allocated the lesser of the number of shares subscribed
for or 100 shares shall be allocated among the subscribing Eligible Account
Holders in the proportion which the Qualifying Deposit of each such subscribing
Eligible Account Holder bears to the total Qualifying Deposits of all such
subscribing Eligible Account Holders, provided that no fractional shares shall
be issued. Subscription Rights of Eligible Account Holders who are also
Directors or Officers of the Savings Bank and their Associates shall be
subordinated to those of other Eligible Account Holders to the extent that they
are attributable to increased deposits during the one year period preceding the
Eligibility Record Date.
6. SUBSCRIPTION RIGHTS OF THE ESOP.
(a) The ESOP shall receive, without payment, non-transferable Subscription
Rights to purchase in the aggregate up to 10% of the Conversion Stock, including
shares of Conversion Stock to be issued in the Conversion as a result of an
increase in the Estimated Price Range after commencement of the Subscription
Offering and prior to completion of the Conversion. The subscription rights
granted to the ESOP shall be subject to the availability of shares of Conversion
Stock after taking into account the shares of Conversion Stock purchased by
Eligible Account Holders. Consistent with applicable laws and regulations, the
ESOP may use funds contributed by the Holding Company or the Savings Bank and/or
borrowed from an independent financial institution to exercise such Subscription
Rights, and the Holding Company and the Savings Bank may make scheduled
discretionary contributions thereto, provided that such contributions do not
cause the Holding Company or the Savings Bank to fail to meet any applicable
capital maintenance requirements.
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<PAGE>
7. SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS
(a) Subject to the limitation of Section 10 hereof, each Supplemental
Eligible Account Holder shall receive, without payment, non-transferable
Subscription Rights to purchase up to the greater of (i) $50,000 of Conversion
Stock (or such maximum purchase limitation as may be established for the
Community Offering and/or Syndicated Community Offering), (ii) one-tenth of 1%
of the total offering of shares in the Subscription Offering or (iii) 15 times
the product (rounded down to the next whole number) obtained by multiplying the
total number of shares of Conversion Stock offered in the Subscription Offering
by a fraction, of which the numerator is the amount of the Qualifying Deposits
of the Supplemental Eligible Account Holder and the denominator is the total
amount of all Qualifying Deposits of all Supplemental Eligible Account Holders,
subject to the availability of shares of Common Stock for purchase after taking
into account the shares of Conversion Stock purchased by Eligible Account
Holders and the ESOP through the exercise of Subscription Rights under Section 5
and 6 hereof.
(b) In the event of an oversubscription for shares of Conversion Stock
pursuant to Section 7(a), available shares shall be allocated among subscribing
Supplemental Eligible Account Holders, so as to permit each such Supplemental
Eligible Account Holder, to the extent possible, to purchase a number of shares
sufficient to make his or her total allocation (including the number of shares,
if any, allocated in accordance with Section 5(a)) equal to the lesser of the
number of shares subscribed for or 100 shares. Any remaining available shares
shall be allocated among such subscribing Supplemental Eligible Account Holders
in the proportion that the amount of their respective Qualifying Deposits bears
to the total amount of the Qualifying Deposits of all subscribing Supplemental
Eligible Account Holders, provided that no fractional shares shall be issued.
8. SUBSCRIPTION RIGHTS OF OTHER VOTING MEMBERS.
(a) Subject to the limitation of Section 10 hereof, each Other Voting
Member shall receive, without payment, non-transferable Subscription Rights to
purchase up to the greater of (i) $50,000 of Conversion Stock (or such maximum
purchase limitation as may be established for the Community Offering and/or
Syndicated Community Offering) and (ii) one-tenth of 1% of the total offering of
shares in the Subscription Offering, in each case if and only to the extent that
shares of Conversion Stock are available for purchase after taking into account
the shares of Conversion Stock purchased by Eligible Account Holders, the ESOP
and Supplemental Eligible Account Holders through the exercise of Subscription
Rights under Sections 5, 6 and 7 hereof.
(b) If, pursuant to this Section 8, Other Voting Members subscribe for a
number of shares of Conversion Stock in excess of the total number of shares of
Conversion Stock remaining, available shares shall be allocated among
subscribing Other Voting Members on a pro rata basis in the same proportion as
each Other Voting Members' subscription bears to the total subscriptions of all
subscribing Other Members.
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<PAGE>
9. COMMUNITY OFFERING, SYNDICATED COMMUNITY OFFERING AND
OTHER OFFERINGS.
(a) If less than the total number of shares of the Conversion Stock are
sold in the Subscription Offering, it is anticipated that all remaining shares
of Conversion Stock shall, if practicable, be sold directly by the Holding
Company and the Savings Bank in a Community Offering and/or a Syndicated
Community Offering. Subject to the requirements set forth herein, Conversion
Stock sold in the Community Offering and/or the Syndicated Community Offering
shall achieve the widest possible distribution of such stock.
(b) In the event that the Holding Company and the Savings Bank elect to
conduct a Community Offering, all shares of Conversion Stock which are not
subscribed for in the Subscription Offering shall be offered for sale by the
Holding Company and the Savings Bank by means of a direct community marketing
program, which may provide for the use of brokers, dealers or investment banking
firms experienced in the sale of financial institution securities. Any
available shares in excess of those not subscribed for in the Subscription
Offering will be available for purchase by members of the general public to whom
a Prospectus is delivered by the Holding Company or on its behalf, with
preference given to natural persons who are Residents of the Local Community
("Preferred Subscribers"). A Prospectus and Order Form shall be furnished to
such Persons as the Holding Company and the Savings Bank may select in
connection with the Community Offering and each order for Conversion Stock in
the Community Offering shall be subject to the absolute right of the Holding
Company and the Savings Bank to accept or reject any such order in whole or in
part either at the time of receipt of an order or as soon as practicable
following completion of the Community Offering. Available shares will be
allocated first to each Preferred Subscriber whose order is accepted by the
Holding Company, 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 shall be allocated among the Preferred
Subscribers whose subscriptions remain unsatisfied in the same proportion that
the unfilled subscription of each bears to the total unfilled subscriptions of
all Preferred Subscribers whose subscriptions remain unsatisfied. If there are
any shares remaining after all subscriptions by Preferred Subscribers, any
remaining shares shall be allocated to other members of the general public who
purchase in the Community Offering applying the same allocation described above
for Preferred Subscribers. Subject to the limitations of Section 10 hereof, the
amount of Conversion Stock that any Person may purchase shall not exceed (i)
$50,000 or (ii) one-tenth of 1% of the total offering of shares in the
Subscription Offering and the amount of Conversion Stock that any person
together with any Associate thereof or group of Persons acting in concert may
purchase in the Community Offering shall not exceed the greater of (i) $150,000
or (ii) one-tenth of 1% of the total offering of shares in the Subscription
Offering, provided, however, that this amount may be increased to 5% of the
total offering of shares in the Subscription Offering subject to any required
regulatory approval but without the further approval of Members. The Holding
Company and the Savings Bank may commence the Community Offering concurrently
with, at any time during, or as soon as practicable after the end of,
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<PAGE>
the Subscription Offering, and the Community Offering must be completed
within 45 days after the completion of the Subscription Offering, unless
extended by the Holding Company and the Savings Bank with any required
regulatory approval.
(c) Subject to such terms, conditions and procedures as may be determined
by the Holding Company and the Savings Bank, all shares of Conversion Stock not
subscribed for in the Subscription Offering or ordered in the Community Offering
may be sold by a syndicate of broker-dealers to the general public in a
Syndicated Community Offering. Each order for Conversion Stock in the
Syndicated Community Offering shall be subject to the absolute right of the
Holding Company and the Savings Bank to accept or reject any such order in whole
or in part either at the time of receipt of an order or as soon as practicable
after completion of the Syndicated Community Offering. Subject to the
limitation of Section 10 hereof, the amount of Conversion Stock that (i) any
Person may purchase in the Syndicated Community Offering shall not exceed
$50,000 and (ii) the amount of Conversion Stock that any Person together with
any Associate thereof or group of Persons acting in concert may purchase in the
Syndicated Community Offering shall not exceed $150,000 provided, however, that
this amount may be increased to 5% of the total offering of shares in the
Subscription Offering subject to any required regulatory approval but without
the further approval of Members. The Holding Company and the Savings Bank may
commence the Syndicated Community Offering concurrently with, at any time
during, or as soon as practicable after the end of the Subscription Offering
and/or Community Offering, and the Syndicated Community Offering must be
completed within 45 days after the completion of the Subscription Offering,
unless extended by the Holding Company and the Savings Bank with any required
regulatory approval.
(d) If for any reason a Syndicated Community Offering of shares of
Conversion Stock not sold in the Subscription Offering and the Community
Offering cannot be effected, or in the event that any insignificant residue of
shares of Conversion Stock is not sold in the Subscription Offering, Community
Offering or Syndicated Community Offering, the Holding Company and the Savings
Bank shall use their best efforts to obtain other purchasers for such shares in
such manner and upon such conditions as may be satisfactory to the Commissioner.
10. LIMITATIONS ON SUBSCRIPTIONS AND PURCHASES OF CONVERSION STOCK.
(a) The maximum number of shares of Conversion Stock which may be purchased
in the Conversion by all Tax-Qualified Employee Stock Benefit Plans shall not
exceed 10% of the total number of shares of Conversion Stock sold in the
Conversion, including any shares which may be issued in the event of an increase
in the maximum of the Estimated Price Range to reflect changes in market and
economic conditions after commencement of the Subscription Offering and prior to
the completion of the Conversion.
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(b) Except in the case of Tax-Qualified Employee Stock Benefit Plans as set
forth in Section 10(a) hereof, and in addition to the other restrictions and
limitations set forth herein, the maximum amount of Conversion Stock which (i)
any Person (or persons exercising Subscription Rights through a single account)
or group of Persons acting on concert may subscribe for or purchase is $50,000
and (ii) any Person or group of Persons acting in concert, together with any
Associate may, directly or indirectly, subscribe for or purchase in the
Conversion (including without limitation the Subscription Offering, Community
Offering and/or Syndicated Community Offering) is $150,000 exclusive of any
increase in the Estimated Price Range to reflect changes in market and economic
conditions after commencement of the Subscription Offering and prior to
completion of the Conversion.
(c) The number of shares of Conversion Stock which Directors and Officers
and their Associates may purchase in the aggregate in the Conversion shall not
exceed 35% of the total number of shares of Conversion Stock sold in the
Conversion, including any shares which may be issued in the event of an increase
in the maximum of the Estimated Price Range to reflect changes in market and
economic conditions after commencement of the Subscription Offering and prior to
completion of the Conversion.
(d) No Person may purchase fewer than 25 shares of Conversion Stock in the
Conversion, to the extent such shares are available; provided, however, that if
the Actual Purchase Price is greater than $20.00 per share, such minimum number
of shares shall be adjusted so that the aggregate Actual Purchase Price for such
minimum shares will not exceed $500.00.
(e) For purposes of the foregoing limitations and the determination of
Subscription Rights, (i) Directors and Officers shall not be deemed to be
Associates or a group acting in concert solely as a result of their capacities
as such, (ii) shares purchased by Tax-Qualified Employee Stock Benefit Plans
shall not be attributable to the individual trustees or beneficiaries of any
such plan for purposes of determining compliance with the limitations set forth
in Section 10(b) hereof, and (iii) shares purchased by Tax-Qualified Employee
Stock Benefit Plans shall not be attributable to the individual trustees or
beneficiaries of any such plan for purposes of determining compliance with the
limitation set forth in Section 10(c) hereof.
(f) Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of the Members of
the Savings Bank, the Holding Company may increase any of the individual or
aggregate purchase limitations set forth herein to a percentage which does not
exceed 5% of the total offering of shares in the Subscription Offering whether
prior to, during or after the Subscription Offering, Community Offering and/or
Syndicated Community Offering. In the event that an individual purchase
limitation is increased after commencement of the Subscription Offering or any
other offering, the Holding Company and the Savings Bank shall permit any Person
who subscribed for the maximum number of shares of Conversion Stock to purchase
an
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additional number of shares such that such Person shall be permitted to
subscribe for the then maximum number of shares permitted to be subscribed for
by such Person, subject to the rights and preferences of any Person who has
priority Subscription Rights. In the event that an individual purchase
limitation is decreased after commencement of the Subscription Offering or any
other offering, the orders of any Person who subscribed for the maximum number
of shares of Conversion Stock shall be decreased by the minimum amount necessary
so that such Person shall be in compliance with the then maximum number of
shares permitted to be subscribed for by such Person.
(g) The Holding Company and the Savings Bank shall have the right to take
all such action as they may, in their sole discretion, deem necessary,
appropriate or advisable in order to monitor and enforce the terms, conditions,
limitations and restrictions contained in this Section 10 and elsewhere in this
Plan and the terms, conditions and representations contained in the Order Form,
including, but not limited to, the absolute right (subject only to any necessary
regulatory approvals or concurrence) to reject, limit or revoke acceptance of
any subscription or order and to delay, terminate or refuse to consummate any
sale of Conversion Stock which they believe might violate, or is designed to, or
is any part of a plan to, evade or circumvent such terms, conditions,
limitations, restrictions and representations. Any such action shall be final,
conclusive and binding on all persons and the Holding Company and the Savings
Bank and their respective Boards shall be free from any liability to any Person
on account of any such action.
11. TIMING OF SUBSCRIPTION OFFERING, MANNER OF EXERCISING
SUBSCRIPTION RIGHTS AND ORDER FORMS.
(a) The Subscription Offering may be commenced concurrently with or at any
time after the mailing to Voting Members of the proxy statement to be used in
connection with the Special Meeting. The Subscription Offering may be closed
before the Special Meeting, provided that the offer and sale of the Conversion
Stock shall be conditioned upon the approval of the Plan by Voting Members at
the Special Meeting.
(b) The exact timing of the commencement of the Subscription Offering shall
be determined by the Holding Company and the Savings Bank in consultation with
the Independent Appraiser and any financial or advisory or investment banking
firm retained by them in connection with the Conversion. The Holding Company
and the Savings Bank may consider a number of factors, including, but not
limited to, their current and projected future earnings, local and national
economic conditions and the prevailing market for stocks in general and stocks
of financial institutions in particular. The Holding Company and the Savings
Bank shall have the right to withdraw, terminate, suspend, delay, revoke or
modify any such Subscription Offering, at any time and from time to time, as it
in its sole discretion may determine, without liability to any Person, subject
to compliance with applicable securities laws and any necessary regulatory
approval or concurrence.
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(c) The Holding Company and the Savings Bank shall, promptly after the SEC
has declared the Prospectus effective and all required regulatory approvals have
been obtained, distribute or make available the Prospectus, together with Order
Forms for the purchase of Conversion Stock, to all Participants for the purpose
of enabling them to exercise their respective Subscription Rights. The Holding
Company and the Savings Bank may elect to mail a Prospectus and Order Form only
to those Participants who request such materials by returning a postage-paid
card to the Holding Company and the Savings Bank by a date specified in the
letter informing them of their Subscription Rights. Under such circumstances,
the Subscription Offering shall not be closed until the expiration of 30 days
after the mailing by the Holding Company and the Savings Bank of the
postage-paid card to Participants.
(d) A single Order Form for all Deposit Accounts maintained with the
Savings Bank by an Eligible Account Holder and a Supplemental Eligible Account
Holder may be furnished irrespective of the number of Deposit Accounts
maintained with the Savings Bank on the Eligibility Record Date and Supplemental
Eligibility Record Date, respectively.
(e) The recipient of an Order Form shall have no less than 20 days and no
more than 45 days from the date of mailing of the Order Form (with the exact
termination date to be set forth on the Order Form) to properly complete and
execute the Order Form and deliver it to the Savings Bank. The Holding Company
and the Savings Bank may extend such period by such amount of time as they
determine is appropriate. Failure of any Participant to deliver a properly
executed Order Form to the Savings Bank, along with payment (or authorization
for payment by withdrawal) for the shares of Conversion Stock subscribed for,
within the time limits prescribed, shall be deemed a waiver and release by such
person of any rights to subscribe for shares of Conversion Stock. Each
Participant shall be required to confirm to the Holding Company and the Savings
Bank by executing an Order Form that such Person has fully complied with all of
the terms, conditions, limitations and restrictions in the Plan.
(f) The Holding Company and the Savings Bank shall have the absolute right,
in their sole discretion and without liability to any Participant or other
Person, to reject any Order Form, including, but not limited to, any Order Form
(i) that is improperly completed or executed; (ii) that is not timely received;
(iii) that is not accompanied by the proper payment (or authorization of
withdrawal for payment) or, in the case of institutional investors in the
Community Offering, not accompanied by an irrevocable order together with a
legally binding commitment to pay the full amount of the purchase price prior to
48 hours before the completion of the Conversion; (iv) submitted by a Person
whose representations the Holding Company and the Savings Bank believe to be
false or who they otherwise believe, either alone, or acting in concert with
others, is violating, evading or circumventing, or intends to violate, evade or
circumvent, the terms and conditions of the Plan. The Holding Company and the
Savings Bank may, but will not be required to, waive any irregularity on any
Order Form or may require the submission of corrected Order Forms or the
remittance of full payment for shares of Conversion Stock by such date as they
may
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specify. The interpretation of the Holding Company and the Savings Bank of
the terms and conditions of the Order Forms shall be final and conclusive.
12. PAYMENT FOR CONVERSION STOCK.
(a) Payment for shares of Conversion Stock subscribed for by Participants
in the Subscription Offering and payment for shares of Conversion Stock ordered
by Persons in the Community Offering shall be equal to the Maximum Purchase
Price per share multiplied by the number of shares which are being subscribed
for or ordered, respectively. Such payment may be made in cash, if delivered in
person, or by check or money order at the time the Order Form is delivered to
the Savings Bank. The Savings Bank shall not accept payment for shares of
Conversion Stock by wire transfer. In addition, the Holding Company and the
Savings Bank may elect to provide Participants and/or other Persons who have a
Deposit Account with the Savings Bank the opportunity to pay for shares of
Conversion Stock by authorizing the Savings Bank to withdraw from such Deposit
Account an amount equal to the aggregate Maximum Purchase Price of such shares.
If the Actual Purchase Price is less than the Maximum Purchase Price, the
Savings Bank shall refund the difference to all Participants and other Persons,
unless the Holding Company and the Savings Bank choose to provide Participants
and other Persons the opportunity on the Order Form to elect to have such
difference applied to the purchase of additional whole shares of Conversion
Stock.
(b) Consistent with applicable laws and regulations and policies and
practices of the Commissioner, payment for shares of Conversion Stock subscribed
for by Tax-Qualified Employee Stock Benefit Plans may be made with funds
contributed by the Holding Company or the Savings Bank and/or funds obtained
pursuant to a loan from an unrelated financial institution pursuant to a loan
commitment which is in force from the time that any such plan submits an Order
Form until the closing of the transactions contemplated hereby.
(c) If a Participant or other Person authorizes the Savings Bank to
withdraw the amount of the Maximum Purchase Price from his or her Deposit
Account, the Savings Bank shall have the right to make such withdrawal or to
freeze funds equal to the aggregate Maximum Purchase Price upon receipt of the
Order Form. Notwithstanding any regulatory provisions regarding penalties for
early withdrawals from certificate accounts, the Savings Bank may allow payment
by means of withdrawal from certificate accounts without the assessment of such
penalties. In the case of an early withdrawal of only a portion of such
account, the certificate evidencing such account shall be cancelled if any
applicable minimum balance requirement ceases to be met. In such case, the
remaining balance will be placed in a regular savings account. However, where
any applicable minimum balance is maintained in such certificate account, the
rate of return on the balance of the certificate account shall remain the same
as prior to such early withdrawal. This waiver of the early withdrawal penalty
applies only to withdrawals made in connection with the purchase of Conversion
Stock and is entirely within the discretion of the Holding Company and the
Savings Bank.
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(d) The Savings Bank shall pay interest, at not less than the passbook
rate, for all amounts paid in cash, by check or money order to purchase shares
of Conversion Stock in the Subscription Offering and the Community Offering from
the date payment is received until the date the Conversion is completed or
terminated.
(e) The Savings Bank shall not knowingly lend funds or otherwise extend
credit to any Participant or other Person to purchase Conversion Stock.
(f) Each share of Conversion Stock shall be non-assessable upon payment in
full of the Actual Purchase Price.
13. ACCOUNT HOLDERS IN NONQUALIFIED STATES OR FOREIGN COUNTRIES.
The Holding Company and the Savings Bank shall make reasonable efforts to
comply with the securities laws of all jurisdictions in the United States in
which Participants reside. However, no Participant will be offered or receive
any Conversion Stock under the Plan if such Participant resides in a foreign
country or in a jurisdiction of the United States with respect to which all of
the following apply: (a) there are few Participants otherwise eligible to
subscribe for shares under this Plan who reside in such jurisdiction; (b) the
granting of Subscription Rights or the offer or sale of shares of Conversion
Stock to such Participants would require the Holding Company or the Savings Bank
or their respective Directors and Officers, under the laws of such jurisdiction,
to register as a broker-dealer, salesman or selling agent or to register or
otherwise qualify the Conversion Stock for sale in such jurisdiction, or the
Holding Company or the Savings Bank would be required to qualify as a foreign
corporation or file a consent to service of process in such jurisdiction; and
(c) such registration or qualification in the judgment of the Holding Company
and the Savings Bank would be impracticable or unduly burdensome for reasons of
cost or otherwise.
14. VOTING RIGHTS OF STOCKHOLDERS.
Following Conversion, voting rights with respect to the Savings Bank shall
be held and exercised exclusively by the Holding Company as holder of the
Savings Bank's voting capital stock and voting rights with respect to the
Holding Company shall be held and exercised exclusively by the holders of the
Holding Company's voting capital stock. No Person shall have any rights as a
stockholder of the Holding Company unless and until the Conversion Stock has
been issued to such Person.
15. LIQUIDATION ACCOUNT.
(a) At the time of Conversion, the Savings Bank shall establish a
liquidation account in an amount equal to the Savings Bank's net worth as
reflected in its latest statement of financial condition contained in the
final prospectus utilized in the Conversion. The function of the liquidation
account will be to preserve the rights of certain holders of
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Deposit Accounts in the Savings Bank who maintain such accounts in the
Savings Bank following Conversion to a priority as to distributions in the
event of liquidation of the Savings Bank subsequent to Conversion.
(b) The liquidation account shall be maintained for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders who maintain their
Deposit Accounts in the Savings Bank after Conversion. Each such account holder
will, with respect to each Deposit Account held, have a related inchoate
interest in a portion of the liquidation account balance, which interest will be
referred to in this Section 15 as the "subaccount balance."
(c) In the event of a complete liquidation of the Savings Bank subsequent
to Conversion (and only in such event), each Eligible Account Holder and
Supplemental Eligible Account Holder shall be entitled to receive a liquidation
distribution from the liquidation account in the amount of the then current
subaccount balances for Deposit Accounts then held (adjusted as described below)
before any liquidation distribution may be made with respect to the capital
stock of the Savings Bank. No merger, consolidation, sale of bulk assets or
similar combination transaction with another FDIC-insured institution in which
the Savings Bank is not the surviving entity shall be considered a complete
liquidation for this purpose. In any such transaction, the liquidation account
shall be assumed by the surviving entity.
(d) The initial subaccount balance for a Deposit Account held by an
Eligible Account Holder and Supplemental Eligible Account Holder, if any, shall
be determined by multiplying the opening balance in the liquidation account by a
fraction, of which the numerator is the amount of the Qualifying Deposits of
such account holder and the denominator is the total amount of Qualifying
Deposits of all Eligible Account Holders and Supplemental Eligible Account
Holders. For Deposit Accounts in existence at both the Eligibility Record Date
and the Supplemental Eligibility Record Date, separate initial subaccount
balances shall be determined on the basis of the Qualifying Deposits in such
Deposit Accounts on each such record date. Initial subaccount balances shall not
be increased, and shall be subject to downward adjustment as provided below.
(e) If the deposit balance in any Deposit Account of any Eligible Account
Holder or Supplemental Eligible Account Holder at the close of business on any
annual closing date subsequent to the Eligibility Record Date or the
Supplemental Eligibility Record Date is less than the lesser of (a) the deposit
balance in such Deposit Account at the close of business on any other annual
closing date subsequent to such record dates or (b) the deposit balance in such
Deposit Account as of the Eligibility Record Date or the Supplemental
Eligibility Record Date, the subaccount balance for such Deposit 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 a downward
adjustment, the subaccount balance shall not be subsequently increased,
notwithstanding any increase in the deposit balance of the
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related Deposit Account. If any such Deposit Account is closed, the related
subaccount balance shall be reduced to zero.
(f) Subsequent to Conversion, the Savings Bank may not pay cash dividends
generally on deposit accounts and/or capital stock of the Savings Bank, or
repurchase any of the capital stock of the Savings Bank, if such dividend or
repurchase would reduce the Savings Bank's net worth below the aggregate amount
of the then current subaccount balances for deposit accounts then held;
otherwise, the existence of the liquidation account shall not operate to
restrict the use or application of any of the net worth accounts of the Savings
Bank.
(g) For purposes of this Section 15, a Deposit Account includes a
predecessor or successor account which is held only by an account holder with
the same social security number.
16. TRANSFER OF DEPOSIT ACCOUNTS.
Each Deposit Account in the Savings Bank at the time of the consummation of
the Conversion shall become, without further action by the holder, a Deposit
Account in the Savings Bank equivalent in withdrawable amount to the withdrawal
value, and subject to the same terms and conditions (except as to voting and
liquidation rights) as such Deposit Account in the Savings Bank immediately
preceding consummation of the Conversion. Holders of Deposit Accounts in the
Savings Bank shall not, as such holders, have any voting rights.
17. REQUIREMENTS FOLLOWING CONVERSION FOR REGISTRATION,
MARKET MAKING AND STOCK EXCHANGE LISTING.
In connection with the Conversion, the Holding Company shall register its
common stock pursuant to the Securities Exchange Act of 1934, as amended, and
shall not deregister such stock for a period of three years thereafter. The
Holding Company also shall use its best efforts to (i) encourage and assist a
market maker to establish and maintain a market for its common stock; and (ii)
list its common stock on a national or regional securities exchange or to have
quotations for its common stock disseminated on the National Association of
Securities Dealers Automated Quotation System.
18. DIRECTORS AND OFFICERS OF THE SAVINGS BANK.
Each person serving as a Director or Officer of the Savings Bank at the
time of the Conversion shall continue to serve as a Director or Officer of the
Savings Bank following the Conversion.
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19. REQUIREMENTS FOR STOCK PURCHASES BY DIRECTORS AND OFFICERS
FOLLOWING CONVERSION.
For a period of three years following the Conversion, the Directors and
Officers of the Holding Company and the Savings Bank and their Associates may
not purchase, without the prior written approval of the Commissioner, the common
stock of the Holding Company except from a broker-dealer registered with the
Commissioner and the Securities and Exchange Commission. This prohibition shall
not apply, however, to (i) any purchase of stock made by and held by any one or
more tax- or non-tax-qualified employee stock benefit plans which may be
attributable to individual officers and directors and (ii) a negotiated
transaction arrived at by direct negotiation between buyer and seller and
involving more than 1% of the outstanding common stock of the Holding Company.
The foregoing restrictions on purchases of common stock of the Holding
Company shall be in addition to any restrictions that may be imposed by federal
and state securities laws.
20. RESTRICTIONS ON TRANSFER OF STOCK.
All shares of the Conversion Stock which are purchased by Persons other
than Directors and Officers shall be transferable without restriction, except in
connection with a transaction proscribed by Section 21 of this Plan. Shares of
Conversion Stock purchased by Directors and Officers of the Holding Company and
the Savings Bank on original issue from the Holding Company (by subscription or
otherwise) shall be subject to the restriction that such shares shall not be
sold or otherwise disposed of for value for a period of one to five years
following the date of purchase, except for any disposition of such shares
following the death of the original purchaser. The shares of Conversion Stock
issued by the Holding Company to Directors and Officers shall bear the following
legend giving appropriate notice of such one-year restriction:
The shares represented by this certificate may not be sold by the
registered holder hereof for a period of one year from the date of
issuance printed hereon, except in the event of the death of the
registered holder.
In addition, the Holding Company shall give appropriate instructions to the
transfer agent for its common stock with respect to the applicable restrictions
relating to the transfer of restricted stock. Any shares issued at a later date
as a stock dividend, stock split or otherwise with respect to any such
restricted stock shall be subject to the same holding period restrictions as may
then be applicable to such restricted stock.
The foregoing restriction on transfer shall be in addition to any
restrictions on transfer that may be imposed by federal and state securities
laws.
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21. RESTRICTIONS ON ACQUISITION OF STOCK OF THE HOLDING
COMPANY.
Upon Conversion, the articles of incorporation of the Holding Company shall
prohibit any Person together with Associates or group of Persons acting in
concert from offering to acquire or acquiring, directly or indirectly,
beneficial ownership of more than 10% of any class of equity securities of the
Holding Company, or of securities convertible into more than 10% of any such
class, for five years following completion of the Conversion. The articles of
incorporation of the Holding Company also shall provide that all equity
securities beneficially owned by any Person in excess of 10% of any class of
equity securities during such five-year period shall be considered "excess
shares," and that excess shares shall not be counted as shares entitled to vote
and shall not be voted by any Person or counted as voting shares in connection
with any matters submitted to the stockholders for a vote. The foregoing
restrictions shall not apply to (i) any offer with a view toward public resale
made exclusively to the Holding Company by underwriters or a selling group
acting on its behalf, (ii) the purchase of shares by a Tax-Qualified Employee
Stock Benefit Plan established for the benefit of the employees of the Holding
Company and its subsidiaries, and (iii) any offer or acquisition approved in
advance by the affirmative vote of two-thirds of the entire Board of Directors
of the Holding Company. Directors, Officers or employees of the Holding Company
or the Savings Bank or any subsidiary thereof shall not be deemed to be
Associates or a group acting in concert with respect to their individual
acquisitions of any class of equity securities of the Holding Company solely as
a result of their capacities as such.
22. ADOPTION OF CAPITAL STOCK ARTICLES AND BYLAWS.
As part of the Conversion, the Savings Bank shall take all appropriate
steps to amend and restate its articles and bylaws to read in the form
prescribed and authorized for a Illinois chartered savings bank in stock form.
23. TAX RULINGS OR OPINIONS.
Consummation of the Conversion is expressly conditioned upon prior receipt
by the Savings Bank of either a ruling or an opinion of counsel with respect to
federal tax laws, and either a ruling or an opinion of counsel with respect to
Illinois tax laws, to the effect that consummation of the transactions
contemplated hereby will not result in a taxable reorganization under the
provisions of the applicable codes or otherwise result in any adverse tax
consequences to the Holding Company, the Savings Bank and its account holders
receiving Subscription Rights before or after the Conversion, except in each
case to the extent, if any, that Subscription Rights are deemed to have fair
market value on the date such rights are issued.
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24. STOCK COMPENSATION PLANS.
The Holding Company and the Savings Bank are authorized to adopt
Tax-Qualified Employee Stock Benefit Plans in connection with the Conversion,
including without limitation the ESOP. Subsequent to the Conversion, the Holding
Company and the Savings Bank are authorized to adopt Non-Tax Qualified Employee
Stock Benefit Plans, including without limitation, stock option plans and
restricted stock plans for directors, officers and employees, provided however
that, with respect to any such plan implemented during the one-year period
subsequent to the date of Conversion, any such plan (i) shall be disclosed in
the proxy solicitation materials for the Special Meeting of Voting Members and
in the Prospectus; (ii) in the case of stock option plans, shall have a total
number of shares of common stock for which options may be granted of not more
than 10% of the amount of shares issued in the Conversion; (iii) in the case of
management or employee stock benefit plans, shall have a total number of shares
of common stock of not more than 4% of the amount of shares issued in the
Conversion; (iv) shall be submitted for approval by the holders of the common
stock of the Holding Company no earlier than six months following consummation
of the Conversion; and (v) shall comply with all other applicable requirements
of the Commissioner.
25. DIVIDEND AND REPURCHASE RESTRICTIONS ON STOCK.
(a) Subject to any applicable provisions of Illinois law and regulations
of the Commissioner and the FDIC, following consummation of the Conversion, upon
receipt of any required prior consent of the FDIC and the Commissioner, the
Holding Company may repurchase shares of its Common Stock.
(b) The Savings Bank may not declare or pay a cash dividend on its capital
stock if the effect thereof would cause the regulatory capital of the Savings
Bank to be reduced below the amount required for the liquidation account or
otherwise required by the Commissioner or federal law.
26. EXPENSES OF CONVERSION.
The Holding Company and Savings Bank may retain and pay for the services of
legal, financial and other advisors to assist in connection with any or all
aspects of the Conversion and such parties shall use their best efforts to
ensure that such expenses are reasonable.
27. EFFECTIVE DATE.
The effective date of the Conversion shall be the date of the closing of
the sale of all shares of Conversion Stock. The closing of the sale of all
shares of Conversion Stock sold in the Subscription Offering, Community Offering
and/or Syndicated Community
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Offering shall occur simultaneously and shall be conditioned upon the prior
receipt of all requisite regulatory and other approvals.
28. AMENDMENT OR TERMINATION OF THE PLAN.
If deemed necessary or desirable by the Board of Directors of the Savings
Bank, this Plan may be substantively amended, as a result of comments from
regulatory authorities or otherwise, at any time prior to the solicitation of
proxies from Members to vote on the Plan and at any time thereafter with the
concurrence of the Commissioner. Any amendment to this Plan made after approval
by the Members with the concurrence of the Commissioner and the Commissioner
shall not necessitate further approval by the Members unless otherwise required
by the Commissioner. This Plan shall terminate if the sale of all shares of
Conversion Stock is not completed within 12 months from the date of the Special
Meeting (subject to extension by the Commissioner). Prior to the Special
Meeting, this Plan may be terminated by the Board of Directors of the Savings
Bank without approval of the Commissioner; after the Special Meeting, the Board
of Directors may terminate this Plan only with the approval of the Commissioner.
29. INTERPRETATION.
All interpretations of this Plan and application of its provisions to
particular circumstances by a majority of the Board of Directors of the Holding
Company and the Savings Bank shall be final, subject to the authority of the
Commissioner.
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EXHIBIT 3-1
CERTIFICATE OF INCORPORATION OF
VERMILION BANCORP, INC.
ARTICLE I
NAME
The name of the corporation is Vermilion Bancorp, Inc. (hereinafter
referred to as the ""Corporation'').
ARTICLE II
REGISTERED OFFICE AND REGISTERED AGENT
The address of the registered office of the Corporation in the State of
Delaware is 1209 Orange Street, in the city of Wilmington, county of New
Castle. The name of the registered agent at such address is The Corporation
Trust Company.
ARTICLE III
NATURE OF BUSINESS
The purpose of the Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware.
ARTICLE IV
CAPITAL STOCK
The total number of shares of capital stock which the Corporation has
authority to issue is 2,000,000, of which 400,000 shall be serial preferred
stock, $.01 par value per share (hereinafter the "Preferred Stock"), and
1,600,000 shall be common stock, par value $.01 per share (hereinafter the
"Common Stock").
The Board of Directors is hereby expressly authorized, by resolution or
resolutions to provide, out of the unissued shares of Preferred Stock, for
series of Preferred Stock. Before any shares of any such series are issued, the
Board of Directors shall fix, and hereby is expressly empowered to fix, by
resolution or resolutions, the following provisions of the shares thereof:
(a) the designation of such series, the number of shares to
constitute such series and the stated value thereof if different from the
par value thereof;
(b) whether the shares of such series shall have voting rights, in
addition to any voting rights provided by law, and, if so, the terms of
such voting rights, which may be general or limited;
(c) the dividends, if any, payable on such series, whether any such
dividends shall be cumulative, and, if so, from what dates, the conditions
and dates upon which such dividends shall be payable, the preference or
relation which such dividends shall bear to the dividends payable on any
shares of stock of any other class or any other series of this class;
<PAGE>
(d) whether the shares of such series shall be subject to redemption
by the Corporation, and, if so, the times, prices and other conditions of
such redemption;
(e) the amount or amounts payable upon shares of such series upon,
and the rights of the holders of such series in, the voluntary or
involuntary liquidation, dissolution or winding up, or upon any
distribution of the assets, of the Corporation;
(f) whether the shares of such series shall be subject to the
operation of a retirement or sinking fund and, if so, the extent to and
manner in which any such retirement or sinking fund shall be applied to the
purchase or redemption of the shares of such series for retirement or other
corporate purposes and the terms and provisions relative to the operation
thereof;
(g) whether the shares of such series shall be convertible into, or
exchangeable for, shares of stock of any other class or any other series of
this class or any other securities, and, if so, the price or prices or the
rate or rates of conversion or exchange and the method, if any, of
adjusting the same, and any other terms and conditions of conversion or
exchange;
(h) the limitations and restrictions, if any, to be effective while
any shares of such series are outstanding upon the payment of dividends or
the making of other distributions on, and upon the purchase, redemption or
other acquisition by the Corporation of, the Common Stock or shares of
stock of any other class or any other series of this class;
(i) the conditions or restrictions, if any, upon the creation of
indebtedness of the Corporation or upon the issue of any additional stock,
including additional shares of such series or of any other series of this
class or of any other class; and
(j) any other powers, preferences and relative, participating,
optional and other special rights, and any qualifications, limitations and
restrictions thereof.
The powers, preferences and relative, participating, optional and other
special rights, of each series of Preferred Stock, and the qualifications,
limitations or restrictions thereof, if any, may differ from those of any and
all other series at any time outstanding. All shares of any one series of
Preferred Stock shall be identical in all respects with all other shares of such
series, except that shares of any one series issued at different times may
differ as to the dates from which dividends thereon shall accrue and/or be
cumulative.
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ARTICLE V
INCORPORATOR
The name and mailing address of the sole incorporator is as follows:
Name Address
---- -------
American Savings Bank of Danville 714 North Vermilion Street
Danville, Illinois 61832
ARTICLE VI
PREEMPTIVE RIGHTS
No holder of the capital stock of the Corporation shall be entitled as
such, as a matter of right, to subscribe for or purchase any part of any new or
additional issue of stock of any class whatsoever of the Corporation, or of
securities convertible into stock of any class whatsoever, whether now or
hereafter authorized, or whether issued for cash or other consideration or by
way of a dividend.
ARTICLE VII
DIRECTORS
A. DIRECTORS AND NUMBER OF DIRECTORS. The business and affairs of the
Corporation shall be managed by or under the direction of a Board of Directors.
Except as otherwise fixed pursuant to the provisions of Article IV hereof
relating to the rights of the holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation to elect
additional directors, the number of directors shall be determined as stated in
the Corporation's Bylaws, as may be amended from time to time.
B. CLASSIFICATION AND TERM. The Board of Directors, other than those who
may be elected by the holders of any class or series of stock having preference
over the Common Stock as to dividends or upon liquidation, shall be divided into
three classes as nearly equal in number as possible, with one class to be
elected annually. The term of office of the initial directors shall be as
follows: the term of directors of the first class shall expire at the first
annual meeting of stockholders after the effective date of this Certificate of
Incorporation; the term of office of the directors of the second class shall
expire at the second annual meeting of stockholders after the effective date of
this Certificate of Incorporation; and the term of office of the third class
shall expire at the third annual meeting of stockholders after the effective
date of this Certificate of Incorporation; and, as to directors of each class,
when their respective successors are elected and qualified. At each annual
meeting of stockholders, directors elected to succeed those whose terms are
expiring shall be elected for a term of office to expire at the third succeeding
annual meeting
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of stockholders and when their respective successors are elected
and qualified.
C. NO CUMULATIVE VOTING. Stockholders of the Corporation shall not be
permitted to cumulate their votes for the election of directors.
D. VACANCIES. Except as otherwise fixed pursuant to the provisions of
Article IV hereof relating to the rights of the holders of any class or series
of stock having a preference over the Common Stock as to dividends or upon
liquidation to elect directors, any vacancy occurring in the Board of
Directors, including any vacancy created by reason of an increase in the number
of directors, may be filled by a majority vote of the directors then in office,
whether or not a quorum is present, or by a sole remaining director, and any
director so chosen shall hold office for the remainder of the term to which the
director has been selected and until such director's successor shall have been
elected and qualified. When the number of directors is changed, the Board of
Directors shall determine the class or classes to which the increased or
decreased number of directors shall be apportioned; provided that no decrease
in the number of directors shall shorten the term of any incumbent director.
E. REMOVAL. Subject to the rights of any class or series of stock having
preference over the Common Stock as to dividends or upon liquidation to elect
directors, any director (including persons elected by directors to fill
vacancies in the Board of Directors) may be removed from office only with cause
by an affirmative vote of not less than a majority of the votes eligible to be
cast by stockholders at a duly constituted meeting of stockholders called
expressly for such purpose.
ARTICLE VIII
MEETINGS OF STOCKHOLDERS AND BYLAWS
A. MEETINGS OF STOCKHOLDERS. No action required by the General
Corporation Law of the State of Delaware to be taken at any annual or special
meetings of stockholders, nor any action which may be taken at any annual or
special meetings of stockholders, may be taken without a meeting, without prior
notice and without a vote of such stockholders. Except as otherwise required
by law and subject to the rights of the holders of any class or series of
Preferred Stock, special meetings of the stockholders may be called only by the
Board of Directors pursuant to a resolution approved by the affirmative vote of
a majority of the directors then in office.
B. BYLAWS. The Board of Directors or stockholders may adopt, alter,
amend or repeal the Bylaws of the Corporation. Such action by the Board of
Directors shall require the affirmative vote of a majority of the directors then
in office at any regular or special meeting of the Board of Directors. Such
action by the stockholders shall require the affirmative vote of the holders of
a majority of the shares of the Corporation entitled to vote generally in an
election of directors, voting together as a single class, as well as such
additional vote of the Preferred Stock as may be required by the provisions of
any series thereof, provided that the affirmative vote of the holders of at
least 75% of the shares of the Corporation entitled to vote generally in an
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election of directors, voting together as a single class, as well as such
additional vote of the Preferred Stock as may be required by the provisions of
any series thereof, shall be required to amend, adopt, alter, change or repeal
any provision of the Bylaws of the Corporation which is inconsistent with
Articles VII, VIII, IX, X and XI of this Certificate of Incorporation or
Sections 2.3, 2.4, 2.8, 2.14, 4.2, 4.3, 4.15 and Article VI of the Bylaws of
the Corporation and which is not approved by the affirmative vote of 75% of the
members of the Corporation's Board of Directors then in office.
ARTICLE IX
LIABILITY OF DIRECTORS AND OFFICERS
The personal liability of the directors and officers of the Corporation for
monetary damages shall be eliminated to the fullest extent permitted by the
General Corporation Law of the State of Delaware as it exists on the effective
date of this Certificate of Incorporation or as such law may be thereafter in
effect. No amendment, modification or repeal of this Article IX shall adversely
affect the rights provided hereby with respect to any claim, issue or matter in
any proceeding that is based in any respect on any alleged action or failure to
act prior to such amendment, modification or repeal.
ARTICLE X
RESTRICTIONS ON OFFERS AND ACQUISITIONS OF
THE CORPORATION'S EQUITY SECURITIES
A. DEFINITIONS.
(a) ACQUIRE. The term "Acquire" includes every type of acquisition,
whether effected by purchase, exchange, operation of law or otherwise.
(b) ACTING IN CONCERT. 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.
(c) AFFILIATE. An "Affiliate" of, or a Person "affiliated with,"
a specified Person, means a Person that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the Person specified.
(d) ASSOCIATE. The term "Associate" used to indicate a relationship
with any Person means:
(i) Any corporation or organization (other than the Corporation
or a Subsidiary of the Corporation), or any subsidiary or parent
thereof, of which such Person is a director, officer or partner or is,
directly or indirectly, the Beneficial Owner of 10% or more of any
class of equity securities;
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(ii) Any trust or other estate in which such Person has a 10% or
greater beneficial interest or as to which such Person serves as
trustee or in a similar fiduciary capacity, provided, however, such
term shall not include any employee stock benefit plan of the
Corporation or a Subsidiary of the Corporation in which such Person
has a 10% or greater beneficial interest or serves as a trustee or in
a similar fiduciary capacity;
(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 Corporation or a Subsidiary of the Corporation (or
any subsidiary or parent thereof); or
(iv) Any investment company registered under the Investment
Company Act of 1940 for which such Person or any Affiliate or
Associate of such Person serves as investment advisor.
(e) BENEFICIAL OWNER (INCLUDING BENEFICIALLY OWNED). A Person shall
be considered the "Beneficial Owner" of any shares of stock (whether or
not owned of record):
(i) With respect to which such Person or any Affiliate or
Associate of such Person directly or indirectly has or shares (A)
voting power, including the power to vote or to direct the voting of
such shares of stock, and/or (B) investment power, including the power
to dispose of or to direct the disposition of such shares of stock;
(ii) Which such Person or any Affiliate or Associate of such
Person has (A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any
agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise,
and/or (B) the right to vote pursuant to any agreement, arrangement or
understanding (whether such right is exercisable immediately or only
after the passage of time); or
(iii) Which are Beneficially Owned within the meaning of (i) or
(ii) of this Article XA(e) by any other Person with which such
first-mentioned Person or any of its Affiliates or Associates either
(A) has any agreement, arrangement or understanding, written or oral,
with respect to acquiring, holding, voting or disposing of any shares
of stock of the Corporation or any Subsidiary of the Corporation or
acquiring, holding or disposing of all or substantially all, or any
Substantial Part, of the assets or business of the Corporation or a
Subsidiary of the Corporation, or (B) is Acting in Concert. For the
purpose only of determining whether a Person is the Beneficial Owner
of a percentage specified in this Article X of the outstanding Voting
Shares, such shares shall be deemed to include any Voting Shares which
may be issuable pursuant to any agreement, arrangement or
understanding or upon the exercise of conversion rights, exchange
rights, warrants, options or otherwise and which are deemed to be
Beneficially Owned by such Person pursuant to the
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foregoing provisions of this Article XA(e), but shall not include any
other Voting Shares which may be issuable in such manner.
(f) OFFER. The term "Offer" shall mean every offer to buy or
acquire, solicitation of an offer to sell, tender offer or request or
invitation for tender of, a security or interest in a security for value;
provided that the term "Offer" shall not include (i) inquiries directed
solely to the management of the Corporation and not intended to be
communicated to stockholders which are designed to elicit an indication of
management's receptivity to the basic structure of a potential acquisition
with respect to the amount of cash and or securities, manner of acquisition
and formula for determining price, or (ii) non-binding expressions of
understanding or letters of intent with the management of the Corporation
regarding the basic structure of a potential acquisition with respect to
the amount of cash and or securities, manner of acquisition and formula for
determining price.
(g) PERSON. The term "Person" shall mean any individual,
partnership, corporation, association, trust, group or other entity. When
two or more Persons act as a partnership, limited partnership, syndicate,
association or other group for the purpose of acquiring, holding or
disposing of shares of stock, such partnership, syndicate, associate or
group shall be deemed a "Person."
(h) SUBSTANTIAL PART. The term "Substantial Part" as used with
reference to the assets of the Corporation or of any Subsidiary means
assets having a value of more than 10% of the total consolidated assets of
the Corporation and its Subsidiaries as of the end of the Corporation's
most recent fiscal year ending prior to the time the determination is being
made.
(i) SUBSIDIARY. "Subsidiary" means any corporation of which a
majority of any class of equity security is owned, directly or indirectly,
by the Person in question.
(j) VOTING SHARES. "Voting Shares" shall mean shares of the
Corporation entitled to vote generally in an election of directors.
(k) CERTAIN DETERMINATIONS WITH RESPECT TO ARTICLE X. A majority of
the directors shall have the power to determine for the purposes of this
Article X, on the basis of information known to them and acting in good
faith: (A) the number of Voting Shares of which any Person is the
Beneficial Owner, (B) whether a Person is an Affiliate or Associate of
another, (C) whether a Person has an agreement, arrangement or
understanding with another as to the matters referred to in the definition
of "Beneficial Owner" as hereinabove defined, and (D) such other matters
with respect to which a determination is required under this Article X.
(l) DIRECTORS, OFFICERS OR EMPLOYEES. Directors, officers or
employees of the Corporation or any Subsidiary thereof shall not be deemed
to be a group with respect to their individual acquisitions of any class of
equity securities of the Corporation solely as a result of their capacities
as such.
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B. RESTRICTIONS. For a period of five years from the effective date of
the conversion of American Savings Bank of Danville from the mutual to stock
form of organization, no Person shall directly or indirectly Offer to acquire
or acquire the Beneficial Ownership of (i) more than 10% of the issued and
outstanding shares of any class of an equity security of the Corporation, or
(ii) any securities convertible into, or exercisable for, any equity securities
of the Corporation if, assuming conversion or exercise by such Person of all
securities of which such Person is the Beneficial Owner which are convertible
into, or exercisable for, such equity securities (but of no securities
convertible into, or exercisable for, such equity securities of which such
Person is not the Beneficial Owner), such Person would be the Beneficial Owner
of more than 10% of any class of an equity security of the Corporation.
C. EXCLUSIONS. The foregoing restrictions shall not apply to (i) any
Offer with a view toward public resale made exclusively to the Corporation by
underwriters or a selling group acting on its behalf, (ii) any tax qualified
employee benefit plan or arrangement established by the Corporation or a
Subsidiary of the Corporation and any trustee of such a plan or arrangement,
and (iii) any other Offer or acquisition approved in advance by the affirmative
vote of two-thirds of the members of the Corporation's Board of Directors then
in office.
D. REMEDIES. In the event that shares are acquired in violation of this
Article X, 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 stockholders for a vote, and the Board of
Directors may cause such Excess Shares to be transferred to an independent
trustee for sale on the open market or otherwise, with the expenses of such
trustee to be paid out of the proceeds of the sale.
ARTICLE XI
AMENDMENT
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by law, and all rights conferred upon stockholders herein
are granted subject to this reservation. No amendment, addition, alteration,
change or repeal of this Certificate of Incorporation shall be made unless it
is first approved by the Board of Directors of the Corporation pursuant to a
resolution adopted by the affirmative vote of a majority of the directors then
in office, and, to the extent required by applicable law, is thereafter
approved by the holders of a majority (except as provided below) of the shares
of the Corporation entitled to vote generally in an election of directors,
voting together as a single class, as well as such additional vote of the
Preferred Stock as may be required by the provisions of any series thereof.
Notwithstanding anything contained in this Certificate of Incorporation to the
contrary, the affirmative vote of the holders of at least 75% of the shares of
the Corporation entitled to vote generally in an election of directors, voting
together as a single class, as well as such additional vote of the Preferred
Stock as may be required by the provisions of any series thereof, shall be
required to amend, adopt, alter, change or repeal any provision inconsistent
with Articles VII, VIII, IX, X and XI hereof which is not approved by the
affirmative vote of 75% of the Corporation's Board of Directors then in office.
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AMERICAN SAVINGS BANK OF DANVILLE, being the sole Incorporator herein
before named, for the purpose of forming a corporation pursuant to the General
Corporation Law of the State of Delaware, does make this Certificate, hereby
declaring and certifying that this is the Incorporator's act and deed and that
the facts herein stated are true, and accordingly has caused this Certificate to
be signed on its behalf by the undersigned, thereunto duly authorized, on this
__th day of November 1996.
AMERICAN SAVINGS BANK OF DANVILLE
By: /s/ Merrill G. Norton
---------------------
Merrill G. Norton
President
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EXHIBIT 3.2
BYLAWS
OF
VERMILION BANCORP, INC.
ARTICLES I. OFFICES
1.1 REGISTERED OFFICE AND REGISTERED AGENT. The registered office of
Vermilion Bancorp, Inc. ("Corporation") shall be located in the State of
Delaware at such place as may be fixed from time to time by the Board of
Directors upon filing of such notices as may be required by law, and the
registered agent shall have a business office identical with such registered
office.
1.2 OTHER OFFICES. The Corporation may have other offices within or
without the State of Delaware at such place or places as the Board of Directors
may from time to time determine.
ARTICLE II. STOCKHOLDERS' MEETINGS
2.1 MEETING PLACE. All meetings of the stockholders shall be held at the
principal place of business of the Corporation, or at such other place within or
without the State of Delaware as shall be determined from time to time by the
Board of Directors, and the place at which any such meeting shall be held shall
be stated in the notice of the meeting.
2.2 ANNUAL MEETING TIME. The annual meeting of the stockholders for the
election of directors and for the transaction of such other business as may
properly come before the meeting shall be held each year on the third Wednesday
of January at such time prescribed by the Board of Directors, if not a legal
holiday, and if a legal holiday, then on such other date and time as may be
determined by the Board of Directors and stated in the notice of such meeting.
2.3 ORGANIZATION. Each meeting of the stockholders shall be presided over
by the Chairman of the Board, or in his absence by the President. The
Secretary, or in his or her absence a temporary Secretary, shall act as
secretary of each meeting of the stockholders. In the absence of the Secretary
and any temporary Secretary, the chairman of the meeting may appoint any person
present to act as secretary of the meeting. The chairman of any meeting of the
stockholders shall announce the date and time of the opening and the closing of
the polls for each matter upon which the stockholders will vote at a meeting
and, unless prescribed by law or regulation or unless the Board of Directors has
otherwise determined, shall determine the order of the business and the
procedure at the meeting, including such regulation of the manner of voting and
the conduct of discussions as seem to him in order.
2.4 SPECIAL MEETINGS. Except as otherwise required by law and subject to
the rights of the holders of any class or series of Preferred Stock, special
meetings of the stockholders may be called only by the Board of Directors
pursuant to a resolution approved by the affirmative vote of a majority of the
directors then in office.
2.5 NOTICE.
<PAGE>
(a) Notice of the time and place of the annual meeting of stockholders
shall be given by delivering personally or by mailing a written notice of the
same, not less than ten days and not more than sixty days prior to the date of
the meeting, to each stockholder of record entitled to vote at such meeting.
When any stockholders' meeting, either annual or special, is adjourned for
thirty days or more, or if a new record date is fixed for an adjourned meeting
of stockholders, notice of the adjourned meeting shall be given as in the case
of an original meeting. It shall not be necessary to give any notice of the
time and place of any meeting adjourned for less than thirty days (unless a new
record date is fixed therefor), other than an announcement at the meeting at
which such adjournment is taken. At the adjourned meeting the Corporation may
transact any business which might have been transacted at the original meeting.
(b) Not less than ten days and not more than sixty days prior to the
meeting, a written notice of each special meeting of stockholders, stating the
place, day and hour of such meeting, and the purpose or purposes for which the
meeting is called, shall be either delivered personally or mailed to each
stockholder of record entitled to vote at such meeting.
2.6 VOTING RECORD. At least ten days before each meeting of stockholders,
a complete record of the stockholders entitled to vote at such meeting, or any
adjournment thereof, shall be made, arranged in alphabetical order, with the
address of and number of shares registered in the name of each, which record
shall be kept open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to such meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The record also shall be kept open at the time and place of such meeting for the
inspection of any stockholder.
2.7 QUORUM; ACTIONS OF STOCKHOLDERS. Except as otherwise required by law:
(a) A quorum at any annual or special meeting of stockholders shall
consist of stockholders representing, either in person or by proxy, a majority
of the outstanding capital stock of the Corporation entitled to vote at such
meeting.
(b) In all matters other than the election of directors, the affirmative
vote of the majority of shares present in person or represented by proxy at the
meeting and entitled to vote on the subject matter shall be the act of the
stockholders. Directors shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the election of directors. If, at any meeting of the stockholders, due
to a vacancy or vacancies or otherwise, directors of more than one class of the
Board of Directors are to be elected, each class of directors to be elected at
the meeting shall be elected in a separate election by a plurality vote.
2.8 VOTING OF SHARES. Except as otherwise provided in these Bylaws or to
the extent that voting rights of the shares of any class or classes are limited
or denied by the Certificate of
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Incorporation, each stockholder, on each matter submitted to a vote at a
meeting of stockholders, shall have one vote for each share of stock
registered in his name on the books of the Corporation.
2.9 FIXING OF THE RECORD DATE. For the purpose of determining
stockholders entitled to notice of or to vote at any meeting of stockholders, or
any adjournment thereof, or entitled to receive payment of any dividend, the
Board of Directors may fix in advance a record date for any such determination
of stockholders, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which record date shall not be more than sixty days and, in case of a meeting of
stockholders, not less than ten days prior to the date on which the particular
action requiring such determination of stockholders is to be taken.
2.10 PROXIES. A stockholder may vote either in person or by proxy executed
in writing by the stockholder or his duly authorized attorney-in-fact. Without
limiting the manner in which a stockholder may authorize another person or
persons to act for him as proxy, a stockholder may grant such authority in the
manner specified in Section 212(c) of the General Corporation Law of the State
of Delaware. No proxy shall be valid after three years from the date of its
execution, unless otherwise provided in the proxy.
2.11 WAIVER OF NOTICE. A waiver of any notice required to be given any
stockholder, signed by the person or persons entitled to such notice, whether
before or after the time stated therein for the meeting, shall be equivalent to
the giving of such notice.
2.12 VOTING OF SHARES IN THE NAME OF TWO OR MORE PERSONS. When ownership
stands in the name of two or more persons, whether fiduciaries, members of a
partnership, joint tenants, tenants in common, tenants by the entirety or
otherwise, or if two or more persons have the same fiduciary relationship
respecting the same shares, unless the Secretary of the Corporation is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided, at
any meeting of the stockholders of the Corporation any one or more of such
stockholders may cast, in person or by proxy, all votes to which such ownership
is entitled. In the event an attempt is made to cast conflicting votes, in
person or by proxy, by the several persons in whose names shares of stock stand,
the vote or votes to which those persons are entitled shall be cast as directed
by a majority of those holding such stock and present in person or by proxy at
such meeting, but no votes shall be cast for such stock if a majority cannot
agree, except to the extent provided in Section 217(b)(3) of the General
Corporation Law of the State of Delaware.
2.13 VOTING OF SHARES BY CERTAIN HOLDERS. Shares standing in the name of
another corporation may be voted by an 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
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standing in the name of a trustee may be voted by him, either in person or by
proxy, but no trustee shall be entitled to vote shares held by him without a
transfer of such shares into his name. Shares standing in the name of a
receiver may be voted by such receiver, and shares held by or under the control
of a receiver may be voted by such receiver without the transfer thereof into
his name if authority to do so is contained in an appropriate order of the court
or other public authority by which such receiver was appointed. A stockholder
whose shares are pledged shall be entitled to vote such shares until the shares
have been transferred into the name of the pledgee, and thereafter the pledgee
shall be entitled to vote the shares so transferred.
2.14 PROPOSALS. At an annual meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual meeting, business must be (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors, or (b) otherwise properly brought
before the meeting by a stockholder. For business to be properly brought before
an annual meeting by a stockholder, the stockholder must have given timely
notice thereof in writing to the Secretary of the Corporation. To be timely a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation not later than ninety days prior
to the anniversary date of the mailing of proxy materials by the Corporation in
connection with the immediately preceding annual meeting of stockholders of the
Corporation or, in the case of the first annual meeting of stockholders of the
Corporation, which is expected to be held on the third Wednesday of January
1998, notice by the stockholder must be so delivered or received no later than
the close of business on the third Wednesday of October 1997, notwithstanding a
determination by the Corporation to schedule such annual meeting at a date later
than the third Wednesday of January 1998. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder proposes to bring
before the annual meeting (a) a brief description of the business desired to be
brought before the annual meeting, (b) the name and address, as they appear on
the Corporation's books, of the stockholder proposing such business, (c) the
class and number of shares of the Corporation which are beneficially owned by
the stockholder, and (d) any material interest of the stockholder in such
business. The chairman of an annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of this Article II, Section
2.14, and if he should so determine, he shall so declare to the meeting and any
such business not properly brought before the meeting shall not be transacted.
This provision is not a limitation on any other applicable laws and regulations.
2.15 INSPECTORS. For each meeting of stockholders, the Board of Directors
shall appoint one or more inspectors of election, who shall make a written
report of such meeting. If for any meeting the inspector(s) appointed by the
Board of Directors shall be unable to act or the Board of Directors shall fail
to appoint any inspector, one or more inspectors shall be appointed at the
meeting by the chairman thereof. 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. An inspector or inspectors shall (i) ascertain the number of shares
outstanding and the voting power of each, (ii) determine the shares
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represented at a meeting and the validity of proxies and ballots, (iii) count
all votes and ballots, (iv) determine and retain for a reasonable period a
record of the disposition of any challenges made to any determination by the
inspectors and (v) certify their determination of the number of shares
represented at the meeting and their count of all votes and ballots. The
date and time of the opening and the closing of the polls for each matter
upon which the stockholders will vote at a meeting shall be announced at the
meeting by the chairman thereof. An inspector or inspectors shall not accept
a ballot, proxy or vote, nor any revocations thereof or changes thereto,
after the closing of the polls (unless the Court of Chancery of the State of
Delaware upon application by a stockholder shall determine otherwise) and may
appoint or retain other persons or entities to assist them in the performance
of their duties. Inspectors need not be stockholders and may not be nominees
for election as directors.
ARTICLE III. CAPITAL STOCK
3.1 CERTIFICATES. Certificates of stock shall be issued in numerical
order, and each stockholder shall be entitled to a certificate signed by the
Chairman of the Board or the President, and the Secretary or the Treasurer, and
may be sealed with the seal of the Corporation or facsimile thereof. Any or all
of the signatures on the certificate may be by facsimile. If an officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon such certificate ceases to be an officer, transfer agent or
registrar before the certificate is issued, it may be issued by the Corporation
with the same effect as if the person were an officer, transfer agent or
registrar on the date of issue. Each certificate of stock shall state:
(a) that the Corporation is organized under the laws of the State of
Delaware;
(b) the name of the person to whom issued;
(c) the number and class of shares and the designation of the series, if
any, which such certificate represents; and
(d) the par value of each share represented by such certificate, or a
statement that such shares are without par value.
3.2 TRANSFERS.
(a) Transfers of stock shall be made only upon the stock transfer books of
the Corporation, kept at the registered office of the Corporation or at its
principal place of business, or at the office of its transfer agent or
registrar, and before a new certificate is issued the old certificate shall be
surrendered for cancellation. The Board of Directors may, by resolution, open a
share register in any state of the United States, and may employ an agent or
agents to keep such register, and to record transfers of shares therein.
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(b) Shares of stock shall be transferred by delivery of the certificates
therefor, accompanied either by an assignment in writing on the back of the
certificate or an assignment separate from the certificate, or by a written
power of attorney to sell, assign and transfer the same, signed by the holder of
said certificate. No shares of stock shall be transferred on the books of the
Corporation until the outstanding certificates therefor have been surrendered to
the Corporation.
(c) A written restriction on the transfer or registration of transfer of a
certificate evidencing stock of the Corporation, if permitted by the General
Corporation Law of the State of Delaware and noted conspicuously on such
certificate, may be enforced against the holder of the restricted certificate or
any successor or transferee of the holder, including an executor, administrator,
trustee, guardian or other fiduciary entrusted with like responsibility for the
person or estate of the holder.
3.3 REGISTERED OWNER. Registered stockholders shall be treated by the
Corporation as the holders in fact of the stock standing in their respective
names and the Corporation shall not be bound to recognize any equitable or other
claim to or interest in any share on the part of any other person, whether or
not it shall have express or other notice thereof, except as expressly provided
by the laws of the State of Delaware.
3.4 LOST, STOLEN OR DESTROYED CERTIFICATES. The Corporation may issue a
new certificate of stock in place of any certificate previously issued by it
which is alleged to have been lost, stolen or destroyed, and the Corporation may
require the owner of the lost, stolen or destroyed certificate, or his legal
representative, to give the Corporation a bond sufficient to indemnify it
against any claim that may be made against it on account of the alleged loss,
theft or destruction of any such certificate or the issuance of such new
certificate.
3.5 FRACTIONAL SHARES OR SCRIP. The Corporation may (a) issue fractions
of a share which shall entitle the holder to exercise voting rights, to receive
dividends thereon and to participate in any of the assets of the Corporation in
the event of liquidation; (b) arrange for the disposition of fractional
interests by those entitled thereto; (c) pay in cash the fair value of fractions
of a share as of the time when those entitled to receive such shares are
determined; or (d) issue scrip in registered or bearer form which shall entitle
the holder to receive a certificate for a full share upon the surrender of such
scrip aggregating a full share.
3.6 SHARES OF ANOTHER CORPORATION. Shares owned by the Corporation in
another corporation, domestic or foreign, may be voted by such officer, agent or
proxy as the Board of Directors may determine or, in the absence of such
determination, by the President of the Corporation.
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ARTICLE IV. BOARD OF DIRECTORS
4.1 POWERS. The business and affairs of the Corporation shall be managed
by or under the direction of a Board of Directors, which may exercise all such
authority and powers of the Corporation and do all such lawful acts and things
as are not by law, the Certificate of Incorporation or these Bylaws directed or
required to be exercised or done by the stockholders.
4.2 CLASSIFICATION AND TERM. The Board of Directors shall be divided into
three classes as nearly equal in number as possible. The term of office of the
initial directors shall be as follows: the term of directors of the first class
shall expire at the first annual meeting of stockholders after the effective
date of the Corporation's Certificate of Incorporation; the term of office of
the directors of the second class shall expire at the second annual meeting of
stockholders after the effective date of the Corporation's Certificate of
Incorporation; and the term of office of the third class shall expire at the
third annual meeting of stockholders after the effective date of the
Corporation's Certificate of Incorporation; and as to directors of each class,
when their respective successors are elected and qualified. At each annual
meeting of stockholders, directors elected to succeed those whose terms are
expiring shall be elected for a term of office to expire at the third succeeding
annual meeting of stockholders and when their respective successors are elected
and qualified.
4.3 NUMBER OF DIRECTORS. The initial Board of Directors shall consist of
five persons. The number of directors may at any time be increased or decreased
by a vote of a majority of the Board of Directors, provided that no decrease
shall have the effect of shortening the term of any incumbent director.
Notwithstanding anything to the contrary contained within these Bylaws, the
number of directors may not be less than five nor more than 15.
4.4 VACANCIES. All vacancies in the Board of Directors shall be filled in
the manner provided in the Corporation's Certificate of Incorporation.
4.5 REMOVAL OF DIRECTORS. Directors may be removed in the manner provided
in the Corporation's Certificate of Incorporation.
4.6 REGULAR MEETINGS. Regular meetings of the Board of Directors or any
committee thereof may be held without notice at the principal place of business
of the Corporation or at such other place or places, either within or without
the State of Delaware, as the Board of Directors or such committee, as the case
may be, may from time to time designate. Unless otherwise determined by the
Board of Directors, the annual meeting of the Board of Directors shall be held
without notice immediately after the adjournment of the annual meeting of
stockholders.
4.7 SPECIAL MEETINGS.
(a) Special meetings of the Board of Directors may be called at any time
by the Chairman of the Board, the President or by a majority of the authorized
number of directors, to
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be held at the principal place of business of the Corporation or at such
other place or places as the Board of Directors or the person or persons
calling such meeting may from time to time designate. Notice of all special
meetings of the Board of Directors shall be given to each director by five
days' service of the same by telegram, by letter, by telephone or personally.
Such notice need not specify the business to be transacted at, nor the
purpose of, the meeting.
(b) Special meetings of any committee of the Board of Directors may be
called at any time by such person or persons and with such notice as shall be
specified for such committee by the Board of Directors, or in the absence of
such specification, in the manner and with the notice required for special
meetings of the Board of Directors.
4.8 WAIVER OF NOTICE. Attendance of a director at a meeting shall
constitute a waiver of notice of such meeting, except where a director attends
for the express purpose of objecting to the transaction of any business because
the meeting is not lawfully called or convened. A waiver of notice signed by
the director or directors, whether before or after the time stated for the
meeting, shall be equivalent to the giving of notice.
4.9 QUORUM; ACTIONS OF THE BOARD OF DIRECTORS. Except as may be otherwise
specifically provided by law, the Certificate of Incorporation or these Bylaws,
at all meetings of the Board of Directors, a majority of the entire Board of
Directors shall constitute a quorum for the transaction of business and the act
of a majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors. If a quorum shall not be present at
any meeting of the Board of Directors, the directors present thereat may adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
4.10 ACTION BY DIRECTORS WITHOUT A MEETING. Any action required or which
may be taken at a meeting of the directors, or of a committee thereof, may be
taken without a meeting if a consent in writing, setting forth the action so
taken or to be taken, shall be signed by all of the directors, or all of the
members of the committee, as the case may be, and such consents are filed with
the minutes of proceedings of the Board of Directors or committee, as the case
may be. Such consent shall have the same effect as a unanimous vote.
4.11 ACTION BY DIRECTORS BY COMMUNICATIONS EQUIPMENT. Any action required
or which may be taken at a meeting of directors, or of a committee thereof, may
be taken by means of a conference telephone, video conference or similar
communications equipment by means of which all persons participating in the
meeting can hear each other at the same time.
4.12 REGISTERING DISSENT. A director who is present at a meeting of the
Board of Directors at which action on a corporate matter is taken shall be
presumed to have assented to such action unless his dissent shall be entered in
the minutes of the meeting, or unless he shall file his written dissent to such
action with the person acting as the secretary of the meeting, before the
adjournment thereof, or shall forward such dissent by registered mail to the
Secretary of the
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Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a director who voted in favor of such action.
4.13 EXECUTIVE AND OTHER COMMITTEES. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate one or more
committees which in each case consist of one or more directors of the
Corporation, and may from time to time invest such committees with such
powers as it may see fit, subject to such conditions as may be prescribed by
the Board. An Executive Committee may be appointed by resolution passed by a
majority of the full Board of Directors. It shall have and exercise all of
the authority of the Board of Directors, except in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or
consolidation or plan of voluntary liquidation, recommending to the
stockholders the sale, lease or exchange or other disposition of all or
substantially all the property and assets of the Corporation, declaring a
dividend on the Corporation's capital stock or amending these Bylaws. The
designation of any such committee, and the delegation of authority thereto,
shall not relieve the Board of Directors, or any member thereof, of any
responsibility imposed by law.
4.14 REMUNERATION. The directors may be paid their expenses, if any, of
attendance at each meeting of the Board of Directors and may be paid a fixed sum
for attendance at each meeting of the Board of Directors, a stated salary as
director and/or such other compensation as may be fixed by the Board of
Directors. Members of special or standing committees may be allowed like
compensation for serving on committees of the Board of Directors. No such
payments shall preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor.
4.15 NOMINATIONS OF DIRECTORS Subject to the rights of holders of any
class or series of stock having a preference over the Common Stock as to
dividends or upon liquidation, nominations for the election of directors may be
made by the Board of Directors or committee appointed by the Board of Directors
or by any stockholder entitled to vote generally in an election of directors.
However, any stockholder entitled to vote generally in an election of directors
may nominate one or more persons for election as directors at a meeting only if
written notice of such stockholder's intent to make such nomination or
nominations has been given, either by personal delivery or by United States
mail, postage prepaid to the Secretary of the Corporation not later than (i)
ninety days prior to the anniversary date of the mailing of proxy materials by
the Corporation in connection with the immediately preceding annual meeting of
stockholders of the Corporation or, in the case of the first annual meeting of
stockholders of the Corporation, which is expected to be held on the third
Wednesday of January 1998, nominations by the stockholder must be so delivered
or received no later than the close of business on the third Wednesday of
October 1997, notwithstanding a determination by the Corporation to schedule
such annual meeting at a date later than the third Wednesday of January 1998,
and (ii) with respect to an election to be held at a special meeting of
stockholders for the election of directors, the close of business on the tenth
day following the date on which notice of such meeting is first given to
stockholders. Each such notice shall set forth: (a) the name and address of
the stockholder who intends to make the nomination and of the person or persons
to be nominated;
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(b) a representation that the stockholder is a holder of record of stock of
the Corporation entitled to vote at such meeting and intends to appear in
person or by proxy at the meeting to nominate the person or persons specified
in the notice; (c) a description of all arrangements or understandings
between the stockholder and each nominee and any arrangements or
understandings between the stockholder and each nominee and any other person
or persons (naming such person or persons) pursuant to which the nomination
or nominations are to be made by the stockholder; (d) such other information
regarding each nominee proposed by such stockholder as would be required to
be included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission; and (e) the consent of each nominee to
serve as a director of the Corporation if so elected. The presiding officer
of the meeting may refuse to acknowledge the nomination of any person not
made in compliance with the foregoing procedures.
ARTICLE V. OFFICERS
5.1 DESIGNATIONS. The officers of the Corporation shall be a President, a
Secretary and a Treasurer appointed by the Board of Directors, as well as such
other officers as the Board of Directors or the President may designate.
Officers of the Corporation shall be elected for one year by the directors at
their first meeting after the annual meeting of stockholders, and officers of
the Corporation shall hold office until their successors are elected and
qualified. Any two or more offices may be held by the same person.
5.2 POWERS AND DUTIES. The officers of the Corporation shall have such
authority and perform such duties as the Board of Directors or, in the case of
officers with a title of Vice President or lower, the President, may from time
to time authorize or determine. In the absence of action by the Board of
Directors or the President, as applicable, the officers shall have such powers
and duties as generally pertain to their respective offices.
5.3 DELEGATION. In the case of absence or inability to act of any officer
of the Corporation and of any person herein authorized to act in his place, the
Board of Directors may from time to time delegate the powers or duties of such
officer to any other officer or any director or other person whom it may select.
5.4 VACANCIES. Vacancies in any office arising from any cause may be
filled by the Board of Directors at any regular or special meeting of the Board.
5.5 TERM -- REMOVAL. The officers of the Corporation shall hold office
until their successors are chosen and qualified. Any officer or agent elected
or appointed by the Board of Directors or by the President may be removed at any
time, with or without cause, by the affirmative vote of a majority of the whole
Board of Directors, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed.
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5.6 BONDS. The Board of Directors may, by resolution, require any and all
of the officers to give bonds to the Corporation, with sufficient surety or
sureties, conditions for the faithful performance of the duties of their
respective offices, and to comply with such other conditions as may from time to
time be required by the Board of Directors.
ARTICLE VI. INDEMNIFICATION, ETC. OF DIRECTORS,
OFFICERS, EMPLOYEES AND AGENTS
6.1 INDEMNIFICATION. The Corporation shall indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was a director,
officer, employee or agent of the Corporation or any predecessor of the
Corporation, or is or was serving at the request of the Corporation or any
predecessor of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines, and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding to the fullest extent authorized by Section 145
of the General Corporation Law of the State of Delaware, provided that the
Corporation shall not be liable for any amounts which may be due to any person
in connection with a settlement of any action, suit or proceeding effected
without its prior written consent or any action, suit or proceeding initiated by
any person seeking indemnification hereunder without its prior written consent.
6.2 ADVANCEMENT OF EXPENSES. Reasonable expenses (including attorneys'
fees) incurred by a director, officer or employee of the Corporation in
defending any civil, criminal, administrative or investigative action, suit or
proceeding described in Section 6.1 shall be paid by the Corporation in advance
of the final disposition of such action, suit or proceeding as authorized by the
Board of Directors only upon receipt of an undertaking by or on behalf of such
person to repay such amount if it shall ultimately be determined that the person
is not entitled to be indemnified by the Corporation.
6.3 OTHER RIGHTS AND REMEDIES. The indemnification and advancement of
expenses provided by, or granted pursuant to, this Article VI shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under the Corporation's Certificate of
Incorporation, any agreement, vote of stockholders or disinterested directors or
otherwise, both as to actions in their official capacity and as to actions in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer or employee and shall inure to the
benefit of the heirs, executors and administrators of such person.
6.4 INSURANCE. Upon resolution passed by the Board of Directors, the
Corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as
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a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against any liability asserted
against him or incurred by him in any such capacity or arising out of his
status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of its Certificate
of Incorporation or this Article VI.
6.5 MODIFICATION. The duties of the Corporation to indemnify and to
advance expenses to a director, officer, employee or agent provided in this
Article VI shall be in the nature of a contract between the Corporation and each
such person, and no amendment or repeal of any provision of this Article VI
shall alter, to the detriment of such person, the right of such person to the
advance of expenses or indemnification related to a claim based on an act or
failure to act which took place prior to such amendment or repeal.
ARTICLE VII. DIVIDENDS; FINANCE; AND FISCAL YEAR
7.1 DIVIDENDS. Subject to the applicable provisions of the General
Corporation Law of the State of Delaware, dividends upon the capital stock of
the Corporation may be declared by the Board of Directors at any regular or
special meeting, and may be paid in cash, in property or in shares of the
capital stock of the Corporation. Before payment of any dividend, there may be
set aside out of any funds of the Corporation available for dividends such sum
or sums as the Board of Directors from time to time, in its absolute discretion,
may deem proper as a reserve or reserves to meet contingencies, or for repairing
or maintaining any property of the Corporation, or for any other proper purpose,
and the Board of Directors may modify or abolish any such reserve.
7.2 DISBURSEMENTS. All checks or demand for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
7.3 DEPOSITORIES. The monies of the Corporation shall be deposited in the
name of the Corporation in such bank or banks or trust company or trust
companies as the Board of Directors shall designate, and shall be drawn out only
by check or other order for payment of money signed by such persons and in such
manner as may be determined by resolution of the Board of Directors.
7.4 FISCAL YEAR. The fiscal year of the Corporation shall end on the 30th
day of September of each year.
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ARTICLE VIII. NOTICES
Except as may otherwise be required by law or these bylaws, any notice to
any stockholder or director may be delivered personally or by mail. If mailed,
the notice shall be deemed to have been delivered when deposited in the United
States mail, addressed to the addressee at his last known address in the records
of the Corporation, with postage thereon prepaid.
ARTICLE IX. SEAL
The corporate seal of the Corporation shall be in such form and bear such
inscription as may be adopted by resolution of the Board of Directors, or by
usage of the officers on behalf of the Corporation.
ARTICLE X. BOOKS AND RECORDS
The Corporation shall keep correct and complete books and records of
account and shall keep minutes and proceedings of its stockholders and Board of
Directors (including committees thereof). Any books, records and minutes may be
in written form or any other form capable of being converted into written form
within a reasonable time.
ARTICLE XI. AMENDMENTS
11.1 AMENDMENTS. These Bylaws may be altered, amended or repealed in the
manner provided in the Corporation's Certificate of Incorporation.
11.2 EMERGENCY BYLAWS. The Board of Directors may adopt emergency Bylaws,
subject to repeal or change or by action of the stockholders, which shall be
operative during any emergency in the conduct of the business of the Corporation
resulting from an attack on the United States, any nuclear or atomic disaster or
during the existence of any catastrophe or other similar emergency condition.
ARTICLE XII. USE OF PRONOUNS
Use of the masculine gender in these Bylaws shall be considered to
represent either masculine or feminine gender whenever appropriate.
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EXHIBIT 3.3
AMENDED AND RESTATED ARTICLES OF INCORPORATION OF
AMERICAN SAVINGS BANK OF DANVILLE
SECTION 1. CORPORATE TITLE. The full corporate title of the savings
bank is American Savings Bank of Danville ("Savings Bank").
SECTION 2. OFFICE. The home office of the Savings Bank shall be
located at 714 North Vermilion Street, in the city of Danville, County of
Vermilion, State of Illinois.
SECTION 3. DURATION. The duration of the Savings Bank is perpetual.
SECTION 4. PURPOSE AND POWERS. The purpose of the Savings Bank is
to pursue any or all of the lawful objectives of an Illinois savings bank
chartered under the Illinois Savings Bank Act (the "Act"), including, but not
limited to, taking of an unlimited dollar amount of deposits and the making of
loans, 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 Commissioner of Banks and Real Estate for the
State of Illinois (the "Commissioner").
SECTION 5. CAPITAL STOCK. The total number of shares of all classes of
the capital stock which the Savings Bank has the authority to issue is
1,000,000, all of which shall be common stock of par value of $1.00 per share.
The shares may be issued from time to time as authorized by the board of
directors without the approval of the stockholders except as otherwise provided
in this Section 5 or to the extent that such approval is required by governing
law, rule or regulation. The consideration for the issuance of the shares shall
be paid in full before their issuance and shall not be less than the par value.
Neither promissory notes nor future services shall constitute payment or part
payment for the issuance of shares of the Savings Bank. The consideration for
the shares shall be cash, tangible or intangible property (to the extent direct
investment in such property would be permitted to the Savings Bank), labor, or
services actually performed for the Savings Bank or any combination of the
foregoing. In the absence of actual fraud in the transaction, the value of such
property, labor, or services, as determined by the board of directors of the
Savings Bank, shall be conclusive. Upon payment of such consideration, such
shares shall be deemed to be fully paid and nonassessable. In the case of a
stock dividend, that part of the surplus of the Savings Bank which is
transferred to stated capital upon the issuance of shares as a share dividend
shall be deemed to be the consideration for their issuance.
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. Subject to any provision for a liquidation account,
in the event of any liquidation, dissolution, or winding up of the Savings Bank,
the holders of the common stock shall be entitled, after payment or provision
for payment of all debts and liabilities of the Savings
<PAGE>
Bank, to receive the remaining assets of the Savings Bank available for
distribution, in cash or in kind. 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.
SECTION 6. PREEMPTIVE RIGHTS. Holders of the capital stock of the
Savings Bank shall not be entitled to preemptive rights with respect to any
shares of the Savings Bank which may be issued.
SECTION 7. LIQUIDATION ACCOUNT. Pursuant to the requirements of the
Act and regulations of the Commissioner, the Savings Bank shall establish and
maintain a liquidation account for the benefit of its savings account holders as
of July 31, 1995 ("Eligible Account Holders") and December 31, 1996
("Supplemental Account Holders"). In the event of a complete liquidation of the
Savings Bank, it shall comply with such regulations with respect to the amount
and the priorities on liquidation of the inchoate interest of each of the
Savings Bank's Eligible Account Holders and Supplemental Account Holders in the
liquidation account, to the extent it is still in existence; provided, however,
that an inchoate interest in the liquidation account shall not entitle such
account holder to any voting rights at meetings of the Savings Bank's
stockholders.
SECTION 8. DIRECTORS. The Savings Bank shall be under the direction of
a board of directors. The number of directors, as stated in the Savings Bank's
bylaws, shall not be fewer than five nor more than 15, except when a greater
number is approved by the Commissioner. The initial number of directors shall
be five.
SECTION 9. AMENDMENT OF ARTICLES OF INCORPORATION. Except as otherwise
provided by law, no amendment, addition, alteration, change, or repeal of these
Articles of Incorporation shall be made, unless such is first proposed by the
board of directors of the Savings Bank and thereafter approved by the
stockholders by a majority of the total votes eligible to be cast at a legal
meeting.
SECTION 10. CUMULATIVE VOTING LIMITATION. Stockholders shall not be
permitted to cumulate their votes for the election of directors.
Dated this ____ day of ___________ 1997.
Attest:_______________________ By:___________________________
Merrill G. Norton
Secretary President and Chief
Executive Officer
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EXHIBIT 3.4
AMENDED AND RESTATED BYLAWS OF
AMERICAN SAVINGS BANK OF DANVILLE
ARTICLE I
HOME OFFICE
The home office of the Savings Bank shall be located at 714 North Vermilion
Street, in the city of Danville, County of Vermilion, State of Illinois.
ARTICLE II
STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. All annual and special meetings of
stockholders shall be held at the home office of the Savings Bank or at such
other place in the State in which the home office of the Savings Bank is located
as the board of directors may determine.
SECTION 2. ANNUAL MEETING. A meeting of the stockholders of the Savings
Bank for the election of directors and for the transaction of any other business
of the Savings Bank shall be held annually within 120 days after the end of the
Savings Bank's fiscal year on the third Wednesday of October, if not a legal
holiday, and if a legal holiday then on the next day following which is not a
legal holiday, at 2:00 o'clock p.m., or at such other date and time within such
120-day period as the board of directors may determine.
SECTION 3. SPECIAL MEETINGS. Special meetings of the stockholders, for
any purpose or purposes unless otherwise prescribed by the Illinois Savings Bank
Act (the "Act") or the regulations of the Commissioner of Banks and Real Estate,
State of Illinois (the "Commissioner"), 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 the
outstanding capital stock of the Savings Bank entitled to vote at the meeting.
Such written request shall state the purpose or purposes of the meeting and
shall be delivered at the home office of the Savings Bank addressed to the
chairman of 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 the Act or regulations of the Commissioner 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. For special meetings or for any annual
meeting which is to consider any proposition the affirmative action on which
requires a two-thirds vote, written notice stating the place, day and hour of
the meeting and the purpose(s) for which the meeting is called shall be
delivered by mail not fewer than 10 nor more than 40 days
<PAGE>
before the date of the meeting, by or at the direction of the chairman of the
board, the president, or the secretary, or the directors calling the meeting,
to each shareholder of record entitled to vote at such meeting. Such notice
shall be deemed to be delivered when deposited in the mail, addressed to the
shareholder at the address as it appears on the stock transfer books or records
of the Bank as of the record date prescribed in Section 6 of this Article II
with postage prepaid. Notice of annual meetings shall be posted in areas of
public access at the Bank's places of business beginning not fewer than 40 days
immediately preceding the date of the meeting. Notice of annual meetings shall
also be published once not less than 10 nor more than 40 days before the date of
the annual meeting. When any stockholders' 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
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or stockholders entitled to receive payment of any
dividend, or in order to make a determination of stockholders for any other
proper purpose, the board of directors shall fix in advance a date as the record
date for any such determination of stockholders. Such date in any case shall be
not more than 60 days and, in case of a meeting of stockholders, not fewer than
ten days prior to the date on which the particular action, requiring such
determination of stockholders, is to be taken. When a determination of
stockholders entitled to vote at any meeting of stockholders 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
stockholders, the officer or agent having charge of the stock transfer books for
shares of the Savings Bank shall make a complete list of the stockholders
entitled to vote at such meeting, or any adjournment thereof, arranged in
alphabetical order, with the address and the number of shares held by each.
This list of stockholders shall be kept on file at the home office of the
Savings Bank and shall be subject to inspection by any stockholder 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 stockholder during the
entire time of the meeting. The original stock transfer book shall constitute
prima facie evidence of the stockholders entitled to examine such list or
transfer books or to vote at any meeting of stockholders.
In lieu of making the stockholders list available for inspection by
stockholders as provided in the preceding paragraph, the board of directors may
elect to follow the procedures prescribed by the Act or in regulations of the
Commissioner as now or hereafter in effect.
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SECTION 8. QUORUM. A majority of the outstanding shares of the Savings
Bank entitled to vote, represented in person or by proxy, shall constitute a
quorum at a meeting of stockholders. 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 stockholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to constitute less than a quorum.
SECTION 9. PROXIES. At all meetings of stockholders, a stockholder may
vote by proxy executed in writing by the stockholder or by his duly authorized
attorney in fact. Proxies solicited on behalf of the management shall be voted
as directed by the stockholder or, in the absence of such direction, as
determined by a majority of the board of directors. No proxy shall be valid
more than 11 months from the date of its execution except for a proxy coupled
with an interest.
SECTION 10. VOTING OF SHARES IN THE NAME OF TWO OR MORE PERSONS. When
ownership stands in the name of two or more persons, in the absence of written
directions to the Savings Bank to the contrary, at any meeting of the
stockholders of the Savings Bank any one or more of such stockholders may cast,
in person or by proxy, all votes to which such ownership is entitled. In the
event an attempt is made to cast conflicting votes, in person or by proxy, by
the several persons in whose names shares of stock stand, the vote or votes to
which those persons are entitled shall be cast as directed by a majority of
those holding such stock and present in person or by proxy at such meeting, but
no votes shall be cast for such stock, if a majority cannot agree.
SECTION 11. VOTING OF SHARES BY CERTAIN HOLDERS. Shares standing in the
name of another corporation may be voted by any officer, agent or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian or conservator may be voted by him, either in
person or by proxy, without a transfer of such shares into his name. Shares
standing in the name of a trustee may be voted by him, either in person or by
proxy, but no trustee shall be entitled to vote shares held by him without a
transfer of such shares into his name. Shares standing in the name of a
receiver may be voted by such receiver, and shares held by or under the control
of a receiver may be voted by such receiver without the transfer thereof into
his name if authority to do so is contained in an appropriate order of the court
or other public authority by which such receiver was appointed.
A stockholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
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Neither treasury shares of its own stock held by the Savings Bank nor
shares held by another corporation, if a majority of the shares entitled to vote
for the election of directors of such other corporation are held by the Savings
Bank, shall be voted at any meeting or counted in determining the total number
of outstanding shares at any given time for purposes of any meeting.
SECTION 12. PROHIBITION OF CUMULATIVE VOTING. Stockholders of the Savings
Bank shall not be permitted to cumulate their votes with respect to the election
of directors.
SECTION 13. INSPECTORS OF ELECTION. In advance of any meeting of
stockholders, the board of directors may appoint any persons other than nominees
for office as inspectors of election to act at such meeting or any adjournment
thereof. The number of inspectors shall be either one or three. 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 ten 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 the Act or regulations of the Commissioner,
the duties of such inspectors shall include: determining the number of shares
of stock and the voting power of each share, the shares of stock represented at
the meeting, the existence of a quorum, the authenticity, validity and effect of
proxies; receiving votes, ballots or consents; hearing and determining all
challenges and questions in any way arising in connection with the right to
vote; counting and tabulating all votes or consents; determining the result; and
such acts as may be proper to conduct the election or vote with fairness to all
stockholders.
SECTION 14. NOMINATING COMMITTEE. The board of directors shall act as a
nominating committee for selecting the management nominees for election as
directors. Except in the case of a nominee substituted as a result of the death
or other incapacity of a management nominee, the nominating committee shall
deliver written nominations to the secretary at least 20 days prior to the date
of the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the Savings Bank. No nominations for
directors except those made by the nominating committee shall be voted upon at
the annual meeting unless other nominations by stockholders are made in writing
and delivered to the secretary of the Savings Bank at least five days prior to
the date of the annual meeting. Upon delivery, such nominations shall be posted
in a conspicuous place in each office of the Savings Bank. Ballots bearing the
names of all persons nominated by the nominating committee and by stockholders
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
stockholder entitled to vote and shall be voted upon.
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SECTION 15. NEW BUSINESS. Any new business to be taken up at the annual
meeting shall be stated in writing and filed with the secretary of the Savings
Bank at least five days before the date of the annual meeting, and all business
so stated, proposed and filed shall be considered at the annual meeting; but no
other proposal shall be acted upon at the annual meeting. Any stockholder may
make any other proposal at the annual meeting and the same may be discussed and
considered, but unless stated in writing and filed with the secretary at least
five days before the meeting, such proposal shall be laid over for action at an
adjourned, special or annual meeting of the stockholders taking place 30 days or
more thereafter. This provision shall not prevent the consideration and
approval or disapproval at the annual meetings of reports of officers, directors
and committees; but in connection with such reports, no new business shall be
acted upon at such annual meeting unless stated and filed as herein provided.
SECTION 16. INFORMAL ACTION BY STOCKHOLDERS. Any action required to be
taken at a meeting of the stockholders, or any other action which may be taken
at a meeting of the stockholders, may be taken without a meeting if consent in
writing, setting forth the action so taken, shall be given by all of the
stockholders entitled to vote with respect to the subject matter.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the Savings Bank
shall be under the direction of its board of directors. The board of directors
shall annually elect a chairman of the board and a president from among its
members and shall designate, when present, either the chairman of the board or
the president to preside at its meetings.
SECTION 2. NUMBER AND TERM. The board of directors shall consist of five
members, or such other number of directors as determined by resolution of the
board of directors, 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 stockholders. The board of directors may
provide, by resolution, the time and place, within the Savings Bank's normal
lending territory, for the holding of additional regular meetings without other
notice than such resolution.
SECTION 4. 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
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any place within the Savings Bank's normal lending territory as the place for
holding any special meeting of the board of directors called by such persons.
Members of the board of directors may participate in special meetings by
means of conference telephone or similar communications equipment by which all
persons participating in the meeting can hear each other. Such participation
shall constitute presence in person.
SECTION 5. NOTICE. Written notice of any special meeting shall be given
to each director at least two days prior thereto if 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 U.S. 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 6. 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 5 of this Article III.
SECTION 7. 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 the Act or regulations of
the Commissioner or by these bylaws.
SECTION 8. 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 9. RESIGNATION. Any director may resign at any time by sending a
written notice of such resignation to the home office of the Savings Bank
addressed to the chairman of the board or the president. Unless otherwise
specified, such resignation shall take effect upon receipt by the chairman of
the board or the president. More than three consecutive absences from regular
meetings of the board of directors, unless excused by resolution of the board of
directors, shall automatically constitute a resignation, effective when such
resignation is accepted by the board of directors.
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SECTION 10. VACANCIES. Any vacancy occurring on the board of directors
may be filled by the affirmative vote of a majority of the remaining directors
although less than a quorum of the board of directors. A director elected to
fill a vacancy shall be elected to serve until the next election of directors by
the stockholders. 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
stockholders.
SECTION 11. COMPENSATION. Directors, as such, may receive a stated salary
for their services. By resolution of the board of directors, a reasonable fixed
sum, and reasonable expenses of attendance, if any, may be allowed for actual
attendance at each regular or special meeting of the board of directors.
Members of either standing or special committees may be allowed such
compensation for actual attendance at committee meetings as the board of
directors may determine.
SECTION 12. PRESUMPTION OF ASSENT. A director of the Savings Bank who is
present at a meeting of the board of directors at which action on any Savings
Bank matter is taken shall be presumed to have assented to the action taken
unless his 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 Savings Bank within five
days after the date a copy of the minutes of the meeting is received. Such
right to dissent shall not apply to a director who voted in favor of such
action.
SECTION 13. REMOVAL OF DIRECTORS. At a meeting of stockholders called
expressly for that purpose, any director may be removed for cause by a vote of
the holders of a majority of the shares then entitled to vote at an election of
directors. If less than the entire board is to be removed, no one of the
directors may be removed if the votes cast against the removal would be
sufficient to elect a director if then cumulatively voted at an election of the
class of directors of which such director is a part. Whenever the holders of
the shares of any class are entitled to elect one or more directors by the
provisions of the charter or supplemental sections thereto, the provisions of
this section shall apply, in respect to the removal of a director or directors
so elected, to the vote of the holders of the outstanding shares of that class
and not to the vote of the outstanding shares as a whole.
SECTION 14. INDEMNIFICATION. The Savings Bank shall indemnify and or
reimburse every person who was or is a party, or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the Savings Bank) by reason of the fact that such person
is or was a director or officer of the Savings Bank, or who is or was serving at
the request of the Savings Bank as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), and judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, if such person acted in
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good faith and in a manner he or she reasonably believed to be in, and not
opposed to, the best interest of the Savings Bank, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his or her
action was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he or she reasonably believed to
be in or not opposed to the best interest of the Savings Bank, or with respect
to any criminal action or proceeding that the person had no reasonable cause to
believe that his or her conduct was unlawful. Provided, however, unless
otherwise ordered by an Illinois or Federal Court, to the extent any such
person has not been successful on the merits or in the defense of any such
action, suit or proceeding (i.e. such person adjudged liable or guilty) or
to the extent of a compromised settlement in any such action, suit or
proceeding, then indemnification to such person shall be authorized only if a
determination is made that such person had met the above described applicable
standards of conduct (i.e. acted in good faith and in the best interest of the
Savings Bank or with respect to any criminal action or proceeding, such person
had no reasonable cause to believe his or her conduct was unlawful) with such
determination being made: (i) by the board of directors by a majority vote of a
quorum consisting of directors who were not parties to such action, suit or
proceeding; or (ii) by independent legal counsel in a written opinion where a
quorum of directors is not obtainable, or, even if obtainable, if a quorum of
disinterested directors so directs.
The Savings Bank shall also indemnify or reimburse every person who was or
is a party, or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding by or in the right of the Savings Bank to
procure a judgment in its favor by reason of the fact that such person is or was
a director or officer of the Bank, or who is or was serving at the request of
the Savings Bank as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees) actually and reasonably incurred by such person in connection with the
defense or settlement of such action, suit or proceeding, if such person acted
in good faith and in a manner he or she reasonably believed to be in, or not
opposed to, the best interest of the Savings Bank provided, however, unless
ordered by an Illinois or Federal Court in which such action, suit or proceeding
was brought, no indemnification shall be made in respect to any claim, issue or
matter as to which such person shall have been adjudged to be liable for
negligence or misconduct in the performance of his or her duty to the Savings
Bank.
In addition to the foregoing, the Savings Bank shall indemnify or reimburse
every person who is or was a director or officer of the Savings Bank, or who or
was serving at the request of the Bank as a director or officer of another
corporation, partnership, joint venture, trust or enterprise, to the full extent
permitted under Section 8.75 of the Illinois Business Corporation Act and
Section 1075.465 of the Illinois Administrative Code as same may be in effect
from time to time.
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The Savings Bank may purchase and maintain insurance on behalf of any
person who is or was serving at the request of the Savings Bank as a director or
officer of another corporation, partnership, joint venture, trust or enterprise
against any liability asserted against such person arising out of his or her
status as such, whether or not the Savings Ban would have the obligation or
right to indemnify such person against such liability under the foregoing
paragraphs.
ARTICLE IV
EXECUTIVE AND OTHER COMMITTEES
SECTION 1. APPOINTMENT. The board of directors, by resolution adopted by
a majority of the full board, may designate the chief executive officer and two
or more of the other directors to constitute an executive committee. The
designation of any committee pursuant to this Article IV and the delegation of
authority thereto 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 Savings Bank, or recommending to the stockholders a
plan of merger, consolidation, or conversion; the sale, lease or other
disposition of all or substantially all of the property and assets of the
Savings Bank otherwise than in the usual and regular course of its business; a
voluntary dissolution of the Savings Bank; a revocation of any of the foregoing;
or the approval of a transaction in which any member of the executive committee,
directly or indirectly, has any material beneficial interest.
SECTION 3. TENURE. Subject to the provisions of Section 8 of this Article
IV, each member of the executive committee shall hold office until the next
regular annual meeting of the board of directors following his or her
designation and until a successor is designated as a member of the executive
committee.
SECTION 4. MEETINGS. Regular meetings of the executive committee may be
held without notice at such times and places as the executive committee may fix
from time to time by resolution. Special meetings of the executive committee
may be called by any member thereof upon not less than one day's notice stating
the place, date and hour of the meeting, which notice may be written or oral.
Any member of the executive committee may waive notice of any meeting and no
notice of any meeting need be given to any member thereof who attends in person.
The notice of a meeting of the executive committee need not state the business
proposed to be transacted at the meeting.
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SECTION 5. QUORUM. A majority of the members of the executive committee
shall constitute a quorum for the transaction of business at any meeting
thereof, and action of the executive committee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.
SECTION 6. ACTION WITHOUT A MEETING. Any action required or permitted to
be taken by the executive committee at a meeting may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the members of the executive committee.
SECTION 7. VACANCIES. Any vacancy in the executive committee may be
filled by a resolution adopted by a majority of the full board of directors.
SECTION 8. RESIGNATIONS AND REMOVAL. Any member of the executive
committee may be removed at any time with or without cause by resolution adopted
by a majority of the full board of directors. Any member of the executive
committee may resign from the executive committee at any time by giving written
notice to the president or secretary of the Savings Bank. Unless otherwise
specified, such resignation shall take effect upon its receipt; the acceptance
of such resignation shall not be necessary to make it effective.
SECTION 9. PROCEDURE. The executive committee shall elect a presiding
officer from its members and may fix its own rules of procedure which shall not
be inconsistent with these bylaws. It shall keep regular minutes of its
proceedings and report the same to the board of directors for its information at
the meeting held next after the proceedings shall have occurred.
SECTION 10. OTHER COMMITTEES. The board of directors may by resolution
establish audit, loan, investment and other committees composed of directors as
they may determine to be necessary or appropriate for the conduct of the
business of the Savings Bank and may prescribe the duties, constitution and
procedures thereof.
ARTICLE V
OFFICERS
SECTION 1. POSITIONS. The officers of the Savings Bank shall be the
Chairman of the Board, a president, one or more vice presidents, a secretary and
a treasurer, each of whom shall be elected by the board of directors. The board
of directors may also designate the chairman of the board as an officer. The
president shall be the chief executive officer, unless the board of directors
designates the chairman of the board as chief executive officer. The president
shall be a director of the Savings Bank. The offices of the secretary and
treasurer may be held by the same person and a vice president may also be either
the secretary or the treasurer. The board of directors may designate one or
more vice presidents as executive vice president or senior vice president. The
board of directors may
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also elect or authorize the appointment of such other officers as the business
of the Savings Bank may require. The officers shall have such authority and
perform such duties as the board of directors may from time to time authorize
or determine. In the absence of action by the board of directors, the officers
shall have such powers and duties as generally pertain to their respective
offices.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the Savings Bank
shall be elected annually at the first meeting of the board of directors held
after each annual meeting of the stockholders. If the election of officers is
not held at such meeting, such election shall be held as soon thereafter as
possible. Each officer shall hold office until a successor shall have been duly
elected and qualified or until the officer's death, resignation or removal in
the manner hereinafter provided. Election or appointment of an officer,
employee or agent shall not of itself create contractual rights. The board of
directors may authorize the Savings Bank to enter into an employment contract
with any officer; but no such contract shall impair the right of the board of
directors to remove any officer at any time in accordance with Section 3 of this
Article V.
SECTION 3. REMOVAL. Any officer may be removed by the board of directors
whenever, in its judgment, the best interests of the Savings Bank will be served
thereby, but such removal, other than for cause, shall be without prejudice to
the contractual rights, if any, of the person so removed.
SECTION 4. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the board
of directors for the unexpired portion of the term.
SECTION 5. REMUNERATION. The remuneration of the officers shall be fixed
from time to time by the board of directors or a committee thereof.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. CONTRACTS. To the extent permitted by the Act or regulations
of the Commissioner, and except as otherwse prescribed by these bylaws with
respect to certificates for shares, the board of directors may authorize any
officer, employee or agent of the Savings Bank to enter into any contract or
execute and deliver any instrument in the name and on behalf of the Savings
Bank. Such authority may be general or confined to specific instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of the Savings
Bank and no evidence of indebtedness shall be issued in its name unless
authorized by the board of directors. Such authority may be general or confined
to specific instances.
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SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for
the payment of money, notes or other evidence of indebtedness issued in the name
of the Savings Bank shall be signed by one or more officers, employees or agents
of the Savings Bank in such manner as shall from time to time be determined by
the board of directors.
SECTION 4. DEPOSITS. All funds of the Savings Bank not otherwise employed
shall be deposited from time to time to the credit of the Savings Bank in any
duly authorized depositories as the board of directors may select.
ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares of
capital stock of the Savings Bank shall be in such form as shall be determined
by the board of directors and in accordance with the Act or regulations of the
Commissioner. Such certificates shall be signed by the chief executive officer
or by any other officer of the Savings Bank authorized by the board of
directors, attested by the secretary or an assistant secretary, and sealed with
the corporate seal or a facsimile thereof. The signatures of such officers upon
a certificate may be facsimiles if the certificate is manually signed on behalf
of a transfer agent or a registrar, other than the Savings Bank itself or one of
its employees. Each certificate for shares of capital stock shall be
consecutively numbered or otherwise identified. The name and address of the
person to whom the shares are issued, with the number of shares and the date of
issue, shall be entered on the stock transfer books of the Savings Bank. All
certificates surrendered to the Savings Bank for transfer shall be cancelled and
no new certificate shall be issued until the former certificate for a like
number of shares shall have been surrendered and cancelled, except that in the
case of a lost or destroyed certificate, a new certificate may be issued
therefor upon such terms and indemnity to the Savings Bank as the board of
directors may prescribe.
SECTION 2. TRANSFER OF SHARES. Transfer of shares of capital stock of the
Savings Bank shall be made only on its stock transfer books. Authority for such
transfer shall be given only by the holder of record or by his legal
representative, who shall furnish proper evidence of such authority, or by his
attorney thereunto authorized by a duly executed power of attorney and filed
with the Savings Bank. Such transfer shall be made only on surrender for
cancellation of the certificate for such shares. The person in whose name
shares of capital stock stand on the books of the Savings Bank shall be deemed
by the Savings Bank to be the owner thereof for all purposes.
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ARTICLE VIII
FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the Savings Bank shall end on the 30th day of September
of each year. The Savings Bank shall be subject to an annual audit as of the
end of its fiscal year by independent public accountants appointed by and
responsible to the board of directors or a committee thereof. The appointment
of such accountants shall be subject to annual ratification by the stockholders.
ARTICLE IX
DIVIDENDS
Subject to the terms of the Savings Bank's Articles of Incorporation, the
Act and the regulations and orders of the Commissioner, the board of directors
may, from time to time, declare, and the Savings Bank may pay, dividends on its
outstanding shares of capital stock.
ARTICLE X
CORPORATE SEAL
The seal of the Savings Bank shall be a disk with the words "American
Savings Bank of Danville" in the margin and "Organized 1888" in the center, and
shall be in the custody of the Secretary.
ARTICLE XI
AMENDMENTS
These Bylaws may be amended in a manner consistent with the Act and
regulations of the Commissioner at any time by a majority of the full board of
directors or by a majority of the votes cast by the stockholders of the Savings
Bank at any legal meeting. No amendment shall be effective until approved by the
Commissioner in accordance with the Act. Provided however, that no vote shall be
taken upon a proposed amendment or repeal or adoption of new Bylaws, unless and
until the directors have been notified in writing of such proposal and furnished
with a copy of the proposed amendment or new Bylaws at least 48 hours prior to
the meeting.
13
<PAGE>
EXHIBIT 4.0
(Form of Stock Certificate)
NUMBER 1 SHARES
COMMON STOCK See reverse for
certain definitions
VERMILION BANCORP, INC.
INCORPORATED UNDER THE LAWS OF DELAWARE
This certifies that is the registered holder of
----------------- ----
fully paid and non-assessable shares of the Common Stock, par value $.01 per
share, of Vermilion Bancorp, Inc., Danville, Illinois (the "Corporation"),
incorporated under the laws of the State of Delaware.
The shares evidenced by this Certificate are transferable only on the
books of the Corporation by the holder hereof, in person or by a duly
authorized attorney or legal representative, upon surrender of this
Certificate properly endorsed. This Certificate and the shares represented
hereby are subject to all the provisions of the Certificate of Incorporation
and Bylaws of the Corporation and any and all amendments thereto. THE SHARES
REPRESENTED BY THIS CERTIFICATE ARE NOT DEPOSITS OR ACCOUNTS AND ARE NOT
FEDERALLY INSURED OR GUARANTEED. This Certificate is not valid unless
countersigned by the Transfer Agent and registered by the Registrar.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
executed by the facsimile signatures of its duly authorized officers and has
caused its facsimile seal to be affixed hereto.
Dated: , 1997
--------------
(SEAL)
- ---------------------------------- -------------------------------
Merrill G. Norton
Corporate Secretary President
<PAGE>
The Corporation is authorized to issue more than one class of stock,
including a class of preferred stock which may be issued in one or more
series. The Corporation will furnish to any stockholder, upon written request
and without charge, a full statement of the designations, preferences,
limitations and relative rights of the shares of each class authorized to be
issued and, with respect to the issuance of any preferred stock to be issued
in series, the relative rights, preferences and limitations between the
shares of each series so far as the rights, preferences and limitations have
been fixed and determined and the authority of the Board of Directors to fix
and determine the relative rights, preferences and limitations of subsequent
series.
The Certificate of Incorporation of the Corporation includes a provision
which generally prohibits any person (including an individual, company or
group acting in concert) from directly or indirectly offering to acquire or
acquiring the beneficial ownership of more than 10% of any class of equity
securities of the Corporation. In the event that stock is acquired in
violation of this 10% limitation, which will expire upon the fifth
anniversary of the closing of the Corporation's initial public offering of
Common Stock, the excess shares will no longer be counted in determining the
total number of outstanding shares for purposes of any matter involving
stockholder action and the Board of Directors of the Corporation may cause
such excess shares to be transferred to an independent trustee for sale in
the open market or otherwise, with the expenses of such sale to be paid out
of the proceeds of the sale.
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship and not
as tenants in common
UNIF GIFT MIN ACT -- Custodian under
------------------ ------------------
(Cust) (Minor)
Uniform Gifts to Minors Act
----------------------------
(State)
Additional abbreviations may also be used though not in the above list.
<PAGE>
For value received, hereby sell, assign and transfer unto
------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
TAXPAYER IDENTIFYING NUMBER OF ASSIGNEE
---------------------------------------
| |
---------------------------------------
- -------------------------------------------------------------------------------
(Please print or typewrite name and address including postal zip code of
assignee)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
shares of Common Stock represented by this Certificate, and do
- --------------
hereby irrevocably constitute and appoint as Attorney, to
--------------
transfer the said shares on the books of the within named Corporation, with
full power of substitution.
Dated ,
------------- --- ----
-------------------------------
Signature
-------------------------------
Signature
NOTICE: The signature(s) to this assignment must correspond with the name(s) as
written upon the face of this Certificate in every particular, without
alteration or enlargement, or any change whatever. The signature(s) should be
guaranteed by an eligible guarantor institution (bank, stockbroker, savings and
loan association or credit union) with membership in an approved signature
medallion program, pursuant to S.E.C. Rule 17Ad-15.
<PAGE>
EXHIBIT 5.0
________ __, 1996
Board of Directors
Vermilion Bancorp, Inc.
714 North Vermilion Street
Danville, Illinois 61832
Gentlemen:
We have acted as special counsel to Vermilion Bancorp, Inc. (the "Company")
in connection with the preparation and filing with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended, of the
Registration Statement on Form S-1 (the "Registration Statement"), relating to
the issuance of up to __________ shares of the Company's common stock, par value
$.01 per share (the "Common Stock"), in connection with the conversion of
American Savings Bank of Danville (the "Bank"), from mutual to stock form (the
"Conversion").
In this regard, we have examined the Certificate of Incorporation and
Bylaws of the Company, resolutions of the Boards of Directors of the Company and
the Bank, the Plan of Conversion of the Bank and such other documents and
matters of law as we deemed appropriate for the purposes of this opinion. The
opinion is limited to federal laws and regulations and the laws of the State of
Delaware which are in effect on the date hereof.
Based upon the foregoing, we are of the opinion that the Common Stock has
been duly and validly authorized, and when issued in accordance with the terms
of the Plan of Conversion of the Bank, will be legally issued, fully paid and
non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Company's Registration Statement and to the references to this firm under the
headings "The Conversion - Tax Aspects" and "Legal and Tax Opinions" in the
Prospectus contained in the Registration Statement.
Very truly yours,
ELIAS, MATZ, TIERNAN & HERRICK L.L.P.
By: ___________________________
John P. Soukenik, a Partner
<PAGE>
EXHIBIT 8.3
November 27, 1996
Board of Directors
American Savings Bank of Danville
714 North Vermilion Street
Danville, Illinois 61832
Re: Plan of Conversion: Subscription Rights
American Savings Bank of Danville
Gentlemen:
All capitalized terms not otherwise defined in this letter have the
meanings given such terms in the Plan of Conversion adopted by the Board of
Directors of American Savings Bank of Danville ("American Savings" or the
"Bank") whereby the Bank will convert from an Illinois chartered mutual
savings bank to an Illinois chartered stock savings bank and issue all of the
Bank's outstanding capital stock to Vermilion Bancorp, Inc. (the "Holding
Company"). Simultaneously, the Holding Company will issue shares of common
stock.
We understand that in accordance with the Plan of Conversion,
Subscription Rights to purchase shares of Common Stock in the Holding
Company are to be issued to: (1) Eligible Account Holders; (2) the ESOP;
(3) Supplemental Eligible Account Holders; and (4) Other Voting Members.
Based solely upon our observation that the Subscription Rights will be
available to such parties without cost, will be legally non-transferable and
of short duration, and will afford such parties the right only to purchase
shares of Common Stock at the same price as will be paid by members of the
general public in the Community Offering, but without undertaking any
independent investigation of state or federal law or the position of the
Internal Revenue Service with respect to this issue, we are of the belief
that, pursuant to our valuation of the Subscription Rights:
(1) the Subscription Rights will have no ascertainable market value; and,
(2) the price at which the Subscription Rights are exercisable will not
be more or less than the pro forma market value of the shares upon
issuance.
Changes in the local and national economy, the legislative and
regulatory environment, the stock market, interest rates, and other external
forces (such as natural disasters or significant world events) may occur from
time to time, often with great unpredictability and may materially impact
the value of thrift stocks as a whole or the Holding Company's value
alone. Accordingly, no assurance can be given that persons who subscribe to
shares of common stock in the conversion will thereafter be able to buy or
sell such shares at the same price paid in the Subscription Offering.
Sincerely,
<PAGE>
/s/ Gregory E. Dunn
Gregory E. Dunn
Senior Vice President
<PAGE>
FORM OF
VERMILION BANCORP, INC.
1997 STOCK OPTION PLAN
ARTICLE I
ESTABLISHMENT OF THE PLAN
Vermilion Bancorp, Inc. (the "Corporation") hereby establishes this 1997
Stock Option Plan (the "Plan") upon the terms and conditions hereinafter stated.
ARTICLE II
PURPOSE OF THE PLAN
The purpose of this Plan is to improve the growth and profitability of
the Corporation and its Subsidiary Companies by providing Employees and
Non-Employee Directors with a proprietary interest in the Corporation as an
incentive to contribute to the success of the Corporation and its Subsidiary
Companies, and rewarding those Employees for outstanding performance. All
Incentive Stock Options issued under this Plan are intended to comply with
the requirements of Section 422 of the Code, and the regulations thereunder,
and all provisions hereunder shall be read, interpreted and applied with that
purpose in mind.
ARTICLE III
DEFINITIONS
3.01 "Award" means an Option or Stock Appreciation Right granted pursuant
to the terms of this Plan.
3.02 "Bank" means American Savings Bank of Danville, the wholly owned
subsidiary of the Corporation.
3.03 "Board" means the Board of Directors of the Corporation.
3.04 "Code" means the Internal Revenue Code of 1986, as amended.
3.05 "Committee" means a committee of two or more directors appointed by
the Board pursuant to Article IV hereof, each of whom shall be a Non-Employee
Director as defined in Rule 16b-3(b)(3)(i) of the Exchange Act.
3.06 "Common Stock" means shares of the common stock, $0.01 par value per
share, of the Corporation.
<PAGE>
3.07 "Disability" means any physical or mental impairment which qualifies
an Employee for disability benefits under the applicable long-term disability
plan maintained by the Corporation or a Subsidiary Company, or, if no such
plan applies, which would qualify such Employee for disability benefits under
the Federal Social Security System.
3.08 "Effective Date" means the day upon which the Board adopts this Plan.
3.09 "Employee" means any person who is employed by the Corporation or a
Subsidiary Company, or is an Officer of the Corporation or a Subsidiary
Company, but not including directors who are not also Officers of or
otherwise employed by the Corporation or a Subsidiary Company.
3.10 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
3.11 "Fair Market Value" shall be equal to the fair market value per
share of the Corporation's Common Stock on the date an Award is granted. For
purposes hereof, the Fair Market Value of a share of Common Stock shall be
the closing sale price of a share of Common Stock on the date in question
(or, if such day is not a trading day in the U.S. markets, on the nearest
preceding trading day), as reported with respect to the principal market (or
the composite of the markets, if more than one) or national quotation system
in which such shares are then traded, or if no such closing prices are
reported, the mean between the high bid and low asked prices that day on the
principal market or national quotation system then in use, or if no such
quotations are available, the price furnished by a professional securities
dealer making a market in such shares selected by the Committee.
3.12 "FDIC" means the Federal Deposit Insurance Corporation.
3.13 "Incentive Stock Option" means any Option granted under this Plan
which the Board intends (at the time it is granted) to be an incentive stock
option within the meaning of Section 422 of the Code or any successor thereto.
3.14 "Non-Employee Director" means a member of the Board who is not an
Officer or Employee of the Corporation or any Subsidiary Company.
3.15 "Non-Qualified Option" means any Option granted under this Plan
which is not an Incentive Stock Option.
3.16 "Offering" means the offering of Common Stock to the public pursuant
to the Plan of Conversion of the Bank.
3.17 "Officer" means an Employee whose position in the Corporation or
Subsidiary Company is that of a corporate officer, as determined by the Board.
3.18 "Option" means a right granted under this Plan to purchase Common
Stock.
2
<PAGE>
3.19 "Optionee" means an Employee or Non-Employee Director or former
Employee or Non-Employee Director to whom an Option is granted under the Plan.
3.20 "Retirement" means a termination of employment which constitutes a
"retirement" under any applicable qualified pension benefit plan maintained
by the Company or a Subsidiary Company, or, if no such plan is applicable,
which would constitute "retirement" under any qualified pension benefit plan
maintained by the Company or a Subsidiary Company, if such individual were a
participant in such plan.
3.21 "Stock Appreciation Right" means a right to surrender an Option in
consideration for a payment by the Corporation in cash and/or Common Stock,
as provided in the discretion of the Committee in accordance with Section
8.11.
3.22 "Subsidiary Companies" means those subsidiaries of the Corporation,
including the Bank, which meet the definition of "subsidiary corporations"
set forth in Section 425(f) of the Code, at the time of granting of the
Option in question.
ARTICLE IV
ADMINISTRATION OF THE PLAN
4.01 DUTIES OF THE COMMITTEE. The Plan shall be administered and
interpreted by the Committee, as appointed from time to time by the Board
pursuant to Section 4.02. The Committee shall have the authority to adopt,
amend and rescind such rules, regulations and procedures as, in its opinion,
may be advisable in the administration of the Plan, including, without
limitation, rules, regulations and procedures which (i) deal with
satisfaction of an Optionee's tax withholding obligation pursuant to Section
12.02 hereof, (ii) include arrangements to facilitate the Optionee's ability
to borrow funds for payment of the exercise or purchase price of an Award, if
applicable, from securities brokers and dealers, and (iii) include
arrangements which provide for the payment of some or all of such exercise or
purchase price by delivery of previously owned shares of Common Stock or
other property and/or by withholding some of the shares of Common Stock which
are being acquired. The interpretation and construction by the Committee of
any provisions of the Plan, any rule, regulation or procedure adopted by it
pursuant thereto or of any Award shall be final and binding in the absence of
action by the Board of Directors.
4.02 APPOINTMENT AND OPERATION OF THE COMMITTEE. The members of the
Committee shall be appointed by, and will serve at the pleasure of, the
Board. The Board from time to time may remove members from, or add members
to, the Committee, provided the Committee shall continue to consist of two or
more members of the Board, each of whom shall be a Non-Employee Director as
defined in Rule 16b-3(b)(3)(i) of the Exchange Act. The Committee shall act
by vote or written consent of a majority of its members. Subject to the
express provisions and limitations of the Plan, the Committee may adopt such
rules, regulations and procedures as it deems appropriate for the conduct of
its affairs. It
4
<PAGE>
may appoint one of its members to be chairman and any person, whether or not
a member, to be its secretary or agent. The Committee shall report its
actions and decisions to the Board at appropriate times but in no event less
than one time per calendar year.
4.03 REVOCATION FOR MISCONDUCT. The Board of Directors or the Committee
may by resolution immediately revoke, rescind and terminate any Option, or
portion thereof, to the extent not yet vested, or any Stock Appreciation
Right, to the extent not yet exercised, previously granted or awarded under
this Plan to an Employee who is discharged from the employ of the Corporation
or a Subsidiary Company for cause, which, for purposes hereof, shall mean
termination because of the Employee's personal dishonesty, incompetence,
willful misconduct, breach of fiduciary duty involving personal profit,
intentional failure to perform stated duties, willful violation of any law,
rule, or regulation (other than traffic violations or similar offenses) or
final cease-and-desist order. Options granted to a Non-Employee Director who
is removed for cause pursuant to the Corporation's Certificate of
Incorporation or Bylaws shall terminate as of the effective date of such
removal.
4.04 LIMITATION ON LIABILITY. Neither the members of the Board of
Directors nor any member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan, any rule,
regulation or procedure adopted by it pursuant thereto or any Awards granted
under it. If a member of the Board of Directors or the Committee is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of anything done or not done by him in such capacity
under or with respect to the Plan, the Corporation shall, subject to the
requirements of applicable laws and regulations, indemnify such member
against all liabilities and expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by him
in connection with such action, suit or proceeding if he acted in good faith
and in a manner he reasonably believed to be in the best interests of the
Corporation and its Subsidiary Companies and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful.
4.05 COMPLIANCE WITH LAW AND REGULATIONS. All Awards granted hereunder
shall be subject to all applicable federal and state laws, rules and
regulations and to such approvals by any government or regulatory agency as
may be required. The Corporation shall not be required to issue or deliver
any certificates for shares of Common Stock prior to the completion of any
registration or qualification of or obtaining of consents or approvals with
respect to such shares under any Federal or state law or any rule or
regulation of any government body, which the Corporation shall, in its sole
discretion, determine to be necessary or advisable. Moreover, no Option or
Stock Appreciation Right may be exercised if such exercise would be contrary
to applicable laws and regulations.
4
<PAGE>
4.06 RESTRICTIONS ON TRANSFER. The Corporation may place a legend upon
any certificate representing shares acquired pursuant to an Award granted
hereunder noting that the transfer of such shares may be restricted by
applicable laws and regulations.
ARTICLE V
ELIGIBILITY
Awards may be granted to such Employees or Non-Employee Directors of the
Corporation and its Subsidiary Companies as may be designated from time to
time by the Board of Directors or the Committee. Awards may not be granted
to individuals who are not Employees or Non-Employee Directors of either the
Corporation or its Subsidiary Companies. Non-Employee Directors shall be
eligible to receive only Non-Qualified Options.
ARTICLE VI
COMMON STOCK COVERED BY THE PLAN
6.01 OPTION SHARES. The aggregate number of shares of Common Stock which
may be issued pursuant to this Plan, subject to adjustment as provided in
Article IX, shall be ________ shares, which is equal to 10.0% of the shares
of Common Stock issued in the Offering. None of such shares shall be the
subject of more than one Award at any time, but if an Option as to any shares
is surrendered before exercise, or expires or terminates for any reason
without having been exercised in full, or for any other reason ceases to be
exercisable, the number of shares covered thereby shall again become
available for grant under the Plan as if no Awards had been previously
granted with respect to such shares. Notwithstanding the foregoing, if an
Option is surrendered in connection with the exercise of a Stock Appreciation
Right, the number of shares covered thereby shall not be available for grant
under the Plan. During the time this Plan remains in effect, grants to each
Employee and each Non-Employee Director shall not exceed 25% and 5% of the
shares of Common Stock available under the Plan, respectively.
6.02 SOURCE OF SHARES. The shares of Common Stock issued under the Plan
may be authorized but unissued shares, treasury shares or shares purchased by
the Corporation on the open market or from private sources for use under the
Plan.
ARTICLE VII
DETERMINATION OF
AWARDS, NUMBER OF SHARES, ETC.
The Board of Directors or the Committee shall, in its discretion,
determine from time to time which Employees will be granted Awards under the
Plan, the number of shares of Common Stock subject to each Award, and whether
each Option will be an Incentive Stock Option or a Non-Qualified Stock
Option. In making all such determinations there shall be
5
<PAGE>
taken into account the duties, responsibilities and performance of each
respective Employee, his present and potential contributions to the growth
and success of the Corporation, his salary and such other factors as the
Board of Directors or the Committee shall deem relevant to accomplishing the
purposes of the Plan. Non-Employee Directors shall be eligible to receive
only Non-Qualified Options pursuant to Section 8.02 of the Plan.
ARTICLE VIII
OPTIONS AND STOCK APPRECIATION RIGHTS
Each Option granted hereunder shall be on the following terms and
conditions:
8.01 STOCK OPTION AGREEMENT. The proper Officers on behalf of the
Corporation and each Optionee shall execute a Stock Option Agreement which
shall set forth the total number of shares of Common Stock to which it
pertains, the exercise price, whether it is a Non-Qualified Option or an
Incentive Stock Option, and such other terms, conditions, restrictions and
privileges as the Board of Directors or the Committee in each instance shall
deem appropriate, provided they are not inconsistent with the terms,
conditions and provisions of this Plan. Each Optionee shall receive a copy
of his executed Stock Option Agreement.
8.02 (A) INITIAL GRANTS TO NON-EMPLOYEE DIRECTORS. Each Non-Employee
Director of the Corporation as of the day that the Plan is approved by
stockholders of the Corporation shall be granted an Option to purchase _____
shares of Common Stock effective at such time and with a per share exercise
price equal to the Fair Market Value of a share of Common Stock on such date.
8.03 OPTION EXERCISE PRICE.
(A) INCENTIVE STOCK OPTIONS. The per share price at which the
subject Common Stock may be purchased upon exercise of an Incentive Stock
Option shall be no less than one hundred percent (100%) of the Fair Market
Value of a share of Common Stock at the time such Incentive Stock Option is
granted, except as provided in Section 8.10(b).
(B) NON-QUALIFIED OPTIONS. The per share price at which the
subject Common Stock may be purchased upon exercise of a Non-Qualified Option
shall be no less than one hundred percent (100%) of the Fair Market Value of
a share of Common Stock at the time such Non-Qualified Option is granted.
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<PAGE>
8.04 VESTING AND EXERCISE OF OPTIONS.
(A) GENERAL RULES. Incentive Stock Options and Non-Qualified
Options granted hereunder shall become vested and exercisable at the rate of
20% per year on each anniversary of the date the Option was granted, and the
right to exercise shall be cumulative. Notwithstanding the foregoing, no
vesting shall occur on or after an Employee's employment with the Corporation
and all Subsidiary Companies is terminated for any reason other than his
death, Retirement or Disability. In determining the number of shares of
Common Stock with respect to which Options are vested and/or exercisable,
fractional shares will be rounded up to the nearest whole number if the
fraction is 0.5 or higher, and down if it is less.
(B) ACCELERATED VESTING. Unless the Committee or Board shall
specifically state otherwise at the time an Option is granted, all Options
granted under this Plan shall become vested and exercisable in full on the
date an Optionee terminates his employment with the Corporation or a
Subsidiary Company or service as a Non-Employee Director because of his death
or Disability. All Options hereunder shall become immediately vested and
exercisable in full on the date of a Change in Control of the Corporation or
on the date an Optionee terminates his employment with the Corporation or a
Subsidiary Company or service as a Non-Employee Director due to Retirement
if, as of the date of such Retirement or Change in Control of the
Corporation, such treatment is either authorized or is not prohibited by
applicable laws and regulations.
8.05 DURATION OF OPTIONS.
(A) GENERAL RULE. Except as provided in Sections 8.05(b) and 8.10,
each Option or portion thereof granted to Employees and Non-Employee
Directors shall be exercisable at any time on or after it vests and becomes
exercisable until the earlier of (i) ten (10) years after its date of grant
or (ii) three (3) months after the date on which the Optionee ceases to be
employed (or in the service of the Board of Directors) by the Corporation and
all Subsidiary Companies, unless the Board of Directors or the Committee in
its discretion decides at the time of grant or thereafter to extend such
period of exercise to a period not exceeding three (3) years.
(B) EXCEPTION FOR TERMINATION DUE TO DEATH OR DISABILITY. If an
Employee dies while in the employ of the Corporation or a Subsidiary Company
or terminates employment with the Corporation or a Subsidiary Company as a
result of Disability without having fully exercised his Options, the Optionee
or the executors, administrators, legatees or distributees of his estate
shall have the right, during the twelve-month period following the earlier of
his death or Disability, to exercise such Options to the extent vested on the
date of such death or Disability. If a Non-Employee Director dies while
serving as a Non-Employee Director without having fully exercised his
Options, the Non-Employee Director's executors, administrators, legatees or
distributees of his estate shall have the right, during the twelve-month
period following such death, to exercise such Options. In no event,
7
<PAGE>
however, shall any Option be exercisable more than ten (10) years from the
date it was granted.
8.06 NONASSIGNABILITY. Options shall not be transferable by an Optionee
except by will or the laws of descent or distribution, and during an
Optionee's lifetime shall be exercisable only by such Optionee or the
Optionee's guardian or legal representative.
8.07 MANNER OF EXERCISE. Options may be exercised in part or in whole
and at one time or from time to time. The procedures for exercise shall be
set forth in the written Stock Option Agreement provided for in Section 8.01
above.
8.08 PAYMENT FOR SHARES. Payment in full of the purchase price for
shares of Common Stock purchased pursuant to the exercise of any Option shall
be made to the Corporation upon exercise of the Option. All shares sold
under the Plan shall be fully paid and nonassessable. Payment for shares may
be made by the Optionee in cash or, at the discretion of the Board of
Directors or the Committee in the case of Awards to Employees, by delivering
shares of Common Stock (including shares acquired pursuant to the exercise of
an Option) or other property equal in Fair Market Value to the purchase price
of the shares to be acquired pursuant to the Option, by withholding some of
the shares of Common Stock which are being purchased upon exercise of an
Option, or any combination of the foregoing.
8.09 VOTING AND DIVIDEND RIGHTS. No Optionee shall have any voting or
dividend rights or other rights of a stockholder in respect of any shares of
Common Stock covered by an Option prior to the time that his name is recorded
on the Corporation's stockholder ledger as the holder of record of such
shares acquired pursuant to an exercise of an Option.
8.10 ADDITIONAL TERMS APPLICABLE TO INCENTIVE STOCK OPTIONS. All Options
issued under the Plan as Incentive Stock Options will be subject, in addition
to the terms detailed in Sections 8.01 to 8.09 above, to those contained in
this Section 8.10.
(A) Notwithstanding any contrary provisions contained elsewhere in
this Plan and as long as required by Section 422 of the Code, the aggregate
Fair Market Value, determined as of the time an Incentive Stock Option is
granted, of the Common Stock with respect to which Incentive Stock Options
are exercisable for the first time by the Optionee during any calendar year
under this Plan, and stock options that satisfy the requirements of Section
422 of the Code under any other stock option plan or plans maintained by the
Corporation (or any parent or Subsidiary Company), shall not exceed $100,000.
(B) LIMITATION ON TEN PERCENT STOCKHOLDERS. The price at which
shares of Common Stock may be purchased upon exercise of an Incentive Stock
Option granted to an individual who, at the time such Incentive Stock Option
is granted, owns, directly or indirectly, more than ten percent (10%) of the
total combined voting power of all classes of stock issued to stockholders of
the Corporation or any Subsidiary Company, shall be no less than one hundred
and ten percent (110%) of the Fair Market Value of a share of the Common
Stock of the Corporation at the time of grant, and such Incentive Stock
Option
7
<PAGE>
shall by its terms not be exercisable after the earlier of the date
determined under Section 8.04 or the expiration of five (5) years from the
date such Incentive Stock Option is granted.
(C) NOTICE OF DISPOSITION; WITHHOLDING; ESCROW. An Optionee shall
immediately notify the Corporation in writing of any sale, transfer,
assignment or other disposition (or action constituting a disqualifying
disposition within the meaning of Section 421 of the Code) of any shares of
Common Stock acquired through exercise of an Incentive Stock Option, within
two (2) years after the grant of such Incentive Stock Option or within one
(1) year after the acquisition of such shares, setting forth the date and
manner of disposition, the number of shares disposed of and the price at
which such shares were disposed of. The Corporation shall be entitled to
withhold from any compensation or other payments then or thereafter due to
the Optionee such amounts as may be necessary to satisfy any withholding
requirements of Federal or state law or regulation and, further, to collect
from the Optionee any additional amounts which may be required for such
purpose. The Committee may, in its discretion, require shares of Common
Stock acquired by an Optionee upon exercise of an Incentive Stock Option to
be held in an escrow arrangement for the purpose of enabling compliance with
the provisions of this Section 8.10(c).
8.11 STOCK APPRECIATION RIGHTS.
(A) GENERAL TERMS AND CONDITIONS. The Board of Directors or the
Committee may, but shall not be obligated to, authorize the Corporation, on
such terms and conditions as it deems appropriate in each case, to grant
rights to Optionees to surrender an exercisable Option, or any portion
thereof, in consideration for the payment by the Corporation of an amount
equal to the excess of the Fair Market Value of the shares of Common Stock
subject to the Option, or portion thereof, surrendered over the exercise
price of the Option with respect to such shares (any such authorized
surrender and payment being hereinafter referred to as a "Stock Appreciation
Right"). Such payment, at the discretion of the Board of Directors or the
Committee, may be made in shares of Common Stock valued at the then Fair
Market Value thereof, or in cash, or partly in cash and partly in shares of
Common Stock.
The terms and conditions set with respect to a Stock Appreciation Right
may include (without limitation), subject to other provisions of this Section
8.11 and the Plan: the period during which, date by which or event upon
which the Stock Appreciation Right may be exercised (which shall be on the
same terms as the Option to which it relates pursuant to Section 8.04
hereunder); the method for valuing shares of Common Stock for purposes of
this Section 8.11; a ceiling on the amount of consideration which the
Corporation may pay in connection with exercise and cancellation of the Stock
Appreciation Right; and arrangements for income tax withholding. The Board
of Directors or the Committee shall have complete discretion to determine
whether, when and to whom Stock Appreciation Rights may be granted.
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(B) TIME LIMITATIONS. If a holder of a Stock Appreciation Right
terminates service with the Corporation, the Stock Appreciation Right may be
exercised only within the period, if any, within which the Option to which it
relates may be exercised. Notwithstanding the foregoing, any election by an
Optionee to exercise the Stock Appreciation Rights provided in this Plan
shall be made during the period beginning on the third business day following
the release for publication of quarterly or annual financial information
required to be prepared and disseminated by the Corporation pursuant to the
requirements of the Exchange Act and ending on the twelfth business day
following such date. The required release of information shall be deemed to
have been satisfied when the specified financial data appears on or in a wire
service, financial news service or newspaper of general circulation or is
otherwise first made publicly available.
(C) EFFECTS OF EXERCISE OF STOCK APPRECIATION RIGHTS OR OPTIONS.
Upon the exercise of a Stock Appreciation Right, the number of shares of
Common Stock available under the Option to which it relates shall decrease by
a number equal to the number of shares for which the Stock Appreciation Right
was exercised. Upon the exercise of an Option, any related Stock Appreciation
Right shall terminate as to any number of shares of Common Stock subject to
the Stock Appreciation Right that exceeds the total number of shares for
which the Option remain s unexercised.
(D) TIME OF GRANT. A Stock Appreciation Right granted in connection
with an Incentive Stock Option must be granted concurrently with the Option
to which it relates, while a Stock Appreciation Right granted in connection
with a Non-Qualified Option may be granted concurrently with the Option to
which it relates or at any time thereafter prior to the exercise or
expiration of such Option.
(E) NON-TRANSFERABLE. The holder of a Stock Appreciation Right may
not transfer or assign the Stock Appreciation Right otherwise than by will or
in accordance with the laws of descent and distribution, and during a
holder's lifetime a Stock Appreciation Right may be exercisable only by the
holder.
ARTICLE IX
ADJUSTMENTS FOR CAPITAL CHANGES
The aggregate number of shares of Common Stock available for issuance
under this Plan, the number of shares to which any outstanding Award relates,
the maximum number of shares that can be awarded to each Employee and
Non-Employee Director and the exercise price per share of Common Stock under
any outstanding Option shall be proportionately adjusted for any increase or
decrease in the total number of outstanding shares of Common Stock issued
subsequent to the effective date of this Plan resulting from a split,
subdivision or consolidation of shares or any other capital adjustment, the
payment of a stock dividend, or other increase or decrease in such shares
effected without receipt or
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payment of consideration by the Corporation. If,
upon a merger, consolidation, reorganization, liquidation, recapitalization
or the like of the Corporation, the shares of the Corporation's Common Stock
shall be exchanged for other securities of the Corporation or of another
corporation, each recipient of an Award shall be entitled, subject to the
conditions herein stated, to purchase or acquire such number of shares of
Common Stock or amount of other securities of the Corporation or such other
corporation as were exchangeable for the number of shares of Common Stock of
the Corporation which such optionees would have been entitled to purchase or
acquire except for such action, and appropriate adjustments shall be made to
the per share exercise price of outstanding Options.
ARTICLE X
AMENDMENT AND TERMINATION OF THE PLAN
The Board may, by resolution, at any time terminate or amend the Plan
with respect to any shares of Common Stock as to which Awards have not been
granted, subject to applicable regulations and any required stockholder
approval or any stockholder approval which the Board may deem to be advisable
for any reason, such as for the purpose of obtaining or retaining any
statutory or regulatory benefits under tax, securities or other laws or
satisfying any applicable stock exchange listing requirements. The Board may
not, without the consent of the holder of an Award, alter or impair any Award
previously granted or awarded under this Plan as specifically authorized
herein.
ARTICLE XI
EMPLOYMENT RIGHTS
Neither the Plan nor the grant of any Awards hereunder nor any action
taken by the Committee or the Board in connection with the Plan shall create
any right on the part of any Employee or Non-Employee Director of the
Corporation or a Subsidiary Company to continue in such capacity.
ARTICLE XII
WITHHOLDING
12.01 TAX WITHHOLDING. The Corporation may withhold from any cash
payment made under this Plan sufficient amounts to cover any applicable
withholding and employment taxes, and if the amount of such cash payment is
insufficient, the Corporation may require the Optionee to pay to the
Corporation the amount required to be withheld as a condition to delivering
the shares acquired pursuant to an Award. The Corporation also may withhold
or collect amounts with respect to a disqualifying disposition of shares of
Common Stock acquired pursuant to exercise of an Incentive Stock Option, as
provided in Section 8.10(c).
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12.02 METHODS OF TAX WITHHOLDING. The Board of Directors or the
Committee is authorized to adopt rules, regulations or procedures which
provide for the satisfaction of an Optionee's tax withholding obligation by
the retention of shares of Common Stock to which the Employee would otherwise
be entitled pursuant to an Award and/or by the Optionee's delivery of
previously owned shares of Common Stock or other property.
ARTICLE XIII
EFFECTIVE DATE OF THE PLAN; TERM
13.01 EFFECTIVE DATE OF THE PLAN. This Plan shall become effective
on the Effective Date, and Awards may be granted hereunder as of or after the
Effective Date and prior to the termination of the Plan, provided that no
Incentive Stock Option issued pursuant to this Plan shall qualify as such
unless this Plan is approved by the requisite vote of the holders of the
outstanding voting shares of the Corporation at a meeting of stockholders of
the Corporation held within twelve (12) months of the Effective Date.
13.02 TERM OF THE PLAN. Unless sooner terminated, this Plan shall
remain in effect for a period of ten (10) years ending on the tenth
anniversary of the Effective Date. Termination of the Plan shall not affect
any Awards previously granted and such Awards shall remain valid and in
effect until they have been fully exercised or earned, are surrendered or by
their terms expire or are forfeited.
ARTICLE XIV
MISCELLANEOUS
14.01 GOVERNING LAW. To the extent not governed by Federal law, this
Plan shall be construed under the laws of the State of Delaware.
14.02 PRONOUNS. Wherever appropriate, the masculine pronoun shall
include the feminine pronoun, and the singular shall include the plural.
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EXHIBIT 10.2
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated this _____ th day of _____ 1997, between
Vermilion Bancorp, Inc., a Delaware chartered corporation (the "Corporation"),
American Savings Bank of Danville, an Illinois chartered savings bank and a
wholly owned subsidiary of the Corporation (the "Bank"), and Merrill G. Norton
(the "Executive").
WITNESSETH
WHEREAS, the Executive is presently an officer of the Corporation and the
Bank (together the "Employers"); and
WHEREAS, the Employers desire to be ensured of the Executive's continued
active participation in the business of the Employers; and
WHEREAS, in order to induce the Executive to remain in the employ of the
Employers and in consideration of the Executive's agreeing to remain in the
employ of the Employers, the parties desire to specify the terms under which
Executive shall be employed and the severance benefits which shall be due the
Executive in the event that his employment with the Employers is terminated
under specified circumstances;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the parties hereby agree as follows:
1. DEFINITIONS. The following words and terms shall have the meanings
set forth below for the purposes of this Agreement:
(a) AVERAGE ANNUAL COMPENSATION. The Executive's "Average Annual
Compensation" for purposes of this Agreement shall be deemed to mean the
average level of compensation paid to the Executive by the Employers or any
subsidiary thereof during the most recent five taxable years preceding the Date
of Termination (or such shorter period as the Executive was employed),
including Base Salary and bonuses under any employee benefit plans of the
Employers.
(b) BASE SALARY. "Base Salary" shall have the meaning set forth in
Section 3(a) hereof.
(c) CAUSE. Termination of the Executive's employment for "Cause" shall
mean termination because of personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law, rule or
regulation (other than traffic violations or similar offenses) or final
cease-and-desist order or material breach of any provision of this Agreement.
For purposes of this paragraph, no act or failure to act on the Executive's
part shall be
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considered "willful" unless done, or omitted to be done, by the
Executive not in good faith and without reasonable belief that the Executive's
action or omission was in the best interest of the Employers.
(d) CHANGE IN CONTROL OF THE CORPORATION. "Change in Control of the
Corporation" shall mean a change in control of a nature that would be required
to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Securities Exchange Act of 1934, as amended ("Exchange
Act"), or any successor thereto, whether or not the Corporation is registered
under the Exchange Act; provided that, without limitation, such a change in
control shall be deemed to have occurred if (i) any "person" (as such term is
used in Sections 3(9), 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 Corporation representing 25% or more of the
combined voting power of the Corporation's then outstanding securities; or (ii)
during any period of two consecutive years, individuals who at the beginning of
such period constitute the Board of Directors of the Corporation cease for any
reason to constitute at least a majority thereof unless the election, or the
nomination for election by stockholders, of each new director was approved by a
vote of at least two-thirds of the directors then still in office who were
directors at the beginning of the period.
(e) CODE. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(f) DATE OF TERMINATION. "Date of Termination" shall mean (i) if the
Executive's employment is terminated for Cause or for Disability, the date
specified in the Notice of Termination, and (ii) if the Executive's employment
is terminated for any other reason, the date on which a Notice of Termination
is given or as specified in such Notice.
(g) DISABILITY. Termination by the Employers of the Executive's
employment based on "Disability" shall mean termination because of any physical
or mental impairment which qualifies the Executive for disability benefits
under the applicable long-term disability plan maintained by the Employers or
any subsidiary or, if no such plan applies, which would qualify the Executive
for disability benefits under the Federal Social Security System.
(h) GOOD REASON. Termination by the Executive of the Executive's
employment for "Good Reason" shall mean termination by the Executive within one
year following a Change in Control of the Corporation based on:
(i) Without the Executive's express written consent, the failure to
elect or to re-elect or to appoint or to re-appoint the Executive
to the office of President-Chief Operating and Managing Officer
of the Employers or a material adverse change made by the
Employers in the Executive's functions, duties or
responsibilities as President-Chief Operating and Managing
Officer of the Employers;
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(ii) Without the Executive's express written consent, a material
reduction by the Employers in the Executive's Base Salary as the
same may be increased from time to time or, except to the extent
permitted by Section 3(b) hereof, a material reduction in the
package of fringe benefits provided to the Executive, taken as a
whole;
(iii) Without the Executive's express written consent, the Employers
require the Executive to work in an office which is more than 30
miles from the location of the Employers' current principal
executive office, except for required travel on business of the
Employers to an extent substantially consistent with the
Executive's present business travel obligations;
(iv) Any purported termination of the Executive's employment for
Cause, Disability or Retirement which is not effected pursuant to
a Notice of Termination satisfying the requirements of paragraph
(j) below; or
(v) The failure by the Employers to obtain the assumption of and
agreement to perform this Agreement by any successor as
contemplated in Section 9 hereof.
(i) IRS. IRS shall mean the Internal Revenue Service.
(j) NOTICE OF TERMINATION. Any purported termination of the Executive's
employment by the Employers for any reason, including without limitation for
Cause, Disability or Retirement, or by the Executive for any reason, including
without limitation for Good Reason, shall be communicated by written "Notice of
Termination" to the other party hereto. For purposes of this Agreement, a
"Notice of Termination" shall mean a dated notice which (i) indicates the
specific termination provision in this Agreement relied upon, (ii) sets forth
in reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so indicated, (iii)
specifies a Date of Termination, which shall be not less than thirty (30) nor
more than ninety (90) days after such Notice of Termination is given, except in
the case of the Employers' termination of Executive's employment for Cause; and
(iv) is given in the manner specified in Section 10 hereof.
(k) RETIREMENT. "Retirement" shall mean voluntary termination by the
Executive in accordance with the Employers' retirement policies, including
early retirement, generally applicable to the Employers' salaried employees.
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2. TERM OF EMPLOYMENT.
(a) The Employers hereby employ the Executive as President-Chief Operating
and Managing Officer and Executive hereby accepts said employment and agrees to
render such services to the Employers on the terms and conditions set forth in
this Agreement. Unless extended as provided in this Section 2, this Agreement
shall terminate three (3) years after the date first above written. Prior to
the third annual anniversary of the date first above written and each annual
anniversary thereafter, the Boards of Directors of the Employers shall
consider, review (with appropriate corporate documentation thereof, and after
taking into account all relevant factors, including the Executive's
performance) and, if appropriate, explicitly approve a one-year extension of
the remaining term of this Agreement. The term of this Agreement shall continue
to extend each year if the Boards of Directors so approve such extension unless
the Executive gives written notice to the Employers of the Executive's election
not to extend the term, with such notice to be given not less than thirty (30)
days prior to any such anniversary date. If the Boards of Directors elect not
to extend the term, they shall give written notice of such decision to the
Executive not less than thirty (30) days prior to any such anniversary date. If
any party gives timely notice that the term will not be extended as of any
annual anniversary date, then this Agreement shall terminate at the conclusion
of its remaining term. References herein to the term of this Agreement shall
refer both to the initial term and the successive terms.
(b) During the term of this Agreement, the Executive shall perform such
executive services for the Employers as are consistent with his title of
President-Chief Operating and Managing Officer.
3. COMPENSATION AND BENEFITS.
(a) The Employers shall compensate and pay Executive for his services
during the term of this Agreement at a minimum base salary of $ ______ per year
("Base Salary"), which may be increased from time to time in such amounts as
may be determined by the Boards of Directors of the Employers. In addition to
his Base Salary, the Executive shall be entitled to receive during the term of
this Agreement such bonus payments as may be determined by the Boards of
Directors of the Employers.
(b) During the term of the Agreement, Executive shall be entitled to
participate in and receive the benefits of any pension or other retirement
benefit plan, profit sharing, management recognition, stock option, employee
stock ownership, or other plans, benefits and privileges given to employees and
executives of the Employers, to the extent commensurate with his then duties
and responsibilities, as fixed by the Boards of Directors of the Employers. The
Employers shall not make any changes in such plans, benefits or privileges
which would adversely affect Executive's rights or benefits thereunder, unless
such change occurs pursuant to a program applicable to all executive officers
of the Employers and does not result in a proportionately greater adverse
change in the rights of or benefits to Executive as compared with any other
executive officer of the Employers. Nothing paid
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to Executive under any plan or arrangement presently in effect or made
available in the future shall be deemed to be in lieu of the salary payable to
Executive pursuant to Section 3(a) hereof.
(c) During the term of this Agreement, Executive shall be entitled to paid
annual vacation in accordance with the policies as established from time to
time by the Boards of Directors of the Employers. Executive shall not be
entitled to receive any additional compensation from the Employers for failure
to take a vacation, nor shall Executive be able to accumulate unused vacation
time from one year to the next, except to the extent authorized by the Boards
of Directors of the Employers.
(d) During the term of this Agreement, the Employers shall pay the annual
membership dues for professional and other associations and fees in connection
with continuing professional education.
(e) The Employers shall provide continued medical insurance in the
Employers' health plan for the benefit of the Executive and his spouse for
life, whether or not the Executive is employed full time by the Employers, and
such insurance shall be comparable to that which is provided to the Executive
as of the date of this Agreement notwithstanding anything to the contrary in
this Agreement and regardless of whether the Executive is eligible to
participate in the Employers' health plan. Executive (or his estate in the
case of Executive's death) shall reimburse Employers for all premiums on such
medical insurance for insurance coverage beginning on a date two years after
death, Disability or Retirement of Executive. This Section 3(e) shall not apply
if the Employee is employed full-time by an employer other than the Corporation
or the Bank or if Executive or his estate discontinues reimbursement of
Employers.
(f) In the event of the Executive's Disability, Retirement or death during
the term of this Agreement, the Executive, the Executive's spouse, estate,
legal representative or named beneficiaries (as directed by the Executive in
writing) shall be paid on a monthly basis the Executive's Base Salary (as
defined in Section 3(a) hereof) in effect at the time of the Executive's
Disability, Retirement or death for a period of twelve (12) months from the
date of the Executive's Disability, Retirement or death.
(g) The Executive's compensation and expenses shall be paid by the
Corporation and the Bank in the same proportion as the time and services
actually expended by the Executive on behalf of each respective Employer.
4. EXPENSES. The Employers shall reimburse Executive or otherwise
provide for or pay for all reasonable expenses incurred by Executive in
furtherance of, or in connection with the business of the Employers, including,
but not by way of limitation, automobile and traveling expenses, and all
reasonable entertainment expenses (whether incurred at the Executive's
residence, while traveling or otherwise), subject to such reasonable
documentation and other limitations as may be established by the Boards of
Directors of
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the Employers. If such expenses are paid in the first instance by
Executive, the Employers shall reimburse the Executive therefor.
5. TERMINATION.
(a) The Employers shall have the right, at any time upon prior Notice of
Termination, to terminate the Executive's employment hereunder for any reason,
including without limitation termination for Cause, Disability or Retirement,
and Executive shall have the right, upon prior Notice of Termination, to
terminate his employment hereunder for any reason.
(b) In the event that (i) Executive's employment is terminated by the
Employers for Cause, or (ii) Executive terminates his employment hereunder
other than for Good Reason, Executive shall have no right pursuant to this
Agreement to compensation or other benefits for any period after the applicable
Date of Termination. In the event that the Executive's employment is terminated
due to Disability, Retirement or death, the Executive's rights shall be as
provided in Section 3(f) hereof.
(c) In the event that (i) Executive's employment is terminated by the
Employers for other than Cause, Disability, Retirement or the Executive's death
or (ii) such employment is terminated by the Executive (a) due to a material
breach of this Agreement by the Employers, which breach has not been cured
within fifteen (15) days after a written notice of non-compliance has been
given by the Executive to the Employers, or (b) for Good Reason, then the
Employers shall, subject to the provisions of Section 6 hereof, if applicable,
(A) Pay to the Executive, in thirty-six (36) equal monthly installments
beginning with the first business day of the month following the Date of
Termination, (a) a cash severance amount equal to three (3) times the
Executive's Average Annual Compensation, or (b) in the event that Executive's
employment is terminated by Executive for Good Reason, a cash severance amount
shall equal two (2) times the Executive's Average Annual Compensation.
(B) Maintain and provide for a period ending at the earlier of (i) the
death of the Executive or (ii) the date of the Executive's full-time employment
by another employer (provided that the Executive is entitled under the terms of
such employment to benefits substantially similar to those described in this
subparagraph (B)), at no cost to the Executive, the Executive's continued
participation in all group insurance, life insurance, health and accident,
disability and other employee benefit plans, programs and arrangements in which
the Executive was entitled to participate immediately prior to the Date of
Termination (other than stock option and restricted stock plans of the
Employers), provided that in the event that the Executive's participation in
any plan, program or arrangement as provided in this subparagraph (B) is barred
or during such period any such plan, program or arrangement is discontinued or
the benefits thereunder are materially reduced, the
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Employers shall arrange to provide the Executive with benefits substantially
similar to those which the Executive was entitled to receive under such plans,
programs and arrangements immediately prior to the Date of Termination.
6. LIMITATION OF BENEFITS UNDER CERTAIN CIRCUMSTANCES. If the payments
and benefits pursuant to Section 5 hereof, either alone or together with other
payments and benefits which Executive has the right to receive from the
Employers, would constitute a "parachute payment" under Section 280G of the
Code, the payments and benefits pursuant to Section 5 hereof shall be reduced,
in the manner determined by the Executive, by the amount, if any, which is the
minimum necessary to result in no portion of the payments and benefits under
Section 5 being non-deductible to either of the Employers pursuant to Section
280G of the Code and subject to the excise tax imposed under Section 4999 of
the Code. The determination of any reduction in the payments and benefits to
be made pursuant to Section 5 shall be based upon the opinion of independent
tax counsel selected by the Employers' independent public accountants and paid
by the Employers. Such counsel shall be reasonably acceptable to the Employers
and the Executive; shall promptly prepare the foregoing opinion, but in no
event later than thirty (30) days from the Date of Termination; and may use
such actuaries as such counsel deems necessary or advisable for the purpose. In
the event that the Employers and/or the Executive do not agree with the opinion
of such counsel, (i) the Employers shall pay to the Executive the maximum
amount of payments and benefits pursuant to Section 5, as selected by the
Executive, which such opinion indicates that there is a high probability do not
result in any of such payments and benefits being non-deductible to the
Employers and subject to the imposition of the excise tax imposed under Section
4999 of the Code and (ii) the Employers may request, and Executive shall have
the right to demand, that the Employers request, a ruling from the IRS as to
whether the disputed payments and benefits pursuant to Section 5 hereof have
such consequences. Any such request for a ruling from the IRS shall be
promptly prepared and filed by the Employers, but in no event later than
thirty (30) days from the date of the opinion of counsel referred to above, and
shall be subject to Executive's approval prior to filing, which shall not be
unreasonably withheld. The Employers and Executive agree to be bound by any
ruling received from the IRS and to make appropriate payments to each other to
reflect any such rulings, together with interest at the applicable federal
rate provided for in Section 7872(f)(2) of the Code. Nothing contained herein
shall result in a reduction of any payments or benefits to which the Executive
may be entitled upon termination of employment under any circumstances other
than as specified in this Section 6, or a reduction in the payments and
benefits specified in Section 5 below zero.
7. MITIGATION; EXCLUSIVITY OF BENEFITS.
(a) The Executive shall not be required to mitigate the amount of any
benefits hereunder by seeking other employment or otherwise, nor shall the
amount of any such benefits be reduced by any compensation earned by the
Executive as a result of employment by another employer after the Date of
Termination or otherwise.
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(b) The specific arrangements referred to herein are not intended to
exclude any other benefits which may be available to the Executive upon a
termination of employment with the Employers pursuant to employee benefit plans
of the Employers or otherwise.
8. WITHHOLDING. All payments required to be made by the Employers
hereunder to the Executive shall be subject to the withholding of such amounts,
if any, relating to tax and other payroll deductions as the Employers may
reasonably determine should be withheld pursuant to any applicable law or
regulation.
9. ASSIGNABILITY. The Employers may assign this Agreement and its rights
and obligations hereunder in whole, but not in part, to any corporation, bank
or other entity with or into which the Employers may hereafter merge or
consolidate or to which the Employers may transfer all or substantially all of
its assets, if in any such case said corporation, bank or other entity shall by
operation of law or expressly in writing assume all obligations of the
Employers hereunder as fully as if it had been originally made a party hereto,
but may not otherwise assign this Agreement or its rights and obligations
hereunder. The Executive may not assign or transfer this Agreement or any
rights or obligations hereunder.
10. NOTICE. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by certified or
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth below:
To the Employers: Board of Directors
Vermilion Bancorp, Inc.
714 North Vermilion
Danville, Illinois 61832
To the Executive: Merrill G. Norton
8 Carriage Lane
Danville, Illinois 61832
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11. AMENDMENT; WAIVER. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and such officer or officers as may be
specifically designated by the Boards of Directors of the Employers to sign on
its behalf. No waiver by any party hereto at any time of any breach by any
other party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
12. GOVERNING LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the United
States where applicable and otherwise by the substantive laws of the State of
Illinois.
13. NATURE OF OBLIGATIONS. Nothing contained herein shall create or
require the Employers to create a trust of any kind to fund any benefits which
may be payable hereunder, and to the extent that the Executive acquires a right
to receive benefits from the Employers hereunder, such right shall be no
greater than the right of any unsecured general creditor of the Employers.
14. INTERPRETATION AND HEADINGS. This agreement shall be interpreted in
order to achieve the purposes for which it was entered into. The section
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement.
15. VALIDITY. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
16. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
17. REGULATORY PROHIBITION. Notwithstanding any other provision of this
Agreement to the contrary, any payments made to the Executive pursuant to this
Agreement, or otherwise, are subject to and conditioned upon their compliance
with Section 18(k) of the FDIA (12 U.S.C. Section 1828(k)) and any regulations
promulgated thereunder.
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IN WITNESS WHEREOF, this Agreement has been executed as of the date first
above written.
Attest: VERMILION BANCORP, INC.
_____________________________ By: ___________________________
Attest: AMERICAN SAVINGS BANK
OF DANVILLE
_____________________________ By: ___________________________
EXECUTIVE
By: ___________________________
Merrill G. Norton
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EXHIBIT 23.2
Consent of Independent Public Accountants
We consent to the use of our report dated October 11, 1996, on the financial
statements of American Savings Bank of Danville (the "Bank") and to reference
made to us under the captions "American Savings Bank of Danville and Subsidiary
Consolidated Statement of Income," "Tax Aspects," "Experts," and "Legal and Tax
Opinions: in the Application for Conversion filed by the Bank with the Office of
Banks and Real Estate of the State of Illinois and in the Registration Statement
filed by Vermilion Bancorp, Inc. with the United States Securities and Exchange
Commission.
/s/ Geo. S. Olive & Co. LLC
- ---------------------------
Champaign, Illinois
November 27, 1996
<PAGE>
EXHIBIT 23.3
November 27, 1996
Board of Directors
American Savings Bank of Danville
714 North Vermilion Street
Danville, Illinois 61832
Gentlemen:
We hereby consent to the use of our firm's name in the
Application for Conversion of American Savings Bank of Danville,
Danville, Illinois, and any amendments thereto, in the Form S-1
Registration Statement for Vermilion Bancorp, Inc., and any
amendments thereto, and in Application for Conversion for the
Office of Banks and Real Estate of the State of Illinois, and any
amendments thereto. We also hereby consent to the inclusion of,
summary of and references to our Appraisal Report and our
statement concerning subscription rights in such filings
including the Prospectus of Vermilion Bancorp, Inc.
Very truly yours,
RP FINANCIAL, LC.
/s/ Gregory E. Dunn
-------------------
Gregory E. Dunn
Senior Vice President
<PAGE>
EXHIBIT 99.7
AMERICAN SAVINGS BANK OF DANVILLE
714 NORTH VERMILION STREET
DANVILLE, ILLINOIS 61832
(217) 442-0270
NOTICE OF SPECIAL MEETING OF MEMBERS
To Be Held on March __, 1997
NOTICE IS HEREBY GIVEN that a special meeting ("Special Meeting") of the
members of American Savings Bank of Danville (the "Savings Bank") will be
held at the main office of the Savings Bank located at 714 North Vermilion
Street, Danville, Illinois on March __, 1997, at _0:00 _.m., Central Time, to
consider and vote upon:
1. The approval of a Plan of Conversion pursuant to which the Savings
Bank would be converted from an Illinois-chartered mutual savings bank
to an Illinois-chartered stock savings bank and issue all of its
capital stock to a newly formed holding company, Vermilion Bancorp,
Inc., and the transactions provided for in such Plan of Conversion,
including the adoption of Amended and Restated Articles of
Incorporation and new Bylaws for the Savings Bank; and
2. Such other business as may properly come before the Special Meeting or
any adjournment thereof. Except with respect to procedural matters
incident to the conduct of the meeting, management is not aware of any
other such business.
The Board of Directors has fixed February __, 1997 as the voting record
date for the determination of members entitled to notice of and to vote at the
Special Meeting and at any adjournment thereof. [ONLY THOSE MEMBERS OF THE
SAVINGS BANK OF RECORD AS OF THE CLOSE OF BUSINESS ON THAT DATE WILL BE
ENTITLED TO VOTE AT THE SPECIAL MEETING OR AT ANY SUCH ADJOURNMENT.]
By Order of the Board of Directors
William T. Ingram
Corporate Secretary
Danville, Illinois
February __, 1997
________________________________________________________________________________
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU SIGN, DATE AND MARK THE ENCLOSED
PROXY CARD IN FAVOR OF THE ADOPTION OF THE PLAN OF CONVERSION AND RETURN IT IN
THE ENCLOSED SELF-ADDRESSED, POSTAGE-PAID ENVELOPE. THIS WILL NOT PREVENT YOU
FROM VOTING IN PERSON IF YOU ATTEND THE SPECIAL MEETING.
YOU MAY OBTAIN A COPY OF THE PLAN OF CONVERSION BY RETURNING THE ENCLOSED
POSTAGE-PAID REQUEST CARD.
________________________________________________________________________________
<PAGE>
AMERICAN SAVINGS BANK OF DANVILLE
--------
PROXY STATEMENT
--------
SPECIAL MEETING OF MEMBERS
TO BE HELD ON MARCH __, 1997
INTRODUCTION
This Proxy Statement is being furnished to you in connection with the
solicitation by the Board of Directors of American Savings Bank of Danville
("American" or the "Savings Bank") of proxies to be voted at the Special
Meeting of Members of the Savings Bank (the "Special Meeting") to be held on
March __, 1997, at the main office of the Savings Bank located at 714 Vermilion
Street, Danville, Illinois 61832, at _0:00 _.m., Central Time, and at any
adjournments thereof. This Special Meeting is being held for the purpose of
considering and voting upon a plan of conversion and any amendment thereto (the
"Plan" or the "Plan of Conversion") under which the Savings Bank would be
converted from its present Illinois-chartered mutual form of organization to an
Illinois-chartered stock savings bank. In connection with the conversion, the
Savings Bank will concurrently sell its capital stock to Vermilion Bancorp,
Inc., a Delaware corporation (the "Company"), which will sell its shares of
common stock, par value $.01 per share (the "Common Stock") to the public in a
subscription offering (the "Subscription Offering") and, if necessary, in a
community offering (the "Community Offering") and a syndicated community
offering (the "Syndicated Community Offering") (collectively, the
"Offerings"). The simultaneous conversion of the Savings Bank to stock form,
the issuance of the Savings Bank's capital stock to the Company, and the offer
and sale of the Common Stock by the Company, all pursuant to the Plan, are
referred to herein as the "Conversion." References to the Savings Bank shall
include the Savings Bank in either its mutual or stock form as indicated by the
context.
VOTING IN FAVOR OF OR AGAINST THE PLAN OF CONVERSION INCLUDES A VOTE FOR OR
AGAINST THE ADOPTION OF THE AMENDED AND RESTATED ARTICLES OF INCORPORATION AND
THE AMENDED AND RESTATED BYLAWS OF THE SAVINGS BANK.
THIS PROXY STATEMENT IS A SUMMARY OF INFORMATION ABOUT THE SAVINGS BANK AND
THE PROPOSED CONVERSION. A MORE DETAILED DESCRIPTION OF THE COMPANY, THE
SAVINGS BANK AND THE PROPOSED CONVERSION IS INCLUDED IN THE PROSPECTUS. [ IF A
COPY OF THE PROSPECTUS IS NOT INCLUDED HEREWITH, SUCH PROSPECTUS AND/OR THE
PLAN, AND THE CERTIFICATE OF INCORPORATION AND THE BYLAWS OF THE COMPANY, MAY
BE OBTAINED BY PROMPTLY MARKING AND RETURNING THE ENCLOSED REQUEST CARD. IN
ORDER TO ASSURE TIMELY RECEIPT OF THE PROSPECTUS AND/OR THE PLAN, THE REQUEST
CARD SHOULD BE RETURNED TO THE SAVINGS BANK BY FEBRUARY __, 1997. IN ADDITION,
ALL SUCH DOCUMENTS MAY BE OBTAINED AT ANY OFFICE OF THE SAVINGS BANK. ]
<PAGE>
VOTING IN FAVOR OF THE PLAN OF CONVERSION WILL NOT OBLIGATE ANY PERSON TO
PURCHASE COMMON STOCK.
VOTING RIGHTS AND VOTE REQUIRED FOR APPROVAL
The Board of Directors has fixed February __, 1997 as the voting record
date ("Voting Record Date") for the determination of members entitled to
notice of and to vote at the Special Meeting and at any adjournment thereof.
All of the Savings Bank's depositors are members of the Savings Bank under its
current Illinois mutual charter. [ALL OF THE SAVINGS BANK'S MEMBERS AS OF THE
CLOSE OF BUSINESS ON THE VOTING RECORD DATE WHO CONTINUE TO BE MEMBERS ON THE
DATE OF THE SPECIAL MEETING OR ANY ADJOURNMENT THEREOF WILL BE ENTITLED TO VOTE
AT THE SPECIAL MEETING OR SUCH ADJOURNMENT.]
Each member will be entitled at the Special Meeting to cast one vote for
each $100, or fraction thereof, of the aggregate withdrawal value of all of
their deposit accounts in the Savings Bank as of the Voting Record Date. If
there are not sufficient votes for approval of the Plan at the time of the
Special Meeting, the Special Meeting may be adjourned to permit further
solicitation of proxies.
As of the Voting Record Date, the Savings Bank had approximately ______
deposit accounts, the holders of which are entitled to cast a total of
approximately ______ votes at the Special Meeting.
This Proxy Statement and related materials are first being mailed to
Members on or about February __, 1997.
THE AFFIRMATIVE VOTE OF TWO-THIRDS OF THE TOTAL VOTES ELIGIBLE TO BE CAST
AT THE SPECIAL MEETING IS REQUIRED FOR APPROVAL OF THE PLAN OF CONVERSION.
PROXIES
The Board of Directors of the Savings Bank is soliciting the proxy which
accompanies this Proxy Statement for use at the Special Meeting. Each proxy
solicited hereby, if properly executed, duly returned before the Special
Meeting and not revoked prior to or at the Special Meeting, will be voted at
the Special Meeting in accordance with the Members' instructions indicated
thereon. If no contrary instructions are given, the executed proxy will be
voted in favor of the Plan of Conversion. If any other matters properly come
before the Special Meeting, the persons named as proxies will vote upon such
matters according to their discretion. Except with respect to procedural
matters incident to the conduct of the meeting, no additional matters are
expected to come before the Special Meeting.
2
<PAGE>
Any Member giving a proxy may revoke it at any time before it is voted by
delivering to the Secretary of the Savings Bank either a written revocation of
the proxy, or a duly executed proxy bearing a later date, or by voting in person
at the Special Meeting. Proxies are being solicited only for use at the Special
Meeting and any and all adjournments thereof and will not be used for any other
meeting.
Proxies may be solicited by officers, directors and employees of the
Savings Bank personally, by telephone or further correspondence without
additional compensation.
Deposits held in a trust or other fiduciary capacity may be voted by the
trustee or other fiduciary to whom voting rights are delegated under the trust
instrument or other governing document or applicable law. In the case of IRA
and Keogh trusts established at the Savings Bank, the beneficiary may direct the
trustee's vote on the Plan of Conversion by returning a completed proxy card to
the Savings Bank. IF NO PROXY CARD IS RETURNED, THE TRUSTEE WILL VOTE IN FAVOR
OF APPROVAL OF THE PLAN OF CONVERSION ON BEHALF OF SUCH BENEFICIARY.
THE BOARD OF DIRECTORS URGES YOU TO MARK, SIGN, DATE AND RETURN THE
ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE AS SOON AS POSSIBLE,
EVEN IF YOU DO NOT INTEND TO PURCHASE COMMON STOCK. THIS WILL ENSURE THAT YOUR
VOTE WILL BE COUNTED.
THE OFFICE OF THE ILLINOIS COMMISSIONER OF BANKS AND REAL ESTATE (THE
"COMMISSIONER") HAS APPROVED THE PLAN OF CONVERSION SUBJECT TO THE APPROVAL
OF THE SAVINGS BANK'S MEMBERS AND THE SATISFACTION OF CERTAIN OTHER CONDITIONS.
HOWEVER, COMMISSIONER APPROVAL DOES NOT CONSTITUTE A RECOMMENDATION OR
ENDORSEMENT OF THE PLAN BY THE COMMISSIONER.
3
<PAGE>
VERMILION BANCORP, INC.
The Company is a Delaware corporation organized 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 in the Conversion. The Company has applied for
the approval of the Federal Reserve Board and the Commissioner, to be the
holding company for the Bank. Upon consummation of the Conversion, the
Company's business will consist of being the holding company for the Bank and
the Company will have no significant assets other than the shares of the Bank's
common stock acquired in the Conversion and 25% of the net proceeds of the
Conversion retained by the Company, a portion of which will be used to fund the
loan to the ESOP, and will have no significant liabilities. See "Use of
Proceeds." 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 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 or changes its business in the future.
Management believes that the holding company structure will provide the
Company with additional flexibility to diversify its business activities, should
it decide to do so, through existing or newly formed subsidiaries, or through
acquisitions of or mergers with other financial institutions or financial
services related companies. Although there are no current arrangements,
understandings or agreements, written or oral, regarding any such opportunities
or transactions, the Company will be in a better 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 initial activities of
the Company are anticipated to be funded by the proceeds to be retained by the
Company and earnings thereon or, alternatively, through dividends from the Bank.
See "Dividend Policy."
The Company's executive office is located at the home office of the Bank at
714 North Vermilion Street, Danville, Illinois 61832, and its telephone number
is (217) 442-0270.
AMERICAN SAVINGS BANK OF DANVILLE
The Bank is an Illinois-chartered, SAIF-insured mutual savings bank
conducting business from a single office located in Danville, Illinois. At
September 30, 1996, the Bank had total assets of $35.5 million, total deposits
of $30.7 million and equity of $2.4 million.
The Bank's principal business has been, and continues to be, attracting
deposits from its customers and investing such funds in residential real estate
loans and other loans. At September 30, 1996, the Bank's net loan portfolio
totalled $26.9 million, or 75.8% of the Bank's assets. In addition to its
lending activities, the Bank also has a securities portfolio consisting of
mortgage-backed securities and other investment securities. The Bank's
mortgage-backed securities portfolio totalled $3.5 million, or 9.9% of the
Bank's total assets at September 30, 1996, and its other investment securities
portfolio amounted to $3.1 million, or 8.7% of total assets at such date.
Traditionally, the Bank's principal source of
4
<PAGE>
funds has come from deposits. At September 30, 1996, the Bank had total
deposits of $30.7 million, of which $7.0 million or 22.8% consisted of core
deposits which include savings and retirement accounts, NOW accounts and money
market investment accounts ("MMIA").
The Bank and its predecessor have been serving Danville, Illinois since
1888. In 1994, the Bank converted to an Illinois-chartered savings bank from an
Illinois- chartered savings and loan association. The Bank is a
community-oriented financial institution which offers a variety of financial
services to meet the needs of its community. The existing management of the
Bank believes that it is in the best interests of the Bank as well as the
Company and its stockholders for the Bank to remain an independent financial
institution.
The Bank is subject to examination and comprehensive regulation by the
Commissioner, which is the Bank's chartering authority and primary regulator.
The Bank is also subject to regulation by the FDIC, as the administrator of the
SAIF, and to certain reserve requirements established by the FRB. The Bank is a
member of the FHLB of Chicago, which is one of the 12 regional banks comprising
the FHLB System, and is subject to regulations applicable to members of the FHLB
of Chicago.
The Bank's executive office is located at 714 North Vermilion Street,
Danville, Illinois 61832 and its telephone number is (217) 442-0270.
5
<PAGE>
AMERICAN SAVINGS BANK OF DANVILLE AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
The following Consolidated Statement of Income of the Bank for each of the
years in the two-year period ended September 30, 1996 have been audited by Geo.
S. Olive & Co. LLC, independent certified public accountants, whose report
thereon appears elsewhere herein. This Consolidated Statement of Income should
be read in conjunction with the Consolidated Financial Statements and related
notes included elsewhere herein.
Year Ended September 30,
------------------------
1996 1995
---------- ----------
(In Thousands)
Interest income:
Loans receivable $2,118 $1,757
Investment securities 449 538
Deposits with financial institutions 67 80
----- -----
Total interest income 2,634 2,375
----- -----
----- -----
Interest expense:
Deposits 1,671 1,588
FHLB advance 107 0
----- -----
Total interest expense 1,778 1,588
----- -----
Net interest income 856 787
Provision for losses on loans 80 13
----- -----
Net interest income after provisions for
for losses on loans 776 774
----- -----
Non-interest income:
Loan fees 12 11
Net realized gains on sales of securities
available for sale -- 1
Other income 33 39
----- -----
Total non-interest income 45 51
----- -----
Non-interest expenses:
Salaries and employee benefits 276 297
Net occupancy expenses 97 95
Data processing fees 40 39
Deposit insurance expense 277 71
Printing and office supplies 16 17
Legal and professional fees 36 43
Advertising and promotion 29 28
Director fees 41 41
Other expenses 77 79
----- -----
Total non-interest expenses 889 710
----- -----
Income (Loss) Before Income Tax (68) 115
Income tax expense 3 15
----- -----
Net income (loss) $ (71) $ 100
----- -----
----- -----
6
<PAGE>
CAPITALIZATION
The following table presents the historical consolidated capitalization of
the Bank at September 30, 1996, and the pro forma consolidated capitalization of
the Company after giving effect to the Conversion, based upon the sale of the
number of shares shown below and the other assumptions set forth under "Pro
Forma Data."
<TABLE>
<CAPTION>
Company - Pro Forma
Based Upon Sale at $10.00 Per Share
---------------------------------------------------------
396,750
255,000 300,000 345,000 Shares(1)
The Bank - Shares Shares Shares (15% above
Historical (Minimum of (Midpoint of (Maximum of Maximum of
Capitalization Range) Range) Range) Range)
-------------- ----------- ------------ ----------- ------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
FHLB advances $ 2,000 $ 2,000 $ 2,000 $ 2,000 $ 2,000
Deposits(2) 30,724 30,724 30,724 30,724 30,724
------ ------ ------ ------ ------
Total deposits and
borrowings $32,724 $32,724 $32,724 $32,724 $32,724
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Stockholders' equity:
Preferred Stock, $0.01
par value, 400,000
shares authorized; none
to be issued $ $ $ $ $
Common Stock, $0.01 par
value, 1,600,000 shares
authorized; shares to be
issued as reflected(3) -- 3 3 3 4
Additional paid-in
capital(3) -- 2,283 2,726 3,169 3,677
Retained earnings(4) 2,370 2,370 2,370 2,370 2,370
Net unrealized loss on
securities available for
sale (15) (15) (15) (15) (15)
Less:
Common Stock acquired
by the ESOP(5) -- (204) (240) (276) (317)
Common Stock acquired
by the Recognition
Plan(6) -- (102) (120) (138) (159)
----- ------ ------ ------ -------
Total stockholders'
equity (equity at
September 30, 1996) $ 2,355 $ 4,335 $ 4,724 $ 5,113 $ 5,560
------ ------ ------ ------ ------
------ ------ ------ ------ ------
(FOOTNOTES ON FOLLOWING PAGE)
</TABLE>
7
<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% to
reflect changes in market and financial 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. Total deposits and borrowings
do not reflect the anticipated loan from the Company to the ESOP, which
loan will not be reflected as a liability on the Company's consolidated
statements of financial condition.
(3) The sum of par value and additional paid-in capital accounts equals the net
Conversion proceeds. No effect has been given to the issuance of
additional shares of Common Stock pursuant to the Stock Option Plan
expected to be adopted by the Company and presented for stockholder
approval at a special meeting of stockholders to be held not earlier than
six months following the Conversion. If the plan is approved by
stockholders, an amount equal to 10% of the shares of Common Stock issued
in the Conversion will be reserved for issuance upon the exercise of
options to be granted under the Stock Option Plan. See "Pro Forma Data"
and "Management - Benefits - Stock Option Plan." The issuance of common
stock pursuant to the exercise of options under the Stock Option Plan will
result in the dilution of existing stockholders' interests by approximately
9.1%.
(4) The retained earnings of the Bank will be substantially restricted after
the Conversion. See "The Conversion - Liquidation Rights."
(5) Assumes that 8% of the shares offered for sale in the Conversion will be
purchased by the ESOP. The Common Stock acquired by the ESOP is reflected
as a reduction of stockholders' equity. Assumes the funds used to acquire
the ESOP shares will be borrowed from the Company. See "Management -
Benefits - Employee Stock Ownership Plan and Trust."
(6) Gives effect to the Recognition Plan which is expected to be adopted by the
Company and presented to stockholders for approval at a special meeting of
stockholders to be held not earlier than six months following the
Conversion. No shares will be purchased by the Recognition Plan in the
Conversion. If the Recognition Plan is approved by stockholders, the
Recognition Plan intends to acquire an amount of Common Stock equal to 4%
of the shares of Common Stock issued in the Conversion, or 10,200, 12,000,
13,800 and 15,870 shares at the minimum, midpoint, maximum and 15% above
the maximum of the Estimated Price Range, respectively. The table assumes
that stockholder approval has been obtained and that such shares are
purchased on the open market by the Company at the Purchase Price. The
Common Stock so acquired by the Recognition Plan is reflected as a
reduction in stockholders' equity. If the shares are purchased at prices
higher or lower than the Purchase Price, such purchases would have a
greater or lesser impact, respectively, on stockholders' equity. If the
Recognition Plan purchases authorized but unissued shares from the Company,
such issuance would dilute the voting interests of existing stockholders by
approximately 3.9%. See "Pro Forma Data" and "Management -Benefits -
Recognition and Retention Plan."
REGULATORY CAPITAL REQUIREMENTS
Under FDIC regulations, depository institutions such as the Bank are
required to maintain a minimum ratio of qualifying total capital to total assets
and off-balance sheet instruments, as adjusted to reflect their relative credit
risks, of 8.0%. At least one-half of total capital is to be comprised of common
equity, retained earnings, non-cumulative perpetual preferred stock and a
limited amount of cumulative perpetual preferred stock, less goodwill and other
intangibles ("Tier 1 capital"). The remainder of total capital may consist of
a limited amount of subordinated debt, other preferred stock, certain other
instruments and a limited amount of general reserves for loan losses ("Tier 2
capital").
The FDIC also has established an additional capital adequacy guideline
referred to as the Tier 1 leverage capital ratio, which measures the ratio of
Tier 1 capital to total assets less goodwill. Although the most highly-rated
depository institutions will be required to maintain a minimum Tier 1 leverage
capital ratio of 3.0%, most depository institutions will be required to maintain
Tier 1 leverage capital ratios of 4.0% to 5.0% or more. The
8
<PAGE>
actual required ratio will be based on the FDIC's assessment of the individual
depository institution's asset quality, earnings performance, interest-rate risk
and liquidity. Although the FDIC has not advised the Bank of a specific Tier 1
leverage capital ratio requirement, management of the Bank believes that for
purposes of complying with applicable federal regulations, the required Tier 1
leverage capital ratio for the Bank will be 4.0%, based upon published
regulatory criteria for establishing such minimum. There can be no assurance
that the Bank will not be required by the FDIC to maintain a higher Tier 1
leverage capital ratio.
The Federal Reserve Board has established guidelines regarding the capital
adequacy of bank holding companies, such as the Company. These requirements are
substantially similar to those adopted by the FDIC for depository institutions,
as set forth above. See generally "Regulation - The Company - Capital
Requirements" and "- The Bank - Capital Requirements."
Set forth below is a summary of the Bank's compliance with the applicable
capital standards as of September 30, 1996 on a historical basis and the
Company's and the Bank's compliance with applicable capital standards on a pro
forma basis assuming that the indicated number of shares were sold by the
Company as of such date and receipt by the Bank of 75% of net Conversion
proceeds. Proceeds have been assumed to be invested in interest-earning assets
which have a 50% risk-weighting.
9
<PAGE>
<TABLE>
<CAPTION>
Pro Forma at September 30, 1996 Based on
------------------------------------------------------------------------------------
Historical at 255,000 Shares 300,000 Shares 345,000 Shares 396,750 Shares
September 30, 1996 (Minimum of Range) (Midpoint of Range) (Maximum of Range) (Maximum As Adjusted)
------------------ ------------------ ------------------- ------------------ --------------------
Percent Percent Percent Percent Percent
of of of of of
Amount Assets(1) Amount Assets(1) Amount Assets(1) Amount Assets(1) Amount Assets(1)
------ --------- ------ --------- ------ ---------- ------ --------- -------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
THE COMPANY:
Tier 1 risk-weighted
level -- --% $4,351 25.01% $4,740 26.95% $5,129 28.84% $5,576 30.98%
Requirement -- -- 696 4.00% 704 4.00% 711 4.00% 720 4.00%
----- ----- ----- ------ ----- ------ ----- ------
Excess -- -- $3,655 21.01% $4,036 22.95% $4,418 24.84% $4,856 26.98%
----- ----- ----- ------ ----- ------ ----- ------
----- ----- ----- ------ ----- ------ ----- ------
Tier 1 adjusted total
level -- -- $4,351 11.63% $4,740 12.53% $5,129 13.42% $5,576 14.42%
Requirement -- -- 1,123 3.00% 1,134 3.00% 1,146 3.00% 1,160 3.00%
----- ----- ----- ------ ----- ------ ----- ------
Excess -- -- $3,228 8.63% $3,606 9.53% $3,983 10.42% $4,416 11.42%
----- ----- ----- ------ ----- ------ ----- ------
----- ----- ----- ------ ----- ------ ----- ------
Total risk-based level -- -- $4,494 25.84% $4,883 27.76% $5,272 29.65% $5,718 31.76%
Requirement -- -- 1,392 8.00% 1,407 8.00% 1,423 8.00% 1,440 8.00%
----- ----- ----- ------ ----- ------ ----- ------
Excess -- -- $3,102 17.84% $3,476 19.76% $3,849 21.65% $4,278 23.76%
----- ----- ----- ------ ----- ------ ----- ------
----- ----- ----- ------ ----- ------ ----- ------
THE BANK:
Tier 1 risk-weighted
level $2,371 14.45% $3,780 21.96% $4,058 23.36% $4,336 24.74% $4,655 26.29%
Requirement 656 4.00% 688 4.00% 695 4.00% 701 4.00% 708 4.00%
----- ----- ----- ----- ----- ------ ----- ------ ----- ------
Excess $1,715 10.45% $3,092 17.96% $3,363 19.36% $3,635 20.74% $3,947 22.29%
----- ----- ----- ----- ----- ------ ----- ------ ----- ------
----- ----- ----- ----- ----- ------ ----- ------ ----- ------
Tier 1 adjusted total
level $2,371 6.69% $3,780 10.20% $4,058 10.86% $4,336 11.50% $4,655 12.24%
Requirement(2) 1,418 4.00% 1,482 4.00% 1,495 4.00% 1,508 4.00% 1,522 4.00%
----- ----- ----- ----- ----- ------ ----- ------ ----- ------
Excess $ 953 2.69% $2,298 6.20% $2,563 6.86% $2,828 7.50% $3,133 8.24%
----- ----- ----- ------ ----- ------ ----- ------ ----- ------
----- ----- ----- ------ ----- ------ ----- ------ ----- ------
Total risk-based level $2,514 15.33% $3,923 22.79% $4,201 24.19% $4,479 25.56% $4,798 27.10%
Requirement 1,312 8.00% 1,377 8.00% 1,389 8.00% 1,402 8.00% 1,416 8.00%
----- ----- ----- ------ ----- ------ ----- ------ ----- ------
Excess $1,202 7.33% $2,546 14.79% $2,812 16.19% $3,077 17.56% $3,382 19.10%
----- ----- ----- ------ ----- ------ ----- ------ ----- ------
----- ----- ----- ------ ----- ------ ----- ------ ----- ------
</TABLE>
_______________
(1) Average or risk-weighted assets, as appropriate.
(2) Reflects the minimum FDIC requirements. The FDIC could require the Bank to
hold a Tier 1 leverage ratio of up to 5.0%.
10
<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 $2.3 million and $3.2 million (or $3.7 million
in the event the Estimated Price Range is increased by 15%) based upon the
following assumptions: (i) 100% of the shares of Common Stock will be sold in
the Subscription Offering and Community Offering; (ii) fixed Conversion expenses
will be approximately $234,000 and (iii) Trident will be paid a variable expense
based on the number of shares sold of $29,700, $37,000, $44,200 and $52,500 at
the minimum, midpoint, maximum and maximum, as adjusted, of the Estimated Price
Range, respectively. Actual Conversion expenses may vary from those estimated.
See "The Conversion - Marketing Arrangements."
Pro forma net income and stockholders' equity have been calculated for the
year ended September 30, 1996 as if the Common Stock to be issued in the
Offerings had been sold at the beginning of the year and the net proceeds had
been invested at 5.69%, which represents the yield on one-year U.S. Government
securities at September 30, 1996. The use of this interest rate is viewed to be
more relevant in the current rate environment than the use of an arithmetic
average of the weighted average yield earned by the Bank on its interest-earning
assets and the weighted average rate paid on its deposits during such periods
(as required by Federal regulations). The effect of withdrawals from deposit
accounts for the purchase of Common Stock has not been reflected. A combined
effective Federal and state income tax rate of 34% has been assumed for the
year, resulting in an after-tax yield of 3.76% during the year ended September
30, 1996. Historical and pro forma per share amounts have been calculated by
dividing historical and pro forma amounts by the indicated number of shares of
Common Stock, as adjusted to give effect to the shares committed to be released
during the period by the ESOP, with respect to the net income per share
calculations. See footnotes 4 and 6 to the Pro Forma Data tables. No effect
has been given in the pro forma stockholders' equity calculations for the
assumed earnings on the net proceeds. As discussed under "Use of Proceeds,"
the Company intends to retain 25% of the net Conversion proceeds and will use a
portion of such retained proceeds to make a loan directly to the ESOP to enable
the ESOP to purchase up to 8.0% of the Common Stock in the Conversion.
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 stockholders' equity represents the
difference between the stated amount of assets and liabilities of the Company
computed in accordance with generally accepted accounting principles
("GAAP"). The pro forma stockholders' equity is not intended to represent
the fair market value of the Common Stock and may be different than amounts
that would be available for distribution to stockholders in the event of
liquidation. No effect has been given in the tables to the possible issuance
of additional shares equal to 10% of the Common Stock to be reserved for
future issuance pursuant to the Stock Option Plan to be adopted by the Board
of Directors of the Company, 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 TO THE BAD DEBT
RESERVE.] See "Management - Benefits - Stock Option Plan" and "The
Conversion - Liquidation Rights." The tables below give effect to the
Recognition Plan, which is expected to be presented (together with the Stock
Option Plan) to stockholders for approval at a meeting of stockholders which
is expected to be held not earlier than six months following completion of
the Conversion. If the Recognition Plan is approved by stockholders, the
Recognition Plan intends to acquire an amount of Common Stock equal to 4% of
the shares of Common Stock issued in the Conversion, either through open
market purchases or from authorized but unissued shares of Common Stock. The
tables below assume that stockholder approval has been obtained and that the
shares acquired by the Recognition Plan are purchased in the open market at
$10.00 per share. There can be no assurance that stockholder approval of the
Recognition Plan will be obtained, that the shares will be purchased in the
open market, or that the purchase price will be $10.00 per share.
The following tables summarize historical consolidated data of the Bank and
pro forma data of the Company at the year ended September 30, 1996 based on
assumptions set forth above and in the tables and should not be used as a basis
for projections of market value of the Common Stock following the Conversion.
11
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended September 30, 1996
----------------------------------------------------------------------------
255,000 300,000 345,000 396,750
Shares Sold Shares Sold Shares Sold Shares Sold
at $10.00 at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share Per Share (15%
(Minimum (Midpoint (Maximum above Maximum
of Range) of Range) of Range) of Range)(9)
------------- ------------- ------------- ----------------
(Dollars in Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds $ 2,550 $ 3,000 $ 3,450 $ 3,968
Less offering expenses 264 271 278 287
------ ------ ------ -------
Estimated net Conversion proceeds 2,286 2,729 3,172 3,681
Less: Common Stock acquired
by ESOP (204) (240) (276) (317)
Common Stock to be acquired
by the Recognition Plan (102) (120) (138) (159)
------ ------ ------ -------
Estimated adjusted net proceeds(1) 1,980 2,369 2,758 3,205
------ ------ ------ -------
------ ------ ------ -------
Net income (loss):
Historical $(71)(8) $(71)(8) $(71)(8) $ (71)(8)
Pro forma adjustments:
Income on adjusted net proceeds(1) 74 89 104 121
ESOP(2) (13) (16) (18) (21)
Recognition Plan(3) (13) (16) (18) (21)
------ ------ ------ -------
Pro forma $ (23) $ (14) $ (3) $ 8
------ ------ ------ -------
------ ------ ------ -------
Net income (loss) per share(4):
Historical $ (0.30) $ (0.26) $ (0.22) $ (0.19)
Pro forma adjustments:
Income on adjusted net proceeds(1) $ 0.31 $ 0.32 $ 0.32 $ 0.33
ESOP(2) (0.05) (0.06) (0.06) (0.06)
Recognition Plan(3) (0.05) (0.06) (0.06) (0.06)
------ ------ ------ -------
Pro forma net income per share $ (0.09) $ (0.06) $ (0.02) $ 0.02
------ ------ ------ -------
------ ------ ------ -------
Pro forma price/earnings ratio
Number of shares used in net income per
share calculations(4) 236,640 278,400 320,160 368,184
Stockholders' equity:
Historical $ 2,355 $ 2,355 $ 2,355 $ 2,355
Estimated net Conversion proceeds 2,286 2,729 3,172 3,681
Less: Common Stock acquired
by ESOP(2) (204) (240) (276) (317)
Common Stock to be acquired
by the Recognition Plan(3) (102) (120) (138) (159)
------ ------ ------ -------
Pro forma stockholders' equity(6) $ 4,335 $ 4,724 $ 5,113 $ 5,560
------ ------ ------ -------
------ ------ ------ -------
Stockholders' equity per share(7):
Historical $ 9.24 $ 7.85 $ 6.83 $ 5.94
Estimated net Conversion proceeds 8.96 9.10 9.19 9.28
Less: Common Stock acquired
by ESOP(2) (0.80) (0.80) (0.80) (0.80)
Common Stock to be acquired
by the Recognition Plan(3) (0.40) (0.40) (0.40) (0.40)
------ ------ ------ -------
------ ------ ------ -------
Pro forma stockholders' equity
per share(3)(5)(6) $ 17.00 $ 15.75 $ 14.82 $ 14.02
------ ------ ------ -------
------ ------ ------ -------
Pro forma price to book ratio(7) 58.82% 63.49% 67.48% 71.33%
------ ------ ------ -------
------ ------ ------ -------
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
12
<PAGE>
- ------------------------
(1) Estimated adjusted net proceeds consist of the estimated net Conversion
proceeds, minus (i) the proceeds attributable to the purchase by the ESOP
and (ii) the value of the shares to be purchased by the Recognition Plan,
subject to stockholder approval, after the Conversion at an assumed price
of $10.00 per share.
(2) It is assumed that 8% of the shares of Common Stock issued in the
Conversion will be purchased by the ESOP. For purposes of this table, the
funds used to acquire such shares are assumed to have been borrowed by the
ESOP from the Company. The Company intends to make [QUARTERLY]
contributions to the ESOP over a [TEN]-year period in an amount at least
equal to the principal and interest requirement (which interest rate shall
be ____%) of the debt. The pro forma net income assumes (i) that the ESOP
expense for each respective period is equivalent to the principal payment
for the respective period and was made at the end of each respective
period; (ii) that 2,040, 2,400, 2,760 and 3,174 shares were committed to be
released with respect to the year ended September 30, 1996, at the minimum,
midpoint, maximum and 15% above the maximum of the Estimated Price Range,
respectively; and (iii) in accordance with SOP 93-6, only the ESOP shares
committed to be released during the respective period were considered
outstanding for purposes of the net income per share calculations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -Recent Accounting Pronouncements" and "Management - Benefits
-Employee Stock Ownership Plan and Trust."
(3) The adjustment is based upon the assumed purchases by the Recognition Plan
of 10,200, 12,000, 13,800 and 15,870 shares at the minimum, midpoint,
maximum and 15% above the maximum of the Estimated Price Range, assuming
that: (i) stockholder approval of the Recognition Plan has been received;
(ii) the shares were acquired by the Recognition Plan at the beginning of
the period in open market purchases at the Purchase Price; and (iii) the
amortized expense for the year ended September 30, 1996 was 20% of the
amount contributed. If the Recognition Plan purchases authorized but
unissued shares instead of making open market purchases, the voting
interests of existing stockholders would be diluted by approximately 3.9%
and pro forma net income (loss) per share for the year ended September 30,
1996 would be $(0.8), $(0.03), $0.01 and $0.03, and pro forma stockholders'
equity per share at September 30, 1996 would be $16.73, $15.53, $14.63 and
$13.86, at the minimum, midpoint, maximum and 15% above the maximum of the
Estimated Price Range, respectively. See "Management - Benefits -
Recognition and Retention Plan."
(4) Net income per share computations are determined by taking the number of
shares assumed to be sold in the Conversion and, in accordance with SOP
93-6, subtracting the ESOP shares which have not been committed for
release during the respective period. See Note 2 above.
(5) No effect has been given to the issuance of additional shares of Common
Stock pursuant to the Stock Option Plan. If the Stock Option Plan is
approved by stockholders, an amount equal to 10% of the Common Stock issued
in the Conversion, or 25,500, 30,000, 34,500 and 39,675 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 Plan. The issuance of
Common Stock pursuant to the exercise of options under such plan will
result in the dilution of existing stockholders' interests. Assuming
stockholder approval of the Stock Option Plan, that all the options were
exercised at the end of the period at an exercise price of $10.00 per
share, and that the Recognition Plan purchases shares in the open market at
the Purchase Price, pro forma net gain (loss) per share for the year ended
September 30, 1996 would be $(0.05), $(0.01), $0.03 and $0.05, and pro
forma stockholders' equity per share at September 30, 1996 would be $16.36,
$15.22, $14.38 and $13.65, in each case, at the minimum, midpoint, maximum
and 15% above the maximum of the Estimated Price Range, respectively.
13
<PAGE>
(6) The retained earnings of the Bank will be substantially restricted after
the Conversion. See "Dividend Policy" and "The Conversion - Liquidation
Rights."
(7) Based on the number of shares sold in the Conversion.
(8) Except for the special SAIF assessment, the Bank's net income for the year
ended September 30, 1996 would have been $84,000. If the Bank's net income
for the year ended had been $84,000, pro forma net income for the year
ended September 30, 1996 would have been $132,000, $141,000, $152,000 and
$162,000 and pro forma net income per share would have been $0.56, $0.51,
$0.47 and $0.44 at the minimum, midpoint, maximum and 15% above the maximum
of the Estimated Price Range, respectively. See "Management's Discussion
and Analysis of Financial Condition and Results of Operation - Results of
Operation."
THE CONVERSION
THE BOARD OF DIRECTORS OF THE BANK AND THE COMMISSIONER 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
APPROVAL BY THE COMMISSIONER, HOWEVER, DOES NOT CONSTITUTE A RECOMMENDATION OR
ENDORSEMENT OF THE PLAN BY SUCH AGENCY.
GENERAL
On November 6, 1996, the Bank's Board of Directors unanimously adopted the
Plan, pursuant to which the Bank will be converted from an Illinois-chartered
mutual savings bank to an Illinois-chartered stock savings bank. It is intended
that all of the common stock of the Bank to be issued in the Conversion will be
held by the Company, which is incorporated under Delaware law. The Plan has
been approved by the Commissioner, subject to, among other things, approval of
the Plan by the Bank's members. In addition, the FDIC has issued its
conditional non-objection to the Plan and the Conversion. A Special Meeting of
the Bank's members has been called for the purpose of approving the Plan, which
meeting is to be held on March __, 1997.
In adopting the Plan, the Board of Directors of the Bank determined that
conversion was advisable and in the best interests of its members and the Bank,
and further determined that the interests of certain holders of its deposit
accounts in the net worth of the Bank would be equitably provided for and that
the Conversion would not have any adverse impact on the reserves and net worth
of the Bank. In determining to convert to the stock form of organization the
Board of Directors of the Bank considered a number of factors. The stock form
of organization is used by commercial banks, most business entities and thrift
institutions. The Board of Directors considered that converting will increase
the Bank's capital base and enhance its ability to support future growth. The
stock form also will facilitate the Bank's ability to engage in acquisition or
merger transactions with other entities. While the Bank currently has no
understandings, arrangements or agreements, written or oral, with any other
entity, the Board of Directors considered the continuing consolidation occurring
throughout the banking industry and concluded that converting to the stock form
may enhance the Bank's ability to engage in acquisition opportunities which may
arise in the future. The Board of Directors also considered that upon
conversion to the stock form, the Bank's employees could participate in
stock-benefit compensation plans, such as stock option and/or stock grant plans.
Upon consideration of these and other factors, the Board of Directors of the
Bank determined that converting from the mutual to the stock form was in the
best interests of the Bank.
The Company has applied for the approval of the Federal Reserve Board to
become a bank holding company and to acquire all of the common stock of the Bank
to be issued in the Conversion. The Company plans to retain 25% of the net
proceeds from the sale of the Common Stock, with all the remaining proceeds
14
<PAGE>
used to purchase all of the then to be issued and outstanding capital stock of
the Bank. Based on the issuance of 345,000 shares at the Purchase Price at the
maximum of the Estimated Price Range, approximately $276,000 of the net proceeds
retained by the Company are intended to be used to loan funds to the ESOP to
enable the ESOP to purchase up to 8.0% of the shares issued in the Conversion.
The Conversion will be effected only upon completion of the sale of all of the
shares of Common Stock of the Company to be issued pursuant to the Plan.
The Plan provides generally that (i) the Bank will convert from an
Illinois-chartered mutual savings bank to an Illinois-chartered stock savings
bank and (ii) the Company will offer shares of Common Stock for sale in the
Subscription Offering to Eligible Account Holders, the ESOP, Supplemental
Eligible Account Holders, Other Voting Members, and in a concurrent Community
Offering to certain members of the general public, subject to the prior rights
of holders of subscription rights. See "- Subscription Offering and
Subscription Rights" and "- Community Offering." 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. See "- 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.
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 $2,550,000 and $3,450,000, will be determined based upon an
independent appraisal 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 RP Financial, a consulting firm experienced in the valuation and
appraisal of savings institutions. See "- Stock Pricing and Number of Shares
to be Issued" for more information as to the determination of the estimated
pro forma market value of the Common Stock.
The Plan may be amended at any time with the concurrence of the
Commissioner and the receipt of any necessary approval from the FDIC.
Amendments to the Plan will require additional approval of the Bank's members,
whether such amendment is made before or after the Special Meeting of the Bank's
members called to consider the Plan, only if required by the Commissioner and/or
the FDIC. The Plan shall terminate if the Offerings are not completed within
[12] months of the date of the Special Meeting of the Bank's members called to
consider the Plan, subject to further extension by the Commissioner. Prior to
the Special Meeting of the Bank's members to consider the Plan, the Bank's Board
of Directors may terminate the Plan without approval of the Commissioner and,
thereafter, only with the Commissioner's approval.
The following is a brief summary of the material aspects of the Conversion.
The summary is qualified in its entirety by reference to the provisions of the
Plan. A copy of the Plan is available for inspection at the Bank and at the
offices of the Office. The Plan is also filed as an Exhibit to the Registration
Statement of which this Prospectus is a part, copies of which may be obtained
from the SEC. See "Additional Information."
PURPOSES OF CONVERSION
The Bank, as an Illinois-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, most business entities and a growing number of savings
institutions. The Conversion will be important to the future growth and
performance of the institution by providing a larger capital base on which the
Bank may operate, enhanced future access to capital markets, enhanced ability to
support increased originations of commercial business loans and consumer loans
and to diversify into other financial services related activities, and enhanced
ability to render services to the public.
15
<PAGE>
The holding company form of organization will provide additional
flexibility to diversify the Bank's business activities through existing or
newly formed subsidiaries, or through acquisition of other financial
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 better position after the Conversion, subject to regulatory
limitations and the Company's financial position, to take advantage of
opportunities which may arise.
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 applicable regulatory approvals, 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 possible issuance of additional shares to the Recognition Plan or
upon exercise of stock options. Following 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 -Management of
the Bank."
EFFECTS OF CONVERSION
GENERAL. Each depositor in a mutual savings bank has both a deposit
account in the institution and a pro rata ownership interest in the net worth of
the institution based upon the balance in his account, which interest may only
be realized in the event of a liquidation of the institution. However, this
ownership interest is tied to the depositor's account and has no tangible market
value separate from such deposit account. Any depositor who opens a deposit
account obtains a pro rata ownership interest in the net worth of the
institution without any additional payment beyond the amount of the deposit. A
depositor who reduces or closes his account receives a portion or all of the
balance in the account but nothing for his ownership interest in the net worth
of the institution, which is lost to the extent that the balance in the account
is reduced.
Consequently, mutual savings bank 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 bank 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 bank converts to stock form, permanent
nonwithdrawable capital stock is created to represent the ownership of the
institution's net worth. THE BANK'S COMMON STOCK AND THE COMMON STOCK OF THE
COMPANY 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 permanent 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.
CONTINUITY. While the Conversion is being accomplished, the normal
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
Commissioner and the FDIC. After 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 the Conversion will continue
to serve as directors of the Bank after the Conversion. The Directors of the
Company will consist of individuals currently serving on the Board of Directors
of the Bank. All officers of the Bank at the time of the Conversion will retain
their positions after the Conversion.
EFFECT ON DEPOSIT ACCOUNTS. Under the Plan, each depositor in the Bank at
the time of the Conversion will automatically continue as a depositor after the
Conversion to stock form, and each such deposit account will remain the same
with respect to deposit balance, interest rate and other terms. Each such
account will be
16
<PAGE>
insured by the FDIC to the same extent as before the Conversion. 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 of the Bank
are members of, and have voting rights in, the Bank as to all matters requiring
membership action. Upon Conversion, depositors 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 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 opinions with regard to Federal and
Illinois income taxation which indicates that the adoption and implementation of
the Plan of Conversion set forth herein will not be taxable for Federal or
Illinois tax purposes to the Bank or its Eligible Account Holders or
Supplemental Eligible Account Holders or the Company, except as discussed below.
See "- Tax Aspects."
EFFECT ON LIQUIDATION RIGHTS. Were a mutual savings bank 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 receive 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 Office, 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 required to be assumed by the surviving institution.
STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED
The Plan of Conversion requires that the aggregate purchase price of the
Common Stock sold in the Offerings 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 RP Financial to make such
valuation. For its services in making such appraisal and certain other services
(including assisting the Bank in the preparation of a business plan) rendered in
connection with the Conversion, RP Financial will receive a fee of $15,000, plus
reimbursement for reasonable expenses. The Bank and the Company have agreed to
indemnify RP Financial 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 RP Financial's
liability results from its negligence or willful misconduct.
An appraisal has been made by RP Financial in reliance upon the information
contained in this Prospectus, including the Consolidated Financial Statement.
RP Financial 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
institutions located in Illinois and other regions of the United States; the
aggregate size of the offering of the Common Stock; the impact of Conversion on
the
17
<PAGE>
Bank's net worth and earnings potential; and the trading market for
securities of comparable institutions and general conditions in the market for
such securities. In its review of the appraisal provided by RP Financial, the
Board of Directors reviewed the methodologies and the appropriateness of the
assumptions used by RP Financial in addition to the factors enumerated above.
On the basis of the foregoing, RP Financial has advised the Company and the
Bank that, in its opinion, dated November 15, 1996 the Estimated Price Range of
the Common Stock ranged from a minimum of $2,550,000 to a maximum of $3,450,000
with a midpoint of $3,000,000. Based upon the Estimated Price Range and the
Purchase Price of $10.00 per share for the Common Stock established by the Board
of Directors, the Company expects to issue between 255,000 and 345,000 shares of
Common Stock. The Estimated Price Range may be amended with the approval of the
Commissioner and non-objection of the FDIC, if required, if necessitated by
subsequent developments in the financial condition of the Company or the Bank or
market conditions generally. In the event the appraisal is updated to amend the
value of the Bank below $2,550,000 or above $3,967,500 (the maximum of the
Estimated Price Range, as adjusted by 15%), such appraisal will be filed with
the SEC by post-effective amendment.
In the event the Company receives orders for Common Stock in excess of
$3,450,000 (the maximum of the Estimated Price Range) and up to $3,967,500 (the
maximum of the Estimated Price Range, as adjusted by 15%), the Company may
determine to accept all such orders. No assurances, however, can be made that
the Company will receive orders for Common Stock in excess of the maximum of the
Estimated Price Range or that, if such orders are received, that all such orders
will be accepted because the Company's final valuation and number of shares to
be issued are subject to the receipt of an updated appraisal from RP Financial
which reflects such an increase in the valuation and the approval of such
increase by the Commissioner and non-objection of the FDIC, if required. There
is no obligation or understanding on the part of management to take and/or pay
for any shares in order to complete the Conversion.
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. RP
FINANCIAL DID NOT INDEPENDENTLY VERIFY THE CONSOLIDATED FINANCIAL STATEMENT AND
OTHER INFORMATION PROVIDED BY THE BANK, NOR DID RP FINANCIAL 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.
Following commencement of the Subscription Offering, 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 396,750
shares to reflect changes in the market and financial 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 Offering.
No sale of shares of Common Stock in the Conversion may be consummated
unless prior to such consummation RP Financial confirms that nothing of a
material nature has occurred which, taking into account all relevant factors,
would cause it to conclude that the aggregate price is materially incompatible
with the estimate of the pro forma valuation of the aggregate market value of
the Common Stock at the time of the sale of the Common Stock. If such is not
the case, a new Estimated Price Range may be set, a new Subscription and
Community Offering and/or Syndicated Community Offering may be held or such
other action may be taken as the Company and the Bank shall determine and the
Commissioner and FDIC may permit.
18
<PAGE>
Depending upon market or financial conditions following the commencement of
the Subscription Offering, the total number of shares to be issued in the
Conversion may be increased or decreased without a resolicitation of
subscribers, provided that the product of the total number of shares times the
Purchase Price is not below the minimum or more than 15% above the maximum of
the Estimated Price Range. 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, 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 with interest at the Bank's passbook rate of
interest, or be permitted to modify or rescind their subscriptions). Any change
in the Estimated Price Range must be approved by the Commissioner and requires
the non-objection of the FDIC.
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 income
and stockholders' equity on a per share basis while increasing pro forma net
income 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 income and stockholders'
equity on a per share basis while decreasing pro forma net income and
stockholders' equity on an aggregate basis. See "Pro Forma Data."
Copies of the appraisal report of RP Financial, 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."
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) Eligible
Account Holders, (2) the ESOP, (3) Supplemental Eligible Account Holders, and
(4) Other Voting Members. All subscriptions received will be subject to the
availability of Common Stock after satisfaction of all subscriptions of all
persons having prior rights in the Subscription Offering and to the maximum and
minimum purchase limitations set forth in the Plan of Conversion and as
described below under "- Limitations on Common Stock Purchases."
PRIORITY 1: ELIGIBLE ACCOUNT HOLDERS. Each Eligible Account Holder will
receive, without payment therefor, first priority, nontransferable subscription
rights to subscribe for in the Subscription Offering up to the greater of: (i)
$50,000 of Common Stock; (ii) one-tenth of one percent (0.10%) of the total
offering of shares of Common Stock; or (iii) fifteen times the product (rounded
down to the next whole number) obtained by multiplying the total number of
shares of Common Stock to be issued by a fraction, of which the numerator is the
amount of the Eligible Account Holder's qualifying deposit and the denominator
of which is the total amount of qualifying deposits of all Eligible Account
Holders, in each case on July 31, 1995 ("Eligibility Record Date"); in each case
subject to the overall purchase limitation. See "- Limitations on Common Stock
Purchases."
If there are not sufficient shares available to satisfy all subscriptions,
shares first will be allocated among subscribing Eligible Account Holders so as
to permit each such Eligible Account Holder, to the extent possible, to purchase
a number of shares which will make his total allocation equal to the lesser of
the number of shares subscribed for or 100 shares. Any available shares
remaining after each such subscribing Eligible Account Holder has been allocated
the lesser of the number of shares subscribed for or 100 shares shall be
allocated among the subscribing Eligible Account Holders in the proportion which
the amounts of the qualifying deposits of each such subscribing Eligible Account
Holder bears to the total amount of qualifying deposits of all such subscribing
Eligible Account Holders, provided that no fractional shares shall be issued.
The submission of
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multiple orders by an Eligible Account Holder or other subscriber will result in
a lower deposit credit per order in the event of an allocation.
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 July 31, 1995.
PRIORITY 2: EMPLOYEE STOCK OWNERSHIP PLAN. The ESOP will receive, without
payment therefor, second priority non-transferable subscription rights to
purchase, in the aggregate, up to 10.0% of the Common Stock issued in the
Conversion. The subscription rights granted to the ESOP are subject to the
availability of shares after taking into account the shares purchased by
Eligible Account Holders, including any shares of Common Stock to be issued in
the Conversion as a result of an increase of up to 15% in the maximum of the
Estimated Price Range. The ESOP intends to purchase up to 8.0% of the shares to
be issued in the Conversion, or 20,400 shares and 27,600 shares, based on the
issuance of 255,000 shares and 345,000 shares, respectively. Subscriptions by
the ESOP will not be aggregated with shares of Common Stock purchased directly
by or which are otherwise attributable to any other participants in the
Subscription and Community Offerings, including subscriptions of any of the
Bank's directors, officers, employees or associates thereof. In the event that
there are not sufficient shares available to satisfy the ESOP's purchase order,
it is anticipated that the ESOP will attempt to purchase additional shares of
Common Stock in the open market in order that the ESOP shall have purchased an
aggregate of 8.0% of the shares of Common Stock sold in the Offerings.
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: (i) $50,000 of Common Stock; (ii) one-tenth of
one percent (0.10%) of the total offering of shares of Common Stock; or (iii)
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 of which is the total
amount of qualifying deposits of all Supplemental Eligible Account Holders, in
each case on December 31, 1996; and, in all cases, subject to the overall
purchase limitation. See "- Limitations on Common Stock Purchases."
If there are not sufficient shares available to satisfy all Supplemental
Eligible Account Holders, shares first will be allocated among subscribing
Supplemental Eligible Account Holders so as to permit each such Supplemental
Eligible Account Holder, to the extent possible, to purchase a number of shares
sufficient to make his total allocation (including the number of shares, if any,
allocated to such person as an Eligible Account Holder) equal to the lesser of
the number of shares subscribed for or 100 shares. Any remaining available
shares shall be allocated among such subscribing Supplemental Eligible Account
Holders in the proportion that the amount of their respective amount of
qualifying deposits bears to the total amount of the amount of qualifying
deposits of all subscribing Supplemental Eligible Account Holders, provided that
no fractional shares shall be issued. The submission of multiple orders by a
Supplemental Eligible Account Holder or other subscriber will result in a lower
deposit credit per order in the event of an allocation.
PRIORITY 4: OTHER VOTING MEMBERS. To the extent that there are sufficient
shares remaining after satisfaction of subscriptions by Eligible Account
Holders, the ESOP, and Supplemental Eligible Account Holders, each Other Voting
Member will receive, without payment therefor, third priority, nontransferable
subscription rights to subscribe for Common Stock in the Subscription Offering
up to the greater of: (i) $50,000 of Common Stock or (ii) one-tenth of one
percent (0.10%) of the total offering of shares of Common Stock; in each case
subject to the overall purchase limitation. See "- Limitations on Common Stock
Purchases."
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In the event the Other Voting Members subscribe for a number of shares of
Conversion Stock in excess of the total number of shares of Conversion Stock
remaining, available shares shall be allocated among subscribing Other Voting
Members on a pro rata basis in the same proportion as each Other Voting Members'
subscription bears to the total subscriptions of all subscribing Other Voting
Members.
EXPIRATION DATE FOR THE SUBSCRIPTION OFFERING. The Subscription Offering
will expire on [MARCH __,] 1997, unless extended for up to 45 days or such
additional periods by the Bank and the Company with the approval of the
Commissioner of the Commissioner and, if required, the non-objection of the
FDIC. Subscription rights which have not been exercised prior to the
Subscription Expiration Date will become void.
The Bank and the Company will not execute orders before the Subscription
Expiration Date and until at least the minimum number of shares of Common Stock
(255,000 shares) have been subscribed for or otherwise sold. If the
Subscription Offering is not completed within 45 days after the Subscription
Expiration Date, unless such period is extended, all funds delivered to the Bank
pursuant to the Subscription Offering will be returned promptly to the
subscribers with interest and all withdrawal authorizations will be cancelled.
If an extension beyond the 45 day period following the Subscription 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.
COMMUNITY OFFERING
To the extent that shares remain available for purchase after satisfaction
of all subscriptions of Eligible Account Holders, the ESOP, Supplemental
Eligible Account Holders, and Other Voting Members, the Bank may offer shares
pursuant to the Plan to certain members of the general public, with preference
given to natural persons residing in the Bank's [LOCAL COMMUNITY] ("Preferred
Subscribers"). Such persons, together with associates of and persons acting in
concert with such persons, may purchase up to the greater of (i) $50,000 of the
Common Stock offered in the Conversion, or (ii) one-tenth of one percent (0.10%)
of the total offering of shares of Common Stock, in each case subject to the
maximum purchase limitation. See "- Limitations on Common Stock Purchases."
THIS AMOUNT MAY BE INCREASED OR DECREASED 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 SUBSCRIPTION EXPIRATION DATE. The Community Offering may be commenced at
any time during the Subscription Offering or subsequent thereto.
If there are not sufficient shares available to fill the orders of
Preferred Subscribers after completion of the Subscription and Community
Offerings, such stock will be allocated first to each Preferred Subscriber whose
order is accepted by the 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 orders remain unsatisfied in the same proportion that the
unfilled subscription of each bears to the total unfilled subscriptions of all
Preferred Subscribers whose subscription remains unsatisfied. If there are any
shares remaining after all subscriptions by Preferred Subscribers, shares will
be allocated to other members of the general public who subscribe 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 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: (a) the number of persons otherwise eligible to subscribe for shares
under the Plan who reside in such jurisdiction is small; (b) the granting of
subscription rights or the offer or sale of shares of Common Stock to such
persons would require the Company, the Bank, or their officers, directors or
employees
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under the laws of such jurisdiction, to register as a broker, dealer,
salesman or selling agent or to register or otherwise qualify its securities for
sale in such jurisdiction or to qualify as a foreign corporation or file a
consent to service of process in such jurisdiction; and (c) such registration or
qualification in the Company's and the Bank's judgment would be impracticable or
unduly burdensome for reasons of cost or otherwise. 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 ARRANGEMENTS
The Company and the Bank have engaged Trident as a financial advisor and
marketing agent in connection with the offering of the Common Stock, and Trident
has agreed to use its best efforts to solicit subscriptions and purchase orders
for shares of Common Stock in the Offerings. Trident is a member of the
National Association of Securities Dealers, Inc. ("NASD") and an SEC-registered
broker-dealer. Trident is headquartered in Raleigh, North Carolina, and its
telephone number is (919) 781-8900. Trident will provide various services
including, but not limited to, (1) training and educating the Bank's directors,
officers and employees regarding the mechanics and regulatory requirements of
the stock sales process; (2) providing its employees to staff the Stock Sales
Center to assist the Bank's customers and internal stock purchasers and to keep
records of orders for shares of Common Stock; (3) targeting the Company's sales
efforts, including preparation of marketing materials; and (4) assisting in the
solicitation of proxies of members for use at the Special Meeting. In the event
that a selected dealers agreement is entered into in connection with a
Syndicated Community Offering, the Bank will pay a to-be negotiated fee to such
selected dealers for shares sold by any NASD member firm pursuant to a selected
dealers agreement. Fees to Trident and to any other broker-dealer may be deemed
to be underwriting fees, and Trident and such broker-dealers may be deemed to be
underwriters. Trident will also be reimbursed for its reasonable out-of-pocket
expenses in an amount not to exceed $10,000 and reasonable legal fees not to
exceed $22,500. To date, Trident has received $10,000 from the Bank as an
advance payment of its anticipated expenses.
The Company and the Bank have agreed to indemnify Trident for reasonable
costs and expenses in connection with certain claims or liabilities, including
certain claims or liabilities arising out of or based upon any untrue or alleged
untrue statement of a material fact or the omission or alleged omission of a
material fact required to be stated or necessary to make not misleading any
statements contained in the Company's Registration Statement or the Prospectus.
Directors and executive officers of the Company and the 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. Such other
employees have been instructed not to solicit offers to purchase Common Stock or
provide advice regarding the purchase of Common Stock. Questions of prospective
purchasers will be directed to executive officers or registered representatives.
The Company will rely on Rule 3a4-1 under the Exchange Act, and sales of Common
Stock will be conducted within the requirements of Rule 3a4-1, so as to permit
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 Subscription 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 order form
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will confirm receipt or delivery in accordance with Rule 15c2-8. Order forms
will only be distributed with a Prospectus.
To purchase shares in the Subscription and Community Offerings, an executed
order form with the required payment for each share subscribed for, or with
appropriate authorization for withdrawal from the Bank's deposit account (which
may be given by completing the appropriate blanks in the order form), must be
received by the Bank at any of its offices by [12:00 NOON, CENTRAL TIME,] on the
Subscription Expiration Date. Order forms which are not received by such time
or are altered or executed defectively or are received without full payment (or
appropriate withdrawal instructions) are not required to be accepted. In
addition, the Bank will neither accept orders submitted on photocopied or
facsimilied order forms nor order forms unaccompanied by an executed
certification form. 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 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 depositors are properly identified as to their
stock purchase priority, depositors as of the Eligibility Record Date (July 31,
1995), the Supplemental Eligibility Record Date (December 31, 1996) and/or the
Voting Record Date (March __, 1997), must list all accounts on the stock order
form giving all names in each account and the account numbers.
Payment for subscriptions may be made (i) in cash if delivered in person at
the Bank, (ii) by check, bank draft or money order, or (iii) by authorization of
withdrawal from deposit accounts maintained with the Bank. Wire transfers will
not be accepted except at the discretion of the Company and the Bank. Interest
will be paid on payments made by check, bank draft or money order at the Bank's
passbook rate of interest from the date payment is received until 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.
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
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, and the remaining balance will earn
interest at the passbook rate.
If the ESOP subscribes for shares during the Subscription Offering, such
plan will not be required to pay for the shares subscribed for at the time it
subscribes, but rather, may pay for such shares of Common Stock subscribed for
by such plan 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 IRAs may use the assets of such IRAs to purchase
shares of Common Stock in the Subscription and Community Offerings, provided
that the trustee of such IRA is not 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. Subscriptions by IRAs will be credited only with the
balance of such IRA account in the event of an allocation.
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Certificates representing shares of Common Stock purchased will be mailed
to purchasers at such other address as may be specified in properly completed
order forms, as soon as practicable following consummation of the sale of all
shares of Common Stock. Any certificates returned as undeliverable will be
disposed of in accordance with applicable law.
RESTRICTIONS ON TRANSFER OF SUBSCRIPTION RIGHTS AND SHARES
Pursuant to the rules and regulations of the Office, no person with
subscription rights 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.
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. No person may offer, or make 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 IN THE EVENT THEY BECOME AWARE OF THE TRANSFER OF SUBSCRIPTION RIGHTS
AND WILL NOT HONOR ORDERS KNOWN BY THEM TO INVOLVE THE TRANSFER OF SUCH RIGHTS.
SYNDICATED COMMUNITY OFFERING
As a final step in the Conversion, the Plan provides that, if feasible, all
shares of Common Stock not purchased in the Subscription and Community Offerings
may be offered for sale to the general public in a Syndicated Community Offering
through a syndicate of registered broker-dealers to be formed. The Bank and the
Company expect to market any shares which remain unsubscribed after the
Subscription and Community Offerings through a Syndicated Community Offering.
The Company and the Bank have the right to reject orders in whole or part in
their sole discretion in the Syndicated Community Offering. Neither the Agent
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,
the Agent has agreed to use its best efforts in the sale of shares in the
Syndicated Community Offering. In the event that a selected dealers agreement
is entered into in connection with a Syndicated Community Offering, the Bank
will pay a to-be negotiated fee to such selected dealers for shares sold by any
NASD member firm pursuant to a selected dealers agreement.
The price at which Common Stock is sold in the Syndicated Community
Offering will be determined as described above under "- Stock Pricing and Number
of Shares to be Issued." 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
$50,000 of the Common Stock offered in the Conversion, without giving effect to
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 or money order 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 12:00 noon of the
business day following receipt of the order form or execution of the order form
by the selected dealer. Alternatively,
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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 12:00
noon of the next business day following the debit date will send order forms
and funds to the Bank for deposit in a segregated account. If such alternative
procedure is employed, purchasers' funds are not required to be in their
accounts with selected dealers until the debit date.
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 and
the Bank with the approval of the Commissioner and, if required, the
non-objection of the FDIC. See "- Stock Pricing and Number of Shares to be
Issued" 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 (i) $50,000 of Common Stock,
subject to the overall limitation in (8) below, (ii) one-tenth of one
percent (0.10%) of the total offering of shares of Common Stock or (iii)
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 limitation in (8) below;
(3) The ESOP may purchase in the aggregate up to 10% of the shares of
Common Stock issued in the Conversion, including any additional shares
issued in the event of an increase in the Estimated Price Range, after
taking into account the shares purchased by Eligible Account Holders;
(4) Each Supplemental Eligible Account Holder may subscribe for and
purchase in the Subscription Offering up to the greater of (i) $50,000 of
Common Stock, subject to the overall limitation in (8) below, (ii)
one-tenth of one percent (0.10%) of the total offering of shares of Common
Stock or (iii) fifteen times the product (rounded down to the next whole
number) obtained by multiplying the total number of shares of Common Stock
to be issued by a fraction, of which the numerator is the amount of the
qualifying deposit of the Supplemental Eligible Account Holder and the
denominator is the total amount of qualifying deposits of all Supplemental
Eligible Account Holders, in each case on the Supplemental Eligibility
Record Date, subject to the overall limitation in (8) below;
(5) Each Other Voting Member may subscribe for and purchase in the
Subscription Offering up to the greater of (i) $50,000 of Common Stock,
subject to the overall limitation in (8) below, or (ii)
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one-tenth of one percent (0.10%) of the total offering of shares of Common
Stock, subject to the overall limitation in (8) below;
(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 the
greater of (i) $50,000 of Common Stock, subject to the overall limitation
in (8) below or (ii) one-tenth of one percent (0.10%) of the total offering
of shares of Common Stock, subject to the overall limitation in (8) below;
(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 Community
Offering up to $50,000 of Common Stock, subject to the overall limitation
in (8) below;
(8) Eligible Account Holders, Supplemental Eligible Account Holders
and Other Voting Members may purchase stock in the Community and Syndicated
Community Offerings subject to the purchase limitations described in (6)
and (7) above, provided that, except for the ESOP, the maximum number of
shares of Common Stock subscribed for or purchased in all categories of the
Conversion by any person together with associates of and groups of persons
acting in concert with such persons, shall not exceed $150,000 of the
aggregate value of the shares of Common Stock sold in the Conversion; and
(9) No more than 35% 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 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 Company and the Bank may be, given the opportunity
to increase their subscriptions up to the then applicable limit. In the event
that an individual purchase limitation is decreased after commencement of the
Subscription or Community Offerings, the orders of any persons who subscribed
for the maximum number of shares of Common Stock shall be decreased by the
minimum amount necessary so that such person shall be in compliance with the
maximum number of shares permitted to be subscribed for by participants. Unless
otherwise permitted by the FDIC, the Company and the Bank do not anticipate that
they would decrease the maximum purchase limitations below one-tenth of 1% of
the total shares of Common Stock permitted to be purchased in the Subscription
and Community Offerings.
The overall purchase limitation may not be reduced to less than 1.0% but
the individual amount permitted to be purchased may be reduced to less than
$50,000, subject to (2), (4) and (5) above. Each Eligible Account Holder,
Supplemental Eligible Account Holder or Other Voting Member may purchase in the
Subscription Offering $50,000 of the Common Stock offered, assuming that at
least $2.6 million of Common Stock is sold in the Offerings.
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) in the event that there is
an oversubscription by Eligible Account Holders, to fill unfulfilled
subscriptions of Eligible Account Holders; (ii) to fill the ESOP's subscription
of 8.0% of the Adjusted Maximum number of shares; (iii) in the event that there
is an oversubscription by Supplemental Eligible Account Holders, to fill
unfulfilled subscriptions of Supplemental Eligible Account Holders; (iv) in the
event that there is an oversubscription by Other Voting Members, to fill
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unfulfilled subscriptions of Other Voting Members; and (v) to fill
unfulfilled subscriptions in the Community Offering to the extent possible.
The term "associate" of a person is defined to mean: (i) any corporation
or other organization (other than the Company, 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% 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 a trustee
or in a similar fiduciary capacity, provided, however, such term shall not
include any employee stock benefit plan of the Company or 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 or the Company or any of their
subsidiaries.
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.
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 net worth of the Bank as of the date of its latest statement of financial
condition contained in the final Prospectus used in connection with the
Conversion. Such liquidation account will not be reflected as an asset or
liability on the Company's or the Bank's financial statements subsequent to 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 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 passbook accounts, transaction accounts such as NOW accounts,
money market deposit accounts, and certificates of deposit, held in the Bank on
July 31, 1995 and December 31, 1996, respectively. Each Eligible Account Holder
and Supplemental Eligible Account Holder will have a pro rata interest in the
total liquidation account for each of his deposit accounts based on the
proportion that the balance of each such deposit account on the July 31, 1995
Eligibility Record Date or the December 31, 1996 Supplemental Eligibility Record
Date bore to the balance of qualifying deposits of all Eligible Account Holders
or Supplemental Eligible Account Holders on such dates. For deposit accounts in
existence at both the Eligibility Record Date and the Supplemental Eligibility
Record Date, separate initial subaccount balances will be determined for such
accounts on each of the Eligibility Record Date and the Supplemental Eligibility
Record Date.
If, however, on any July 31 or September 31, annual closing date of the
Bank, commencing after July 31, 1995 or December 31, 1996, the amount in any
deposit account is less than the amount in such deposit account on July 31, 1995
or December 31, 1996, or any other annual closing date, then the interest in the
liquidation account relating to such deposit account would be reduced from time
to time by the proportion of any such reduction, and such interest will cease to
exist if such deposit account is closed. In addition, no interest in the
liquidation account would ever be increased despite any subsequent increase in
the related deposit account. Any
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<PAGE>
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
The Bank has received an opinion of its counsel, Elias, Matz, Tiernan &
Herrick L.L.P., regarding the material effects of the Conversion for Federal
income tax purposes, which opinion states, 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 and 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 in exchange for their deposit accounts in the Bank; (iv)
the tax basis of the depositors' deposit 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; and (vi) the tax basis to the stockholders of the Common
Stock of the Company purchased in the Conversion will be the amount paid
therefor 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.
Geo. S. Olive & Co. LLC, has rendered an opinion to the effect that the
foregoing tax effects of the Conversion under Illinois law are substantially the
same as they are under Federal law. Certain portions of both the Federal and
the state tax opinions are based upon the opinion of RP Financial that
subscription rights issued in connection with the Conversion will have no value.
In the opinion of RP Financial, which opinion is not binding on the IRS,
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.
If the subscription rights granted to eligible subscribers are deemed to have an
ascertainable value, receipt of such rights would be taxable probably only to
those eligible subscribers who exercise the subscription rights (either as a
capital gain or ordinary income) in an amount equal to such value and the Bank
could recognize gain on such distribution. Eligible subscribers 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.
Unlike private rulings, an opinion of counsel is not binding on the IRS and
the IRS could disagree with conclusions reached therein. In the event of such
disagreement, there can be no assurance that the IRS would not prevail in a
judicial or administrative proceeding. A copy of each of the above-referenced
opinions is included as an exhibit to the Company's registration statement on
Form S-1 as filed with the SEC.
DELIVERY OF CERTIFICATES
Certificates representing Common Stock issued in the Conversion will be
mailed by the Company's transfer agent to the persons entitled thereto at the
addresses of such persons appearing on the stock order form as soon as
practicable following consummation of the Conversion. Any certificates returned
as undeliverable will be held by the Company until claimed by persons legally
entitled thereto or otherwise disposed of in accordance with applicable law.
Until certificates for Common Stock are available and delivered to subscribers,
subscribers may not be able to sell the shares of Common Stock for which they
have subscribed, even though trading of the Common Stock may have commenced.
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<PAGE>
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 officer of the Company and 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 officer or
pursuant to a merger or similar transaction approved by the Office. 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 within this one year period 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 Company and the Bank will also be subject to the insider trading rules
promulgated pursuant to the Exchange Act.
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 Company and the Bank after adoption of the Plan of Conversion)
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 Office. This restriction does not apply, however, to negotiated
transactions involving more than 1.0% of the Company's outstanding Common Stock
or to certain purchases of stock pursuant to an employee stock benefit plan.
The Company has no present plans with respect to any repurchase of shares
of Common Stock and will not undertake any repurchase of shares of Common Stock
within the one year period subsequent to the Conversion. Any repurchases of
Common Stock by the Company in the future will be subject to the receipt of any
necessary approvals from the Commissioner and/or the FRB and will be subject to
any applicable regulations and policies of the Commissioner and FRB.
MANAGEMENT OF THE COMPANY
The Board of Directors is divided into three classes, each of which
contains 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. Ewbank and Ingram has a term of office expiring at the first annual
meeting of stockholders, a second class, consisting of Messrs. Busby and Norton
has a term of office expiring at the second annual meeting of stockholders and a
third class, consisting of Mr. Meyer 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."
The following individuals are executive officers of the Company and hold
the offices set forth below opposite their names.
EXECUTIVE POSITION HELD WITH COMPANY
------------------------ -------------------------------------
Thomas B. Meyer Chairman of the Board
Merrill G. Norton President and Chief Executive Officer
William T. Ingram Secretary
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 by a majority vote of stockholders.
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<PAGE>
Since the formation of the Company, none of the executive officers,
directors or other personnel has received remuneration from the Company.
Information concerning the principal occupations, employment and compensation of
the directors and officers of the Company during the past five years is set
forth under "- Management of the Bank" and "- Executive Officers Who Are Not
Directors." Directors and executive officers of the Company initially will not
be compensated by the Company but will serve and be compensated by the Bank. It
is not anticipated that separate compensation will be paid to directors and
officers of the Company until such time as such persons devote significant time
to the separate management of the Company's affairs, which is not expected to
occur until the Company becomes actively engaged in additional businesses other
than holding the stock of the Bank. The Company may determine that such
compensation is appropriate in the future.
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<PAGE>
MANAGEMENT OF THE SAVINGS BANK
The following table sets forth certain information regarding the Board of
Directors of the Bank.
Positions Held
With Director
Name Age(1) the Bank Since
- -------------------------- -------- ----------------------------- --------
Thomas B. Meyer 51 Chairman of the Board 1972
Merrill G. Norton 50 Director, President and Chief
Executive Officer 1992
Carl W. Busby 67 Director 1993
Robert L. Ewbank 64 Director 1983
William T. Ingram 56 Director/Secretary 1990
______________________________
(1) As of December 31, 1995.
Set forth below is information with respect to the principal occupations
during at least the last five years for the directors of the Bank.
THOMAS B. MEYER Mr. Meyer is an attorney in private practice in Danville,
Illinois. He has served as Chairman of the Board since 1992.
MERRILL G. NORTON Mr. Norton has served as the Bank's president and chief
executive officer since 1992. He was the sole proprietor of Merrill G. Norton,
C.P.A. from 1973 to 1992.
CARL W. BUSBY Mr. Busby is an auctioneer, farm and real estate appraiser
and agriculture real estate salesman. He is the president and owner with his
wife of Busby Farms, Inc. and Busby Land and Auction Co., Inc.
DR. ROBERT L. EWBANK Dr. Ewbank has been a medical consultant since 1995
when he retired from his oral and maxillofacial surgery practice in Danville,
Illinois.
WILLIAM T. INGRAM Mr. Ingram operates a number of businesses in the
Danville, Illinois area, including Automobile Diagnostics, Quick Air Freight,
Ingram's Quicklube and Ingram's Apartments.
COMMITTEES AND MEETINGS OF THE BOARD OF THE BANK
The Bank's Board of Directors holds regular meetings on the third Wednesday
of each month, as well as special meetings as necessary. The Board of Directors
held 15 meetings (including three special meetings) held in the fiscal year
ended September 30, 1996. The Board has established various committees to which
it has delegated certain responsibilities, including a nominating committee,
investment committee, audit committee, promotion and advertising committee and
interest rate risk/asset liability committee. No director attended fewer than
75% of the total number of Board meetings and meetings of Board committees on
which he served during the fiscal year ended September 30, 1996.
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<PAGE>
DIRECTORS' COMPENSATION
Members of the Bank's Board of Directors receive $400 per month plus $300
per special meeting attended. Board fees are subject to adjustment by the Board
of Directors annually. Each of the Bank's directors also serves on GBW's board
of directors and receives a monthly fee of $50 for such service. In addition to
fees paid to directors for Board meetings, the Bank's directors are expected to
participate in the Stock Option Plan and Recognition Plan. See "- Benefits -
Stock Option Plan" and "- Recognition and Retention Plan."
SUMMARY COMPENSATION TABLE
The following table sets forth a summary of certain information concerning
the compensation paid by the Bank for services rendered in all capacities during
the year ended September 30, 1996 to the President and Chief Executive Officer
of the Bank. No other executive officers of the Bank had total annual
compensation in excess of $100,000 during fiscal 1996.
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
---------------------------------------- ------------------------------------
Awards Payouts
------------------------ -------
Other Securities
Name and Annual Restricted Underlying LTIP All Other
Principal Position Year Salary Bonus Compensation(1) Stock Options Payouts Compensation
- ------------------ ---- ------ ----- --------------- ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Merrill G. Norton
President and Chief
Executive Officer 1996 $74,613 $ -0- -- -- -- -- $6,700(2)
</TABLE>
_______________
(1) Does not include amounts attributable to miscellaneous benefits
received by the named executive officer. In the opinion of
management of the Bank, the costs to the Bank of providing such
benefits to the named executive officer during the year ended
September 30, 1996 did not exceed the lesser of $50,000 or 10% of
the total of annual salary and bonus reported for the individual.
(2) Consists of $6,700 allocated by the Bank on behalf of Mr. Norton
pursuant to the Bank's 401(k) plan.
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<PAGE>
EMPLOYMENT AGREEMENTS
The Bank intends to enter into an employment agreement with Mr. Norton upon
consummation of the Conversion. The Bank intends to agree to employ Mr. Norton
for a term of three years in his current position at an initial base salary of
$76,000. The agreement is terminable with or without cause by the Bank. The
officer shall have no right to compensation or other benefits pursuant to the
employment agreement for any period after voluntary termination or termination
by the Bank for cause, provided, however, that (i) in the event that the Bank
fails to comply with any material provision of the employment agreement he shall
be entitled to severance payments equal to his annual salary multiplied by three
or (ii) if certain adverse actions are taken with respect to the officer's
employment following a Change in Control of the Company, as defined, Mr. Norton
will be entitled to cash severance payments equal to his average annual
compensation at the date of termination multiplied by three. A Change in
Control of the Company is generally defined in the employment agreement to mean
a change in control of a nature that would be required to be reported in
response to Item 6(c) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended. Mr. Norton's employment agreement
provides that in the event that any payments to be paid thereunder are deemed to
constitute "excess parachute payments" and, therefore, subject to an excise
tax under Section 4999 of the Code, the amount of severance shall be reduced to
an amount that will not result in any excess parachute payments. Mr. Norton's
agreement also provides that in the event of Mr. Norton's disability, retirement
or death during the term of the agreement, Mr. Norton or his estate will receive
payments equal to the amount of compensation for 12 months at his then current
base salary.
Based upon compensation levels at September 30, 1996, in the event of a
termination of employment following a Change in Control, Mr. Norton would
receive $149,200 in cash severance.
Although the above-described employment agreement could increase the cost
of any acquisition of control of the Company, management of the Company does not
believe that the terms thereof would have a significant anti-takeover effect.
BENEFITS
401(K) PROFIT SHARING PLAN. The Bank maintains a 401(k) profit sharing
plan (the "401(k) Plan"). The 401(k) Plan is designed to promote the future
economic welfare of the employees of the Bank and to encourage employee savings.
Employee deferrals of salary and employer contributions made under the 401(k)
Plan, together with the income thereon, are accumulated in individual accounts
maintained in trust on behalf of the employee participants, and is made
available to the employee participants upon retirement and under certain other
circumstances as provided in the 401(k) Plan. Since employee deferrals of
salary and employer contributions made under the 401(k) Plan are made on a tax
deferred basis, employee participants are able to enjoy significant income tax
savings by participating in the 401(k) Plan. Employees are also permitted to
direct the investment of their accounts among five mutual funds.
An employee of the Bank becomes eligible to participate in the 401(k) Plan
after he or she completes a year of service (provided he or she is at least age
21). A year of service is a 12 consecutive month period in which the employee
works at least 1,000 hours for the Bank. An employee will become a participant
in the 401(k) Plan on the first day of the month coinciding with or next
following the date he or she satisfies the eligibility requirements.
Participants may elect to defer amounts of up to 15% of their annual
compensation to the 401(k) Plan, subject to certain limits imposed by law. Each
year the Bank may make a discretionary matching contribution equal to a
percentage of compensation deferred and may make additional discretionary
contributions. [UPON CONSUMMATION OF THE CONVERSION, THE BANK EXPECTS TO
TERMINATE THE MATCHING PROVISION OF THE 401(K) PLAN.] The Bank may also make
discretionary profit sharing contributions, allocated to eligible employees on
the basis of relative compensation.
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<PAGE>
[THE 401(K) PLAN WAS AMENDED ON ______________, 1996 TO PERMIT PARTICIPANTS
IN THE PLAN TO DIRECT THE ADMINISTRATOR TO INVEST THEIR VESTED ACCOUNT BALANCES
INTO AN EMPLOYEE STOCK FUND WHICH WILL BE INVESTED IN SHARES OF COMMON STOCK OF
THE COMPANY. HOWEVER, NO 401(K) PLAN PARTICIPANT MAY PURCHASE MORE THAN $50,000
IN AGGREGATE VALUE OF THE COMMON STOCK IN THE CONVERSION (SUBJECT TO THE OVERALL
PURCHASE LIMITATIONS) THROUGH THE 401(K) PLAN'S SUBSCRIPTION RIGHTS.] A
participant's ability to direct all or some of his vested account to purchase
Common Stock in the Subscription Offering will be dependent upon such individual
being an Eligible Account Holder, Supplemental Eligible Account Holder or Other
Member. During 1996, the Bank contributed $19,000 to the 401(k) Plan, $6,700 of
which was for the benefit of Mr. Norton.
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST. The Company has established the
ESOP for employees of the Company and the Bank to become effective upon the
consummation of the Conversion. Full-time employees of the Company and the Bank
who have been credited with at least 1,000 hours of service during a 12-month
period and who have attained age 21 are eligible to participate in the ESOP.
As part of the Conversion, in order to fund the purchase of up to 8.0% of
the Common Stock to be issued in the Conversion, or 27,600 shares assuming
shares are sold at the maximum of the Estimated Price Range, it is anticipated
that the ESOP will borrow funds from the Company. It is anticipated that such
loan will equal 100% of the aggregate purchase price of the Common Stock
acquired by the ESOP. The loan to the ESOP will be repaid principally from the
Company's contributions to the ESOP over a period of ten years, and the
collateral for the loan will be the Common Stock purchased by the ESOP. The
interest rate for the ESOP loan is expected to be ___%. The Company may, in any
plan year, make additional discretionary contributions for the benefit of plan
participants in either cash or shares of Common Stock, which may be acquired
through the purchase of outstanding shares in the market or from individual
stockholders, upon the original issuance of additional shares by the Company or
upon the sale of treasury shares by the Company. Such purchases, if made, would
be funded through additional borrowing by the ESOP or additional contributions
from the Company. The timing, amount and manner of future contributions to the
ESOP will be affected by various factors, including prevailing regulatory
policies, the requirements of applicable laws and regulations and market
conditions.
Shares purchased by the ESOP with the proceeds of the loan will be held in
a suspense account and released on a pro rata basis as debt service payments are
made. Discretionary contributions to the ESOP and shares released from the
suspense account will be allocated among participants on the basis of
compensation. Forfeitures will be reallocated among remaining participating
employees and may reduce any amount the Company might otherwise have contributed
to the ESOP. Participants will vest in their right to receive their account
balances within the ESOP at the rate of 25% per year. In the case of a "change
in control," as defined, however, participants will become immediately fully
vested in their account balances. Benefits may be payable upon retirement, early
retirement, disability or separation from service. The Company's contributions
to the ESOP are not fixed, so benefits payable under the ESOP cannot be
estimated.
Messrs. Meyer, Ingram and Norton will serve as trustees of the ESOP. Under
the ESOP, the trustees must vote all allocated shares held in the ESOP in
accordance with the instructions of the participating employees, and allocated
shares for which employees do not give instructions, and unallocated shares,
will be voted in the same ratio on any matter as to those shares for which
instructions are given.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Recent Accounting Pronouncements" for a discussion of
SOP 93-6, which changes the measure of compensation expense recorded by
employers for leveraged ESOPs from the cost of ESOP shares to the fair value of
ESOP shares.
GAAP requires that any third party borrowing by the ESOP be reflected as a
liability on the Company's statement of financial condition. Since the ESOP is
borrowing from the Company, such obligation is not treated as a liability, but
will be excluded from stockholders' equity. If the ESOP purchases newly-issued
shares from
34
<PAGE>
the Company, total stockholders' equity would neither increase nor decrease,
but per share stockholders' equity and per share net earnings would
decrease because of the increase in the number of outstanding shares as those
shares become committed to be released.
The ESOP will be subject to the requirements of Employee Retirement Income
Security Act of 1974, as amended, and the regulations of the IRS and Department
of Labor thereunder.
STOCK OPTION PLAN. Following the Conversion, the Board of Directors of the
Company intends to submit the Stock Option Plan for approval to stockholders at
a special meeting of stockholders, which is expected to be held not earlier than
six months following consummation of the Conversion. No options shall be
awarded under the Stock Option Plan unless stockholder approval is obtained.
The Stock Option Plan will be designed to attract and retain qualified
personnel in key positions, provide officers and key employees with a
proprietary interest in the Company as an incentive to contribute to the success
of the Company and reward key employees for outstanding performance and the
attainment of targeted goals. The Stock Option Plan will also be designed to
retain qualified directors for the Company. The Stock Option Plan will provide
for the grant of incentive stock options intended to comply with the
requirements of Section 422 of the Code ("incentive stock options"),
non-incentive or compensatory stock options and stock appreciation rights
(collectively "Awards"). Awards will be available for grant to directors and
key employees of the Company and any subsidiaries, except that directors will
not be eligible to receive incentive stock options. If stockholder approval is
obtained, it is expected that options to acquire shares of Common Stock will be
awarded to key employees of the Company and the Bank and directors of the
Company in accordance with applicable regulations. Regulations which apply to
the Stock Option Plan and the Recognition Plan 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 Stock Option Plan will be administered and interpreted by a committee
of the Board of Directors ("Committee") which will be "disinterested"
pursuant to applicable regulations under the Federal securities laws. Unless
sooner terminated, the Stock Option 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.
Under the Stock Option Plan, the Committee will determine which officers
and key employees will be granted options, whether such options will be
incentive or compensatory options, the number of shares subject to each option,
whether such options may be exercised by delivering other shares of Common Stock
and when such options become exercisable. The per share exercise price of an
incentive and compensatory stock option shall be required to be at least equal
to the fair market value of a share of Common Stock on the date the option is
granted.
Stock options shall become vested and exercisable in the manner specified
by the Committee, which shall not be faster than 20% per year, beginning one
year from the date of grant. Each stock option or portion thereof shall be
exercisable at any time on or after it vests and is exercisable until ten years
after its date of grant or three months after the date on which the optionee's
employment terminates, unless extended by the Committee to a period not to
exceed one year from such termination. However, failure to exercise incentive
stock options within three months after the date on which the optionee's
employment terminates may result in adverse tax consequences to the optionee.
Stock options are non-transferable except by will or the laws of descent and
distribution.
Under the Stock Option Plan, the Committee will be authorized to grant
rights to optionees ("stock appreciation rights") under which an optionee may
surrender any exercisable incentive stock option or compensatory stock option or
part thereof in return for payment by the Company to the optionee of cash or
Common Stock in an amount equal to the excess of the fair market value of the
shares of Common Stock subject
35
<PAGE>
to option at the time over the option price of such shares, or a combination of
cash and Common Stock. Stock appreciation rights may be granted concurrently
with the stock options to which they relate or at any time thereafter which is
prior to the exercise or expiration of such options.
The number of options to be granted to non-employee directors will be
specifically set forth in the Stock Option Plan and will be granted upon
approval of the Stock Option Plan by stockholders. Such stock options to
directors will become vested and exercisable under the same terms as options
granted by the Committee to officers and employees. If an optionee dies or
terminates service due to disability, while serving as an employee or
non-employee director, all unvested options are accelerated. Under such
circumstances, the optionee or, as the case may be, the optionee's executors,
administrators, legatees or distributees, shall have the right to exercise all
unexercised options during the 12-month period following termination due to
disability or death, provided no option will be exercisable within six months
after the date of grant or more than ten years from the date it was granted.
The Company intends to reserve for future issuance pursuant to the Stock
Option Plan a number of authorized shares of Common Stock equal to 10% of the
Common Stock issued in the Conversion, or 34,500 shares, based on the issuance
of 345,000 shares at the maximum of the Estimated Price Range. In the event of
a stock split, reverse stock split or stock dividend, the number of shares of
Common Stock under the Stock Option Plan, the number of shares to which any
Award relates and the exercise price per share under any option or stock
appreciation right shall be adjusted to reflect such increase or decrease in the
total number of shares of the Common Stock outstanding.
Under current provisions of the Code, the Federal income tax treatment of
incentive stock options and compensatory stock options is different. As regards
incentive stock options, an optionee who meets certain holding period
requirements will not recognize income at the time the option is granted or at
the time the option is exercised, and a Federal income tax deduction generally
will not be available to the Company at any time as a result of such grant or
exercise. With respect to compensatory stock options, the difference between
the fair market value of the shares subject to the option on the date of
exercise and the option exercise price generally will be treated as compensation
income upon exercise, and the Company will be entitled to a deduction in the
amount of income so recognized by the optionee. Upon the exercise of a stock
appreciation right, the holder will realize income for Federal income tax
purposes equal to the amount received by him, whether in cash, shares of stock
or both, and the Company will be entitled to a deduction for Federal income tax
purposes in the same amount.
Although no specific award determinations have been made, assuming the
requisite receipt of stockholder approval, the Company intends to follow Federal
criteria with respect to awards of stock options under the Stock Option Plan.
Under such criteria, awards to individual non-employee directors may not exceed
5.0% of the options available under the plan and awards to all non-employee
directors may not exceed 30% of the plan in the aggregate. Awards to any
individual employee may not exceed 25% of the shares available under the plan.
RECOGNITION AND RETENTION PLAN. Following the Conversion, the Board of
Directors of the Company intends to submit the Recognition Plan to stockholders
for approval at a special meeting of stockholders, which is expected to be held
not earlier than six months following completion of the Conversion. The
objective of the Recognition Plan will be to enable the Company to provide
directors, officers and employees with a proprietary interest in the Company as
an incentive to contribute to its success. The Recognition Plan will set forth
specific awards to be made to non-employee directors.
Assuming the receipt of stockholder approval, the Company expects to
acquire Common Stock on behalf of the Recognition Plan, in an amount equal to 4%
of the Common Stock issued in the Conversion, or 13,800 shares at the maximum of
the Estimated Price Range. These shares will be acquired through open market
purchases or from authorized but unissued shares. Although no specific award
determinations have been made,
36
<PAGE>
the Company intends to follow Federal criteria for making awards under the
Recognition Plan. Under such criteria, the individual and aggregate award
limitations under the Recognition Plan will be the same as under the Stock
Option Plan. See "- Stock Option Plan."
The Board of Directors of the Company will administer the Recognition Plan
as it pertains to directors and a Board Committee will administer the
Recognition Plan with respect to all other persons. The Committee will have the
responsibility to invest all funds contributed by the Company to the Recognition
Plan. Shares of Common Stock granted pursuant to the Recognition Plan generally
will be in the form of restricted stock payable over a period specified by the
administrators, which shall not be faster than 20% per year, beginning one year
from the date of the award. For accounting purposes, compensation expense in
the amount of the fair market value of the Common Stock at the date of the grant
to the recipient will be recognized pro rata over the number of years during
which the shares are payable. While restricted, shares may not be sold, pledged
or otherwise disposed of and are required to be held in the Trust. But, while
restricted, a recipient will be entitled to voting and other stockholder rights.
If a recipient terminates employment for reasons other than death, disability or
retirement, the recipient will forfeit all rights to the allocated shares under
restriction. If the recipient's termination is caused by death or disability,
all restrictions will expire and all allocated shares will become unrestricted.
The Board of Directors of the Company will be authorized to terminate the
Recognition Plan at any time, and if it does so, any shares not allocated will
revert to the Company.
TRANSACTIONS WITH CERTAIN RELATED PERSONS
The Bank's policy provides that all loans made by the Bank to its directors
and officers are made in the ordinary course of business, are made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons and do not
involve more than the normal risk of collectibility or present other unfavorable
features. As of September 30, 1996, none of the Bank's directors or executive
officers had aggregate loan balances in excess of $60,000. All loans made to
the Bank's directors and executive officers are made in the ordinary course of
business, without favorable terms and do not involve more than the normal risk
of collectibility.
SUBSCRIPTIONS BY DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the number of shares of Common Stock of the
Company proposed to be purchased by the Company's directors and by all directors
and executive officers as a group (including purchases by any associates of or
groups acting in concert with such persons), assuming shares of Common Stock are
issued at the maximum of the Estimated Price Range and that sufficient shares
will be available to satisfy their subscriptions.
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At the Maximum
of the Estimated Price Range(1)
--------------------------------------
As a Percent
Number of Shares
Name Amount of Shares Offered
------------- ---------- ------------ -------------
Thomas B. Meyer $ 50,000 5,000 1.4%
Merrill G. Norton 150,000 15,000 4.3
Carl W. Busby 150,000 15,000 4.3
Robert L. Ewbank 150,000 15,000 4.3
William T. Ingram 150,000 15,000 4.3
All directors and executive
officers as a group
(5 persons) $650,000(2) 65,000 18.8%
__________________
(1) Includes proposed subscriptions, if any, by associates. The ESOP
intends to acquire up to 8.0% of the Common Stock in the
Conversion, or 27,600 shares at the maximum of the Estimated
Price Range, which shares are not reflected in the amounts to be
purchased by the Company's directors and officers in the table
above. In addition, this does not include awards pursuant to the
Stock Option Plan or the Recognition Plan, which will be
submitted for approval to stockholders at a meeting of
stockholders expected to be held not earlier than six months
following the completion of the Conversion. See "- Benefits -
Employee Stock Ownership Plan and Trust."
(2) Includes purchases to be made by executive officers through the
401(k) Plan.
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 $2.3
million and $3.2 million ($3.7 million in the event of an increase in the
Estimated Price Range by 15%). See "Pro Forma Data" and "The Conversion -
Stock Pricing and Number of Shares to be Issued" as to the assumptions used
to arrive at such amounts. None of the assets of the Company or the Bank
will be distributed in order to effect the Conversion other than to pay
expenses incident thereto.
The Company will purchase all of the capital stock of the Bank to be
issued upon Conversion in exchange for 75% of the net proceeds. Based upon
the Estimated Price Range, between $1.7 million and $2.4 million ($2.8
million in the event of an increase in the Estimated Price Range by 15%) will
be received by the Bank from the net proceeds of the Conversion in exchange
for capital stock of the Bank. The Company intends to use a portion of the
net proceeds it retains to make a loan directly to the ESOP to enable the
ESOP to purchase up to 8.0% of the Common Stock in the Conversion. Based
upon the issuance of 255,000 shares and 345,000 shares at the minimum and
maximum of the Estimated Price Range, respectively, the loan to the ESOP
would be $204,000 and $276,000,
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respectively, and $317,400 in the event of an increase in the Estimated Price
Range by 15%. See "Management - Benefits - Employee Stock Ownership Plan and
Trust." The balance of the net proceeds retained by the Company will be
initially invested primarily in short-term deposits and investment grade,
short-term marketable securities. Giving effect to the anticipated purchase of
capital stock of the Bank and the loan to the ESOP, the balance of the net
proceeds retained by the Company would be between $367,500 and $517,000
($602,850 in the event of an increase in the Estimated Price Range by 15%). Net
proceeds retained by the Company may facilitate the Company's ability to pay
dividends in the future. See "Dividend Policy."
Funds received by the Bank from the Company's purchase of its capital stock
will be used for general business purposes, including the funding of loans.
Neither the Company nor the Bank has any pending agreements or understandings,
written or oral, regarding acquisitions of any specific financial services
institutions or companies nor have criteria been established to identify
potential candidates for acquisition.
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. Declarations of dividends by the Board of Directors,
if any, will depend upon a number of factors, including 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. Subject to
regulatory and other considerations, the Company intends to establish an annual
cash dividend policy. Although the Board of Directors of the Company has not
made any decision as to the amount of cash dividends it will pay, it anticipates
that the first dividend will be paid during the first quarter of fiscal 1998.
However, no assurances can be given that any dividends will be paid or, once
commenced, will continue to be paid at the same rate.
The Company is subject to the requirements of Delaware law, which generally
permits the payment of dividends out of surplus, except when (1) the corporation
is insolvent or would thereby be made insolvent, or (2) the declaration or
payment thereof would be contrary to any restrictions contained in the articles
of incorporation. Upon consummation of the Conversion, the Company's surplus is
expected to be between $367,500 and $517,000, depending on the number of shares
issued in the Offerings. See "Capitalization." If there is no surplus
available for dividends, a Delaware corporation may pay dividends out of its net
profits for the then current or the preceding fiscal year or both, except that
no dividend may be paid if the corporation's assets are exceeded by its
liabilities or if its net assets are less than the amount which would be needed,
under certain circumstances, to satisfy any preferential rights of stockholders.
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Dividends from the Company may depend in part upon receipt of dividends
from the Bank because the Company initially will have no source of income other
than dividends from the Bank, earnings from the investment of proceeds from the
sale of Common Stock retained by the Company and interest payments with respect
to the Company's loan to the ESOP. The Bank will not be permitted to pay
dividends to the Company if its capital would be reduced below the amount
required for the liquidation account of the Bank. See "The Conversion -
Liquidation Rights." Under Illinois law, a savings bank is required to maintain
at all times total capital of not less than 3% of total assets. Prior approval
of the Commissioner is required before any dividends on capital stock that
exceed 50% of a savings bank's net profits that year may be declared in that
calendar year. Moreover, as a condition to the Commissioner's approval, the
Company is subject to a net worth maintenance agreement which requires it to
infuse equity capital into the Bank as needed to maintain the core capital of
the Bank at a level of no less than 6% of total assets. See "Regulations -
The Bank - Capital Requirements." Section 38 of the Federal Deposit Insurance
Act ("FDIA") also would prohibit the Bank from making a dividend if it were
"undercapitalized" or if such dividend would result in the institution
becoming "undercapitalized."
MARKET FOR THE COMMON STOCK
The Company and the Bank have never issued capital stock, and,
consequently, there is no established market for the Common Stock at this time.
The Company intends to apply to have the Common Stock listed on the National
Daily Quotation Service "pink sheets" published by the National Quotations
Bureau, Inc. The development of a liquid public market depends on the existence
of willing buyers and sellers, the presence of which is not within the control
of the Company or the Bank. The number of active buyers and sellers of the
Common Stock at any particular time may be limited, especially in view of the
limited size of the Offerings and the anticipated concentrated ownership of the
Common Stock. Under such circumstances, investors in the Common Stock could
have difficulty disposing of their shares and should not view the Common Stock
as a short-term investment. Investors should consider that it is unlikely that
an active and liquid trading market for the Common Stock will develop or that,
if developed, it will continue, and there can be no assurance that persons
purchasing shares of Common Stock will be able to sell them at or above the
Purchase Price.
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
GENERAL
The Company is authorized to issue 1,600,000 shares of Common Stock having
a par value of $0.01 per share and 400,000 shares of preferred stock having a
par value of $0.01 per share (the "Preferred Stock"). The Company currently
expects to issue up to a maximum of 345,000 shares of Common Stock and no shares
of Preferred Stock in the
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Conversion. 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 of Conversion, all such stock will
be duly authorized, fully paid and nonassessable. Presented below is a
description of all aspects of the Company's capital stock which are deemed
material to an investment decision with respect to the Conversion.
THE COMMON STOCK OF THE COMPANY WILL REPRESENT NONWITHDRAWABLE CAPITAL,
WILL NOT BE AN ACCOUNT OF AN INSURABLE TYPE, AND WILL NOT BE INSURED BY THE
FDIC.
COMMON STOCK
DISTRIBUTIONS. The Company can pay dividends if, as and when declared by
its Board of Directors, subject to compliance with limitations which are
imposed by law. See "Dividend Policy." 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. During at least the one-year period subsequent to the Conversion,
the Company will take no action to implement any distribution of a return of
excess capital to stockholders.
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.
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. Cumulative
voting means that holders of stock of a corporation are entitled, in the
election of directors, to cast a number of votes equal to the number of shares
which they own multiplied by the number of directors to be elected Because a
stockholder entitled to cumulative voting may cast all of his votes for one
nominee or disperse his votes among nominees as he chooses, cumulative voting is
generally considered to increase the ability of minority stockholders to elect
nominees to a corporation's board of directors. Under certain circumstances,
shares in excess of 10.0% of the issued and outstanding shares of Common Stock
may be considered "Excess Shares" and, accordingly, not be entitled to vote.
See "Restrictions on Acquisitions of the Company and the Bank." If the
Company issues Preferred Stock, holders of the Preferred Stock may also possess
voting rights.
As an Illinois-chartered 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 will 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
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Board of Directors. Consequently, the holders of the Common Stock will not have
direct control of the Bank.
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. The Company
has no present plans to issue Preferred Stock.
DESCRIPTION OF CAPITAL STOCK OF THE BANK
GENERAL
The Amended and Restated Articles of Incorporation of the Bank, to be
effective upon the Conversion, authorizes the issuance of capital stock
consisting of 1,000,000 shares of common stock, par value $1.00 per share. 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 Amended and Restated
Articles of Incorporation without the approval of the Bank's stockholders. Upon
Conversion, all of the issued and outstanding common stock of the Bank will be
held by the
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Company as the Bank's sole stockholder. The capital stock of the Bank will
represent nonwithdrawable capital, will not be an account of an insurable type,
and will not be insured by the FDIC. Presented below is a description of all
aspects of the Bank's capital stock which are deemed material to an investment
decision with respect to the Conversion.
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 therefore. See "Dividend Policy" for
certain restrictions on the payment of dividends.
VOTING RIGHTS
Immediately after the Conversion, the holders of the Bank's common stock,
which consist solely of the Company, 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 and there shall be no right to cumulate votes.
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
nonassessable.
RESTRICTIONS ON ACQUISITION OF THE COMPANY
GENERAL
The Bank's Plan of Conversion provides for the Conversion of the Bank from
the mutual to the stock form of organization and for the concurrent formation of
a holding company. As described below, certain provisions in the Company's
Certificate of Incorporation and
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Bylaws, together with provisions of Delaware law, may have anti-takeover
effects. 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
GENERAL. 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
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 stockholders may
receive a substantial premium for their shares over then current market prices.
As a result, stockholders who might desire to participate in such a transaction
may not have an opportunity to do so. Such provisions will also render the
removal of the 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 ACQUISITION OF VOTING STOCK AND VOTING RIGHTS. Article X of
the Company's Certificate of Incorporation provides that for a period of five
years from the date of Conversion of the Bank from the mutual to the stock
form, no person shall directly or indirectly offer to acquire or acquire the
beneficial ownership of (i) more than 10% of the issued and outstanding shares
of any class of an equity security of the Company, or (ii) any securities
convertible into, or exercisable for, any equity securities of the Company if,
assuming conversion or exercise by such person of all securities of which such
person is the beneficial owner which are convertible into, or exercisable for,
such equity securities (but of no securities convertible into, or exercisable
for, such equity securities of which such person is not the beneficial owner),
such person would be the beneficial owner of more than 10% of any class of an
equity security of the Company. The term "person" is broadly defined to
prevent circumvention of this restriction.
The foregoing restrictions do not apply to (i) any offer with a view toward
public resale made exclusively to the Company by underwriters or a selling group
acting on its behalf, (ii) any tax-qualified employee benefit plan or
arrangement established by the Company or the Bank and any trustee of such a
plan or arrangement, and (iii) any other offer or acquisition approved in
advance by the affirmative vote of two-thirds of the Company's entire Board of
Directors. In the event that shares are acquired in violation of Article X, 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 stockholders for a vote, and the Board of Directors may
cause such Excess Shares to be transferred to an
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independent trustee for sale on the open market or otherwise, with the expenses
of such trustee to be paid out of the proceeds of the sale.
BOARD OF DIRECTORS. Article VII of the Certificate of Incorporation of the
Company contains provisions relating to the Board of Directors and provides,
among other things, that the Board of Directors shall be divided into three
classes as nearly equal in number as possible with the term of office of one
class expiring each year. See "Management of the Company." 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. Cumulative voting in the
election of directors is prohibited by the Certificate of Incorporation.
Elimination of cumulative voting will help to ensure continuity and stability of
the Company's Board of Directors and the policies adopted by it by making it
more difficult for the holders of a relatively small amount of the common stock
to elect their nominees to the Board of Directors and possibly by delaying,
deterring, or discouraging proxy contests.
Directors may be removed only with cause at a duly constituted meeting of
stockholders called expressly for that purpose upon the vote of the holders of
not less than a majority of the total votes eligible to be cast by stockholders.
Any vacancy occurring in the Board of Directors for any reason (including an
increase in the number of authorized directors) may be filled by the affirmative
vote of a majority of the Directors then in office, though less than a quorum of
the Board, or by the sole remaining director, and a director appointed to fill a
vacancy shall serve for the remainder of the term to which the director has been
elected, and until his successor has been elected and qualified.
Section 4.15 of the Bylaws governs nominations for election to the Board,
and provides that nominations for election to the Board of Directors may be
made by the Board of Directors or a committee thereof or by a stockholder
eligible to vote at an annual meeting of stockholders who has complied with the
notice provisions in that section. Written notice of a stockholder nomination
must be delivered to, or mailed to and received at, the principal executive
offices of the Company not less than ninety days prior to the anniversary date
of the mailing of proxy materials by the Company in connection with the
immediately preceding annual meeting, provided, however, that, with respect to
the first scheduled annual meeting following completion of the Conversion, which
is expected to be held on the third Wednesday of January 1998, nominations by
the stockholder must be so delivered or received no later than the close of
business on the third Wednesday of October 1997, notwithstanding a determination
by the Company to schedule such annual meeting at a date later than the third
Wednesday of January 1998. With respect to an election to be held at a special
meeting of stockholders for the election of directors, the notice must be
delivered or received no later than the close of business on the tenth day
following the date on which notice of such meeting is first given to
stockholders. Each such notice shall set forth: (a) the name and address of
the stockholder who intends to make the nomination and of the person or persons
to be nominated; (b) a representation that the stockholder is a holder of record
of stock of the Company entitled to vote at such meeting and intends to appear
in
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person or by proxy at the meeting to nominate the person or persons specified
in the notice; (c) a description of all arrangements or understandings between
the stockholder and each nominee and any arrangements or understandings between
the stockholder and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination or nominations are to be
made by such stockholders; (d) such other information regarding each nominee
proposed by such stockholder as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the SEC; and (e) the consent of
each nominee to serve as a director of the Company if so elected.
The provisions regarding director elections and other provisions in the
Certificate of Incorporation and Bylaws discussed herein are generally designed
to protect the ability of the Board of Directors to negotiate with the proponent
of an unfriendly or unsolicited proposal to take over or restructure the Company
by making it more difficult and time-consuming to change majority control of the
Board, whether by proxy contest or otherwise. The general effect of these
provisions will be to require generally two annual stockholders meetings,
instead of one, to effect a change in control of the Board of Directors of the
Company even if holders of a majority of the Company's capital stock believe
that a change in the composition of the Board of Directors is desirable.
Because a majority of the directors at any given time will have prior experience
as directors, these requirements will help to ensure continuity and stability of
the Company's management and policies and facilitate long-range planning for the
Company's business. The provisions relating to removal of directors and filling
of vacancies are consistent with and supportive of a classified board of
directors.
The procedures regarding stockholder nominations will provide the Board of
Directors with sufficient time and information to evaluate a stockholder nominee
to the Board and other relevant information, such as existing stockholder
support for the nominee. The proposed procedures, however, will provide
incumbent directors advance notice of a dissident slate of nominees for
directors, and will make it easier for the Board to solicit proxies resisting
such nominees. This may make it easier for the incumbent directors to retain
their status as directors, even when certain stockholders view the dissident
nominations as in the best interests of the Company or its stockholders.
LIMITATION OF LIABILITY. Article IX of the Company's Certificate of
Incorporation provides that the personal liability of the directors and officers
of the Company for monetary damages shall be eliminated to the fullest extent
permitted by the General Corporation Law of the State of Delaware as it exists
on the effective date of the Certificate of Incorporation or as such law may be
thereafter in effect. Section 102(b)(7) of the Delaware General Corporation Law
currently provides that directors (but not officers) of corporations that have
adopted such a provision will not be so liable, except (i) for any breach of the
director's duty of loyalty to the corporation or its shareholders, (ii) for acts
or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (iii) for the payment of certain unlawful dividends
and the making of certain stock purchases or redemptions, or (iv) for any
transaction from which the director derived an improper personal benefit. This
provision would absolve directors of personal liability for negligence
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in the performance of their duties, including gross negligence. It would not
permit a director to be exculpated, however, for liability for actions involving
conflicts of interest or breaches of the traditional "duty of loyalty" to the
Company and its shareholders, and it would not affect the availability of
injunctive or other equitable relief as a remedy.
If Delaware law was amended in the future to provide for greater
limitations on the personal liability of directors or to permit corporations to
limit the personal liability of officers, the provision in the Company's
Certificate of Incorporation limiting the personal liability of directors and
officers would automatically incorporate such authorities without further
action by shareholders. Similarly, if Delaware law was amended in the future to
restrict the ability of a corporation to limit the personal lability of
directors, the Company's Certificate of Incorporation would automatically
incorporate such restrictions without further action by shareholders.
Currently, the scope of the provision in the Company's Certificate of
Incorporation limiting the personal liability of directors is uncertain because
of the absence of judicial precedent interpreting similar provisions. In
addition, the SEC takes the position that similar provisions added to other
corporations' certificates of incorporation would not protect those
corporations' directors from liability for violations of the federal securities
laws. Federal banking regulators also may take the same position with respect
to violations of federal banking laws and regulations.
The provision limiting the personal liability of the Company's directors
does not eliminate or alter the duty of the Company's directors; it merely
limits personal lability for monetary damages to the maximum extent now or
hereafter permitted by the Delaware General Corporation Law. Moreover, it
currently applies only to claims against a director arising out of his role as
a director; it currently does not apply to claims arising out of his role as an
officer (if he is also an officer) or arising out of any other capacity in
which he serves because Section 102(b)(7) does not authorize such a limitation
of liability.
The provision in the Company's Certificate of Incorporation which limits
the personal liability of directors is designed to ensure that the ability of
the Company's directors to exercise their best business judgment in managing the
Company's affairs is not unreasonably impeded by exposure to the potentially
high personal costs or other uncertainties of litigation. The nature of the
tasks and responsibilities undertaken by directors of publicly-held corporations
often require such persons to make difficult judgments of great importance which
can expose such persons to personal liability, but from which they will acquire
no personal benefit. In recent years, litigation against publicly-held
corporations and their directors and officers challenging good faith business
judgments and involving no allegations of personal wrongdoing has become common.
Such litigation regularly involves damage claims in huge amounts which bear no
relationship to the amount of compensation received by the directors or
officers, particularly in the case of directors who are not employees of the
corporation. The expense of such litigation, whether it is well-founded or not,
can be enormous. The provisions of the Certificate of Incorporation relating to
director
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liability is intended to reduce, in appropriate cases, the risk
incident to serving as a director and to enable the Company to elect and retain
persons most qualified to serve as directors.
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS. Article VI
of the Company's Bylaws provide that the Company shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that such person is or was a director,
officer, employee or agent of the Company or any predecessor of the Company, or
is or was serving at the request of the Company or any predecessor of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding to the fullest extent authorized by Section 145 of the
General Corporation Law of the State of Delaware, provided that the Company
shall not be liable for any amounts which may be due in connection with a
settlement of any action, suit or proceeding effected without its prior written
consent or any action, suit or proceeding initiated by any person seeking
indemnification thereunder without its prior written consent.
Under Section 145 of the Delaware General Corporation Law as currently in
effect, other than in actions brought by or in the right of the Company, such
indemnification would apply if it was determined in the specific case that the
proposed indemnitee acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the Company and, with
respect to any criminal proceeding, if he or she had no reasonable cause to
believe that his or her conduct was unlawful. In actions brought by or in the
right of the Company, such indemnification would probably be limited to
reasonable expenses (including attorneys' fees), and would apply if it were
determined in the specific case that the proposed indemnitee acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the Company, except that no indemnification may be made with
respect to any claim, issue or matter as to which such person is adjudged liable
to the Company unless, and only to the extent that, the Delaware Court of
Chancery or the court in which that action was brought determines upon
application that, in view of all the circumstances of the case, the proposed
indemnitee is fairly and reasonably entitled to indemnity for such expenses as
the court deems proper. To the extent that any director, officer, employee or
agent of the Company has been successful on the merits or otherwise in defense
of any proceeding, he or she must be indemnified against reasonable expenses
incurred by him or her in connection therewith.
The Company's Bylaws also provide that reasonable expenses (including
attorneys' fees) incurred by a director, officer, employee or agent of the
Company in defending any civil, criminal, administrative or investigative
action, suit or proceeding described above shall be paid by the Company in
advance of the final disposition of such action, suit or proceeding as
authorized by the Board of Directors upon receipt of an undertaking by or on
behalf of such person to repay such amount if it shall ultimately be determined
that the person is not entitled to be indemnified by the Company.
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AUTHORIZED SHARES AND ISSUANCE OF CAPITAL STOCK. Article IV of the
Certificate of Incorporation authorizes the issuance of 1,600,000 shares of
Common Stock with a par value of $.01 per share and 400,000 shares of preferred
stock with a par value of $0.01 per share (the "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 flexibility 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 currently has no plans for the issuance of additional shares, other than
the issuance of additional shares pursuant to stock benefit plans.
Neither the Certificate of Incorporation nor the Bylaws of the Company
contain a restriction on the issuance of shares of capital stock to directors,
officers or controlling persons of the Company. Thus, stock-related
compensation plans such as the Stock Option Plan and the Recognition Plan could
be adopted by the Company without shareholder approval and shares of Company
capital stock could be issued directly to directors, officers or controlling
persons without shareholder approval. The Bylaws of the National Association
of Securities Dealers, Inc., however, generally require corporations with
securities which are quoted on the Nasdaq Stock Market to obtain shareholder
approval of most stock compensation plans for directors, officers and key
employees of the corporation. Moreover, although generally not required,
shareholder approval of stock-related compensation plans may be sought in
certain instances in order to qualify such plans for favorable federal income
tax and securities law treatment under current laws and regulations.
SPECIAL MEETINGS OF STOCKHOLDERS AND STOCKHOLDER PROPOSALS. Section 2.4
of the Company's Bylaws provides that special meetings of the Company's
stockholders, for any purpose or purposes, may only be called by the affirmative
vote of a majority of the Board of Directors then in office.
Section 2.14 of the Company's Bylaws provides that only such business as
shall have been properly brought before an annual meeting of stockholders shall
be conducted at the annual meeting. In order to be properly brought before an
annual meeting following completion of the Conversion, business must be (a)
brought before the meeting by or at the direction of the Board of Directors or
(b) otherwise properly brought before the meeting by a stockholder who has given
timely notice thereof in writing to the Company. For stockholder proposals to
be included in the Company's proxy materials, the stockholder must comply
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with all the timing and informational requirements of Rule 14a-8 of the Exchange
Act. With respect to stockholder proposals to be considered at the annual
meeting of stockholders but not included in the Company's proxy materials, the
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Company not less than 90 days prior to the
anniversary date of the mailing of proxy materials by the Company in connection
with the immediately preceding annual meeting; provided, however, that with
respect to the first scheduled annual meeting following completion of the
Conversion, which is expected to be held on the third Wednesday of January 1998,
such written notice must be received by the Company not later than the close of
business on the third Wednesday of October 1997. In connection with such first
annual meeting, stockholder nominations will be required to be received by the
Company by the aforementioned date notwithstanding a determination by the
Company to schedule such annual meeting at a date later than the third Wednesday
of January 1998. A stockholder's notice shall set forth as to each matter the
stockholder proposes to bring before the annual meeting (a) a brief description
of the business desired to be brought before the annual meeting, (b) the name
and address, as they appear on the Company's books, of the stockholder proposing
such business, (c) the class and number of shares of the Company which are
beneficially owned by the stockholder, and (d) any financial interest of the
stockholder in such business. The presiding officer of an annual meeting shall
determine and declare to the meeting whether the business was properly brought
before the meeting in accordance with the provisions of Section 2.14 and any
such business not properly brought before the meeting shall not be transacted.
The procedures regarding stockholder proposals are designed to provide the
Board with sufficient time and information to evaluate a stockholder proposal
and other relevant information, such as existing stockholder support for the
proposal. The proposed procedures, however, will give incumbent directors
advance notice of a business proposal. This may make it easier for the
incumbent directors to defeat a stockholder proposal, even when certain
stockholders view such proposal as in the best interests of the Company or its
stockholders.
AMENDMENT OF CERTIFICATE OF INCORPORATION AND BYLAWS. Article 11 of the
Company's Certificate of Incorporation generally provides that any amendment of
the Certificate of Incorporation must be first approved by a majority of the
Board of Directors and, to the extent required by law, then by the holders of a
majority of the shares of the Company entitled to vote in an election of
directors, except that the approval of 75% of the shares of the Company entitled
to vote in an election of directors is required for any amendment to Articles
VII (directors), VIII (meetings of stockholders and bylaws), IX (limitation on
liability of directors and officers), X (restrictions on acquisitions) and 11
(amendment), unless any such proposed amendment is approved by a vote of 75% of
the Board of Directors then in office.
The Bylaws of the Company may be amended by a majority of the Board of
Directors or by the affirmative vote of a majority of the total shares
entitled to vote in an election of directors, except that the affirmative
vote of at least 75% of the total shares entitled to vote
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in an election of directors shall be required to amend, adopt, alter, change
or repeal any provision inconsistent with certain specified provisions of the
Bylaws, unless any such proposed amendment is approved by a vote of 75% of the
Board of Directors then in office.
DELAWARE GENERAL CORPORATION LAW. In addition to the provisions contained
in the Company's Certificate of Incorporation, the Delaware General Corporation
Law includes certain provisions applicable to Delaware corporations, such as the
Company, which may be deemed to have an anti-takeover effect. Section 203 of
the Delaware General Corporation Law ("Section 203") imposes certain
restrictions on business combinations between the Company and large
shareholders. Specifically, Section 203 prohibits a "business combination"
(as defined in Section 203, generally including mergers, sales and leases of
assets, issuances of securities and similar transactions) between the Company
or a subsidiary and an "interested shareholder" (as defined in Section 203,
generally the beneficial owner of 15% or more of the Company's Common Stock)
within three years after the person or entity becomes an interested shareholder,
unless (i) prior to the person or entity becoming an interested shareholder, the
business combination or the transaction pursuant to which such person or entity
became an interested shareholder shall have been approved by the Company's
Board of Directors, (ii) upon consummation of the transaction in which the
interested shareholder became such, the interested shareholder holds at least
85% of the Company's Common Stock (excluding shares held by persons who are
both officers and directors and shares held by certain employee benefit plans),
or (iii) the business combination is approved by the Company's Board of
Directors and by the holders of at least two-thirds of the outstanding Company
Common Stock, excluding shares owned by the interested shareholders.
One of the effects of Section 203 may be to prevent highly leveraged
takeovers, which depend upon getting access to the acquired corporation's assets
to support or repay acquisition indebtedness and certain coercive acquisition
tactics. By requiring approval of the holders of two-thirds of the shares held
by disinterested shareholders for business combinations involving an interested
shareholder, Section 203 may prevent any interested shareholder from taking
advantage of its position as a substantial, if not controlling, shareholder and
engaging in transactions with the Company that may not be fair to the Company's
other shareholders or that may otherwise not be in the best interests of the
Company, its shareholders and other constituencies.
For similar reasons, however, these provisions may make more difficult or
discourage an acquisition of the Company, or the acquisition of control of the
Company by a principal shareholder, and thus the removal of incumbent
management, because a business combination within the specified three-year
period that is not approved by a majority of the Board of Directors prior to the
transaction in which a person becomes an interested shareholder will require the
approval of the Board of Directors and the holders of two-thirds of the shares
held by disinterested shareholders. In addition, to the extent that Section 203
discourages takeovers that would result in the change of the Company's
management, such a change may be less likely to occur.
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ANTI-TAKEOVER EFFECTS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS AND
MANAGEMENT REMUNERATION ADOPTED IN THE CONVERSION
The foregoing provisions of the Certificate of Incorporation and Bylaws of
the Company could have the effect of discouraging an acquisition of the Company
or stock purchases in furtherance of an acquisition, and could accordingly,
under certain circumstances, discourage transactions which might otherwise have
a favorable effect on the price of the Company's Common Stock.
In addition, certain provisions of the proposed employment agreement with
the Company's and the Bank's President provide him with severance payments upon
his termination in connection with a change in control of the Company or the
Bank. See "Management of the Company - Employment Agreement." The foregoing
provisions may make it more difficult for companies or persons to acquire
control of the Company. Additionally, the provisions could deter offers to the
shareholders which might be viewed by such shareholders to be in their best
interests.
The Board of Directors believes that the provisions described above are
prudent and will reduce vulnerability to takeover attempts and certain other
transactions that are not negotiated with and approved by the Board of Directors
of the Company. The Board of Directors believes that these provisions are in
the best interests of the Company and its future stockholders. In the Board of
Directors' judgment, the Board of Directors is in the best position to determine
the true value of the Company and to negotiate more effectively for what may be
in the best interests of its stockholders. Accordingly, the Board of Directors
believes that it is in the best interests of the Company and its future
stockholders to encourage potential acquirors to negotiate directly with the
Board of Directors and that these provisions will encourage such negotiations
and discourage hostile 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 prices reflective of the true value of the Company and
where the transaction is in the best interests of all stockholders.
Despite the Board of Directors' belief as to the benefits to the Company's
stockholders of the foregoing provisions, these provisions also may have the
effect of discouraging a future takeover attempt in which stockholders might
receive a substantial premium for their shares over then current market prices
and may tend to perpetuate existing management. As a result, stockholders who
might desire to participate in such a transaction may not have an opportunity to
do so. The Board of Directors, however, has concluded that the potential
benefits of these provisions outweigh their possible disadvantages.
The Board of Directors of the Company and the Bank are not aware of any
effort that might be made to acquire control of the Bank or the Company.
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REGULATORY RESTRICTIONS
The Change in Bank Control Act provides that no person, acting directly or
indirectly or through or in concert with one or more other persons, may acquire
control of a bank unless the FDIC has been given 60 days' prior written notice.
The Bank Company Act provides that no company may acquire "control" of a bank
without the prior approval of the Federal Reserve Board. Any company that
acquires such control becomes a bank holding company subject to registration,
examination and regulation by the Federal Reserve Board. Pursuant to federal
regulations, control of a bank is conclusively deemed to have been acquired by,
among other things, the acquisition of more than 25% of any class of voting
stock of the bank or the ability to control the election of a majority of the
directors of a bank. The Federal Reserve Board may prohibit an acquisition if
(i) it would result in a monopoly or substantially lessen competition, (ii) the
financial condition of the acquiring person might jeopardize the financial
stability of the institution, or (iii) the competence, experience or integrity
of the acquiring person indicates that it would not be in the interest of the
depositors or of the public to permit the acquisition of control by such person.
REGISTRATION REQUIREMENTS
The Company will register the Common Stock under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), in connection with the
Conversion and has agreed not to deregister such shares for a period of three
years following the Conversion. Upon such registration, the proxy rules, tender
offer rules, insider reporting requirements and trading restrictions, annual and
periodic reporting and other requirements of the Exchange Act will be
applicable. In addition, upon registration, the Company will furnish its
stockholders with annual reports containing audited financial statements as
promptly as practicable after the end of each fiscal year and quarterly reports
containing unaudited financial information as promptly as practicable after the
end of each of the first three quarterly periods in each fiscal year.
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EXPERTS
The consolidated financial statements of the Bank as of September 30,
1996 and 1995, and for each of the years in the two-year period ended September
30, 1996, included in the Prospectus have been audited by Geo. S. Olive & Co.
LLC, independent auditors, as stated in their report appearing elsewhere herein,
and have been so included in reliance upon the report of such firm, given upon
their authority as experts in accounting and auditing.
RP Financial 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
opinion 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 Elias,
Matz, Tiernan & Herrick L.L.P., Washington, D.C., special counsel to the Bank
and the Company. The Illinois income tax consequences of the Conversion will
be passed upon for the Bank and the Company by Geo. Olive & Co. LLC. Certain
legal matters will be passed upon for Trident by Luse Lehman Gorman Pomerenk &
Schick, Washington, D.C.
HOW TO OBTAIN ADDITIONAL INFORMATION
If you would like to receive the Plan of Conversion, you must mark,
sign and return the enclosed postage-paid Request Card so that it is
received by the Savings Bank at the address shown on the envelope by 12:00 p.m.,
Central Time, on February ___, 1997. Returning the Request Card does not
obligate you to purchase shares. IF YOU RETURN THE REQUEST CARD SO THAT THE
SAVINGS BANK RECEIVES IT AT THE ADDRESS SHOWN ON THE ENVELOPE BY 12:00 P.M.,
CENTRAL TIME, ON FEBRUARY __, 1997, YOU WILL BE ENTITLED TO HAVE THE PLAN OF
CONVERSION MAILED TO YOU ON SUCH DATE. REQUEST CARDS RECEIVED AFTER SUCH DATE
AND BEFORE THE SPECIAL MEETING WILL BE HONORED AFTER RECEIPT; HOWEVER, THERE CAN
BE NO ASSURANCE THAT YOU WILL HAVE SUFFICIENT TIME TO REVIEW THE ADDITIONAL
INFORMATION PRIOR TO THE SPECIAL MEETING AND CONCLUSION OF THE SUBSCRIPTION AND
COMMUNITY OFFERING IF THE REQUEST CARD IS NOT RECEIVED BY THE SAVINGS BANK BY
THE AFOREMENTIONED TIME AND DATE. If you would like a copy of the Company's
Certificate of Incorporation and Bylaws, please contact William T. Ingram,
Secretary, American Savings Bank of Danville, 714 North Vermilion Street,
Danville, Illinois 61832. For additional information, you may call (___)
____-_______.
AVAILABLE INFORMATION
The Savings Bank has filed an Application for Conversion with the
Commissioner with respect to the Conversion. This Proxy Statement and the
Subscription and Community Offering Prospectus omit certain information
contained in such Application for Conversion.
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The Application for Conversion may be examined at the principal offices of
the Commissioner, 205 West Randolph Street, Chicago, Illinois 60606.
The Company has filed with the SEC a Registration Statement on Form S-1
(File No. 333-_______) under the Securities Act with respect to the Common
Stock offered in the Conversion. This Proxy Statement and the Subscription
and Community Offering Prospectus do not contain all the information set forth
in the Registration Statement, certain parts of which are omitted in accordance
with the Rules and Regulations of the SEC. Such information may be examined at
the public reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, and copies may be obtained at prescribed
rates from the Public Reference Section of the SEC at the same address.
-----------------------
PLEASE REMEMBER TO MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD
IN THE ENCLOSED POSTAGE-PAID ENVELOPE SO THAT YOUR IMPORTANT VOTE WILL BE
COUNTED AT THE SPECIAL MEETING.
----------------------
THIS PROXY STATEMENT IS NEITHER AN OFFER TO SELL NOR THE SOLICITATION OF
ANY OFFER TO BUY STOCK. THE OFFER IS MADE ONLY BY THE SUBSCRIPTION AND
COMMUNITY OFFERING PROSPECTUS.
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POWER OF ATTORNEY
Each person whose signature appears below hereby makes,
constitutes and appoints Merrill G. Norton his true and lawful attorney, with
full power to sign for such person and in such person's name and capacity
indicated below, and with full power of substitution, any and all amendments
to American Savings Bank of Danville's Application to Convert from a Mutual
Savings Bank to a Stock Savings Bank filed with the Office of Banks and Real
Estate of the State of Illinois.
Name Title Date
- ---- ----- ----
/s/ Thomas B. Meyer Chairman of the Board November __, 1996
- ------------------------
Thomas B. Meyer
/s/ Carl W. Busby Director November __, 1996
- ------------------------
Carl W. Busby
/s/ Robert L. Ewbank Director November __, 1996
- ------------------------
Robert L. Ewbank
/s/ William T. Ingram Director November __, 1996
- ------------------------
William T. Ingram
